Xerox 2009 Annual Report Download - page 84

82 Xerox 2009 Annual Report
Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
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.
Other Matters
It is our policy to promptly and carefully investigate, often with the
assistance of outside advisers, allegations of impropriety that may
come to our attention. If the allegations are substantiated, appropriate
prompt remedial action is taken. When and where appropriate, we report
such matters to the U.S. Department of Justice and to the SEC, and/or
make public disclosure.
India
We became aware of a number of matters at our Indian subsidiary,
Xerox India Ltd. (formerly Xerox Modicorp Ltd.), much of which
occurred over several years before we obtained majority ownership
of these operations in mid-1999. These matters include misappro-
priations of funds and payments to other companies that may have
been inaccurately recorded on the subsidiary’s books, certain alleged
improper payments in connection with sales to government customers
and allegations that Xerox India’s then senior officers were aware of
such activities. These transactions were not material to the Company’s
financial statements. In 2002, we reported these transactions to the
Indian authorities, the U.S. Department of Justice and to the SEC. As
previously disclosed, following these reports, Indian authorities have
advanced the position that Xerox India violated the Indian Company
Law by means of alleged improper payments and alleged defaults/
failures of the Xerox India, Ltd. board of directors.
Xerox India has asserted that the alleged violations are generally
unsubstantiated and without any basis in law. We believe that any
fines or penalties that might be imposed in connection with such
ongoing matters would not be material to the Company.
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, 2009, we have accrued our estimate of liability
incurred under our indemnification arrangements and guarantees.