UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission File No. 0-21886
BARRETT BUSINESS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0812977
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4724 SW Macadam Avenue
Portland, Oregon 97201
(Address of principal executive offices) (Zip Code)
(503) 220-0988
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares of Common Stock, $.01 par value, outstanding at October 31,
2000 was 7,038,298 shares.
BARRETT BUSINESS SERVICES, INC.
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 2000 and
December 31, 1999..............................................3
Statements of Operations - Three Months
Ended September 30, 2000 and 1999..............................4
Statements of Operations - Nine Months
Ended September 30, 2000 and 1999..............................5
Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999..............................6
Notes to Financial Statements..................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................................10
Item 3. Quantitative and Qualitative Disclosure About
Market Risk...................................................17
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K..............................18
Signatures ..............................................................19
Exhibit Index ..............................................................20
2
Part I - Financial Information
Item 1. Financial Statements
BARRETT BUSINESS SERVICES, INC.
Balance Sheets
(Unaudited)
(In thousands, except par value)
September 30, December 31,
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 351 $ 550
Trade accounts receivable, net 25,967 30,216
Prepaid expenses and other 863 1,219
Deferred tax assets (Note 2) 2,875 1,658
--------- ---------
Total current assets 30,056 33,643
Intangibles, net 20,434 21,945
Property and equipment, net 7,332 7,027
Restricted marketable securities and workers' compensation deposits 4,400 6,281
Unrestricted marketable securities 1,559 -
Deferred tax assets (Note 2) 818 712
Other assets 1,392 1,132
--------- ---------
$ 65,991 $ 70,740
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ 865
Current portion of long-term debt 2,748 2,783
Line of credit 2,915 4,882
Income taxes payable (Note 2) 268 -
Accounts payable 1,073 1,356
Accrued payroll, payroll taxes and related benefits 10,166 11,437
Workers' compensation claim and safety incentive liabilities 4,718 4,219
Other accrued liabilities 1,099 413
--------- ---------
Total current liabilities 22,987 25,955
Long-term debt, net of current portion 2,408 4,232
Customer deposits 658 815
Long-term workers' compensation liabilities 687 699
Other long-term liabilities 1,949 1,710
--------- ---------
28,689 33,411
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized, 7,087
and 7,461 shares issued and outstanding, respectively 71 75
Additional paid-in capital 7,828 9,889
Retained earnings 29,403 27,365
--------- ---------
37,302 37,329
--------- ---------
$ 65,991 $ 70,740
========= =========
The accompanying notes are an integral part of these financial statements.
3
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
September 30,
-----------------------
2000 1999
-------- ---------
Revenues:
Staffing services $ 49,881 $ 56,434
Professional employer services 30,863 39,441
-------- --------
80,744 95,875
-------- --------
Cost of revenues:
Direct payroll costs 62,865 74,285
Payroll taxes and benefits 6,564 7,620
Workers' compensation 3,401 3,022
-------- --------
72,830 84,927
-------- --------
Gross margin 7,914 10,948
Selling, general and administrative expenses 6,128 6,957
Depreciation and amortization 820 691
-------- --------
Income from operations 966 3,300
-------- --------
Other (expense) income:
Interest expense (210) (247)
Interest income 86 82
Other, net 2 27
-------- --------
(122) (138)
-------- --------
Income before provision for income taxes 844 3,162
Provision for income taxes (Note 2) 344 1,327
-------- --------
Net income $ 500 $ 1,835
======== ========
Basic earnings per share $ .07 $ .24
======== ========
Weighted average number of basic shares outstanding 7,236 7,581
======== ========
Diluted earnings per share $ .07 $ .24
======== ========
Weighted average number of diluted shares outstanding 7,276 7,634
======== ========
The accompanying notes are an integral part of these financial statements.
