Xerox 2012 Annual Report Download - page 106

Notes to Consolidated Financial Statements
(in millions, except per-share data and where otherwise noted)
104
motion to exclude the testimony of one of plaintiffs’ expert witnesses,
and granted in part and denied in part defendants’ motion to exclude
the testimony of plaintiffs’ two remaining expert witnesses. The
individual defendants and we deny any wrongdoing and are vigorously
defending the action. At this time, we do not believe it is reasonably
possible that we will incur additional material losses in excess of the
amount we have already accrued for this matter. In the course of
litigation, we periodically engage in discussions with plaintiffs’ counsel
for possible resolution of this matter. Should developments cause a
change in our determination as to an unfavorable outcome, or result
in a final adverse judgment or a settlement for a significant amount,
there could be a material adverse effect on our results of operations,
cash flows and financial position in the period in which such change in
determination, judgment or settlement occurs.
Guarantees, Indemnifications and Warranty Liabilities
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 and such procedures also 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 indemnities 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 actions 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 (such as those related
to “clawback” provisions in certain compensation arrangements) 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
of the equipment 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, 2012 were $29, $30 and $33, respectively. Total
product warranty liabilities as of December 31, 2012 and 2011 were
$14 and $16, respectively.