Xerox 2008 Annual Report Download - page 88

Notes to the Consolidated
Financial Statements
(in millions, except per share data and
unless otherwise indicated)
of Enquiry has been framed as the preliminary issue, which was
argued in hearings held on November 17, 2008 and February 3,
2009; the matter is now fixed for further arguments on April 17,
2009. Our Indian subsidiary is contesting the Notice of Enquiry and
has been fully cooperating with the authorities.
Other 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, 2008, 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
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
86 Xerox 2008 Annual Report