NEW YORK (CNN/Money) -
Xerox Corp. improperly booked nearly $2 billion in revenue over the past five years, the company said Friday, as the copier maker was forced to restate earnings to reflect $1.4 billion less in pre-tax profits during the period.
The downward adjustments are actually less than misstatements cited by the Securities and Exchange Commission in April, when it filed civil fraud charges against the copier company. At that time, the SEC charged that Xerox's accounting accelerated the company's recognition of equipment revenue by more than $3 billion, and increased its pre-tax earnings by about $1.5 billion, between the years 1997 and 2000, rather than through 2001. Xerox agreed to pay a $10 million penalty under an agreement with the SEC at that time.
Despite having a better-than-expected restatement of results, shares of Xerox (XRX: down $0.73 to $7.27, Research, Estimates) lost about 13 percent in midday trading Friday. But that was less than the 35 percent decline in the office equipment maker's stock in before-hours trading Friday, occurring before the company issued its statement but after a report in the Wall Street Journal said the amount of overstated revenue could reach $6 billion.
The Journal report said a new audit had found fresh accounting problems in 2001. The Xerox statement did not directly address the Journal's charges, but said the new filing to the SEC by the company closes the door on its accounting woes.
"Xerox today closes a difficult chapter in the company's history," said a statement from Xerox CEO Anne Mulcahy. "With the filing of the 2001 10-K, we will have resolved the company's accounting issues with the SEC and completed the restatement."
Xerox's announcement came amid heightened investor concern and attention to accounting issues. Tuesday telecom company WorldCom joined companies like bankrupt energy trader Enron and revealed that it had misstated about $3.8 billion in expenses, inflating pretax profits.
Merrill Lynch, citing the risk of further problems being revealed, downgraded Xerox shares Friday to a short-term "sell" and long-term "neutral" ratings from its previous short-term "neutral" and long-term "buy" ratings.
But other analysts maintained a "buy" rating, saying that Friday's filing was actually good news for the company.
"They show Xerox having more revenue in 2001 than we previously expected," said Peter Ausnit, analyst with Deutsche Banc-North America, on CNNfn's Market Call. "The company is actually more solid than people thought it was a day ago."
Part of the reason for the company's better than expected audit numbers is that the most recent years actually improved, rather than hurt, their top and bottom lines.
"Overall, the total adjustments in the restatement reduce full-year revenues and pre-tax income for 1997, 1998 and 1999 while increasing revenues and pre-tax income for 2000 and 2001," said the company's statement.
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Xerox said that it reversed a total of $6.4 billion of previously recorded equipment sale revenue, but it was able to offset that with $5.1 billion of revenue that has been "recognized and reported during the same period as service, rental, document outsourcing and financing revenues."
It said shareholder equity had been reduced by $1.3 billion at the end of 2001.
Accounting firm KPMG, which was replaced by Xerox as its outside auditor by rival PricewaterhouseCoopers last October, defended the original numbers Friday, saying the restatement of results defied "economic reality.
"KPMG remains firm in its conviction that the financial statement reported on by us in May 2001, including Xerox's financial statements for 2000 and the restated financial statements for 1997-1999, were fairly presented in accordance with generally accepted accounting principles," the auditor said.
-- Reuters contributed to this report.
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