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Xerox Stresses Danger of Default

Technology: Copier maker says liquidity is at risk unless it renegotiates $7 billion in loans.

April 18, 2002|JOHN REGA | BLOOMBERG NEWS

WASHINGTON — Xerox Corp. said Wednesday that a failure to renegotiate $7 billion in bank loans maturing in October would put it in danger of going out of business.

The world's largest copier maker said in a filing with the Securities and Exchange Commission that it is optimistic about talks with lenders, but it remains in danger of defaulting on the debt if it is unable to get all 57 banks that own a piece of the loans to agree to refinance.

Xerox exhausted the loans in 2000 and has been funding operations with cash, proceeds from asset sales and financing that is backed by customer bills. The company, which has been in talks with its banks for months, hasn't made a quarterly report to the SEC--a common place for such a disclosure--since an amended filing for the third quarter in December.

The circumstances raise "substantial doubt about our ability to continue as a going concern," Xerox said in the filing.

The company said April 2 that it missed the deadline for its annual report because it was in talks with the SEC to settle a fraud case in which the company agreed to pay a $10-million fine.

Xerox inflated results from 1997 to 1999 with bogus accounting, the SEC has said. The company also supplemented earnings by $500million by improperly releasing unrelated reserves into income, the SEC said. The company is preparing restated results for 1997 through 2001.

Shares of Xerox fell 11 cents to $9.59 on the New York Stock Exchange before news of the filing was released.

The company hasn't in past filings used the "going concern" notice, an accounting term that warns investors a firm might be in danger of going out of business. The term often refers to a worst-case scenario rather than a likelihood.

In a January filing, the company said failure to refinance "could have a serious adverse impact on our liquidity."

Xerox said in March it had about $4.8billion in cash.

Wednesday's filing was Xerox's first registration statement, another place where a going concern warning might appear, since May 2000. The S-4 filing was made to permit public trading of $600million of 9 3/4% senior notes, due 2009, that Xerox sold in January.

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