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Xerox faces SEC probe
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June 29, 2000: 7:10 p.m. ET
SEC investigates Xerox for alleged accounting irregularities in Mexico
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NEW YORK (CNNfn) - Xerox Corp. on Thursday said the Securities and Exchange Commission has launched an investigation of accounting issues related to the company's Mexico business.
The investigation comes less than two weeks after the Stamford, Conn.-based office products giant warned Wall Street that its earnings would likely fall short of expectations due to problems with the company's operations in Mexico.
 Xerox's Mexico operations pulled in revenues of about $400 million in 1999. The company employs about 3,000 workers in five Mexican cities.
"We found some unexpected problems related to our customer receivables in Mexico, which we announced two weeks ago, and we have launched our own thorough internal investigation," said Xerox spokeswoman Christa Carone. "We are fully cooperating with the SEC and will be in a position to provide more information when we release second-quarter earnings."
Shares of Xerox (XRX: Research, Estimates) ended Thursday trading down 1-3/4, or almost 9 percent, at 18-1/4.
 An SEC spokeswoman could not immediately provide details of the investigation. "We would neither confirm nor deny the existence of any such investigation at this time," she said.
Without elaborating on the specific nature of the accounting problems, Xerox said the issue could trim 5 to 6 cents a share off second-quarter earnings. Xerox is slated to release its latest results on July 26.
Xerox spokesman Bill McKee said the company could not reveal details of either the SEC investigation or its own internal investigation. But he said some details would be provided when Xerox releases its second-quarter earnings.
The SEC could bring civil actions in federal court if it finds irregularities. McKee would not comment on whether a separate criminal investigation is in progress.
"We will certainly cooperate in any way," McKee said. "Because this is a formal, legal investigation, we are really limited in what we can say."
Gibboney Huske, analyst at Credit Suisse First Boston, said the SEC is investigating the possibility that Xerox may have committed "out and out fraud" in connection with a shortfall in its Mexican receivables, which may take 5 cents to 6 cents out of the company's quarterly earnings.
Xerox is struggling to transform itself from a company that makes freestanding copiers into one that sells digital printers connected to computer networks.
Over the last year, Xerox has been beset with problems that have depressed earnings and the company's stock, including a cumbersome realignment of its sales force along industry lines rather than geographic boundaries.
In May, the company asked Chief Executive Rick Thoman to resign after just 13 months at the helm. His ouster came a month after the company reported a $243 million loss in the first quarter. The loss had been expected following the announcement in March that Xerox would lay off 5,200 employees and close several plants as part of an effort to cut costs to remain competitive with rivals Hewlett-Packard and Canon.
PaineWebber analyst Ben Reitzes said his firm had advised clients before the announcement that Xerox faced a period of uncertainty.
"We advised clients to downgrade the shares because this is a company that has a troubled balance sheet, and the Mexican receivable issues problem adds another layer to the story of a company that is struggling to turn itself around," Reitzes said.
"Obviously Xerox has issues at this point," said Paula Bursley, an industry analyst at Dataquest. "There is more competition now than they have ever had to face, and margins are getting smaller in many market spaces." 
- from staff and wire reports
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