Xerox 2002 Annual Report Download - page 78

services to Xerox Corporation and our subsidiaries.
The by-laws provide no limit on the amount of
indemnification. As permitted under the State of New
York, we have purchased directors and officers insur-
ance coverage to cover claims made against the
directors and officers during the applicable policy
periods. The amounts and types of coverage have
varied from period to period as dictated by market
conditions. The current policy provides $105 of cover-
age and has no deductible. The litigation matters and
regulatory actions described below involve certain of
the Company’s current and former directors and offi-
cers, all of whom are covered by the aforementioned
indemnity and if applicable, the current and prior peri-
od insurance policies. However, certain indemnifica-
tion payments may not be covered under our
directors’ and officers’ insurance coverage.
Product Warranty Liabilities: In connection with our
normal sales of equipment, including those under sales-
type lease, we generally do not issue product warranties.
Our arrangements typically involve a separate full
service maintenance agreement with the customer.
The agreements generally extend over a period equiva-
lent to the lease term or the expected useful life under a
cash sale. The service agreements involve the payment
of fees in return for our performance of repairs and
maintenance. As a consequence, we do not have any
significant product warranty obligations including any
obligations under customer satisfaction programs.
In few circumstances, particularly in certain cash
sales, we may issue a limited product warranty if
negotiated by the customer. We also issue warranties
for certain of our lower-end products in the Office seg-
ment, where full service maintenance agreements are
not available. In these instances, we record warranty
obligations at the time of the sale.
The following table summarizes product warranty
activity recorded for the year ended December 31, 2002:
Balance Provisions, Balance
December 31, Changes December 31,
2001 & Other Payments 2002
Product
warranty
liabilities $46 $51 $(72) $25
The decrease in product warranty liabilities at
December 31, 2002, as compared with December 31,
2001, is primarily due to our exit from the SOHO
business in 2001.
Legal Matters: As more fully discussed below, we are a
defendant in numerous litigation and regulatory matters
involving securities law, patent law, environmental law,
employment law and the Employee Retirement Income
Security Act (“ERISA”). Should these matters result in
a change in our determination as to an unfavorable
outcome, result in a final adverse judgment or be set-
tled for significant amounts, they could have a material
adverse effect on our results of operations, cash flows
and financial position in the period or periods in which
such determination, judgment or settlement occurs.
Litigation Against the Company:
In re Xerox Corporation Securities Litigation: A consoli-
dated securities law action (consisting of 17 cases) is
pending in the United States District Court for the
District of Connecticut. Defendants are the Company,
Barry Romeril, Paul Allaire and G. Richard Thoman.
The consolidated action purports to be a class action
on behalf of the named plaintiffs and all other
purchasers of common stock of the Company during
the period between October 22, 1998 through October
7, 1999 (“Class Period”). The amended consolidated
complaint in the action alleges that in violation of
Section 10(b) and/or 20(a) of the Securities Exchange
Act of 1934, as amended (“1934 Act”), and SEC Rule
10b-5 thereunder, each of the defendants is liable as a
participant in a fraudulent scheme and course of busi-
ness that operated as a fraud or deceit on purchasers of
the Company’s common stock during the Class Period
by disseminating materially false and misleading state-
ments and/or concealing material facts. The amended
complaint further alleges that the alleged scheme: (i)
deceived the investing public regarding the economic
capabilities, sales proficiencies, growth, operations and
the intrinsic value of the Company’s common stock; (ii)
allowed several corporate insiders, such as the named
individual defendants, to sell shares of privately held
common stock of the Company while in possession of
materially adverse, non-public information; and (iii)
caused the individual plaintiffs and the other members
of the purported class to purchase common stock of
the Company at inflated prices. The amended consoli-
dated complaint seeks unspecified compensatory dam-
ages in favor of the plaintiffs and the other members of
the purported class against all defendants, jointly and
severally, for all damages sustained as a result of
defendants’ alleged wrongdoing, including interest
thereon, together with reasonable costs and expenses
incurred in the action, including counsel fees and
expert fees. On September 28, 2001, the court denied
the defendants’ motion for dismissal of the complaint.
On November 5, 2001, the defendants answered the
complaint. On or about January 7, 2003, the plaintiffs
filed a motion for class certification. That motion is cur-
rently pending. The individual defendants and we deny
any wrongdoing and intend to vigorously defend the
action. Based on the stage of the litigation, it is not pos-
sible to estimate the amount of loss or range of possi-
ble loss that might result from an adverse judgment or
a settlement of this matter.
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