Xerox To Restate Earnings, Pay Penalty

By Agence France-Presse Xerox Corp. announced April 1 it would pay a $10 million fine and restate its 1997-2001 earnings to settle a near-two-year civil fraud investigation. The Stamford, Conn.-based copier company said it had struck a deal with the Securities and Exchange Commission (SEC) enforcement division after a probe into its accounting of lease revenue. The SEC had yet to give final approval to the terms. "The agreement in principle calls for a restatement of Xerox's financials for the years 1997 through 2000 as well as an adjustment of previously announced 2001 results," Xerox said in a statement. The SEC also would file a complaint and a consent order in federal district court under which Xerox would agree to pay a civil penalty of $10 million. "Xerox would neither admit nor deny the allegations of the complaint, which would include claims of civil violations of the antifraud, reporting and other provisions of the securities laws," Xerox said. SEC regulators alleged that Xerox flouted accounting rules when booking revenues from bundled contracts, which typically include equipment, service, supplies, and financing. Xerox said the restatement could mean reallocating revenue of more than $2 billion from 1997 through 2000 between its equipment, service and finance income streams. It may lead to adjustments in excess of $300 million due to the handling of certain reserves prior to 2001, the company said. Xerox said it had asked for a 15-day extension for filing its 2001 accounts. It had discussed the possibility of asking for another 75 days if a written deal was wrapped up by April 8 and approved by the SEC. "We have proven that, when faced with difficult decisions, we take the appropriate actions that will serve Xerox best for the long term, strengthening the company's value proposition for our customers and shareholders," Xerox Chairman and CEO Anne Mulcahy said. "That is why we believe Xerox is best served by putting these issues with the SEC behind us and focusing on restoring the company to good health, sustained profitability and future growth." Mulcahy said the firm also had made "significant progress" in negotiations to refinance part of its revolving credit, and principle terms and conditions had been distributed to the 57 lenders. Xerox said late last year it had started negotiations with its agent banks to refinance a portion of its $7 billion revolving line of credit and extend its maturity from October 2002. Xerox reported in January a 2001 net loss of $179 million, following a net profit of $29 million in 2000. Revenue slid to $16.50 billion from $18.70 billion. Copyright Agence France-Presse, 2002