Hertz 2014 Annual Report Download - page 107

Table of Contents
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Description of Restatement Matters and Restatement Adjustments
Based on the internal investigation, the Company's review of its financial records, and other work completed by its management, the Audit
Committee has concluded that there were material misstatements in the 2011, 2012, and 2013 consolidated financial statements.
The restatement of previously issued financial statements reduced pre-tax earnings for the years ended December 31, 2013 and December 31,
2012 by approximately $72 million and $81 million, respectively. Below are tables summarizing the impact of the restatement matters and the
effect of the change in accounting principle, as discussed further in Note 7 - "Employee Retirement Benefits," on the previously issued
consolidated financial statements for the years ended December 31, 2013 and December 31, 2012. The change in accounting principle increased
pre-tax income by $12 million in 2013 and $5 million in 2012.
The individual restatement matters that underlie the restatement adjustments are described below and are reflected and quantified, as applicable,
in the footnotes to the below tables. The restatement adjustments also affect periods prior to 2012.
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(a) Allowance for Doubtful Accounts and Credit Memos (U.S. Car Rental) - The historical methodology employed for doubtful customer accounts
and credit memo allowances for the U.S. Car Rental business inappropriately used inaccurate write-off rates for receivables, aggregated
receivables with significantly different credit risks for purposes of analysis and used assumptions in setting the reserve for credit memos that were
not supported. Inappropriate tone at the top, among other factors, may have contributed to this restatement matter. The resulting reduction to pre-
tax earnings was $1 million in 2013 and $3 million in 2012, respectively. The cumulative pre-tax misstatement was a decrease of $7 million.
(b) Allowance for Doubtful Accounts and Credit Memos (International Car Rental) - The historical methodology employed for doubtful customer
accounts and credit memo allowances for the international car rental business inappropriately used inaccurate write-off rates for receivables,
aggregated receivables with significantly different credit risks for purposes of analysis and did not include a reserve for credit memos.
Inappropriate tone at the top, among other factors, may have contributed to this restatement matter. The resulting reduction to pre-tax earnings
was $3 million in 2013 and $1 million in 2012, respectively. The cumulative pre-tax misstatement was a decrease of $12 million.
(c) Allowance for Doubtful Accounts and Credit Memos (Worldwide Equipment Rental) - The historical methodology employed for doubtful
customer accounts and credit memo allowances for the worldwide equipment rental business inappropriately used rates that differed from historical
norms, used unsupported assumptions, and contained formulaic errors. In addition, changes to the methodology in 2012 reduced the reserve
requirement and slowed the rate of recording account write-offs. Inappropriate tone at the top, among other factors, may have contributed to this
restatement matter. There was no impact to pre-tax earnings in 2013 and a reduction to pre-tax earnings of $6 million in 2012. The cumulative pre-
tax misstatement was a decrease of $8 million.
(d) Subrogation (Damage) Receivables and the Related Allowance for Doubtful Accounts (U.S. Car Rental) - This restatement matter relates to
estimated recoveries from third parties responsible for damages to vehicles. The historical methodologies used to estimate the unbilled balances
and the allowance accounts inappropriately used assumptions that lacked support, including using write-offs rather than collection history as a key
assumption and changed methodologies without any supported basis, as well as contained formulaic errors. In addition, there were instances in
which the amount recorded for the allowance was significantly less than the amount calculated based on the methodology in place at the time. The
Company has revised the methodology used to calculate subrogation claims to utilize the ratio of claims collected compared to damage expense
incurred. Inappropriate tone at the top, among other factors, may have contributed to this restatement matter. The result was a reduction to pre-tax
earnings of $3 million in 2013 and $26 million in 2012. The cumulative pre-tax misstatement was a decrease of $48 million.
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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