Xerox 2010 Annual Report Download - page 100

Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
98 Xerox 2010 Annual Report
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 entry level products, 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 December 31, 2010 were $33, $34
and $39, respectively. Total product warranty liabilities as of December
31, 2010 and 2009 were $18 and $20, respectively.
Other Contingencies
We have issued or provided the following guarantees as of
December 31, 2010:
$270 for letters of credit issued i) to guarantee our performance under
•
certain services contracts; ii) to support certain insurance programs;
and iii) to support our obligations related to the Brazil tax and labor
contingencies.
$666 for outstanding surety bonds. Certain contracts, primarily those
•
involving public sector customers, require us to provide a surety bond
as a guarantee of our performance of contractual obligations.
In general, we would only be liable for the amount of these guarantees
in the event of default in our performance of our obligations under
each contract; the probability of which we believe is remote. We believe
that our capacity in the surety markets, as well as under various credit
arrangements (including our Credit Facility), is sufficient to allow us to
respond to future requests for proposals that require such credit support.
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. In addition, we indemnify certain software providers
against claims that may arise as a result of our use or our subsidiaries’,
customers’ or resellers’ use of their software in our products and
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.