CENDANT One of the foremost providers of travel and real estate services in the worldCendant'com

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CENDANT One of the foremost providers of travel
and real estate services in the world-Cendant.com

• Cyrus Bahrami
• Laura Hajtman
• James Pappas

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How Cendant got started

• Formed in December 1997 by the merger of two
  large firms
• CUC International
• HFS, Inc.
• The merger created a real estate powerhouse
  through CUCs membership club rolls and HFSs
  real estate and travel brands
• Value creation through cross-marketing franchises

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Overview

• Five main areas
• Real Estate
• Largest real estate brokerage franchisor in the
  world
• Owns NRT, a residential real estate brokerage
  company
• Cendant Mobility, a provider of corporate
  relocation services
• Hospitality (Hotels)
• Largest hotel franchisor in the world
• Vacation ownership
• Vehicle Services
• One of the largest car rental operators
• Fleet management and fuel card services
• Financial Services
• Franchisor of the second largest U.S. tax
  preparation service
• Travel Distribution
• Leading provider of travel information
  processing services worldwide

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Some brands associated with Cendant
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The Cendant Scandal

• High level executives from CUC had been recording
  false revenues to meet analysts expectations
  since 1985
• CUC executives inflated income by
• Recording revenues for future years in current
  years books and directing managers to make
  unsupported alterations to financial statements
• Improper use of merger reserves
• Delayed recognition of cancellations and
  credit-card rejections

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Understanding the Scandal

• How they were able to cook the books
• CUCss business was built on getting customers to
  commit to membership contracts
• These contracts were the main revenue generating
  source
• Without many hard assets or inventory, financial
  data relied more on managements word than actual
  measurements

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How Cendant got caught

• CUCs auditors, EY, failed to detect fraud
• Instead, it was Cendant that found an intense
  amount of accounting fraud in the former CUC unit
• CUC inflated revenues by 500 million and had
  200 million in accounting errors over a 3 year
  period
• These findings resulted in an internal
  investigation by an audit committee set up by
  Cendants board of directors
• Committee confirmed that more than one-third of
  CUCs total income was deliberately falsified

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Effect on Financials and Stock Price

• Financials
• 1997-Income reduced by 190 million and reverse
  200 million from inaccurate merger charges
• 1996-Income reduced by 95 million
• 1995-Income reduced by 65 million
• Stock Price
• Stock price dropped from roughly 42 a share to
  6 a share
• Cendant had to pay stockholders a total of 3.2
  billion to clear fraud settlement

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Penalties

• Cendant had to restate financials according to
  SEC guidelines and cease and desist from future
  violations of the provisions
• Four former CUC executives charged by SEC for
  fraud
• Cosmo Corigliano, Anne Pember, Casper Sabatino,
  and Kevin Kearney
• In General, they will have to do one or all of
  the following
• disgorge any ill-gotten gains, pay a civil money
  penalty, be permanently barred from acting as an
  officer of a public company, and be barred from
  practicing before the SEC as an accountant with
  the right to reapply after 5 years

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Penalties cont

• Three former CUC officials (lower level
  accounting managers) charged by SEC
• Steven Speaks, Mary Polverari, Paul Hiznay
• In General, they will have to do one or all of
  the following
• Pay a civil penalty of 25,000, be barred from
  practicing as an accountant with the right to
  reapply after 3 years, and avoid future
  violations

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Questions???
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Sources

• www.sec.gov
• http//slate.msn.com
• www.cendant.com
• http//money.cnn.com
• http//proquest.umi.com (Wall Street Journal)
• www.hedge-hog.com
• http//pacific.bizjournals.com