You’ve probably already seen the news about Hertz Global Holdings finally filing its much delayed earnings. Yesterday, after the markets closed, the company filed its delayed 10-K for 2014, which included restated results for 2012 and 2013 and its first quarter 10-Q for 2015, bringing the company up-to-date in its filings.
The news sent the stock, which had dropped over 30% since the beginning of the year, up about 12% on the news. The company’s CEO, John Tague, said yesterday that “Today’s filings are an important step forward, and our attention is now on realizing Hertz’s full potential.”
But buried in the nearly 400 pages filed yesterday was this disclosure, which we first highlighted for footnotedPro subscribers yesterday:
“Our former Chief Executive Officer’s management style and temperament created a pressurized operating environment at the Company, where challenging targets were set and achieving those targets was a key performance expectation…Our former Chief Executive Officer further encouraged employees to focus on potential business risks and opportunities, and on potential financial or operating performance gaps, as well as ways of ameliorating potential risks or gaps, including through accounting reviews. This resulted in an environment which in some instances may have led to inappropriate accounting decisions and the failure to disclose information critical to an effective review of transactions and accounting entries, such as certain changes in accounting methodologies, to the appropriate finance and accounting personnel or our Board, Audit Committee, or independent registered public accounting firm”
That statement, of course, refers to Hertz’ former CEO Mark Frissora, who resigned for “personal reasons” last September, as this press release noted at the time. As we wrote several days later, the company paid Frissora over $10 million plus numerous other benefits, as detailed in this 8-K. During his tenure at Hertz, Frissora was also very well paid, making over $16 million in 2013, on what has now been shown to be questionable numbers.
It will be interesting to see if this winds up being the first example of the newly proposed clawback rules recently voted on by the SEC.
Equally interesting is what this might mean for Caesar’s Entertainment, which named Frissora its new CEO on July 1. Like Hertz’ earlier press release on Frissora stepping down for “personal reasons”, the Caesar’s release mentioned all of Frissora’s accomplishments at Hertz, without noting the major accounting scandal that was still hanging over the company.
July 21, 2015
The fact that this hasnt turned criminal yet is remarkable. Frissora was known to be one of the most aggressively promotional and arrogant CEOs to the investing world (read his remarks in transcripts) and one of the most feared and abusive managers internally at Hertz. The cluture cited above ended up losing investors a great deal of money. But do you know who didnt lose money? The oringal private equity investors who hired Frissora (Carlyle and CD&R)! They sold all their stock on the back of earnings numbers that HTZ is now telling us was 10 to 20% overstated!!! While they were still on the board mind you!! How is nobody pointing that out (one guess is that they are large clients of the major WS firms publishing research)? Its absolutely criminal. This is a case study in fraudulent reporting (reconcile any of the adjusted numbers to GAAP numbers…just try…they are totally made up!) and complete misalignment of incentives between the board/PE owners/CEO and public market investors.