EXHIBIT 99.4
FOR IMMEDIATE RELEASE
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CENDANT AUDIT COMMITTEE REPORTS TO BOARD OF DIRECTORS
ON ITS INVESTIGATION INTO ACCOUNTING IRREGULARITIES
-- Report Chronicles Numerous and Pervasive Irregularities
Directed by CUC Corporate Executives
Aimed at Meeting Analyst Estimates --
-- Evidence of Attempt to Continue CUC Fraud in 1998 --
-- Says Forbes and Shelton Among Those Who Bear Responsibility --
PARSIPPANY, NJ, AUGUST 27, 1998 -- Cendant Corporation (NYSE: CD) today
announced that the Audit Committee of its Board of Directors has presented to
the Board its report on the investigation into the accounting irregularities
uncovered in the former CUC businesses and its conclusions regarding
responsibility for those actions. Cendant will file the full report on Form 8-K
and will send copies to the U.S. Attorney for the District of New Jersey and to
the staff of the Securities and Exchange Commission.
Earlier today, Cendant announced that the filing of its Form 10-K/A, which will
include its restated financial results for 1995 - 1997, has been delayed until
late September due to additional revisions of its accounting policies as
requested by the SEC.
The Audit Committee's report focused solely on accounting irregularities --
i.e., fraudulent financial reporting -- and chronicled in detail, through
numerous examples, how CUC's income, excluding merger-related and unusual
charges, was inflated by an aggregate of approximately $500 million before taxes
during the period 1995 - 1997 (the Restatement Period). The report said this was
accomplished through a wide range of irregular accounting entries directed by
CUC corporate executives at its Stamford, Connecticut headquarters and imposed
upon personnel throughout the company in an escalating attempt to ensure that
CUC's earnings would match analyst expectations.
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The report found that more than one-third of the total income, excluding
merger-related and unusual charges, reported by CUC during the Restatement
Period was deliberately and fictitiously manufactured. (This is consistent with
the restated financial results for 1995-1997 that Cendant released on August 13,
1998.) The report did not encompass the approximately $200 million of accounting
errors in CUC's accounting records which were also part of the 1995 - 1997
restated results.
The Audit Committee's report culminated more than four months of exhaustive work
by the Audit Committee's legal counsel, Willkie Farr & Gallagher, which
commissioned the accounting firm Arthur Andersen & Co. to perform a forensic
audit, and by Deloitte & Touche, the Company's auditors, assisted by Company
personnel. In addition to the scrutiny of all CUC's financial accounts, the
investigation encompassed several hundred hours of interviews with 81 witnesses
and the examination of numerous additional documents. In total, the report
included over 260 typed pages, supplemented by two volumes consisting of 128
additional exhibits.
Henry Silverman, Chairman, President and Chief Executive Officer of Cendant,
said, "This report brings to a close a difficult period for Cendant employees
and shareholders alike. The investigation has identified how a group of people
at CUC deliberately deceived and misled investors and business partners -- and
reveals a corporate culture that encouraged this behavior. We moved swiftly to
address these issues when they first came to light in April, and have put in
place a series of financial controls to ensure these improprieties cannot occur
at Cendant."
Among the report's key findings are the following:
o Irregularities Implemented to Meet Wall Street Estimates -- The report
stated that "the purpose of many of the irregularities was at least to
conform CUC's publicly-reported results to Wall Street's earnings
expectations."
"The amount of the income adjustments at each quarter closely mirrored
the amount needed to bring CUC's results into line with Wall Street
earnings expectations, e.g., if actual income in a particular quarter
was 10 cents per share and consensus analysts' expectations were 18
cents per share, then adjustments of approximately 8 cents were made,
without support, to increase earnings.
