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Cendant Finishes Audits, Announces Deals

Cendant Corp. has completed its internal investigation into accounting irregularities at the former CUC International and announced Aug. 13 lowered net income earnings revisions of 28 cents per share or $392 million for 1997, 18 cents per share for 1996 and 14 cents per share for 1995. These revisions are pretax and do not include one-time charges.

Cendant, the Parsippany, NJ, direct marketer of membership services, also announced a $457 million pretax adjustment to a CUC charge that lower the cost of one-time charges by 32 cents per share. The revisions are in line with initial estimates made in July and conclude an audit process that began in April, when accounting problems were first discovered. The controversy caused the company's stock to lose more than half of its value and led to pending shareholder lawsuits and the resignation of several CUC executives, including chairman Walter Forbes.

The accounting breaches will lower first-quarter 1998 earnings by 4 cents per share and second-quarter earnings reported last week by 2 cents per share. Before revisions, Cendant reported earnings grew 44 percent to a record 23 cents per share. Revenue grew 28 percent to $1.3 billion for the second quarter and 24 percent to $2.5 billion for the first six months of the year.

The membership segment of Cendant's alliance marketing division, the company's primary direct marketing vehicle and the main focus of its accounting probe, experienced sizable pretax earnings growth in the second quarter because of price increases and membership growth.

“Our ability to report fundamental growth in individual membership encourages us to believe that these units, under proper management and with appropriate financial controls, can offer significant upside potential to our shareholders in the future,'' Cendant chairman and CEO Henry Silverman said in a prepared statement.

In an attempt to raise cash and prop up its lagging stock, Cendant will shed its publishing and software businesses and concentrate on divisions that fit its future business model. The Hebdo Mag International will be sold to management of the classified ads publishing subsidiary for 7 million shares of Cendant stock (worth $115 million) and $410 million in cash.

Cendant also has hired Credit Suisse First Boston to arrange either an initial public offering or sale of its software business unit, which includes Knowledge Adventure, Blizzard Entertainment, Davidson & Associates and Sierra On-Line. The latter two were bought for $2.2 billion in 1996 and are expected to fetch $1 billion to $1.5 billion in today's market.

The Hebdo transaction is expected to be completed in the fourth quarter and should result in an after-tax book gain of $250 million and add 1 cent to 1999 EPS.

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