Formed last December through the $11 billion merger of HFS and CUC International, Cendant shocked Wall Street in April when it alleged "widespread and systemic" fraud at CUC. At the time Cendant said the problems included "false entries which misrepresented the financial performance and condition" of CUC.
As a result of confirming those allegations through an independent investigation, Cendant has lowered its 1997 earnings by 28 cents per share, or $392 million, before taxes. The net impact of this restatement, along with a two-cent hit from discontinued operations, will lower the company's net income from continuing operations to 70 cents per share from $1 per share, before one-time charges.
Cendant also announced a $457 million pretax adjustment to a charge related to CUC 's merger with HFS. The adjustment will increase Cendant's 1997 net income by $279 million, or 32 cents per share, after taxes.
The direct marketing company best known for owning Ramada, Howard Johnson, Avis, Century 21, and Coldwell Banker said that it will lower its 1996 results by 18 cents per share. It also has determined that certain one-time merger charges taken by CUC in 1996 should be reversed.
In addition, Cendant's 1995 results will be lowered by 14 cents per share.
"Millions of dollars and hundreds of thousands of hours of work have determined what was wrong and what must be put right," said Cendant vice chairman and CFO Michael P. Monaco. "While we take no joy in reporting these results, our shareholders should take great comfort from the thoroughness of this investigation and the fact that we have unflinchingly accepted and reported its results, even when it uncovered much greater and more systematic fraud than we had any conception of when we launched this effort in April."
Also today, Cendant announced record second-quarter earnings from continuing operations of 23 cents per share, compared with earnings of 16 cents per share reported for the year-ago quarter, an increase of 44 percent. The company's revenues increased to $1.3 billion in the second quarter of 1998, up from $1 billion posted for the year-ago quarter.
Cendant beat Wall Street's consensus estimates, which pegged the company's second-quarter earnings at 21 cents per share, according to First Call.
"Our second-quarter results demonstrate?the strength of Cendant's core business franchises," chairman, president, and CEO Henry Silverman said in a statement. "All of our segments performed well in the quarter, led by unparalleled performance in our real estate segment."
For the first six months of 1998, Cendant reported income from continuing operations of 47 cents per share, compared with 28 cents per share reported for 1997, an increase of 68 percent. Revenues for the first six months increased by 24 percent, to $2.5 billion.
The financial results announced today incorporate all relevant information obtained from the investigation into the accounting irregularities, and reflect corrections made to accounting policies as a result of the findings.
Cendant stock rose more than 5 percent today on the news, to 16.9375. The shares have traded as high as 41.69 and as low as 13.75 during the past 52 weeks. Cendant stock fell 46 percent to 19.06 in April when the company first announced the accounting irregularities.
In a separate announcement yesterday, Cendant said that it has agreed to sell its Hebdo Mag International subsidiary to a company organized by Hebdo management for approximately seven million shares of Cendant common stock and $410 million in cash. Hebdo Mag International is a worldwide publisher--both in print and online--and a distributor of classified advertising information. The transaction is expected to be completed in the fourth quarter of 1998.