Xerox 2006 Annual Report Download - page 94

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
At December 31, 2006, we had tax credit
carryforwards of $354 available to offset future income
taxes, of which $221 are available to carryforward
indefinitely while the remaining $133 will begin to
expire, if not utilized, in 2007. We also had net operating
loss carryforwards for income tax purposes of $238 that
will expire in 2007 through 2024, if not utilized, and $2.8
billion available to offset future taxable income
indefinitely.
Note 16 – Contingencies
Guarantees, Indemnifications and Warranty Liabilities:
Guarantees and claims arise during the ordinary
course of business from relationships with suppliers,
customers and nonconsolidated affiliates when the
Company undertakes an obligation to guarantee the
performance of others if specified triggering events occur.
Nonperformance under a contract could trigger an
obligation of the Company. These potential claims include
actions based upon alleged exposures to products, real
estate, intellectual property such as patents, environmental
matters, and other indemnifications. The ultimate effect on
future financial results is not subject to reasonable
estimation because considerable uncertainty exists as to the
final outcome of these claims. However, while the ultimate
liabilities resulting from such claims may be significant to
results of operations in the period recognized, management
does not anticipate they will have a material adverse effect
on the Company’s consolidated financial position or
liquidity. As of December 31, 2006, we have accrued our
estimate of liability incurred under our indemnification
arrangements and guarantees.
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 and
services contracts to our customers and indirectly
the performance of third parties 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’s location.
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, including
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
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