As Hertz investigated a handful of accounting anomalies that would lead to restatement, the list of accounting problems mushroomed to more than a dozen separate accounting mistakes and a long list of internal control problems, including excessive focus on meeting targets and gaming accounting results to achieve them.
Hertz Global Holdings, Inc., filed its 10-K for its fiscal year ended Dec. 31, 2014 and its 10-Q for March 2015 to bring its filings up to date with the Securities and Exchange Commission and correct accounting errors dating back to 2011. The corrected accounting carved $109 million from the company’s reported profits.
Hertz plans to shed its equipment rental business, revise its capital allocation, review cost saving measures and capacity plans, and refresh its fleet to help the company recover and move on. "Today's filings are an important step forward, and our attention is now on realizing Hertz's full potential,” said John Tague, Hertz president and CEO since November 2014, in a statement.
When Hertz revealed in mid-2014 that it would restate 2011 results, and possibly 2012 and 2013 as well, the company identified accounting problems in four separate areas. The company said it identified issues with capitalization and timing of depreciation for certain non-fleet assets; allowances for doubtful accounts in Brazil; allowances for uncollectible amounts with respect to renter obligations for damaged vehicles; and restoration obligations at the end of facility leases.
Ultimately, Hertz restated 2012 and 2013, but provided restated, unaudited, selected financial data from the fiscal year ended 2011. With the filing, Hertz identified a total of 15 areas where accounting errors needed to be corrected, and attributed the mistakes to material weaknesses in internal controls, including tone at the top and personnel problems. Hertz says it has cleaned house with a new CEO, CFO, chief accounting officer, general counsel and more than 20 other vice president and director-level accounting staff.
“Our investigation found that an inconsistent and sometimes inappropriate tone at the top was present under the then existing senior management that did not in certain instances result in adherence to accounting principles generally accepted under U.S. GAAP and the company accounting policies and procedures,” the 10-K says. “Our former CEO’s management style and temperament created a pressurized operating environment.” Further, Hertz says there were instances of “inappropriate emphasis on meeting internal budgets, business plans, and current estimates.”
The company’s former CEO, Mark Frissora, encouraged a big focus on business risk and opportunity, and didn’t want to let accounting get in the way, the filing says. “This resulted in an environment which in some instances may have led to inappropriate accounting decisions and the failure to disclose information critical to an effective review of transactions and accounting entries, such as certain changes in account methodologies,” the filing says.
Hertz said it continues to identify control issues and implement improvements. The company indicates its audit firm, PwC, provided its opinion based on the 2013 COSO Internal Control -- Integrated Framework. Most public companies adopted the 2013 framework in 2014 as Hertz was in the midst of its restatement exercise.