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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
September 28, 2001
XEROX CORPORATION
(Exact name of registrant as specified in its charter)
New York 1-4471 16-0468020
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) No.)
800 Long Ridge Road
P. O. Box 1600
Stamford, Connecticut 06904-1600
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(203) 968-3000
Not Applicable
(Former name or former address, if changed since last report)
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Item 4. Changes in Registrant's Certifying Accountant.
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On October 4, 2001, Xerox Corporation ("Company") determined to change the
Company's independent accountants, and, accordingly, ended the engagement
of KPMG LLP ("KPMG") in that role and retained PricewaterhouseCoopers LLP
as its independent accountants for the fiscal year ending December 31,
2001. The Audit Committee of the Board of Directors (the "Audit
Committee") and the Board of Directors of the Company approved the
decision to change independent accountants.
The reports of KPMG on the financial statements of the Company for each of
the fiscal years ended December 31, 2000 and December 31, 1999 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles. Except to the
extent discussed below, for the fiscal years ended December 31, 2000 and
December 31, 1999 and through the date of this report, there were no
disagreements with KPMG on any matter of accounting principles or
practices, financial statement disclosure or audit scope or procedure
which, if not resolved to the satisfaction of KPMG, would have caused it to
make reference to the subject matter of such disagreement in its reports on
the financial statements for such fiscal years. Nor, except to the extent
discussed below, were there any reportable events within the meaning of
Item 304(a)(1)(v) of Regulation S-K for the fiscal years ended December
31, 2000 and December 31, 1999 and through the date of this report. With
respect to the matters discussed below, the Audit Committee discussed them
with KPMG and authorized KPMG to respond fully to inquiries of
PricewaterhouseCoopers LLP concerning them.
In March 2001, KPMG informed management and the Audit Committee that it
wished to expand significantly the scope of its audit work in connection
with the audit of the Company's 2000 financial statements. KPMG proposed
that certain additional procedures be performed, including that the Audit
Committee appoint Special Counsel to conduct an inquiry into certain
issues, which procedures were performed in March, April and May, 2001.
While the expanded procedures were being performed, KPMG informed the Audit
Committee and management that KPMG was unwilling to rely on representations
by two employees in one of the Company's geographic operating units.
Management removed those employees from responsibility in connection with
the Company's system of financial reporting.
As a result of observations during its 2000 audit, and other information
discussed with the Audit Committee, KPMG reported certain material
weaknesses in the Company's internal control systems and made
recommendations concerning certain components of the Company's business:
- KPMG emphasized the importance for internal control of the tone set
by the Company's top management. KPMG noted that, as a result of
its audit and information reported by Special Counsel, it believed
there was evidence that management was not successful in setting the
appropriate tone with respect to financial reporting. It recommended
that the Company take steps to remediate appropriately those issues.
Certain personnel changes are being made based in part on KPMG views
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offered to the Audit Committee and management.
- Customer Business Operations in the Company's North American
Solutions Group. KPMG noted issues with regard to CBO's ability to
bill customers accurately for services, and noted that difficulties
in that area had resulted in unfavorable billing adjustments during
2000. Although KPMG recognized that the Company had initiated
several steps to address this issue, it concluded that it remained
unclear when those changes would result in sustained improvement in
reducing non-cash resolution adjustments of billing differences.
It acknowledged that this weakness did not suggest that the net
trade receivable account balance is unreasonably stated at December
31, 2000, but that proper reporting required extensive evaluation
of billing adjustments during the fourth quarter. KPMG suggested
various business and operational changes to address this issue.
- Communication of Accounting and Control Policies. KPMG noted that
policy documents need to be updated, among other things to address
issues identified by the Company's worldwide audit function,
Special Counsel and KPMG, and recommended that the Company also
provide increased formal training to ensure that its personnel
understand the accounting and control guidance in its policies.
- Consolidation and Corporate-Level Entries. KPMG observed that the
Company's quarterly consolidation process is manually intensive,
requiring numerous adjustments at corporate financial reporting
levels. It recommended that the Company's Consolidated Financial
Information System be augmented to enhance the monitoring and
review of corporate-level and manual entries, and further that the
Company ensure adequate segregation of duties in the preparation
and approval of such entries.
