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Hertz’s accounting problems are worse than you think

June 6, 2014, 3:13 PM UTC
Photo by David Paul Morris / Bloomberg—Getty Images

Hertz Global Holdings (HTZ) has disclosed it must restate three years of financial statements due to varying accounting issues, an action that could affect the timing of the company’s planned spin off of its equipment-leasing business.

The car-rental company first noticed errors earlier this year when it was preparing its first quarter results, which resulted in a delayed 10-Q filing with the Securities and Exchange Commission. Hertz’s audit committee has concluded the company’s 2011 financial statements can no longer be relied on, and also needs to correct the 2012 and 2013 statements to reflect those errors.

Because of those errors, the committee has also directed Hertz to thoroughly review the financial records for all three years, which could result in further adjustments to the 2012 and 2013 financial statements. The company also cancelled a conference call it intended to host on Monday.

The disclosure, made in a SEC filing, comes as Hertz is in the midst of building a new financial team. The finance team has been undergoing changes since former CFO Elyse Douglas stepped down from the role last year. Douglas left that role as she didn’t want to relocate to Florida, where Hertz was moving its headquarters from the New York City metropolitan area.

Since Douglas stepped down, senior vice president and corporate controller Jatindar Kapur has also resigned. Hertz has said new CFO Thomas Kennedy is spearheading an effort to rebuild the financial team.

“Hertz 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.

Mr. Kennedy joined Hertz in late 2013, after serving as CFO at Hilton Worldwide (HLT) since 2008.

Operationally, Hertz and rivals Avis Budget Group (CAR) and privately held Enterprise Holdings have reported stronger sales in recent years, benefiting from a pickup in travel from leisure and business customers since the end of the recession. Hertz completed an acquisition of smaller peer Dollar Thrifty in 2012, but is planning to streamline its focus on car rentals after it completes a spin off of its equipment-leasing business.

Hertz, which is still reviewing its first-quarter results, preliminarily expects those results will fall short of Wall Street’s expectations. The company said preliminary results indicate rental-car revenue increased in the U.S. and abroad during the first quarter, though excess fleet and the timing of the late Easter holiday hurt per-day rental-car revenue in the U.S.