Xerox agrees to pay $10 m fine to SEC

Ilaina Jonas

NEW YORK: Xerox Corp. 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.

Fine, but no admission



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."