Khris,
Care to comment on this post copied from the Motley Fool?
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Labor Ready Update.
Several Months ago you read information about Labor Ready (LBOR) which provided additional
information to an interested investor. This installment adds to that information.
The investment community has been questioning whether or not Labor Ready can handle the
company's rapid growth. Evidence is that the interested investor needs to give this question much
thought prior to risking capital in this company.
The most recent appoint to the senior officer level of the company was Todd Welstad, 28, who
was promoted to CIO (Chief Information Officer). Todd Welstad has not completed his college
education, had no prior experience managing a data processing department, nor a background in
systems engineering. His annual salary is $152,000. It appears his only qualification for the position
is that he is the son of the founder and current CEO, Glenn Welstad, to whom he reports. Although
it is against the company's policy to allow employees paid time off to attend school, Todd is now
absent three days a week so he can attend class.
In privately held companies this type of hiring and promoting technique is acceptable because it is
the owners money at stake. Since, however, it is now the investors' capital at stake, should
consanguinity be the appropriate hiring and promoting criteria? Also, since the CIO is the CEO's
son, it is believed that constructive criticism of this very important function is lacking. There is no
evidence of formal goal setting or performance reviews for this position.
The director of employee benefits is the current CEO's wife. She receives an annual salary in excess
of $65,000 but shows up to work only six says a month. Recently, she stepped down from active
management of the function. The function was turned over to the CEO's niece. The CEO's son, Eric
Welstad, 21, has the job title of "special projects". He was given this position after failing to perform
in several other positions. His most recent failure was that of Assistant District Manager. This
position requires an individual to oversee the operations of seven or eight company dispatch offices.
This position was newly created, and is one of the nine levels of management Glenn Welstad has
added to the operations side of the business. Since, Eric Welstad could not be counted on to open
the stores at 5:30am, nor keep appointments, the local operations people lobbied to have him
removed. They could not put him back in a dispatch office, because he allegedly tries to establish
relationships with the female employees. The company has had to settle sexual harassment
complaints against him. He is now maintained on the payroll and given "special assignments" in
order to justify his company salary.
After sending a company wide e-mail informing all employees of a hiring freezes, and sending a
subsequent e-mail suggesting a 33% layoff of staff, Glenn Welstad, brought a niece to the company
headquarters. Concurrently, and at the behest of the CEO, the accounts receivable department had
just eliminated four positions due to down sizing. The CEO announced that his niece was having self
esteem problems and that he was going to have her work in each department, including accounts
receivable, for several weeks, until she found a department she liked. It is alleged that the
department supervisors were instructed to pay her above average wages, and give her job
assignments that would enhance her self worth. It is rumored, as is usual in such gratuitous
circumstances, that the niece worked whenever she liked, but was still paid for forty hours. The
mother of this particular niece is also employed by Labor Ready as a District Manager.
The company's CFO was recently terminated. The press release stated that he chose to return to
the East Coast to be with his family. In fact, what occurred was the CEO of the company fired him
because he was booking adjustments to the company's accruals to reflect actual or anticipated
expenses. The impact of these adjustments naturally suppressed the earnings for the accounting
period prior to his termination. It is believed that the CEO fired him in order to hand pick a
replacement who would be more flexible in the interpretation of GAAP, and who could be easily
controlled. The problem with this is that the company's financials may not be accurately reflecting
the true expenses of the company, and therefore overstating earnings.
According to Labor Ready's public statements, its alleged success in recruiting temporary laborers
is directly related to its policy of paying the workers daily. Since Labor Ready's "Work Today,
Paid Today" formula, requires it to carry its customers payroll, (Labor Ready pays the laborer for
the work performed on behalf of the customer the day the service is rendered; it then invoices the
customer at the end of the week). This arrangement creates a large receivable to Labor Ready, as
well as credit risk, and bad debt exposures. In order to reduce the financial risks inherent in such
business arrangements, credit checks were required on new customers.
