Xerox Restates $6.4 Billion
Friday June 28, 1:26 pm Eastern Time
Reuters Business Report
By Franklin Paul
NEW YORK (Reuters) - Xerox Corp. (NYSE:XRX - News) on Friday said it would restate five years of results to reclassify more than $6 billion in
revenues, in yet another scandal battering confidence in Corporate America's accounting.
The move rattled investors, who were shaken by the revelation earlier this week that U.S. telecoms
carrier WorldCom (NasdaqNM:WCOME - News) inflated profits by hiding nearly $4 billion in expenses, and
after several years of nagging questions about Xerox's accounting practices.
Shares of Xerox, once the king of copiers, fell 75 cents, or 10 percent, to $7.24, after earlier tumbling
almost 25 percent to $6.10. The drop was spurred by a downgrade from Merrill Lynch, which cut its Xerox
rating to "sell" from "neutral."
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."
Stamford, Connecticut-based Xerox said that for 1997 through 2001 it reversed $6.4 billion of previously recorded revenue from equipment sales.
Xerox said $5.1 billion of that total will now be reported as service, rental, document outsourcing, and financing revenues for that period.
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 later on Friday 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 pretax 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 lease
accounting in Latin America from equipment sales to rental, Xerox said.
The SEC had 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 new products at a technology
conference here this week. With the refinancing completed, the company had hoped to return its focus to its machines.
The restatement was prepared by Xerox accountants and PricewaterhouseCoopers LLP, which took over as the company's auditor last October after
Xerox fired longtime auditor KPMG LLP. KPMG on Friday said it stood by its audit of Xerox, and said the restatement defied "economic reality".
Separately, GE Capital, the finance arm of conglomerate General Electric Co.(NYSE:GE - News) on Friday said its financing relationship with Xerox
would not be affected by the restatement.
Earlier this week, WorldCom stunned global markets when it disclosed it had falsely booked ordinary expenses, which allowed it to report $1.38
billion in net income last year, instead of a loss. Confidence in corporate America's bookkeeping has been badly shaken by the WorldCom debacle
and the recent collapse of energy trader Enron.
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