Hertz Delays Q1 Filing as Accounting Errors Force Restatement of 2011-2013
Hertz Global Holdings announced Friday that it was again delaying the filing of its Form 10-Q reporting first quarter results for 2014, and that the discovery of errors has obliged it to restate its financial statements for 2011, 2012 and 2013. Hertz said during the preparation of its first quarter results it identified errors relating to its conclusions regarding the capitalization and timing of the depreciation for certain non-fleet assets, allowances for doubtful accounts in Brazil as well as other items. Hertz continued its review and recently identified additional errors related to allowances for uncollectible amounts with respect to renter obligations for damaged vehicles and restoration obligations at the end of facility leases.
Because of the errors, the Audit committee has directed the company to conduct a thorough review of the financial records for fiscal years 2011, 2012 and 2013. The review, the company said, might require Hertz to make further adjustments to the 2012 and 2013 financial statements.
Shares in Hertz tumbled more than 9 percent in intraday trading Friday in response to the news. Analysts expressed concern that the issue could affect Hertz’ plans to spin off Hertz Equipment Rental Corp. into a separate publicly traded corporation, fearing that investors might hesitate to invest in HERC with uncertainty over accounting issues.
Hertz acknowledged efforts to resolve accounting issues could impact the timing of the separation, but said plans to separate the equipment rental business remain on track. Hertz said additional resources have been deployed so the work can be done in parallel with the resolution of the accounting problem. HERC has implemented a separation hiring plan, including the recruitment of other senior leaders.
Management, in consultation with the Audit Committee, has determined that at least one material weakness existed in Hertz’s internal control over financial reporting and that disclosure controls and procedures were ineffective on Dec. 31, 2013. Hertz said it intends to amend its Management’s Report on Internal Control Over Financial Reporting and Disclosure Controls and Procedures.
The company is also in the process of implementing new procedures and controls, and strengthening the accounting and finance departments through the addition of new personnel. Leading the process is Tom Kennedy, who was named senior executive vice president and chief financial officer effective Dec. 9, 2013. Kennedy is being assisted by the company’s new chief accounting officer Robin Kramer and new vice president of SOX/Compliance, Randy Walford.
Meanwhile Hertz released preliminary results, subject to possible revision based on further review. Hertz said worldwide equipment rental segment revenue increased approximately 2.4 percent compared to the first quarter of 2013. North America equipment rental volume increased 7.4 percent driven by higher year-over-year construction activity and more moderate year-over-year growth in industrial activity. The year-over-year equipment rental comparison was impacted by clean-up activity following Hurricane Sandy in the previous year when customers were renting industrial-sized generators and earthmoving equipment in large amounts following the storm.
Industrial rental revenue increased 3.4-percent year over year compared to a 15.7-percent jump in the comparable first quarter 2013, when North America equipment rental’s national accounts were investing more heavily in facility maintenance and upgrades.
North America equipment rental recorded a 1.5-percent increase in pricing, reflecting improvements in local markets and national account pricing. Dollar utilization in North America was 34.8 percent, and time utilization was 61.8 percent, both influenced by the equipment mix comparison related to Hurricane Sandy a year ago, industrial activity, as well as the fourth quarter 2013 decision to pre-buy less expensive fleet ahead of the new Tier 4 emission standards.
Hertz is based in Naples, Fla.