"The inflated earnings results were then publicly reported and
presented to the CUC Board of Directors at each quarter. Because these
results were often above the combined budgets of CUC's individual
business units for the quarters, the consolidated quarterly budget
figures presented to the Board...were frequently increased at corporate
headquarters to eliminate any substantial variance," the report said.
o Irregularities Directed from CUC Corporate Headquarters -- The
report stated, "Although...the numerous unsupported entries were
effected in many instances by employees of CUC subsidiaries (often with
knowledge that there was no apparent support
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for the making of such entries), the directions for the making of the
improper entries came from CUC corporate headquarters."
The report stated that Cosmo Corigliano, former Chief Financial Officer
of CUC, and Anne Pember, former Controller of CUC, were found to have
directed accounting irregularities to be entered. Neither Mr.
Corigliano nor Ms. Pember made themselves available to the independent
investigators, thereby limiting the information that could be obtained
about the role or participation of others.
Certain other financial and accounting personnel indicated they had
participated in irregular activities and directed others to record
improper entries. "More than 20 present and former employees from
various CUC business units in the United States and Europe, including
the major operating units of the company, have said that they were
instructed by persons at CUC corporate headquarters to engage in the
activities discussed in this Report," the report said.
o Responsibility of Forbes and Shelton -- The Committee concluded that
"Walter Forbes [Chairman of the Board and Chief Executive Officer of
the former CUC] and Kirk Shelton [President and Chief Operating
Officer] are among those who must bear responsibility for what occurred
at CUC."
"First, Walter Forbes and Kirk Shelton, because of their positions, had
responsibility to create an environment in which it was clear to all
employees at all levels that inaccurate financial reporting would not
be tolerated. The fact that there is evidence that many of the senior
accounting and financial personnel participated in irregular activities
and that personnel at many of the business units acquiesced in
practices which they believed were questionable suggests that an
appropriate environment to ensure accurate financial reporting did not
exist.
"Second, senior management failed to have in place appropriate controls
and procedures that might have enabled them to detect the
irregularities in the absence of actual knowledge of those
irregularities.
"Third, Walter Forbes and Kirk Shelton, the Company's most senior
managers, had a responsibility to fully understand the sources and the
true level of CUC's profitability. To the extent that they were unaware
of the irregularities, the amount by which CUC's earnings were inflated
as reported in the Restatement suggests that they did not adequately
inform themselves as to the sources and level of profitability of the
Company."
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o Numerous, Pervasive Irregularities -- "Throughout the Restatement
Period [i.e., 1995 - 1997], numerous accounting irregularities and
improper accounting practices occurred at CUC which had the effect of
inflating revenues or decreasing expenses. The irregularities were
pervasive," the report stated.
Among those irregularities were "topside" adjustments to inflate
operating income by increasing revenues and/or decreasing expenses;
quarterly unsupported adjustments to the company's balance sheet
"particularly to show a greater cash balance than the company actually
had on its books;" the improper utilization of merger reserves which,
among other objectives, helped close the "gap between what was reported
to the public and what was recorded on the company's books;" irregular
revenue recognition; understatement of the membership cancellation
reserve, and its improper reversal into income; as well as other
irregularities such as delayed recording of credit card rejects and the
creation of fictitious accounts receivable.
"Operating income was inflated during the Restatement Period in 17 of
the 22 operating units of CUC. Thus, the irregularities touched the
large majority of the company," the report said.
o Attempt to Continue Fraud in 1998 -- The report also stated, "In
addition, there is evidence that CUC intended to utilize a portion of
the reserve established in connection with CUC's merger with HFS on
December 17, 1997 to inappropriately increase earnings in 1998 and
perhaps in future periods as well."
EVENTS LEADING TO DISCOVERY OF FRAUD; WALTER FORBES' EXPENSES
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In addition to these conclusions, the report discusses evidence of a plan by CUC
executives that involved the improper reversal of merger reserves into revenues
in 1998. Also recounted are events which led to the eventual admission in April
by two CUC financial executives that adjustments had been made to meet financial
targets. This, in turn, led to the announcement by Cendant on April 15 that it
had discovered potential accounting irregularities and the commencement of the
investigation by the Audit Committee.