4
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended
September 30,
-------------------------
2000 1999
----------- ------------
Revenues:
Staffing services $ 149,346 $ 139,848
Professional employer services 105,022 111,749
--------- ---------
254,368 251,597
--------- ---------
Cost of revenues:
Direct payroll costs 198,024 195,025
Payroll taxes and benefits 21,788 21,013
Workers' compensation 9,261 8,157
--------- ---------
229,073 224,195
--------- ---------
Gross margin 25,295 27,402
Selling, general and administrative expenses 19,077 18,931
Depreciation and amortization 2,373 1,784
--------- ---------
Income from operations 3,845 6,687
--------- ---------
Other (expense) income:
Interest expense (669) (376)
Interest income 258 266
Other, net 6 30
--------- ---------
(405) (80)
--------- ---------
Income before provision for income taxes 3,440 6,607
Provision for income taxes (Note 2) 1,402 2,817
--------- ---------
Net income $ 2,038 $ 3,790
========= =========
Basic earnings per share $ .28 $ .50
========= =========
Weighted average number of basic shares outstanding 7,371 7,609
========= =========
Diluted earnings per share $ .27 $ .50
========= =========
Weighted average number of diluted shares outstanding 7,415 7,655
========= =========
The accompanying notes are an integral part of these financial statements.
5
BARRETT BUSINESS SERVICES, INC.
Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
--------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 2,038 $ 3,790
Reconciliation of net income to cash from operations:
Depreciation and amortization 2,373 1,784
Changes in certain assets and liabilities, net of acquisitions:
Trade accounts receivable, net 4,249 (8,575)
Prepaid expenses and other 366 (840)
Deferred tax assets (1,323) 155
Accounts payable (283) 267
Accrued payroll, payroll taxes and related benefits (1,271) 7,348
Workers' compensation claim and safety incentive liabilities 499 (582)
Income taxes payable 268 (238)
Other accrued liabilities 686 (206)
Customer deposits and long-term workers' compensation liabilities
and other assets, net (429) (555)
Other long-term liabilities 239 393
-------- --------
Net cash provided by operating activities 7,412 2,741
-------- --------
Cash flows from investing activities:
Cash paid for acquisitions, including other direct costs (67) (12,917)
Purchase of fixed assets, net of amounts purchased in acquisitions (1,100) (1,329)
Proceeds from maturities of marketable securities 992 2,325
Purchase of marketable securities (670) (2,731)
-------- --------
Net cash used in investing activities (845) (14,652)
-------- --------
Cash flows from financing activities:
Payment of credit line assumed in acquisition - (1,113)
Net (payments on) proceeds from credit-line borrowings (1,967) 2,972
Proceeds from issuance of long-term debt - 8,000
Payments on long-term debt (1,859) (1,013)
Payment of notes payable (865) (240)
Repurchase of common stock (2,103) (700)
Payment to shareholder - (58)
Proceeds from the exercise of stock options 28 34
-------- --------
Net cash (used in) provided by financing activities (6,766) 7,882
-------- --------
Net decrease in cash and cash equivalents (199) (4,029)
Cash and cash equivalents, beginning of period 550 4,029
-------- --------
Cash and cash equivalents, end of period $ 351 $ -
======== ========
Supplemental schedule of noncash activities:
Acquisition of other businesses:
Cost of acquisitions in excess of fair market value of net assets
acquired $ - $ 12,456
Tangible assets acquired - 3,364
Liabilities issued and assumed - 1,798
Notes payable issued in connection with acquisitions - 1,105
The accompanying notes are an integral part of these financial statements.
6
BARRETT BUSINESS SERVICES, INC.
Notes to Financial Statements
NOTE 1 - BASIS OF PRESENTATION OF INTERIM PERIOD STATEMENTS:
The accompanying financial statements are unaudited and have been
prepared by Barrett Business Services, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures typically included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the interim periods presented. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from such estimates
and assumptions. The financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's 1999
Annual Report on Form 10-K at pages F1-F21. The results of operations for an
interim period are not necessarily indicative of the results of operations for a
full year.
Certain prior year amounts have been reclassified to conform with
the 2000 presentation. Such reclassifications had no effect on gross margin, net
income or stockholders' equity.
NOTE 2 - PROVISION FOR INCOME TAXES:
Deferred tax assets (liabilities) are comprised of the following
components (in thousands):
September 30, December 31,
2000 1999
------------- -------------
Current:
Workers' compensation claim and safety incentive
liabilities $ 1,802 $ 1,368
Allowance for doubtful accounts 170 130
Other accruals 903 160
-------- --------
$ 2,875 $ 1,658
======== ========
Noncurrent:
Tax depreciation in excess of book depreciation $ (82) $ (94)
Workers' compensation claim liabilities 267 272
Book amortization of intangibles in excess of tax amortization 489 380
Deferred compensation 44 44
Other 100 110
-------- --------
$ 818 $ 712
======== ========
7
BARRETT BUSINESS SERVICES, INC.
