Xerox Settles With SEC, Pays Penalty
Mon Apr 1, 6:09 PM ET
By JOHN CHRISTOFFERSEN, AP Business Writer
STAMFORD, Conn. - Xerox Corp. will pay a civil penalty of $10 million and revise several years of financial statements under an agreement reached with federal securities regulators.
The proposed agreement, which is subject to the approval of the Securities and Exchange Commission (news - web sites), would settle allegations that have been under investigation since June 2000 that the world's largest copier company prematurely booked revenue.
"In the past year, we have made substantial improvements in our operations through a bold and comprehensive turnaround program," said Anne M. Mulcahy, Xerox chairwoman and chief executive officer. "That's 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."
The agreement calls for the SEC to file a complaint and a consent order in U.S. District Court for injunctive relief and a civil penalty of $10 million. Xerox would neither admit nor deny allegations that it violated anti-fraud, reporting and other provisions of the securities laws.
The agreement also requires Xerox to restate financial statements for 1997 through 2000 and adjust previously announced 2001 results. The restatement will primarily reflect adjustments in the timing and allocation of lease revenue and could involve a reallocation of equipment sales revenue in excess of $2 billion from 1997 through 2000, Xerox said.
It is unclear what effect the restatement will have on Xerox's bottom line for those years. The company said there will be no impact on the cash that has been received or is contractually due to be received from the leases.
The restatement also will include adjustments that could be more than $300 million due to the establishment and release of certain reserves before 2001 and other miscellaneous items.
Jack Kelly, managing director with Goldman Sachs & Co. in New York, said the agreement could help Xerox remove the uncertainty about its future created by the ongoing probe.
"I think it was a relief they got it behind them," Kelly said. "We thought eventually they were going to have to reach some kind of agreement with SEC."
Shares of Xerox closed Monday on the New York Stock Exchange (news - web sites) at $11.08, up 33 cents or 3 percent.
To make the adjustments, Xerox said it will request extensions on financial documents filed with the SEC.
The latest adjustments are in addition to restatements Xerox made last year during the SEC probe.
The probe began over Xerox's accounting and financial reporting practices at its Mexico operations and then broadened.
Xerox, which fired several executives in Mexico and took a $120 million, after-tax charge, has said the problems were limited to domineering managers who sought to drive growth at any cost.
A former Xerox executive, James Bingham, has accused Xerox of firing him for warning that accounting irregularities were rooted in the company's headquarters in Stamford, not Mexico City.
Bingham issued a statement Monday calling the proposed settlement a "complete vindication."
"Xerox is now admitting it misstated its earnings by hundreds of millions of dollars and misled shareholders and investors," Bingham said. "Is Xerox going to take action against the senior management personnel involved in this misconduct?"
Bingham also urged Xerox to immediately reinstate him to his position as assistant treasurer of the company.
Carone said Xerox did not admit to any wrongdoing and has no plans to make any management changes.
Xerox said it initiated settlement discussions with the SEC last month after the company was notified of the commission's preliminary decision to recommend an enforcement action regarding alleged violations of federal securities laws in connection with Xerox's 1997-2000 financial statements.
The SEC contends that Xerox's revenue-allocation methodology for contracts did not comply with accounting standards. Xerox said it has changed its methodology
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