After Hertz, the big car rental company, announced last year that it would move its global headquarters from New Jersey to Florida, CFO Elyse Douglas was the lone member of the senior executive team to resign. She said that for personal reasons she couldn’t move, as the company had asked CEO Mark Frissora and its other top managers to do.
As it turned out, that might not have been the reason for the resignation — or at least, if she had moved, she’d probably not be with the company today anyway.
The company’s new CFO, former Hilton Worldwide finance chief Thomas Kennedy, has his work cut out for him. Hertz said today in an 8-K filing that it will restate three years of financials to correct at least $46.3 million worth of errors in its 2011 statements. The errors are related to a broad swath of company activities.
The 8-K said, “During the preparation of the First Quarter 10-Q, errors were identified relating to Hertz’s conclusions regarding the capitalization and timing of depreciation for certain non-fleet assets, allowances for doubtful accounts in Brazil, as well as other items.”
Further, Hertz said, the company “continued its review and recently identified additional errors related to allowances for uncollectible amounts with respect to renter obligations for damaged vehicles and restoration obligations at the end of facility leases.” Late Friday morning, Hertz’s stock price was down about 9 percent on the news.
The company’s audit committee has directed it to conduct a thorough review of financial records for 2011 through 2013. Hertz warned in its 8-K that “this review may require Hertz to make further adjustments to the 2012 and 2013 financial statements.”
Hertz’s external auditor, PricewaterhouseCoopers, had given the company clean audit reports for those years.
Hertz promoted Douglas from treasurer to CFO in 2007. In a 2012 interview with CFO, she noted that treasury was “a specialized field and essentially a ‘support’ role with defined functions,” and that “becoming accustomed to having a high-level focus and relinquishing the need to know all of the details proved to be the biggest adjustment for me.”
Kennedy, the new CFO, is currently in the interesting position of being paid a hefty salary by two different companies. As reported in April by Footnoted, Kennedy, who left Hilton two months before it went public last December, walked away with a separation agreement under which he’ll be paid $1.06 million annually for the next three years. At Hertz, his base salary is $660,000.
Meanwhile, the news about Hertz’s accounting blunders triggered a 26-year-old memory for me.
As I recently wrote, at one time I covered the car-rental industry for another business-to-business publication. In 1988, Hertz was caught billing customers for damages to rental cars beyond the actual damages. It was an unsavory story, but it took an amusing turn when Joe Vittoria, then CEO of Avis, called me to the company headquarters on Long Island.
For two hours, I sat in a conference room while Vittoria and other Avis executives ranted on about how their company never did what Hertz did and would never even think of it. The meeting conjured a feeling that perhaps Avis was protesting too much.
It hadn’t occurred to me to investigate the rest of the car rental industry. At that point, I would have, if my employer had had the resources to dedicate me solely to that story. There was a touch of Wild West in the car rental business in those days. Maybe there still is.