Xerox 2014 Annual Report Download - page 70

Contributions to our defined benefit pension plans 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. At
December 31, 2014, the underfunded balance of our U.S. and Non-U.S. defined benefit pension plans was $1,590
million and $1,078 million, respectively.
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.
Refer to Note 16 - 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 $1.8 billion, $1.9 billion and $2.1 billion
in 2014, 2013 and 2012, 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 9 - 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, 2014, the total amounts related to the unreserved portion of the tax and labor
contingencies, inclusive of related interest, amounted to approximately $817 million, with the decrease from
December 31, 2013 balance of approximately $933 million, primarily related to currency and closed cases partially
offset by interest. With respect to the unreserved balance of $817 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, 2014, we had $135 million of escrow cash
deposits for matters we are disputing, and there are liens on certain Brazilian assets with a net book value of $18
million and additional letters of credit of approximately $244 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 18 - 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.
55