Xerox 2009 Annual Report Download - page 82

80 Xerox 2009 Annual Report
Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
Legal Matters
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.
The following is a summary of 2009 significant developments in
litigation matters:
•In re Xerox Corp. ERISA Litigation – settlement reached, approved
by district court and paid.
•Arbitration between MPI Technologies, Inc. and MPI Tech S.A.
and Xerox Canada Ltd. and Xerox Corporation – settlement
reached and paid.
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 is a class action on behalf of all persons and entities
who purchased Xerox Corporation common stock during the period
October 22, 1998 through October 7, 1999 inclusive (“Class Period”)
and who suffered a loss as a result of misrepresentations or omissions
by Defendants as alleged by Plaintiffs (the “Class”). The Class 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
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
Note 16 – Contingencies
Brazil Tax and Labor Contingencies
Our Brazilian operations are involved in various litigation matters
and have received or 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, 2009, the total amounts related to the unreserved
portion of the tax and labor contingencies, inclusive of any related
interest, amounted to approximately $1,225, with the increase from
December 31, 2008 balance of approximately $839 primarily related
to currency and current-year interest indexation. 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, 2009 we had $240 of
escrow cash deposits for matters we are disputing, and there are liens
on certain Brazilian assets with a net book value of $19 and additional
letters of credit of approximately $137. 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.