Cendant Audit Finds Deeper Irregularities
Once-high-flying Cendant Corp.'s problems deepened Tuesday with the announcement that one of the companies that merged to create the franchising business falsified records for three years, creating “fictitious revenues” and prompting a criminal investigation.
Parsippany-based Cendant, which owns the rights to such franchise brands as Howard Johnson hotels, Avis car rentals and Century 21 real estate, said the latest problems will cut its 1997 earnings by $200 million to $250 million. They will also force Cendant to revise earnings for 1995, 1996 and this year’s estimates.
Cendant’s shares, pummeled in April when the firm first announced the accounting irregularities, plunged 17% on Tuesday, falling $3.19 to $15.69 on the New York Stock Exchange on massive volume of 60 million shares.
The former Stamford, Conn.-based CUC International Inc., which merged with HFS Inc. in December to form Cendant, was responsible for “accounting errors made with an intent to deceive” and “fictitious revenues,” Cendant said in a statement.
Cendant said an audit found that CUC artificially inflated sales by classifying restructuring charges as revenue, recording long-term sales as short-term and delaying recognition of membership cancellations.
CUC also invented “fictitious revenues” for the first three quarters of 1997, Cendant said, adding that “widespread and systemic” accounting irregularities affected all major business units at CUC, which primarily handled discount club memberships.
Walter Forbes, the former head of CUC and current president of Cendant, said he was “dismayed” by the problems and that he had no knowledge of them while at CUC.
Forbes said he has not been questioned by the U.S. attorney’s office, which Cendant said had begun an investigation. It also said it is cooperating with a Securities and Exchange Commission inquiry.