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Xerox 2000 Financial Statement Audit Complete

Press release from the issuing company

"After rigorous reviews of Xerox's accounting, no fictitious transactions were found and the company's liquidity is not impacted." STAMFORD, Conn., May 31, 2001  -- Xerox Corporation (NYSE: XRX) today announced that its auditors, KPMG LLP, have certified Xerox's financial statements for the three years ended Dec. 31, 2000. The financials include restatements reflecting results of the previously announced fuller review by KPMG and the concurrent investigation conducted by the Audit Committee of the Xerox board of directors. Xerox has now determined that certain accounting practices including some that involve complex accounting issues, which it had previously believed to comply with generally accepted accounting principles (GAAP), in fact, misapplied GAAP. In addition, the company has made period adjustments to certain previously recorded charges for errors and irregularities resulting from the accounting issues in Mexico. The impact is a cumulative reduction of Common Shareholders' Equity and Consolidated Tangible Net Worth of $137 million and $76 million, respectively, as of Dec. 31, 2000. Adjustments to revenue in each of the three years, 1998-2000, were insignificant. Net income for 2000 increased by $127 million. First quarter 2001 net income improves by approximately $50 million, but this level of adjustment will not continue in subsequent 2001 quarters. "After rigorous reviews of Xerox's accounting, no fictitious transactions were found and the company's liquidity is not impacted," said Paul A. Allaire, Xerox chairman and chief executive officer. "Xerox can now continue to focus on effectively executing its turnaround strategy, which remains on track." Allaire added that Xerox continues to make progress in improving its already substantial cash position. The company's current worldwide cash balance is approximately $2 billion, following the repayment of most of its second quarter maturing debt. Xerox today is filing an 8-K with the Securities and Exchange Commission that includes its audited financial statements. Details of the components of the adjustments as well as additional financial disclosures are included in the 8-K. The complete Annual Report on Form 10-K for 2000 will be filed very shortly.

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