Xerox 2007 Annual Report Download - page 129

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
• 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
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, where full service maintenance
agreements are not available. In these instances, we
record warranty obligations at the time of the sale.
Aggregate product warranty liability expenses for the
three years ended of December 31, 2007 were $40, $43
and $45, respectively. Total product warranty liabilities as
of December 31, 2007 and 2006 were $26 and $22,
respectively.
Note 17 – Shareholders’ Equity
Preferred Stock
As of December 31, 2007, we had no preferred stock
shares or preferred stock purchase rights outstanding. We
are authorized to issue approximately 22 million shares of
cumulative preferred stock, $1.00 par value.
Series C Mandatory Convertible Preferred Stock
Automatic Conversion: In 2006, all 9.2 million shares of
6.25% Series C Mandatory Convertible Preferred Stock
were converted at a rate of 8.1301 shares of our common
stock, or 74.8 million common stock shares. The recorded
value of outstanding shares at the time of conversion was
$889. The conversion occurred pursuant to the mandatory
automatic conversion provisions set at original issuance of
the Series C Preferred Stock. As a result of the automatic
conversion, there are no remaining outstanding shares of
our Series C Mandatory Convertible Preferred Stock.
Common Stock
We have 1.75 billion authorized shares of common
stock, $1 par value. At December 31, 2007, 97 million
shares were reserved for issuance under our incentive
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