(adds analyst comment, updates stock price, changes dateline from STAMFORD, Conn. to NEW YORK, adds byline) 

NEW YORK, May 31 (Reuters) - Troubled photocopier maker Xerox Corp. (XRX), under investigation by U.S. regulators for how it booked revenue from its Mexican operations, said on Thursday it misapplied certain accounting rules but had not recorded any fictitious transactions. 

The news offered some closure to an investigation announced by Stamford, Connecticut-based Xerox nearly a year ago. Relieved investors traded Xerox shares higher by more than 10 percent in afternoon trade on the New York Stock Exchange. 

Xerox shares were up $1.23, or 13.6 percent, at $10.26, still the lower end of the stock's 52-week range of $28.31 to $3.81. 

As a result of a review, Xerox said it has made adjustments to its balance sheet, reducing common shareholders' equity as of Dec. 31 by $137 million and consolidated tangible net worth by $76 million. 

Changes to revenues during the period of 1998 to 2000 were insignificant, though net income for 2000 increased by $127 million and net income in the first quarter of 2001 improved by about $50 million, Xerox said. The adjustments to net income will not continue in subsequent quarters in 2001, it said. 

"After rigorous reviews of Xerox's accounting, no fictitious transactions were found and the company's liquidity is not impacted," Xerox Chairman and Chief Executive Paul Allaire said in a statement. 

Xerox, which has struggled to revitalize its flagging business, manage a mountain of debt, and sort out its accounting difficulties, also said it had adjusted the periods in which it recorded charges for errors and irregularities related to accounting issues in Mexico. 

The statement did not include details of the adjustments to the charges. 

Questions about Xerox's Mexican operations arose last June when Xerox said U.S. regulators had begun an investigation related to accounting matters. In February, the company said it had terminated managers in its Mexico unit after a probe showed the managers had dealt improperly with past-due accounts, bad-debt reserves, and other matters. 

Last week, the Wall Street Journal reported that the U.S. Securities and Exchange Commission had broadened its probe to include "unusual activity" between Xerox and Citibank, a unit of the largest U.S. financial services company, Citigroup Inc. (C). 

MARKET REACTS POSITIVELY 

"We believe this is good news for (Xerox's) shares because it lifts a cloud of uncertainty surrounding its accounting practices," UBS Warburg analyst Benjamin Reitzes wrote in a note to investors. 

Reitzes also said the filing of audited financial information will allow Xerox to avoid the possible acceleration of the repayment of $220 million in debt. 

The company said its auditors, KPMG LLP, have now certified its financial statements for the past three years. Last month, Xerox delayed the filing of its 2000 annual report pending the conclusion of the KPMG review. 

Allaire said Xerox continued to make progress in improving its cash position. The company's current worldwide cash balance is about $2 billion, following the repayment of most of its second-quarter maturing debt, he said. REUTERS 

© 2001 Reuters 

STAMFORD, Conn., May 31 (Reuters) - Photocopier maker Xerox Corp. (XRX), under investigation by U.S. regulators for how it booked revenue from its Mexico operations, said on Thursday it had misapplied certain generally accepted accounting principles but had not recorded any fictitious transactions. 

In a statement, the company said, "Xerox has now determined that certain accounting practices including some that involve complex accounting issues, which it had previously believed to comply with generally accepted accounting principles (GAAP), in fact, misapplied GAAP." 

Xerox also said it had adjusted the periods in which it recorded charges for errors and irregularities resulting from the accounting issues in Mexico, which arose last year. Its auditors, KPMG LLP, have now certified the company's financial statements for the past three years, it said. 

The adjustments to Xerox's balance sheet resulted in reductions of common shareholders' equity and consolidated tangible net worth of $137 million and $76 million, respectively, as of Dec. 31, 2000. 

Adjustments to revenue in each of the three years, 1998 to 2000, were insignificant, Xerox said. Net income for 2000 increased by $127 million. First quarter 2001 net income improved by about $50 million, but this level of adjustment will not continue in subsequent 2001 quarters. REUTERS 

© 2001 Reuters 

NEW YORK, May 22 (Reuters) - The specter of dubious accounting transactions at Xerox Corp. (XRX) returned on Tuesday, sparked by a published report that alleges "unusual" activity between the troubled copier company and Citibank. 

Xerox shares, which had enjoyed a resurgence in the past month, fell about 8 percent on Tuesday following a Wall Street Journal report that claimed the transactions may have been used to artificially boost Xerox's revenue and profit. 

The former Xerox executive, James Bingham, said that Xerox may have improperly booked some $140 million in revenue and $80 million in pretax profit in 1999's second and third quarters from the deal with Citibank, the banking unit of Citigroup Inc. (C). The deals were designed as sales to the bank of future revenue streams from Xerox copiers, the paper said. 

The Securities and Exchange Commission, which is probing alleged accounting irregularities at Xerox's Mexico unit, subpoenaed Citibank late last year for documents related to transactions it did for Xerox, although Citibank was not implicated in any wrongdoing in the probe, a source familiar with the situation said told Reuters. 

Citigroup always cooperates with SEC inquiries, a company spokeswoman said. The SEC declined to comment, and Xerox said it could not discuss issues that were being probed by the SEC. 

But Xerox spokesman Bill McKee said the transactions discussed by Bingham "are completely legitimate, accounted for appropriately, and adhere to generally accepted accounting principles." 

Moreover, McKee said that the story is almost entirely based on comments by Bingham, a disgruntled former employee whose allegations, in the company's eyes, are both unproved and without merit. 

DOGGED BY ACCOUNTING WOES, DISCRIMINATION LAWSUITS 

The news sapped some of the strength from Xerox stock, which had nearly doubled in the past 6 weeks, spurred by the company's optimism about turning a profit by the second half of 2001, and progress in its turnaround plan. 

Xerox shares on the New York stock exchange in early afternoon changed hands at $10.52, down 83 cents, after hitting a session low of $10.39. Since April 3, when the company delayed the filing of its 2000 annual report and its shares dipped below $5, the stock has outperformed the S&P 500 index by about 80 percent. 

The 10-K was delayed so that KPMG, Xerox's auditors, could could conduct a more thorough review of the year-end financial statements needed for it to satisfy its responsibilities. 

Xerox executives envision 2001 as a year of recovery, thanks to a restructuring plan that would see the company cut $1 billion in costs and sell $2-$4 billion in assets. 

But it continues to be dogged by speculation about management problems. Earlier this month, a group of current and former black sales representatives sued Xerox, accusing it of racial discrimination and retaliation. The charges echoed a similar grievance filed earlier this year by another group. 

Xerox uncovered accounting irregularities last year at its Mexico unit, where it insists the problem was isolated. REUTERS 

© 2001 Reuters