Xerox 2007 Annual Report Download - page 76

(5) EDS Contract: We have an information management contract with Electronic Data Systems Corp. (“EDS”) to provide
services to us for global mainframe system processing, application maintenance and support, desktop services and
helpdesk support, voice and data network management and server management. On July 1, 2004, we extended the
contract through June 30, 2009. There are no minimum payments required under the contract. We can terminate the
current contract for convenience with six months notice, as defined in the contract, with no termination fee and with
payment to EDS for costs incurred as of the termination date. Should we terminate the contract for convenience, we
have an option to purchase the assets placed in service under the EDS contract. On January 1, 2008, the portion of the
contract for global mainframe processing was extended to December 31, 2013.
(6) Other Purchase Commitments: We enter into other purchase commitments with vendors in the ordinary course of
business. Our policy with respect to all purchase commitments is to record losses, if any, when they are probable and
reasonably estimable. We currently do not have, nor do we anticipate, material loss contracts.
Pension and Other Post-retirement Benefit Plans: We
sponsor pension and other post-retirement benefit plans
that may require periodic cash contributions. Our 2007
cash fundings for these plans were $298 million for
pensions and $102 million for other post-retirement plans.
Our anticipated cash fundings for 2008 are approximately
$130 million for pensions and approximately $100 million
for other post-retirement plans. Cash contribution
requirements for our domestic tax qualified pension plans
are governed by the Employment Retirement Income
Security Act (“ERISA”) and the Internal Revenue Code.
Cash contribution requirements for our international plans
are subject to the applicable regulations in each country.
The expected 2008 pension contributions do not include
contributions to the domestic tax-qualified plans because
these plans currently exceed the ERISA minimum funding
requirements for the plans’ 2007 plan year. However, once
the January 1, 2008 actuarial valuations and projected
results as of the end of the 2008 measurement year are
available, the desirability of additional contributions will
be assessed. Based on these results, we may voluntarily
decide to contribute to these plans, even though no
contribution is required. In prior years, after making this
assessment, we decided to contribute $158 million and
$228 million in 2007 and 2006, respectively, to our
domestic tax qualified plans in order to make them 100%
funded on a current liability basis under the ERISA funding
rules.
Our other post-retirement benefit plans are
non-funded and are almost entirely related to domestic
operations. Cash contributions are made each year to
cover medical claims costs incurred in that year. The
amounts reported in the above table as retiree health
payments represent our estimated future benefit
payments.
Fuji Xerox: We purchased products from Fuji Xerox
totaling $1.9 billion, $1.7 billion, and $1.5 billion in 2007,
2006 and 2005, respectively. Our purchase commitments
with Fuji Xerox are in the normal course of business and
typically have a lead time of three months. We anticipate
that we will purchase approximately $2.2 billion of
products from Fuji Xerox in 2008. Related party
transactions with Fuji Xerox are discussed in Note 7 –
Investments in Affiliates, at Equity in the Consolidated
Financial Statements.
Brazil Tax and Labor Contingencies: At December 31,
2007, our Brazilian operations were involved in various
litigation matters and have been the subject of numerous
governmental assessments related to indirect and other
taxes as well as disputes associated with former
employees and contract labor. The tax matters, which
comprise a significant portion of the total contingencies,
principally relate to claims for taxes on the internal
transfer of inventory, municipal service taxes on rentals
and gross revenue taxes. We are disputing these tax
matters and intend to vigorously defend our position.
Based on the opinion of legal counsel and current reserves
for those matters deemed probable of loss, we do not
believe that the ultimate resolution of these matters will
materially impact our results of operations, financial
position or cash flows. The labor matters principally relate
to claims made by former employees and contract labor
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 $1.1 billion, with the
increase from the December 31, 2006 balance of $960
million 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 million of escrow cash deposits for matters we
are disputing and there are liens on certain Brazilian assets
with a net book value of $64 million and additional letters
of credit of approximately $84 million. Generally, any
escrowed amounts would be refundable and any liens
would be removed to the extent the matters are resolved
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