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Now, Xerox admits accounting gaffes

Xerox Corp on Friday said it would restate five years of results to reclassify more than $6 billion in revenues, an expected move in yet another scandal to batter confidence in corporate America's accounting.

Xerox spokeswoman Christa Carone said the restatement was expected as part of an April settlement with the Securities and Exchange Commission, which had charged Xerox with defrauding investors.

Under that pact, Xerox neither accepted nor denied fault and pledged to recalculate its results.

"There's no revenue that is going away," she said of the restated figures.

"It's just going from one place (in Xerox's books) to another. There were no fictitious transactions and the amount of cash that we are talking about doesn't change in terms of the leases - it is revenue shifting from one period to another," she said.

The announcement rattled investors, who were shaken by the revelation earlier this week by US telecom carrier WorldCom that it hid nearly $4 billion in expenses, and comes after several years of nagging questions about Xerox's accounting practices.

Shares of Xerox, once the king of copiers, tumbled to $6.60, off 18 percent. The drop was spurred by a downgrade from financial services firm Merrill Lynch, which cut its Xerox rating to 'sell' from 'neutral'.

Stamford, Connecticut-based Xerox said that for 1997 through 2001 it reversed $6.4 billion of previously recorded revenue from equipment sales, which was offset by $5.1 billion of revenue that has been recognized and reported during the same period as service, rental, document outsourcing and financing revenues.

About $1.9 billion of revenue that was recognized over past years has been reversed and will be recognized in the company's future results, beginning in 2002, Xerox said.

Xerox expects to file federal documents restating its financial figures for the years 1997 through 2000 as well as adjustments to previously announced 2001 results.

It said pre-tax income over this five-year period declined by $1.4 billion from previously reported amounts.

The company said the reversal of equipment sale revenue was larger than initially expected primarily due to a change in the company's returns in Latin America from equipment sales to rental, Xerox said.

The SEC had that alleged Xerox used a variety of what it called 'accounting actions' and 'accounting opportunities' to disguise the company's true operating performance.

Xerox paid a $10 million penalty to settle the charges.

The restatement comes one week after Xerox successfully refinanced $7 billion in debt, and follows the rollout of a new product at a technology conference in New York this week.

With the refinancing completed, the company had hoped to turn its focus back to its machines.

Confidence in corporate America's bookkeeping has been badly shaken by the WorldCom debacle and the recent collapse of energy trader Enron.

Reuters

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