Xerox said it started settlement talks after the agency's enforcement arm made a preliminary decision to recommend an enforcement action regarding the company's 1997-2000 financial statements. Xerox said it would seek an extension of up to 90 days to file its restatement and its 2001 10-K report.

The deal, which is subject to the full commission's approval, would put to rest an investigation the agency began in 2000 amid allegations that Xerox's Mexican operations had overstated revenue by using improper lease accounting. The SEC told Xerox its revenue-allocation methodology for certain contracts did not comply with the Statement of Financial Accounting Standards No. 13. Xerox said Monday that under the proposed settlement, the company "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 the restatement could involve the "reallocation" of up to $2 billion in equipment sales revenue and "adjustments that could be in excess of $300 million" regarding certain reserves. But "the resulting timing and allocation adjustments cannot be estimated until the restatement process has been completed," Xerox said.

-- Justin Lahart