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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Rich1 who wrote (45538)	4/1/2002 7:36:32 PM
From: puborectalis	Respond to of 99280

Xerox, the subject of an SEC probe since 2000, has been contending with declining sales and profit because of competition, management changes and soaring borrowing costs. The restatements won't affect cash received or due from the leases. Xerox hasn't determined what effect shifting the revenue will have on results. The resolution ``does improve visibility and takes a major psychological hurdle out of the way,'' said Robert Morris, chief investment officer at Lord, Abbett & Co., which owns about 29.1 million Xerox shares among its $46 billion in assets. In January, the SEC said the company was inaccurately booking sales of equipment and services in a way that may inflate results. Xerox said the difference in methodology is ``immaterial.'' Last year it restated earnings for the three prior years and the first quarter of 2001, related to accounting irregularities in Mexico. ``It lays to rest one of the four (issues) that have been hanging over them,'' said Peter Ausnit, an analyst at Deutsche Banc Alex. Brown who doesn't own Xerox shares. ``It's not the perfect resolution, but resolution is good.'' Shares of Xerox rose 33 cents to $11.08. They had risen 72 percent in the past year. Xerox's 9.75 percent coupon notes maturing in 2009 were little changed at 95 cents on the dollar, traders said. The yield was 10.8 percent. Lease Sales Xerox reached an agreement in principle with the SEC's enforcement unit to restate reports from 1997 to 2000, and its unaudited 2001 results. The company also will reallocate revenue booked just for leased equipment so it reflects servicing and financing sales as well. Xerox expects final approval next week. The biggest SEC fine against a public company for financial reporting violations had been the $3.5 million fine of America Online Inc. in May 2000, SEC officials said. The federal agency rarely fines public companies because it doesn't want the burden passed on to shareholders. The dispute between the SEC and Xerox centered on a rule that lets companies recognize revenue and income from sales-type leases immediately rather than over the life of the lease. When Xerox leases a copier, the customer's payment includes a principal payment and a finance charge, and covers costs towards supplies such as toner and maintenance services. Under SFAS No. 13, if the principal and interest payments made during the life of a contract total 90 percent or more of the copier's fair value, the transaction can be accounted for as a sales-type lease. If the payment is below 90 percent of the equipment's value, the contract would be accounted for as an operating lease and revenue would be recognized over time. Management Ausnit said the settlement with the SEC, the increased use of outsourcing and the recent negotiation a $7 billion bank loan are milestones for Xerox. He reiterated his ``buy'' rating on Xerox. The collapse of energy trader Enron Corp. late last year has brought increased investor and government scrutiny to companies with complex or questionable financial reporting. The SEC investigation began in June 2000 as an inquiry into whether Xerox's Mexican unit improperly accounted for bad debts. Eight months later, James Bingham, a former assistant treasurer alleged that questionable accounting practices were widespread. Xerox and the SEC gave no progress on the probe until January when the company disclosed in a regulatory filing that the investigation had widened. Xerox said the SEC's office of the chief accountant claimed the company wasn't following Financial Accounting Standards Board rules for sales-type leases. Xerox, based in Stamford, Connecticut, hasn't had a chief financial officer since Barry Romeril retired at the end of last year. Gary Kabureck has been the company's chief accounting officer since November, when Xerox reassigned the executive who had overseen financial reporting since April 2000, Gregory Tayler. Xerox fired its auditor KPMG LLP in October, replacing it with PricewaterhouseCoopers LLP. The company said it's asking the SEC for a 15-day extension of the deadline to submit its 10-K filing because of the settlement announced today and may request 75 more days. The $10 million fine isn't likely to affect Xerox's finances much, as the company disclosed last week that it had a $4.8 billion cash balance. ``Yes, it's a bigger fine but for a relatively small amount of money they avoid a lot of other issues, like being unable to attract the right CFO,'' said Morris.