Xerox 2015 Annual Report Download - page 136

Services (“HHSC”). The State alleges that the Company made false representations of material facts regarding the
processes, procedures, implementation and results regarding the prior authorization of orthodontic claims. The
State seeks recovery of actual damages, two times the amount of any overpayments made as a result of unlawful
acts, civil penalties, pre- and post-judgment interest and all costs and attorneys’ fees. The State references the
amount in controversy as exceeding hundreds of millions of dollars. Xerox filed its Answer in June, 2014 denying all
allegations. Xerox will continue to vigorously defend itself in this matter. We do not believe it is probable that we will
incur a material loss in excess of the amount accrued for this matter. In the course of litigation, we periodically
engage in discussions with plaintiff’s counsel for possible resolution of the matter. Should developments cause a
change in our determination as to an unfavorable outcome, or result in a final adverse judgment or settlement for a
significant amount, there could be a material adverse effect on our results of operations, cash flows and financial
position in the period in which such change in determination, judgment or settlement occurs.
Other Matters:
On January 5, 2016, the Consumer Financial Protection Bureau (CFPB) notified Xerox Education Services, Inc.
(XES) that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (NORA)
process, the CFPB’s Office of Enforcement is considering recommending that the CFPB take legal action against
XES, alleging that XES violated the Consumer Financial Protection Act’s prohibition of unfair practices. Should the
CFPB commence an action, it may seek restitution, civil monetary penalties, injunctive relief, or other corrective
action. The purpose of a NORA letter is to provide a party being investigated an opportunity to present its position to
the CFPB before an enforcement action is recommended or commenced. This notice stems from an inquiry that
commenced in 2014 when the Company, through XES, received and responded to a Civil Investigative Demand
containing a broad request for information. During this process, XES self-disclosed to the Department of Education
and the CFPB certain adjustments it had become aware that had not been timely made relating to its servicing of a
small percentage of third-party student loans under outsourcing arrangements for various financial institutions. The
CFPB and the Department of Education, as well as certain state’s attorney general offices and other regulatory
agencies, began similar reviews. The Company has cooperated and continues to fully cooperate with all regulatory
agencies, and XES has submitted its NORA response. The Company cannot provide assurance that the CFPB or
another party will not ultimately commence a legal action against XES in this matter nor is the Company able to
predict the likely outcome of the investigations into this matter.
Guarantees, Indemnifications and Warranty Liabilities
Indemnifications Provided as Part of Contracts and Agreements
Acquisitions/Divestitures:
We have indemnified, subject to certain deductibles and limits, the purchasers of businesses or divested assets for
the occurrence of specified events under certain of our divestiture agreements. In addition, we customarily agree to
hold the other party harmless against losses arising from a breach of representations and covenants, including such
matters as adequate title to assets sold, intellectual property rights, specified environmental matters and certain
income taxes arising prior to the date of acquisition. Where appropriate, an obligation for such indemnifications is
recorded as a liability at the time of the acquisition or divestiture. Since the obligated amounts of these types of
indemnifications are often not explicitly stated and/or are contingent on the occurrence of future events, the overall
maximum amount of the obligation under such indemnifications cannot be reasonably estimated. Other than
obligations recorded as liabilities at the time of divestiture, we have not historically made significant payments for
these indemnifications. Additionally, under certain of our acquisition agreements, we have provided for additional
consideration to be paid to the sellers if established financial targets are achieved post-closing. We have recognized
liabilities for these contingent obligations based on an estimate of the fair value of these contingencies at the time of
acquisition. Contingent obligations related to indemnifications arising from our divestitures and contingent
consideration provided for by our acquisitions are not expected to be material to our financial position, results of
operations or cash flows.
Other Agreements:
We are also party to the following types of agreements pursuant to which we may be obligated to indemnify the
other party with respect to certain matters:
• Guarantees on behalf of our subsidiaries with respect to real estate leases. These lease guarantees may
remain in effect subsequent to the sale of the subsidiary.
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