Xerox reduces 1997-2001 income by $1.4 billion

The wildfire of accounting controversies engulfing Enron Corp. and tech-sector companies such as WorldCom Inc. is scorching another company Friday as Xerox Corp. announced that it would have to restate its 1997 to 2001 earnings due to accounting irregularities, a move that will reduce the company's pretax income over that period by US$1.4 billion.

As a result of the restatement, 1997 to 2001 revenue has been reduced by 2 percent to $91 billion, the company said in a statement.

The company plans to file a new 10-K form with the U.S. Securities and Exchange Commission (SEC) Friday, detailing the changes to the financial statements for the years in question, it said. The restatement comes in the wake of an audit ordered by the company of its books after a SEC investigation into the company's 1997 to 2000 earnings. The SEC investigation, which was settled in April, found that the company would have to restate its earnings from 1997 to 2000 by an estimated $3 billion.

A report in Friday's Wall Street Journal quoting sources close to the situation said that an audit that included 2001 results could boost a total restatement of company financials since 1997 to more than $6 billion.

However, the Journal also reported that the revised revenue figure for 1997 to 2001 will likely appear to be less than $6 billion as most of the company's trouble came from booking revenue too early. Much of that revenue was realized by the company at later dates, the report said.

The adjustments made to its books will cause Xerox's 1997 to 1999 revenue and income to decrease while increasing 2000 and 2001 figures, the company said Friday. The company also reversed roughly $1.9 billion in revenue that had been previously booked and will apply that total to the company's statements starting in 2002.

In the 10-K expected to be released Friday, Xerox is reversing $6.4 billion in previously recorded equipment sale revenue for 1997 to 2001 and offsetting it with $5.1 billion in revenue that had been recognized as service, rental, document outsourcing and financing revenue for the same period, the company said.

Representatives of Xerox, which is based in Stamford, Connecticut, were not immediately available for comment on the Journal article.

The company has already paid the SEC a fine of $10 million as a settlement for its accounting troubles.

Xerox's troubles in this matter stem, in part, from the firm's transition from a company focused on products to a company focused on services, said Andrew Efstathiou, an analyst at the Yankee Group. Product sales tend to be booked once, but services are often booked over a longer period of time.The company's transition from one type of sales to the other led to mistakes in this case, he said.

Still, demand for Xerox services should be unaffected, he said.

"Customers are generally seeking services so that they don't have to put out money upfront," he said. "There is still a demand for that."

Because of this continued demand, Xerox "will have to be much more careful about how they recognize revenues (from services)," he said.

Nevertheless, the accounting issues are not a major obstacle for the company, he said. Xerox's "viability is still unchanged," he said.

The Xerox news comes on the heels of Tuesday's announcement from struggling telecommunications company WorldCom that the company would have to restate its earnings for 2001 and the first quarter of 2002 due to accounting irregularities. The total restatement that WorldCom will need to make for that period will come close to $4 billion.

U.S. President George W. Bush on Wednesday called WorldCom's announcement "outrageous" and promised that "we will fully investigate and hold people accountable for misleading not only shareholders, but employees, as well."

At a Republican fundraiser in Washington, D.C., Bush further addressed the accounting controversies, saying that "corporate America has got to understand there's a higher calling than trying to fudge the numbers, trying to slip a billion here or a billion there and ... hope nobody notices -- that you have a responsibility in this country to always be aboveboard."

White House Press Secretary Ari Fleischer said Friday at a press briefing that the President would discuss the scandals during his weekly radio address over the weekend and at a speech scheduled for the second week of July in New York. In both speeches, Bush will reaffirm proposals he made in March that would bar executives involved in financial wrongdoing from serving on corporate boards and from benefitting financially from their actions.

Xerox stock (XRX) was hammered, closing down $1, or 12.5 percent, to $7.

Join the newsletter!

Error: Please check your email address.
Rocket to Success - Your 10 Tips for Smarter ERP System Selection
Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Sam Costello

Computerworld
Show Comments

Cool Tech

SanDisk MicroSDXC™ for Nintendo® Switch™

Learn more >

Breitling Superocean Heritage Chronographe 44

Learn more >

Toys for Boys

Family Friendly

Panasonic 4K UHD Blu-Ray Player and Full HD Recorder with Netflix - UBT1GL-K

Learn more >

Stocking Stuffer

Razer DeathAdder Expert Ergonomic Gaming Mouse

Learn more >

Christmas Gift Guide

Click for more ›

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Edwina Hargreaves

WD My Cloud Home

I would recommend this device for families and small businesses who want one safe place to store all their important digital content and a way to easily share it with friends, family, business partners, or customers.

Walid Mikhael

Brother QL-820NWB Professional Label Printer

It’s easy to set up, it’s compact and quiet when printing and to top if off, the print quality is excellent. This is hands down the best printer I’ve used for printing labels.

Ben Ramsden

Sharp PN-40TC1 Huddle Board

Brainstorming, innovation, problem solving, and negotiation have all become much more productive and valuable if people can easily collaborate in real time with minimal friction.

Sarah Ieroianni

Brother QL-820NWB Professional Label Printer

The print quality also does not disappoint, it’s clear, bold, doesn’t smudge and the text is perfectly sized.

Ratchada Dunn

Sharp PN-40TC1 Huddle Board

The Huddle Board’s built in program; Sharp Touch Viewing software allows us to easily manipulate and edit our documents (jpegs and PDFs) all at the same time on the dashboard.

George Khoury

Sharp PN-40TC1 Huddle Board

The biggest perks for me would be that it comes with easy to use and comprehensive programs that make the collaboration process a whole lot more intuitive and organic

Featured Content

Product Launch Showcase

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?