Xerox 2012 Annual Report Download - page 105

103Xerox 2012 Annual Report
2012, we have accrued our estimate of liability incurred under our
indemnification arrangements and guarantees.
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
positions. 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,
2012, the total amounts related to the unreserved portion of the tax
and labor contingencies, inclusive of related interest, amounted to
approximately $1,010 with the decrease from December 31, 2011
balance of approximately $1,120, primarily related to currency and
closed cases partially offset by interest. With respect to the unreserved
balance of $1,010, the majority has been assessed by management as
being remote as to the likelihood of ultimately resulting in a loss to the
Company. 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, 2012 we had $211 of escrow cash deposits for matters we are
disputing, and there are liens on certain Brazilian assets with a net book
value of $13 and additional letters of credit of approximately $242,
which include associated indexation. 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 the 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.
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
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 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. In 2001, the Court denied the defendants’ motion for dismissal
of the complaint. The plaintiffs’ motion for class certification was
denied by the Court in 2006, without prejudice to refiling. In February
2007, the Court granted the motion of the International Brotherhood
of Electrical Workers Welfare Fund of Local Union No. 164, Robert W.
Roten, Robert Agius (“Agius”) and Georgia Stanley to appoint them as
additional lead plaintiffs.
In July 2007, the Court denied plaintiffs’ renewed motion for class
certification, without prejudice to renewal after the Court holds a
pre-filing conference to identify factual disputes the Court will be
required to resolve in ruling on the motion. After that conference and
Agius’s withdrawal as lead plaintiff and proposed class representative,
in February 2008 plaintiffs filed a second renewed motion for class
certification. In April 2008, defendants filed their response and motion
to disqualify Milberg LLP as a lead counsel. On September 30, 2008,
the Court entered an order certifying the class and denying the
appointment of Milberg LLP as class counsel. Subsequently, on April 9,
2009, the Court denied defendants’ motion to disqualify Milberg LLP.
On November 6, 2008, the defendants filed a motion for summary
judgment. Briefing with respect to the motion is complete. The Court
has not yet rendered a decision. The parties also filed motions to
exclude the testimony of certain expert witnesses. On April 22, 2009,
the Court denied plaintiffs’ motions to exclude the testimony of two
of defendants’ expert witnesses. On September 30, 2010, the Court
denied plaintiffs’ motion to exclude the testimony of another of
defendants’ expert witnesses. The Court also granted defendants’