Less than two months ago, Xerox chairman and chief executive Ms Ann Mulcahy, in a television interview, said emphatically that there would be no surprises when the company filed its annual report to the government in June.
"I can assure you that this company is completely transparent and investors know everything," she said.
The May 2nd interview was played over and over again on CNBC business channel yesterday after the company admitted to the Securities and Exchange Commission (SEC) yesterday that it had another nasty surprise to report - that it wrongly stated revenue by $1.9 billion (€1.92 billion) over five years, reducing its revenue by 2 per cent to $91 billion for the 1997-2001 period.
Shares of Xerox fell 13 per cent to $6.96 at the close of trading on the New York Stock Exchange after the story broke in yesterday's Wall Street Journal.
The news that Xerox had manipulated its accounts more than previously declared in order to inflate performance figures comes hard on the heels of the admission by telecom giant WorldCom on Tuesday evening of a $3.8 billion accounting fraud to inflate earnings.
Xerox has already paid a $100 million civil fine in an April settlement with the SEC for improperly accelerating revenue. The settlement was the largest on record.
The figure the SEC estimated then was $3 billion. It alleged that Xerox "pumped up its earnings" by improperly setting aside various reserves, then adding them back into earnings to show higher profit.
This helped keep Xerox's stock price higher, enabling executives to cash in more than $5 million in performance-related compensation and more than $30 million in sales of stock, the SEC charged.
The SEC said then the company had "misled and betrayed investors" through a series of accounting devices to manipulate earnings and enrich executives. It estimated that these accounted for up to 37 per cent of pre-tax earnings in some three-month periods.
After a new audit, Xerox said yesterday in its annual filing with the SEC that its reversal of equipment-sale revenue was larger than it initially expected because of a change in the company's lease accounting in Latin America from equipment sales to rental.
Ms Mulcahy yesterday refused requests for an interview. In a statement she said: "Xerox closes a difficult chapter in the company's history. With the filing of the 2001 10-K [annual accounts], we will have resolved the company's accounting issues with the SEC and completed the restatement."
The company said it reversed $6.4 billion of previously recorded equipment-sale revenue. This was offset by $5.1 billion of revenue that it reported as service, rental, document outsourcing and financing revenue. Also, Xerox reversed $600 million in lease revenue that it received before 1997. The company pointed out that the value of customer contracts had not changed and that there was no impact on the cash it had received or was due to receive.
Ms Mulcahy added: "At the same time, we continue to improve our operations and bring innovative technology to market.
"Our new management team has put the past behind us. We are sharply focused on the future, where we are well-positioned to capture profitable growth opportunities, creating greater value for our customers and shareholders." The company said the restatement would not affect a new credit facility announced last week.
Xerox, which has a reputation of technological innovation that it has been unable to transform into profits, has been struggling of late. In the first quarter, it cut 4,300 jobs to pare its workforce to 74,600.
