Xerox 2012 Annual Report Download - page 51

49Xerox 2012 Annual Report
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 million, with the decrease from
the December 31, 2011 balance of approximately $1,120 million,
primarily related to currency and closed cases partially offset by
interest. With respect to the unreserved balance of $1,010 million,
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 million of escrow cash deposits for matters we are disputing,
and there are liens on certain Brazilian assets with a net book value of
$13 million and additional letters of credit of approximately
$242 million, 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.
Other Contingencies and Commitments
As more fully discussed in Note 17 – Contingencies and Litigation in
the Consolidated Financial Statements, 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. In addition, guarantees,
indemnifications and claims may arise during the ordinary course
of business from relationships with suppliers, customers and non-
consolidated affiliates. Nonperformance under a contract including a
guarantee, indemnification or claim could trigger an obligation of the
Company.
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. Should developments in any of these areas
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
Pension and Other Post-retirement Benefit Plans
We sponsor defined benefit pension plans and retiree health plans
that require periodic cash contributions. Our 2012 cash contributions
for these plans were $364 million for our defined benefit pension plans
and $84 million for our retiree health plans. We also elected to make
a contribution of 15.4 million shares of our common stock, with an
aggregate value of approximately $130 million, to our U.S. defined
benefit pension plan for salaried employees in order to meet our
planned level of funding for 2012. Accordingly, total contributions to
our defined benefit pension plans were $494 million in 2012.
In 2013, based on current actuarial calculations, we expect to make
contributions of approximately $195 million to our worldwide defined
benefit pension plans and approximately $80 million to our retiree
health benefit plans. The decrease in required contributions to our
worldwide defined benefit pension plans is largely in the U.S. and
reflects the expected benefits from the pension funding legislation
enacted in the U.S. during 2012. Contributions in subsequent years will
depend on a number of factors, including the investment performance
of plan assets and discount rates, as well as potential legislative and
plan changes. Although we currently expect contributions to our
worldwide defined benefit pension plans to increase moderately in
2014, primarily in the U.S., contributions are still expected to be lower
over the next several years as compared to 2011 and 2012, primarily
as a result of the amendment of several of our defined benefit pension
plans to freeze current benefits and eliminate benefit accruals for
future service.
Our retiree health 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 during the year. The amounts
reported in the above table as retiree health payments represent our
estimate of future benefit payments.
Fuji Xerox
We purchased products, including parts and supplies, from Fuji Xerox
totaling $2.1 billion, $2.2 billion and $2.1 billion in 2012, 2011 and
2010, respectively. Our purchase commitments with Fuji Xerox are
entered into in the normal course of business and typically have a
lead time of three months. Related party transactions with Fuji Xerox
are discussed in Note 8 – Investments in Affiliates, at Equity in the
Consolidated Financial Statements.
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.