Re Agreement with SEC

RNS Number:8475T
Xerox Corp
1 April 2002


For additional Information contact:

Leslie F. Varon              James A. Ramsey               Cynthia B Johnston
Vice President & Secretary   Director, Investor Relations  Manager, Investor Relations
203-968-3110                 203-968-3807                  203-968-3489
[e-mail]   [e-mail]    [e-mail]
Fax [phone]           Fax [phone]            Fax [phone]


           XEROX REACHES AGREEMENT IN PRINCIPLE WITH THE SEC'S STAFF 
            TO RECOMMEND TO THE COMMISSION SETTLEMENT OF CHARGES:
                              2001 10-K FILING DELAYED

STAMFORD, Conn., April 1, 2002 - Xerox Corporation (NYSE: XRX) announced today
that it has reached an agreement in principle with the Division of Enforcement
of the Securities and Exchange Commission, the terms of which the Division has
agreed to recommend to the Commission. The agreement in principle concerns the
settlement of proposed allegations on matters that have been under investigation
since June 2000. The proposed agreement is subject to the approval of the
Commission.

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. The restatement will primarily reflect adjustments in the timing and
allocation of lease revenue recognition and could involve a reallocation of
equipment sales revenue in excess of $2 billion from 1997 through 2000. Those
revenues will be reallocated among equipment, service and finance revenue
streams as appropriate applying a methodology different than the one the company
had used during those years. The resulting timing and allocation adjustments
cannot be estimated until the restatement process has been completed. In any
event, there will be no impact on the 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 restatement will also include
adjustments that could be in excess of $300 million due to the establishment and
release of certain reserves prior to 2001 and other miscellaneous items.

To allow for the additional time required to prepare the restatement and to make
these adjustments, the company is filing a Form 12b-25 for a 15-day extension on
the filing of its 2001 10-K. In anticipation of a further extension that may be
necessary, Xerox has discussed with the Staff circumstances under which the
company may seek approval from the Commission for a further extension of 75 days
to complete its restatement and file its 2001 10-K, including the condition that
a signed agreement, ready for presentation to the Commission, is reached by the
company and the Staff by April 8, and that a definitive settlement is thereafter
approved by the Commission.

Xerox initiated settlement discussions with the Staff last month after the
company was notified of the Division's preliminary decision to recommend an
enforcement action regarding Xerox's alleged violations of the federal
securities laws in connection with the company's financial statements for 1997-
2000. In addition to the restatement, the agreement in principle calls for the
SEC to file a complaint and a consent order in federal district court for
injunctive relief and 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.

The company sells most of its products and services under bundled contracts that
contain multiple deliverable elements.  The contracts typically include
equipment, service, supplies, and financing components for which the customer
pays a single monthly-negotiated price as well as a variable service component
for page volumes in excess of stated minimums. The SEC claims that Xerox's
revenue-allocation methodology for these contracts did not comply with the
Statement of Financial Accounting Standards No. 13. 

Xerox has changed its revenue allocation methodology to estimate "normal selling
prices" (fair value) of equipment using an approach based on verifiable
objective evidence of value, including prices achieved in its cash sales and
other market based information.

"In the past year, we have made substantial improvements in our operations
through a bold and comprehensive turnaround program," said Anne M. Mulcahy,
Xerox chairman and chief executive officer. "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. 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."

Mulcahy also noted that significant progress has been made in Xerox's
negotiations with the revolver lenders. The principal terms and conditions for
refinancing a portion of the revolver and extending its maturity beyond October
2002 have been distributed to the 57 lenders in the revolver. The refinancing is
expected to be finalized following the approval from these lenders as well as
the negotiation and execution of the definitive agreements.


For additional information about The Document Company Xerox, please visit our 
Worldwide Web site at www.xerox.com/investor.

This release contains forward-looking statements and information relating to
Xerox that are based on our beliefs as well as assumptions made by and
information currently available to us. The words "anticipate," "believe,"
"estimate," "expect," "intend," "will" and similar expressions, as they relate
to us, are intended to identify forward-looking statements. Actual results could
differ materially from those projected in such forward-looking statements.
Information concerning certain factors that could cause actual results to differ
materially is included in the company's Form 10-Q for the quarter ended
September 30, 2001.

XEROX(R), The Document Company(R) and the digital X(R) are trademarks of XEROX
CORPORATION.

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