Notes to Financial Statements (Continued)
NOTE 2 - PROVISION FOR INCOME TAXES (Continued):
The provision for income taxes for the nine months ended September 30,
2000 and 1999 is as follows (in thousands):
Nine Months Ended
September 30,
-------------------
2000 1999
--------- ---------
Current:
Federal $ 2,109 $ 2,090
State 616 562
--------- ---------
2,725 2,652
--------- ---------
Deferred:
Federal (1,091) 139
State (232) 26
--------- ---------
(1,323) 165
--------- ---------
Provision for income taxes $ 1,402 $ 2,817
========= =========
NOTE 3 - STOCK INCENTIVE PLAN:
The Company has a Stock Incentive Plan (the "Plan") which provides for
stock-based awards to the Company's employees, directors and outside consultants
or advisers. The number of shares of common stock reserved for issuance under
the Plan is 1,550,000.
The following table summarizes options granted under the Plan in 2000:
Outstanding at December 31, 1999 893,718 $2.80 to $17.94
Options granted 187,824 $2.10 to $6.75
Options exercised (7,000) $3.50 to $4.40
Options canceled or expired (66,000) $7.75 to $17.75
------------
Outstanding at September 30, 2000 1,008,542 $2.10 to $17.94
============
Exercisable at September 30, 2000 616,614
============
Available for grant at September 30, 2000 185,024
============
The options listed in the table generally become exercisable in four equal
annual installments beginning one year after the date of grant.
8
BARRETT BUSINESS SERVICES, INC.
Notes to Financial Statements (Continued)
NOTE 3 - STOCK INCENTIVE PLAN (Continued):
Certain of the Company's zone and branch management employees elect to
receive a portion of their quarterly cash profit sharing distribution in the
form of nonqualified deferred compensation stock options. Such options are
awarded at a 60 percent discount from the then-fair market value of the
Company's stock and are fully vested and immediately exercisable upon grant.
Such discounts are recorded as comp-ensation expense. The amount of the
grantee's deferred compensation (discount from fair market value) is subject to
market risk. During the first nine months of 2000, the Company awarded deferred
compensation stock options for 16,768 shares at exercise prices ranging from
$2.10 to $2.60.
9
BARRETT BUSINESS SERVICES, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The following table sets forth the percentages of total revenues
represented by selected items in the Company's Statements of Operations for the
three and nine months ended September 30, 2000 and 1999.
Percentage of Total Revenues
-------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ----------- ---------- ----------
Revenues:
Staffing services 61.8 % 58.9 % 58.7 % 55.6%
Professional employer services 38.2 41.1 41.3 44.4
---------- ----------- ---------- ----------
100.0 100.0 100.0 100.0
---------- ----------- ---------- ----------
Cost of revenues:
Direct payroll costs 77.9 77.5 77.9 77.5
Payroll taxes and benefits 8.1 7.9 8.6 8.3
Workers' compensation 4.2 3.2 3.6 3.3
---------- ----------- ---------- ----------
Total cost of revenues 90.2 88.6 90.1 89.1
---------- ----------- ---------- ----------
Gross margin 9.8 11.4 9.9 10.9
Selling, general and administrative expenses 7.6 7.3 7.5 7.5
Depreciation and amortization 1.0 0.7 0.9 0.7
---------- ----------- ---------- ----------
Income from operations 1.2 3.4 1.5 2.7
Other income (expense) (0.2) (0.1) (0.2) (0.1)
---------- ----------- ---------- ----------
Income before provision for income taxes 1.0 3.3 1.3 2.6
Provision for income taxes 0.4 1.4 0.5 1.1
---------- ----------- ---------- ----------
Net income 0.6 % 1.9 % 0.8 % 1.5%
========== =========== ========== ==========
Three months ended September 30, 2000 and 1999
Net income for the third quarter of 2000 was $500,000, a decrease of
$1,335,000 or 72.8% from the same period in 1999. The decrease in net income for
2000 was attributable primarily to a decline in the Company's revenues compared
to recent quarters, combined with increased workers' compensation and direct
payroll costs, both in terms of dollars and as a percentage of revenues, and
higher depreciation and amortization, offset in part by lower selling, general
and administrative expenses. Basic and diluted earnings per share for the third
quarter of 2000 were $.07, which compares to basic and diluted earnings per
share of $.24 for the 1999 third quarter.
