Xerox 2013 Annual Report Download - page 72

Refer to Note 15 - Employee Benefit Plans in the Consolidated Financial Statements for additional information
regarding contributions to our defined benefit pension and post-retirement plans.
Fuji Xerox
We purchased products, including parts and supplies, from Fuji Xerox totaling $1.9 billion, $2.1 billion and $2.2
billion in 2013, 2012 and 2011, 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. 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, 2013, the total amounts related to the unreserved portion of the tax and
labor contingencies, inclusive of related interest, amounted to approximately $933 million, with the decrease from
December 31, 2012 balance of approximately $1,010 million, primarily related to currency and closed cases partially
offset by interest. With respect to the unreserved balance of $933 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, 2013, we had $167 million of escrow
cash deposits for matters we are disputing, and there are liens on certain Brazilian assets with a net book value of
$8 million and additional letters of credit of approximately $236 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 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; governmental
entity contracting, servicing and procurement law; intellectual property law; environmental law; employment law; the
Employee Retirement Income Security Act (ERISA); and other laws and regulations. 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 our results of operations, cash flows and financial position in the period or periods in
which such change in determination, judgment or settlement occurs.
Unrecognized Tax Benefits
As of December 31, 2013, we had $267 million of unrecognized tax benefits. This represents the tax benefits
associated with various tax positions taken, or expected to be taken, on domestic and foreign tax returns that have
not been recognized in our financial statements due to uncertainty regarding their resolution. The resolution or
settlement of these tax positions with the taxing authorities is at various stages and therefore we are unable to
make a reliable estimate of the eventual cash flows by period that may be required to settle these matters. In
addition, certain of these matters may not require cash settlement due to the existence of credit and net operating
loss carryforwards, as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be
available.
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