Cendant Audit Finds Deeper Irregularities
Cendant Corp. said Tuesday that accounting irregularities at its CUC International unit were more extensive than previously disclosed, forcing it to cut 1997 earnings deeper than expected and eating into this year’s profit.
The marketing and franchising company, whose brands include Howard Johnson and Ramada hotels, Avis car rentals and Century 21 real estate brokerages, said an audit found errors at CUC that included “fictitious revenues,” false coding to inflate revenue and profit and delayed recognition of refunds. The probe found “widespread and systemic” bookkeeping flaws at CUC, said Michael Monaco, Cendant’s chief financial officer.
“We are of course outraged by these most recent findings,” Monaco said. The company and its auditors said the errors were made “with an intent to deceive.”
Parsippany, N.J.-based Cendant, formed in last year’s merger of CUC and HFS Inc., said the accounting flaws will cause the company to reduce its 1997 earnings, originally reported as $1 a share, by between 22 and 28 cents a share. The company also said it expects to reduce this year’s earnings per share from continuing operations 5 to 6 cents.
In April, when the irregularities were initially disclosed, Cendant said it would cut earnings by as much as 13 cents a share, or $115 million.
Cendant’s shares are down about 56% since the disclosure, which triggered investigations by the Securities and Exchange Commission, the U.S. attorney’s office in Newark, N.J., and 50 shareholder lawsuits.
Investors have been waiting for the results of the audit since then. Cendant shares fell 14% Monday after what executives said was a leak of the audit’s findings.
Cendant fell as much as 26% to $14, the lowest level since December 1994, after a delayed open on the New York Stock Exchange. It closed down $3.19 at $15.81.