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Xerox Agrees To Pay Fine To SEC, Restate Results

Xerox on Monday said it agreed to pay a $10 million fine under a deal that would settle the last of the recent investigations by the Securities Exchange Commission into the office equipment maker's accounting practices.

The proposed settlement into allegations that it violated security laws also calls for the company restate financial results from 1997 through 2001 using a more conservative revenue recognition of its bundled monthly copier fees.


"This agreement in principle with the SEC effectively resolves all the outstanding matters with the SEC," said Xerox spokeswoman Christa Carone.

If the Commission approves the agreement, negotiated by the SEC's Division of Enforcement, it would be the second time the company would restate results for 1998, 1999 and 2000. Last year, Xerox agreed to restate those results, following an SEC investigation into the its Mexican operation.

The agreement would require Xerox to change the way it books some of the revenue it received from its monthly fees for its copier sales to a more conservative method.

"We believe Xerox is best served by putting these issues with the SEC behind us, Anne Mulcahy, Xerox chairman and chief executive officer, said in a statement.

Shares of Xerox rose 33 cents, more than 3 percent, to $11.08 on the New York Stock Exchange. During the day, shares traded as high as $11.13, their highest price since February and near their 52-week high of $11.45.

"This cleans up the past and going forward it's a much cleaner story, more conservative revenue recognition, which is a positive and no more SEC investigation," Merrill Lynch analyst Shannon Cross said.


Under the agreement Xerox will pay a $10 million civil fine, but would not be required to admit or deny the allegations of the complaint.

"It appears to be at this point and time that it's a good deal," Cross said. "Ten million dollars is not a huge fine and they're not admitting wrongdoing."

Best known for its photocopiers and printers, Xerox has struggled amid slack sales, stronger competition, and allegations of accounting irregularities.

Facing a mound of debt and losses, Xerox spent much of 2001 selling or transferring certain manufacturing operations, cutting jobs, and freeing itself of unprofitable businesses.

The restatement would reflect shifts of up to $2 billion in the way Xerox books revenue from the components -- equipment, financing, service and supplies -- that comprise its monthly fees, the company said. Under the method Xerox previously used, it was able to book more of the fees upfront, instead of spreading some of them over the course of the contract.

Xerox said the changes will not impact cash that has been received or is contractually due to be received from these leases. Furthermore, the monetary value of the leases does not change.

The proposed settlement also calls for company to readjust its reserves and other items prior to 2001, which could affect an additional $300 million or more.

+In connection with the proposed settlement, the company said it would apply for a 15-day extension of its 2001 yearly financial statement.

The proposed settlement, which is expected to be presented to the SEC on April 8, would allow for the company to ask for an additional 75 days for a total 90-day extension.

Finally, Xerox said it has made significant progress in negotiations with lenders for revolving credit agreements.

The settlement could be a positive in the company's negotiations with its lenders.

"Obviously its an issue, it's one of many that they look at," Cross said. "I don't necessarily think it's a chicken-and-an-egg situation but it certainly doesn't hurt."


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