The report also discusses more than $500,000 of money paid to Walter Forbes in
September 1997 purportedly for his "undercharging" the company for trips he took
in 1995 and 1996 and which were charged at Mr. Shelton's direction to the
reserve established in connection with the CUC/HFS merger which closed in
December 1997.
Cendant has not concluded its review of Mr. Forbes' expenses, which is an issue
separate from the Audit Committee's investigation into CUC's accounting
irregularities and is not the subject of an Audit Committee investigation.
Cendant is investigating certain expenses recorded by Mr. Forbes during the
period 1995 to April, 1998, including the receipt of approximately $550,000 in
cash advances and approximately $1.5 million in aircraft, travel and lodging
allowances. The Company said it has not yet determined what action, if any, it
may take regarding these matters.
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Mr. Silverman said, "All of us at Cendant are now focused on the future and are
concentrating on the job of restoring confidence in our business. Our
outstanding employees have remained focused on building our business and on
showing to investors, business partners and customers each day how Cendant
uniquely can add value for them.
"As demonstrated by our 1998 results to date, our ongoing businesses continue to
perform extremely well. Each of the business units we inherited from HFS
performed on or ahead of plan, led by an unparalleled performance in our real
estate segment. We are confident that these businesses will continue to meet our
high expectations for the rest of the year and beyond. Cendant today is a
powerful engine of growth with additional potential which we are committed to
fulfill," Mr. Silverman concluded.
The text of the report's Executive Summary and Additional Conclusions will be
available on the Cendant website (http://www.cendant.com) and on PR Newswire.
The complete report may be obtained through the SEC's EDGAR website when the
Form 8-K is filed.
Cendant (NYSE:CD) is the world's premier provider of consumer and business
services. The Company operates in three principal segments: Travel Services,
Real Estate Services and Alliance Marketing. In Travel Services, Cendant is the
leading franchisor of hotels and rental car agencies worldwide; the largest
provider of vacation exchange services; a leading fleet management company, the
UK's largest private car park operator, and a leading motorist assistance group
in the UK. In Real Estate Services, Cendant is the world's largest franchisor of
residential real estate brokerage offices, a major provider of mortgage services
to consumers and a global leader in corporate employee relocation. In Alliance
Marketing, Cendant provides access to insurance, travel, shopping, auto, and
other services, primarily through direct marketing to customers of its affinity
partners. Headquartered in Parsippany, NJ, the company has more than 40,000
employees and operates in over 100 countries.
Certain matters discussed in the news release are forward-looking statements, as
defined in the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to a number of known and unknown risks
and uncertainties including, but not limited to, the outcome of the pending
litigation relating to the previously announced accounting irregularities;
uncertainty as to the Company's future profitability; the Company's ability to
develop and implement operational and financial systems to manage rapidly
growing operations; competition in the Company's existing and potential future
lines of business; the Company's ability to integrate and operate successfully
acquired businesses and the risks associated with such businesses; the Company's
ability to obtain financing on acceptable terms to finance the Company's growth
strategy and for the Company to operate within the limitations imposed by
financing arrangements; uncertainty as to the future profitability of acquired
businesses; the ability of the Company and its vendors to complete the necessary
actions to achieve a Year 2000 conversion for its computer systems and
applications and other factors. Other factors and assumptions not identified
above were also involved in the derivation of these forward-looking statements,
and the failure of such other assumptions to be realized as well as other
factors may
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also cause actual results to differ materially from those projected. The Company
assumes no obligation to update these forward-looking statements to reflect
actual results, changes in assumptions or changes in other factors affecting
such forward-looking statements.
Media Contact: Investor Contact:
- -------------- -----------------
Cendant Corporation Cendant Corporation
Elliot Bloom Denise L. Gillen
973-496-8414 or 973-496-7303
Kekst and Company
Jim Fingeroth
Roanne Kulakoff
212-521-4800
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