Xerox to Restate Earnings by $2 Billion

Troubled U.S. office equipment group Xerox Corp (XRX), once known as the king of copiers, on Friday announced that it discovered a $2.0 billion revenue gap in its books just days after global markets were hit by the biggest accountancy scandal on record.

Stamford, Connecticut-based Xerox, which has already been fined once before for improper accounting, said it would shave $2.0 billion off revenues between 1997 through 2001.

Xerox added that revenues for the five-year period ending 2001 have been reduced by 2 percent to $91 billion, as a result of the restatement.

In the same week that U.S. long-distance carrier WorldCom stunned global markets with a $3.9 billion accounting scandal, Xerox's shares plunged 28 percent as investors worried the company faced a far larger shortfall.

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

Xerox expects later 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.

For 1997 through 2001, the company reversed $6.4 billion of previously recorded equipment sale revenue, 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.

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.

Xerox, once part of the "Nifty Fifty" of most reliable U.S. companies, settled in April with the SEC. The SEC also found it had improperly accounted for $1.5 billion of earnings over the four-year period.

"If not for these (improper) accounting actions, Xerox would have fallen short of market expectations, often by a wide margin, in almost every reporting period from 1997 through 1999," the SEC said in its complaint before settling for a $10 million penalty.

Although paying the fine, Xerox never admitted or denied any wrongdoing.

Xerox's books are being pored over by accountants PricewaterhouseCoopers LLP, which took over as the company's auditor last October after Xerox fired longtime auditor KPMG LLP.

Neither auditor was immediately available for comment.

Xerox, which in recent years has struggled in the face of sluggish demand and fierce competition from Asia, became a household name in the late 1950s when it introduced the 914, the world's first xerographic copier.

During the 1960s, the company was as hot as Microsoft and Apple Computer would be a generation later. By the time production of the 914 ended in 1973, it was the biggest-selling industrial product of all time.

But Xerox later failed to cash in on inventions from its famed Xerox Labs in Silicon Valley. It invented the computer mouse but saw no need for it. Its personal computer framework was exploited by Microsoft, and it underestimated the market for the laser printer -- another of its inventions.

Its shares plunged from a high of nearly $64 in May 1999 to a mere $3.81 in December 2000 as investors fretted over the future of the debt-laden company. Last week Xerox managed to refinance $7 billion in debt, sending its shares 14.3 percent higher on the day to $8.97.

Reuters and the Associated Press contributed to this report.