Xerox 2005 Annual Report Download - page 87

Xerox Corporation
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Indemnifications Provided as Part of Contracts and Agreements:
We are a party to the following types of agreements pursuant
to which we may be obligated to indemnify the other party with
respect to certain matters:
•Contracts that we entered into for the sale or purchase of
businesses or real estate assets, under which we customarily
agree to hold the other party harmless against losses arising
from a breach of representations and covenants, including
obligations to pay rent. Typically, these relate to such matters
as adequate title to assets sold, intellectual property rights,
specified environmental matters and certain income taxes
arising prior to the date of acquisition.
•Guarantees on behalf of our subsidiaries with respect to real
estate leases. These lease guarantees may remain in effect
subsequent to the sale of the subsidiary.
•Agreements to indemnify various service providers, trustees
and bank agents from any third-party claims related to their
performance on our behalf, with the exception of claims
that result from third party’s own willful misconduct or
gross negligence.
•Guarantees of our performance in certain sales contracts to our
customers and indirectly the performance of thirdparties with
whom we have subcontracted for their services. This includes
indemnifications to customers for losses that may be sustained
as a result of the use of our equipment at a customer’slocation.
In each of these circumstances, our payment is conditioned on the
other party making a claim pursuant to the procedures specified
in the particular contract, which procedures typically allow us to
challenge the other party’s claims. In the case of lease guarantees,
we may contest the liabilities asserted under the lease. Further,
our obligations under these agreements and guarantees may be
limited in terms of time and/or amount, and in some instances,
we may have recourse against third parties for certain payments
we made.
Patent Indemnifications: In most sales transactions to resellers
of our products, we indemnify against possible claims of
patent infringement caused by our products or solutions. These
indemnifications usually do not include limits on the claims,
provided the claim is made pursuant to the procedures required
in the sales contract.
Indemnification of Officers and Directors: Our corporate by-laws
require that, except to the extent expressly prohibited by law, we
must indemnify Xerox Corporation’s officers and directors against
judgments, fines, penalties and amounts paid in settlement, includ-
ing legal fees and all appeals, incurred in connection with civil or
criminal action or proceedings, as it relates to their services to
Xerox Corporation and our subsidiaries. Although the by-laws
provide no limit on the amount of indemnification, we may have
recourse against our insurance carriers for certain payments
made by us. However, certain indemnification payments may not
be covered under our directors’ and officers’ insurance coverage.
In addition, we indemnify certain fiduciaries of our employee
benefit plans for liabilities incurred in their service as fiduciary
whether or not they are officers of the Company.
Product Warranty Liabilities: In connection with our normal
sales of equipment, including those under sales-type leases, 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
equivalent 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 a 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 segment, wherefull-service maintenance
agreements arenot available. In these instances, we record
warranty obligations at the time of the sale. Aggregate product
warranty liability expenses for the three years ended as of
December 31, 2005 were$45, $45 and $47, respectively.
Total product warranty liabilities as of December 31, 2005 and
2004 were $21 and $23, respectively.
Tax Related Contingencies
Brazil Tax and Labor Contingencies: At December 31, 2005, our
Brazilian operations were involved in various litigation matters
and have received or been levied with numerous governmental
assessments related to indirect and other taxes as well as
disputes associated with former employees and contract labor.
The total amounts related to these unreserved contingencies,
inclusive of any related interest, were approximately $900. The
tax matters, which comprise a significant portion of the total
contingencies, principally relate to claims for taxes on the internal
transfer of inventory, municipal service taxes on rentals and gross
revenue taxes. We are disputing these tax and labor matters and
intend to vigorously defend our position. Based on the opinion
of legal counsel, we do not believe that the ultimate resolution
of these matters will materially impact our results of operations,
financial position or cash flows. In connection with these
Xerox Annual Report 2005