10
BARRETT BUSINESS SERVICES, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
- ---------------------------------
Revenues for the third quarter of 2000 totaled approximately $80.7
million, a decrease of approximately $15.2 million or 15.8% from the third
quarter of 1999. In terms of geographic revenue trends for the Company's five
operating zones, the Southern California and Mid-Atlantic operating zones
experienced the largest percentage decline in quarter-over-quarter revenues. The
Company's revenues continue to be adversely affected by the reduced availability
of qualified employees in a low unemployment economy, as well as the Company's
decision to terminate its relationship with certain customers due to
unacceptable profit margins or risks associated with credit or workplace safety.
In an effort to improve future operating results, management is (i) continuing
to impose higher rates for the Company's services to reflect the current
imbalance between the demand for and supply of qualified employees for its
customers and (ii) seeking additional opportunities to reduce selling, general
and administrative ("SG&A") expenses.
Staffing services revenue decreased approximately $6.6 million or 11.6%
primarily due to a shortage of available qualified personnel in the majority of
areas in which the Company does business. Professional employer ("PEO") services
revenue decreased approximately $8.6 million or 21.7%, primarily due to
management's decision to discontinue the Company's services to certain customers
who were not generating acceptable gross margins. The decrease in PEO services
revenue resulted in an increase in the share of staffing services from 58.9% of
total revenues for the third quarter of 1999 to 61.8% for the third quarter of
2000. The share of revenues for PEO services had a corresponding decrease from
41.1% of total revenues for the third quarter of 1999 to 38.2% for the third
quarter of 2000.
Gross margin for the third quarter of 2000 totaled approximately $7.9
million, which represented a decrease of $3.0 million or 27.7% from the third
quarter of 1999. The gross margin percent decreased from 11.4% of revenues for
the third quarter of 1999 to 9.8% for the third quarter of 2000. The decrease in
the gross margin percentage was due to higher workers' compensation expense and
direct payroll costs and slightly higher payroll taxes and benefits. Workers'
compensation expense for the third quarter of 2000 totaled $3.4 million or 4.2%
of revenues, which compares to $3.0 million or 3.2% of revenues for the same
period in 1999. The increase in workers' compensation expense for the 2000 third
quarter, as a percentage of revenues, was generally attributable to an increase
in the expected total costs of claims in 2000 compared to the same period in
1999. The increase in direct payroll costs, as a percentage of revenues for the
third quarter of 2000, was primarily due to increases in contract staffing and
on-site management, which generally have a lower mark-up rate (and thus higher
direct payroll costs as a percentage of revenues) relative to other staffing
services provided by the Company. The increase in payroll taxes and benefits,
11
BARRETT BUSINESS SERVICES, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
as a percentage of revenues for the third quarter of 2000, was primarily
attributable to increased direct payroll in California, which has a higher state
unemployment tax rate as compared to other states in which the Company operates.
SG&A expenses for the 2000 third quarter amounted to approximately $6.1
million, a decrease of $829,000 or 11.9% from the comparable period in 1999.
SG&A expenses, expressed as a percentage of revenues, increased from 7.3% for
the third quarter of 1999 to 7.6% for the third quarter of 2000. The decrease in
total SG&A dollars from 1999 was primarily attributable to lower management
payroll, branch profit sharing and related payroll taxes.
Depreciation and amortization totaled $820,000 or 1.0% of revenues for the
third quarter of 2000, which compares to $691,000 or 0.7% of revenues for the
same period in 1999. The increased expense was primarily due to the March 1,
2000 implementa-tion of the Company's new information system.
Other expense totaled $122,000 or 0.2% of revenues for the third quarter
of 2000, which compares to $138,000 or 0.1% of revenues for the third quarter of
1999. The small decrease in expense was primarily attributable to slightly less
net interest expense on lower debt levels during the third quarter of 2000.
