New Caesars CEO blamed for Hertz accounting failures
Mark Frissora, the 3-week-old CEO of Caesars Entertainment Corp., was accused by Hertz Global Holdings of having a "management style and temperament that created a pressurized operating environment" during his tenure as the top executive of the automobile and equipment rental car company.
Hertz said the lack of oversight by Frissora led to "material misstatements" in the company‘s 2011, 2012 and 2013 financial reports totaling $207 million.
Hertz made the comments through an explanatory note in the company‘s year-end financial filing with the Securities and Exchange Commission late Thursday. The rental car company said an internal investigation concluded there were "four categories of material weakness in our internal control over financial reporting."
The company concluded that Frissora‘s management style "resulted in an environment" that led to "inappropriate accounting decisions and the failure to disclose information to an effective review." Hertz said the CEO set "challenging targets" and "achieving those targets was a key performance expectation."
Hertz said on Friday the company is in a strong financial position for the first time in four years.
In a statement Saturday, Caesars Executive Vice President of Communications and Government Relations Jan Jones Blackhurst said the company was "fortunate to have Mark at its helm."
"Hertz‘s disclosure very specifically did not suggest any wrongdoing by Mark," she said. "In fact, it described a CEO focused on driving performance and results and merely posits that this focus may have led to some of the accounting errors."
Frissora, 59, took over as CEO of Caesars on July 1 from Gary Loveman, who is still chairman of the casino giant. Frissora was named CEO designee in February and he spent four months working with Loveman. He was also named to the company‘s board.
Frissora spent seven years as chairman and CEO of Naples, Fla.,-based Hertz before departing in September. The company said he resigned for personal reasons. He led the consolidation of the rental-car industry through Hertz‘s acquisition of the Dollar Thrifty Automotive Group.
Investors had pushed for his removal, citing accounting and operational missteps, according to Bloomberg News. Hertz said it was notified a year ago by the SEC that the agency was investigating its filings. The company said it was cooperating but couldn’t predict the outcome.
In its SEC filing, Hertz said its "former CEO encouraged employees to focus on potential business risks and opportunities." Hertz said Frissora encouraged employees to find "ways of ameliorating potential risks or gaps" in financial reporting.
"The tone at the top stuff is very serious," Maryann Keller, an independent auto-industry consultant, told Bloomberg News on Friday. Keller was on Dollar Thrifty‘s board until Hertz bought the smaller rival.
"They‘re basically saying that the CEO caused other people to act in ways that are unethical," she said. "So where does the SEC investigation go now?"
Frissora is credited with expanding Hertz from a single-brand, airport rental car company to a global organization with four retail brands and more than 3,000 off-airport locations.
Prior to joining Hertz in 2006, Frissora was chairman and CEO of Tenneco, an auto parts maker.
According to a Caesars SEC filing in February, Frissora will earn $1.8 million a year in salary and up to 150 percent of his base salary in bonus pay. During his last three years as CEO of Hertz, Frissora earned more than $49.6 million in salary, bonus, stock compensation and other awards, according the Hertz SEC filing.
In a statement when he took over as Caesars CEO, Frissora said he was focusing his attention "on identifying new opportunities to drive growth and efficiency, which will ultimately create shareholder value."
In January, Caesars placed Caesars Entertainment Operating Co. into a planned Chapter 11 bankruptcy reorganization. CEOC controls Caesars Palace, Caesars Atlantic City, Harrah’s Reno and more than a dozen regional properties.
Caesars Entertainment has a gaming industry high $22.8 billion in long-term debt, of which $18.4 billion is attached to CEOC. Through bankruptcy, the company hopes to eliminate almost $10 billion of the division’s debt and convert CEOC into a real estate investment trust.
Loveman was continuing to oversee the bankruptcy reorganization in his role as chairman.
Contact Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Find him on Twitter: @howardstutz.
