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Hertz Global Holdings Inc., under shareholder pressure to hire a permanent top executive, said it will revise financial statements from 2011 through 2013 and continue a review that has found $87 million of errors so far.
The board’s audit committee is “looking into the tone at the top” and management’s influence over those mistakes. Hertz said it was advised in June that it was being investigated by the U.S. Securities and Exchange Commission. The Naples, Florida-based company has found that its internal controls had at least one material weakness and that it had ineffective procedures as of Dec. 31, according to a filing.
Hertz has been searching for a new chief executive officer since Mark Frissora resigned as chairman and CEO in September, as the company faced pressure from activist shareholders including billionaire Carl Icahn over its accounting issues. In August, Icahn disclosed a stake of more than 8 percent in the company and the following month Hertz reached an agreement with the activist investor that replaced some of its directors with his associates.
Hertz shares fell 4.2 percent to $21.77 at 8:29 a.m. New York time in early trading. Through yesterday’s close, they had declined 21 percent for the year.
Hertz also said it’s initiating a $100 million cost- reduction program. The company also said it increased by 45 percent the rate at which it is selling the highest-mileage cars in its fleet. As of the end of October, the company had sold 40 percent of those vehicles it planned to sell in the fourth quarter.
Hertz said today it plans to lessen its reliance on “risk” vehicles and start buying more vehicles it will sell back to the manufacturer at agreed upon prices. So-called risk vehicles will make up 70 percent of Hertz’s fleet next year, compared with 85 percent this year, the company said today. Frissora had touted the increased “risk” fleet as a positive for investors since the sale of such vehicles are more profitable.
Hertz starting running a risk fleet a few years ago to take advantage of the rise in used-car prices as Enterprise and Dollar Thrifty had done successfully. Before that, it bought most of its cars from automakers that agreed to buy them back at a set age and price. By running a risk fleet, Hertz can profit when prices rise, but it has to deftly manage when to sell the cars or face significant potential losses, Maryann Keller, an automotive industry analyst and former Dollar Thrifty director, has said.
The filing also spelled out compensation for interim CEO Brian MacDonald. He will get $1.1 million in annual base salary and a special cash incentive of $500,000, paid on an annualized basis. He had been running the company’s equipment rental business, which Hertz plans to spin off. That won’t happen until the accounting review is completed, which Hertz said it doesn’t expect until mid-2015.
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