Xerox 2015 Annual Report Download - page 74

Fuji Xerox
We purchased products, including parts and supplies, from Fuji Xerox totaling $1.7 billion, $1.8 billion and $1.9 billion
in 2015, 2014 and 2013, 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, 2015, the total amounts related to the unreserved portion of the tax and labor
contingencies, inclusive of related interest, amounted to approximately $577 million, with the decrease from
December 31, 2014 balance of approximately $817 million, primarily related to currency and closed cases partially
offset by interest. With respect to the unreserved balance of $577 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, 2015, we had $71 million of escrow cash
deposits for matters we are disputing, and there are liens on certain Brazilian assets with a net book value of $14
million and additional letters of credit and surety bonds of approximately $129 million and $80 million, 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 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 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.
Unrecognized Tax Benefits
As of December 31, 2015, we had $247 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.
Refer to Note 17 - Income and Other Taxes in the Consolidated Financial Statements for additional information
regarding unrecognized tax benefits.
57