It is rumored that when Labor Ready's sales failed to meet analyst's expectations, the CEO
privately blamed the company's credit policies for the decline. The CEO subsequently stripped the
Assistant Treasurer of his authority. Not only were all credit underwriting standards for new
customers eliminated, but credit limits on existing customers were also removed. Credit decisions
were de facto given to the dispatch office personnel, who are only held accountable for gross sales.
A natural consequence to Glenn Welstad's decision was an increase in bad debt. When the
company's receivables began to slip, a bad debt reserve needed to be established. Glenn Welstad
stepped in again and prevented the establishment of an appropriate accrual. Some estimates place
Labor Ready's bad debt at between 2 and 2.5% of sales. The CEO must now approve all bad
debt journal entries. A source inside the company stated that the last act of the CFO, which caused
his immediate termination, was the booking of a prior approved and budgeted $500,000 bad debt
reserve.
At a recent staff meeting, Glenn Welstad announced that he had changed insurance brokers, from
Sedgwick (one of the worlds largest and only ISO 9000 certified insurance broker.) and Johnson
& Higgins/Marsh & McClennan, to a small brokerage house called Lockton. Glenn Welstad stated
that he and Ralph Peterson made this change because Lockton could be counted on to give the
outside auditors the right workers' compensation number to show inflated earnings. It was later
learned this decision was made without consulting with the company's insurance manager, and in
fact was made and executed, while he was out of town. Contacts within the insurance industry
stated this change was made without prior notice to Sedgwick, who handled the Workers'
Compensation, nor Johnson & Higgins/Marsh & McMlennan, who handled the company's other
insurance lines. One industry specialist indicated that it was very unusual for a CEO to personally
make such an abrupt and radical change without some due diligence process. The same individual
opined that it would make sense if your goal were to confuse the accounting process.
The prudent investor reading this would ask where is the board of directors supervision of the
company's management. Again, according to individuals within the company, Glenn Welstad has
stated publicly that he requires each board member to provide him with their signed, undated, letter
of resignation. Should anyone on the board challenge the CEO, he will date the letters and remove
them. As this is being written, a source close to the company has stated that Glenn Welstad is
attempting to have his son Todd Welstad nominated to the board. If in fact this is correct, investors
should be extremely cautious about investing in the company.
In addition, a review of the 10k and annual report will show that Ralph Peterson, a member of the
board of directors, and the erstwhile CFO, COO, has a son, Ralph Peterson, Jr., who is in charge
of the company's East Coast operations. Ralph Peterson, Jr. has no experience in the temporary
employment industry, nor multi-unit management experience, yet was hired on as an ADO (Area
Director of Operations) shortly after Ralph Peterson, Sr. joined Labor Ready. It is rumored that
Ralph Peterson knows that if he bucks the CEO, not only would he lose his job, but his son would
lose his lucrative position as well. This conflict of interest prevents him from exercising his fiduciary
responsibility to the shareholders and is indicative of the board's weakness in watching out for
shareholder interests.
The interested investor should also be aware that of the 500,000 stock options authorized by the
company, Ralph Peterson, Sr. received approximately 225,000.
A review of Labor Ready's SEC filings state that John Coghlan, one of the original founders of the
company, has a consulting contract with the company. The reason John Coghlan has a consulting
contract is because he cannot be an officer of the company. The SEC, as part of its approval
agreement with Labor Ready required John Coghlan to reduce his holdings in the company to
below 5% and barred him from being an officer. The interested investor should know that the SEC
took this position because of past unethical practices by John Coghlan that cost investors their
capital. Two other facts that are not published, but should also be known by the interested investor:
1) John Coghlan also lost his CPA certification because of ethical lapses in his accounting practice,
and 2) John Coghlan is still heavily involved behind the scenes in the management of the company.
In fact, one source stated that John Coghlan is at the company every quarter end to "advise" on the
close. One source state that when Chuck Russell was fired as CFO, John Coghlan's assistant
became the de facto CFO despite the press release stating Ralph Peterson assumed those
responsibilities.
Lastly, investors in Putnam Investor Funds, Franklin Templeton and Liberty Mutual Funds, should
review their portfolios as these are Labor Ready's largest shareholders.
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TIA,
Phil |