- Appropriateness of the Concessionaire Business Model in Latin
American Countries. KPMG noted that during 2000, analysis by the
Company's worldwide audit function indicated that certain issues
existed with respect to this business model, including that
certain concessionaires may lack economic substance independent
of the Company, and that certain business practices involving
concessionaires resulted in allowances with respect to receivables
in 2000. KPMG suggested periodic assessment of the financial
position of prospective and existing concessionaires, and that the
Company monitor its business relationship with them to ensure that
they are substantive independent distributors of the Company's
products.
In addition to those items, KPMG noted that organizational changes,
including the Company's turnaround program and associated reductions in
headcounts, had and would continue to stress the Company's internal
control structure. KPMG recommended that the Company take steps to ensure
that issues likely to impact the control environment receive appropriate
management attention. KPMG also recommended improved balance sheet account
reconciliation and analysis on a global basis, in particular with respect
to intercompany balances.
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The foregoing matters were considered by KPMG in connection with their
2000 audit and did not result in any adverse opinion or disclaimer of
opinion or any qualification or modification as to uncertainty, audit
scope or accounting principles. KPMG's auditor's report dated May 30,
2001 contained a separate paragraph stating that the Company's 1999 and
1998 consolidated financial statements had been restated.
The Company commenced actions in fiscal 2000 and expanded actions in
fiscal 2001 which, collectively, it believes have effectively addressed
the above-discussed matters.
The Company has provided KPMG a copy of this Report and has requested KPMG
to furnish it with a letter addressed to the Securities and Exchange
Commission stating whether it agrees with the statements made herein.
A copy of such letter, dated October 4, 2001, is filed as an Exhibit to
this Form 8-K.
Item 5. Other Events.
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On September 28, 2001, the United States District Court for the District
of Connecticut denied a motion to dismiss the amended consolidated
complaint in a consolidated securities law action entitled In re Xerox
Corporation Securities Litigation pending against Xerox Corporation,
Paul Allaire, Barry Romeril and G. Richard Thoman. The named individual
defendants and the Company deny any wrongdoing and intend to vigorously
defend the action.
This Current Report on Form 8-K consists of the following exhibit:
Exhibit 16 KPMG LLP Letter dated October 4, 2001
re Change in Certifying Account
_____________________________________________________________________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly authorized this report to be signed on its behalf by
the undersigned duly authorized.
XEROX CORPORATION
/s/ MARTIN S. WAGNER
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By: MARTIN S. WAGNER
Assistant Secretary
Date: October 5, 2001
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EXHIBIT INDEX
Exhibit No. Document Page
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16 KPMG LLP Letter dated October 4, 2001
re Change in Certifying Account . . . . . . . . . . . . 6
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Exhibit 16
October 4, 2001
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Xerox Corporation and, under
the date of May 30, 2001, we reported on the consolidated financial
statements of Xerox Corporation and subsidiaries as of and for the years
ended December 31, 2000 and 1999. We have read Xerox Corporation's
statements included under Item 4 of its Form 8-K dated September 28, 2001,
and we agree with such statements, except that KPMG is not in a position
to agree or disagree with Xerox Corporation's statements that "on October
4, 2001, Xerox Corporation ("Company") determined to change the Company's
independent accountants" and "retained PricewaterhouseCoopers LLP as its
independent accountants for the fiscal year ending December 31, 2001."
We were informed of our termination as principal accountants on September
25, 2001. We are also not in a position to agree or disagree with Xerox
Corporation's statements that the decision to change independent
accountants was approved by the Audit Committee of the Board of Directors
and the Board of Directors of the Company and that the "Company commenced
actions in fiscal 2000 and expanded actions in fiscal 2001 which,
collectively, it believes have effectively addressed the above-discussed
matters." Additionally, although KPMG did express its views to the Audit
Committee of the Board of Directors and management regarding certain
personnel changes that should be made, we are not in a position to agree
or disagree with Xerox Corporation's statement that "certain personnel
changes are being made."
Very truly yours,
KPMG LLP