CD report from Reuters:
Tuesday July 14, 8:12 am Eastern Time
Cendant alleges fraud at CUC "widespread, systemic"
PARSIPPANY, N.J., July 14 (Reuters) - Cendant Corp. (CD - news) on Tuesday alleged that fraud at its CUC group was even worse than originally thought and would force it to cut its 1998 earnings forecast and restate financial results going back three years.
Cendant, which stunned Wall Street in April with allegations of accounting irregularities at CUC, said the problems were ''widespread and systemic'' and included ''false entries which misrepresented the financial performance and condition'' of CUC.
Cendant, created just last December in the $11 billion merger of HFS Inc. and CUC, alleged that the fraud included artificially boosting operating results at CUC business units by recording fictitious revenues. It said it expects to provide detailed information on ''all material CUC irregular accounting practices'' when it releases its restated and re-audited financial statements for the 1995-1997 period.
It said the restatements would lower its 1997 earnings per share, before charges, by 22 to 28 cents. Originally it said the cut would be 11 to 13 cents. Cendant said it would reverse a ''material portion'' of the $200 million CUC merger charge. Following the restatement and the reversal of charges, its 1997 earnings will be restated to between break-even and 6 cents per share, the company said.
Cendant said it expects 1998 earnings per share from continuing operating to be 5 to 6 cents lower than previously estimated. Analysts had expected earnings of $1.13 per share, according to First Call.
Market sources said Cendant shares were off $3.25 to $15.50 in pre-opening trade. The shares fell 14.2 percent in active trade Monday on rumors of a delay in the company's financial audit.
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