Hertz Shares Tumble On Accounting Woes

(RTTNews) - Shares of Hertz Global Holdings, Inc. (HTZ) fell more than 9% in intra-day trading on Friday after the car rental company said that it will have to review the financial records for the past three years and that it might have to restate financial statements for those periods to fix accounting errors.

The company also warned that its delayed first quarter 2014 results were likely to be below consensus and that the efforts to resolve the accounting issues might delay the planned spin-off of its equipment rental business.

During the preparation of the 2014 first quarter 10-Q, errors were identified relating to the company's conclusions regarding the capitalization and timing of depreciation for certain non-fleet assets, allowances for doubtful accounts in Brazil, as well as other items, Hertz said in a reulatory filing and added that further review 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.

According to the filing, the Audit Committee of the company's Board of Directors has concluded that the financial statements for 2011 should no longer be relied upon, and Hertz must restate them. the company also needs to correct the 2012 and 2013 financial statements to reflect these errors.

The Audit Committee has directed the Company to conduct a thorough review of the financial records for fiscal years 2011, 2012 and 2013, and the review may require Hertz to make further adjustments to the 2012 and 2013 financial statements. The company said it will make a decision on 2012 and 2013 financial statements after the review is completed.

Hertz also expects to receive an adverse opinion on the internal control over financial reporting as of December 31, 2013 from its auditors PricewaterhouseCoopers LLP.

Hertz said it is in the process of implementing new procedures and controls, and strengthening the accounting and finance departments through the addition of new personnel.

The company said it will release first quarter results at the same time it files the 10-K amendment after correcting the accounting errors, consequently cancelled conference call scheduled for June 9. In May, the company had postponed the release of its first quarter results to June 9.

The delayed first quarter results were likely to be below consensus, reflecting costs associated with the accounting review, other unusual items, and certain anticipated operating results, although the company will not be certain until the review is completed, Hertz said in the filing.

In March, Hertz said its board has approved the plans of separation into two independent, publicly traded companies. The two companies would be "Hertz," comprised of the Hertz, Dollar, Thrifty and Firefly rental car businesses as well as Donlen, a provider of fleet leasing and management services, and "HERC," the Hertz Equipment Rental Corp. The separation was then expected to be complete by early 2015. Hertz would receive net cash proceeds from the spin-off of around $2.5 billion, which would be used to pay down debt and support a newly approved $1 billion share buyback program.

Hertz shares, which have traded in a 52-week range of $19.73 to $30.52 over the past year, closed Friday's regular trading session at $27.73, down $2.76 or 9.05%, and lost an additional 10 cents in after hours trading.