An accounting review by the board of Hertz has found that the troubled rental car company overstated GAAP net income by $87 million for the three years from 2011 to 2013, according to a regulatory filing.
Hertz had disclosed in June that the board’s audit committee had uncovered discrepancies in the financial statements for 2011. Because of those errors, the committee ordered Hertz to conduct a thorough review of the records for 2011, 2012 and 2013.
Announcing the results of that review Friday, the company said it will restate its earnings statements for those years, reducing its GAAP net income by 18%, 14% and 6% for its 2011, 2012 and 2013 fiscal years, respectively. In dollar terms, that works out to $32 million, $35 million and $20 million.
“Although the review and investigation are ongoing, the audit committee, in consultation with management, has concluded that the additional proposed adjustments arising out of the review are material to the company’s 2012 and 2013 financial statements,” Hertz said.
The most material errors identified so far, the filing said, relate primarily to the capitalization and timing of depreciation for certain non-fleet assets; allowances for doubtful accounts in Brazil; allowances for uncollectible amounts with respect to renter obligations for damaged vehicles; restoration obligations at the end of facility leases; and certain other items.
Hertz said it had “discussed this matter” with its external accountant, PricewaterhouseCoopers. Thomas Kennedy took over as CFO in December, replacing Elyse Douglas, and the company is still looking for a new CEO after Mark Frissora resigned in September.
As Bloomberg reports, Hertz has been under pressure from activist shareholders, including billionaire Carl Icahn, over its accounting issues. In August, Icahn disclosed a stake of more than 8% in the company; the following month Hertz reached an agreement with the activist investor that replaced some of its directors with his associates.
“Companies with problems reporting accurately for one or two periods usually have much larger problems,” Erik Gordon, a business professor at the University of Michigan, told Bloomberg. “The news from them rarely gets better and sometimes turns out to be catastrophic.”
Hertz stock was down nearly 3% at $19.92 in trading Friday.
Photo: Atomic Taco.