Xerox 2015 Annual Report Download - page 135

Note 18 – Contingencies and Litigation
As more fully discussed below, 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. 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.
Additionally, guarantees, indemnifications and claims arise during the ordinary course of business from relationships
with suppliers, customers and nonconsolidated affiliates when the Company undertakes an obligation to guarantee
the performance of others if specified triggering events occur. Nonperformance under a contract could trigger an
obligation of the Company. These potential claims include actions based upon alleged exposures to products, real
estate, intellectual property such as patents, environmental matters, and other indemnifications. The ultimate effect
on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the
final outcome of these claims. However, while the ultimate liabilities resulting from such claims may be significant to
results of operations in the period recognized, management does not anticipate they will have a material adverse
effect on the Company's consolidated financial position or liquidity. As of December 31, 2015, 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, 2015, the total amounts related to the unreserved portion of the tax and
labor contingencies, inclusive of related interest, amounted to approximately $577 with the decrease from
December 31, 2014 balance of approximately $817, primarily related to currency and closed cases partially offset
by interest. With respect to the unreserved balance of $577, 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, 2015 we had $71 of escrow cash deposits for matters we
are disputing, and there are liens on certain Brazilian assets with a net book value of $14 and additional letters of
credit and surety bonds of approximately $129 and $80,respectively, 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.
Litigation Against the Company
State of Texas v. Xerox Corporation, Xerox State Healthcare, LLC, and ACS State Healthcare, LLC, a Xerox
Corporation: On May 9, 2014, the State of Texas, via the Texas Office of Attorney General (the “State”), filed a
lawsuit in the 53rd Judicial District Court of Travis County, Texas. The lawsuit alleges that Xerox Corporation, Xerox
State Healthcare, LLC and ACS State Healthcare (collectively “Xerox” or the "Company”) violated the Texas
Medicaid Fraud Prevention Act in the administration of its contract with the Texas Department of Health and Human
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