Xerox 2007 Annual Report Download - page 121

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
for the equivalent payment of all social security and other
related labor benefits, as well as consequential tax claims,
as if they were regular employees. As of December 31,
2007, the total amounts related to the unreserved portion
of the tax and labor contingencies, inclusive of any related
interest, amounted to approximately $1,130, with the
increase from December 31, 2006 balance of $960
primarily related to indexation, interest and currency. In
connection with the above proceedings, customary local
regulations may require us to make escrow cash deposits
or post other security of up to half of the total amount in
dispute. As of December 31, 2007 we had $200 of escrow
cash deposits for matters we are disputing and there are
liens on certain Brazilian assets with a net book value of
$64 and additional letters of credit of approximately $84.
Generally, any escrowed amounts would be refundable
and any liens would be removed to the extent the matters
are resolved in our favor. We routinely assess all these
matters as to probability of ultimately incurring a liability
against our Brazilian operations and record our best
estimate of the ultimate loss in situations where we assess
the likelihood of an ultimate loss as probable.
Legal
As more fully discussed below, we are involved in a
variety of claims, lawsuits, investigations and proceedings
concerning securities law, intellectual property law,
environmental law, employment law and the Employee
Retirement Income Security Act (“ERISA”). We determine
whether an estimated loss from a contingency should be
accrued by assessing whether a loss is deemed probable
and can be reasonably estimated. We assess our potential
liability by analyzing our litigation and regulatory matters
using available information. We develop our views on
estimated losses in consultation with outside counsel
handling our defense in these matters, which involves an
analysis of potential results, assuming a combination of
litigation and settlement strategies. Should developments
in any of these matters cause a change in our
determination as to an unfavorable outcome and result in
the need to recognize a material accrual, or should any of
these matters result in a final adverse judgment or be
settled for significant amounts, they could have a
material adverse effect on our results of operations, cash
flows and financial position in the period or periods in
which such change in determination, judgment or
settlement occurs.
Litigation Against the Company:
In re Xerox Corporation Securities Litigation: A
consolidated securities law action (consisting of 17 cases)
is pending in the United States District Court for the
District of Connecticut. Defendants are the Company,
Barry Romeril, Paul Allaire and G. Richard Thoman. The
consolidated action purports to be a class action on behalf
of the named plaintiffs and all other purchasers of
common stock of the Company during the period between
October 22, 1998 through October 7, 1999 (“Class
Period”). The amended consolidated complaint in the
action alleges that in violation of Section 10(b) and/or
20(a) of the Securities Exchange Act of 1934, as amended
(“1934 Act”), and SEC Rule 10b-5 thereunder, each of the
defendants is liable as a participant in a fraudulent
scheme and course of business that operated as a fraud or
deceit on purchasers of the Company’s common stock
during the Class Period by disseminating materially false
and misleading statements and/or concealing material
facts relating to the defendants’ alleged failure to
disclose the material negative impact that the April 1998
restructuring had on the Company’s operations and
revenues. The amended complaint further alleges that the
alleged scheme: (i) deceived the investing public
regarding the economic capabilities, sales proficiencies,
growth, operations and the intrinsic value of the
Company’s common stock; (ii) allowed several corporate
insiders, such as the named individual defendants, to sell
shares of privately held common stock of the Company
while in possession of materially adverse, non-public
information; and (iii) caused the individual plaintiffs and
the other members of the purported class to purchase
common stock of the Company at inflated prices. The
amended consolidated complaint seeks unspecified
compensatory damages in favor of the plaintiffs and the
other members of the purported class against all
defendants, jointly and severally, for all damages
sustained as a result of defendants’ alleged wrongdoing,
including interest thereon, together with reasonable costs
and expenses incurred in the action, including counsel fees
and expert fees. On September 28, 2001, the Court denied
the defendants’ motion for dismissal of the complaint. On
November 5, 2001, the defendants answered the
complaint. On or about January 7, 2003, the plaintiffs
filed a motion for class certification. Xerox and the
individual defendants filed their opposition to that motion
on June 28, 2005. On or about November 8, 2004, the
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