United Rentals Inc., which is embroiled in a series of accounting controversies, will remove its corporate controller, principal accounting officer, vice president of finance from their positions, although the company did not find intentional wrongdoing on their part.
In a statement, the Greenwich, Connecticut-based company — “the largest equipment rental company in the world,” according to its website — also announced that it would fire two employees and that three others would receive written reprimands. A special committee of directors found no wrongdoing by the company’s chairman and chief executive officer.
The committee also found that practices regarding sale-leaseback transactions and trade packages appear to have been directed by the company’s two former chief financial officers. Both of these individuals, who are no longer with the company, declined to cooperate with the committee’s investigation, added the company statement.
United Rentals did not identify any of the disciplined individuals by name. As we reported back in August, however, the company fired John Milne — who held the positions of president, chief financial officer, chief acquisition officer, and secretary — for refusing to cooperate with the Securities and Exchange Commission’s investigation into the company’s accounting practices. United’s statement noted that the SEC continues to investigate the company’s accounting practices and it is cooperating fully.
The committee also disclosed irregularities with respect to some trade packages which involved undisclosed inducements, but it accepted the company’s view that disclosure, rather than restatement, was appropriate for these transactions. The committee also stated that it is not necessary to restate results regarding company practices in connection with equipment acquired in purchase business combinations between 1997 and August 2000.
United Rentals does expect to restate results, however, to correct the accounting for six minor sale-leaseback transactions which occurred between December 2000 and March 2002. These revisions are in addition to other previously announced restatements.
The committee found that certain commitments or concessions to suppliers were not disclosed and that the company improperly recognized revenue from certain transactions involving undisclosed inducements. The committee further found that, as a result of instructions given by certain former employees, documents were not created that would have permitted the linkage of the sales and inducements. “As a result, the true nature of certain of these transactions was concealed,” added the statement.
The committee also concluded that United’s historical practices concerning its accounting for purchase business combinations “were not adequate” between 1997 and August 2000.” These included, among other things, the use of inconsistent valuation methodologies, some of which were reflected in memoranda that were not provided to or reviewed by the company’s auditors, suggestions contained in those memoranda that improper methods of valuation be used (although the committee did not find evidence that such improper methods were generally applied), inadequate supervision of personnel, inadequate coordination with providers of outside valuations and apparent confusion on the part of one of those providers.
“Because it was unable to validate the company’s reported depreciation expense for, and income recognized on, sales of equipment acquired in purchase business combinations, the committee concluded that certain company personnel (whom the committee was unable to identify) may have sought to manipulate opening balance sheet values for equipment acquired in purchase business combinations by causing them to be understated and that these opening balance sheet values may have been understated by an amount the committee was unable to determine,” the statement added.
The committee not recommend a restatement regarding this matter, however.