Catherine Burke

1

• Catherine Burke
• Becky Davis
• Gayer McFarland
• Shannon L. Oslick
• Christopher Sedtal

2
What do they do?

• 5 Business Segments
• Real Estate Services

• Hotel Franchises

• Car Rental

• Travel Distribution

• Tax Service Franchises

3
Brief History

• December 1997
• CUC International Inc. HFS Inc

• April 1998
• Cendant discovers accounting discrepancies in
  CUCs books from 1995 1997
• Arthur Anderson hired for independent review

4
What did they do wrong?

• CUC inflated revenues in the first 3 quarters of
  1995, 1996 and 1997

• 10Qs were unaudited
• Transactions reversed in the final quarter of
  each year to prepare for the 10K audit by
  Ernst Young, LLP

5
How did their hand get caught in the cookie jar?

• Merger Agreement
• Cendant CEO Silverman questions
• Former lower level accounting managers come clean
• Cendant orders independent review

6
How were the Financial Statements affected?
7
Stock Price April 1998 Company Investigation
announcement April 15th April 15th
stock price 36.63 April 16th stock price
19.06
Stock price history Jan 1997 to Dec 1999
8
Penalties Assessed

• Civil Penalties
• Cendant Corp. - 3.5 billion total settlement
• E Y paid these same plaintiffs 335 M

• Criminal Penalties
• Cosmo Corigliano, CFO 10 yrs prison
• Anne Pember, Director of Acct 5 yrs prison
• Casper Sabatino, External Reporting 5 yrs
  prison
• Kevin Kearney, Financial Reporting fined 67,000

9
The Future for

• Improved corporate governance
• Annual election of Board of Directors
• Cannot reprice stock options without SH vote
• Incentive-based compensation for CEO
• Deloitte replaces Ernst Young as auditor
• Stock price currently trading around 21.20

10
QUESTIONS