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News > Companies
Xerox identifies snafu
May 31, 2001: 1:33 p.m. ET

Accounting problems hit shareholder equity but not liquidity or profit
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NEW YORK (CNNfn) - Troubled Xerox Corp. said Thursday it uncovered irregular accounting practices, but the problems detailed were less severe than some investors feared.

Xerox said it discovered certain complex accounting transactions did not comply with Generally Accepted Accounting Principles (GAAP). The problems affect the company's balance sheet, but did not hit profits in any significant way, and the company said its cash position remains strong.

The company said the change reduced shareholders' equity by $137 million and net worth by $76 million. But adjustments to revenue from 1998 to 2000 are insignificant, the company said, and the company said it found it found no fictitious transactions.

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The lack of more serious problems in the report sent shares of Xerox (XRX: up $1.28 to $10.31, Research, Estimates) up nearly 14 percent in trading Thursday. One Xerox analyst said even those who didn't think there would be worse problems had been taking a cautious approach to the stock until the audit was complete.

"There's no smoking gun, no deliberate malfeasance," said Daniel Kunstler, analyst with JP Morgan. "That's going to be a benefit to the stock from the veil being lifted, but it's a one-time thing."

Kunstler said he's maintaining his "market perform" rating, which is equal to a neutral ranking, since he said the company still has a ways to go to turn around its profit and sales outlook.

"This is an accounting issue; it's not a fundamental issue," he said.

Still, the company's statement said the completion of the audit is important for the company's efforts in that regard.

"Xerox can now continue to focus on effectively executing its turnaround strategy, which remains on track," said the statement from Paul Allaire, Xerox's CEO.

The Stamford, Conn.-based copier maker had been investigating alleged accounting irregularities along with the U.S. Securities and Exchange Commission.

The company's liquidity has not changed, with about $2 billion cash on hand, Xerox said, adding that net income for 2000 increased by $127 million and first quarter 2001 net income increased by $50 million.

On April 19, Xerox posted a narrower-than-expected first-quarter loss and said it anticipates a return to profitability in the second half, the first good news for investors in months.

Xerox's accounting problems first surfaced a year ago, as the company announced it would take a charge to deal with accounting problems in Mexico and the SEC announced it was launching its own investigation.

Besides accounting problems, the company has seen weak sales and a series of earnings warnings and disappointing quarterly financial reports. The problems became so big that last fall rumors of bankruptcy began circulating, which Xerox vehemently denied.

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The company has been struggling to catch up with competitors ever since announcing a massive turnaround plan last October that includes selling off non-core assets and trimming jobsgraphic

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.