The Company offers various qualified employee benefit plans to its
employees, including its worksite employees. These qualified employee benefit
plans include a savings plan under Section 401(k) of the Internal Revenue Code
(the "Code"), a cafeteria plan under Code Section 125, a group health plan, a
group life insurance plan and a group disability insurance plan. Generally,
qualified employee benefit plans are subject to provisions of both the Code and
the Employee Retirement Income Security Act ("ERISA"). In order to qualify for
favorable tax treatment under the Code, qualified plans must be established and
maintained by an employer for the exclusive benefit of its employees. In the
event the tax exempt status of the Company's benefit plans were to be
discontinued and the benefit plans were to be disqualified, such actions could
have a material adverse effect on the Company's business, financial condition
and results of operations. Reference is made to pages 19-20 of the Company's
1999 Annual Report on Form 10-K for a more detailed discussion of this issue.
Nine Months Ended September 30, 2000 and 1999
Net income for the nine months ended September 30, 2000 was $2,038,000, a
decrease of $1,752,000 or 46.2% from the same period in 1999. The decrease in
net income was attributable to a lower gross margin percent owing primarily to
higher direct
12
BARRETT BUSINESS SERVICES, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
payroll costs, payroll taxes and benefits and workers' compensation expense,
expressed as a percentage of revenues, coupled with higher depreciation and
amortization and interest expense. Basic and diluted earnings per share for the
first nine months of 2000 were $.28 and $.27, respectively, as compared to $.50
for both basic and diluted earnings per share for the same period of 1999.
Revenues for the nine months ended September 30, 2000 totaled
approximately $254.4 million, an increase of approximately $2.8 million or 1.1%
over the similar period of 1999. The increase in total revenues was primarily
due to the TSU acquisition, which was effective May 31, 1999.
Gross margin for the nine months ended September 30, 2000 totaled
approximately $25.3 million, which represented a decrease of $2.1 million or
7.7% from the similar period of 1999. The gross margin percent decreased from
10.9% of revenues for the nine-month period of 1999 to 9.9% for the same period
of 2000. The decrease in the gross margin percentage was primarily due to higher
direct payroll costs and payroll taxes and benefits. The increase in direct
payroll costs, as a percentage of revenues, was attributable to increases in
contract staffing and on-site management, of which payroll generally represents
a higher percentage of revenues. The increase in payroll taxes and benefits for
the nine-month period of 2000 was primarily attributable to increased direct
payroll in California, which has a higher state unemployment tax rate as
compared to other states in which the Company operates. The increase in workers'
compensation expense was generally attributable to an increase in the expected
total costs of claims and a higher incidence of injuries in the nine months
ended September 30, 2000 compared to the similar period in 1999.
SG&A expenses for the nine months ended September 30, 2000 amounted to
approximately $19.1 million, an increase of $146,000 or 0.8% over the similar
period of 1999. SG&A expenses, expressed as a percentage of revenues, remained
constant at 7.5% for the nine-month periods of 1999 and 2000. The increase in
total SG&A dollars was primarily due to increased bad debt expense, advertising
and legal expenses, offset in part by lower branch profit sharing and related
payroll taxes.
Depreciation and amortization totaled $2.4 million or 0.9% of revenues for
the nine months ended September 30, 2000, which compares to $1.8 million or 0.7%
of revenues for the same period of 1999. The increased expense was primarily due
to the amortization arising from the acquisition of TSU coupled with
depreciation and amortization from the March 1, 2000 implementation of the
Company's new information system.
13
BARRETT BUSINESS SERVICES, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
- ---------------------------------
Other expense totaled $405,000 or 0.2% of revenues for the nine-month
period ended September 30, 2000, which compares to $80,000 or 0.1% of revenues
for the comparable 1999 period. The increase in expense was primarily due to
higher net interest expense related to debt incurred effective May 31, 1999 in
connection with the TSU acquisition.
Fluctuations in Quarterly Operating Results
- -------------------------------------------
The Company has historically experienced significant fluctuations in its
quarterly operating results and expects such fluctuations to continue in the
future. The Company's operating results may fluctuate due to a number of factors
such as seasonality, wage limits on payroll taxes, claims experience for
workers' compensation, demand and competition for the Company's services and the
effect of acquisitions. The Company's revenue levels fluctuate from quarter to
quarter primarily due to the impact of seasonality in its staffing services
business and on certain of its PEO clients in the agriculture and forest
products related industries. As a result, the Company may have greater revenues
and net income in the third and fourth quarters of its fiscal year. Payroll
taxes and benefits fluctuate with the level of direct payroll costs but may tend
to represent a smaller percentage of revenues later in the Company's fiscal year
as federal and state statutory wage limits for unemployment and to a lessor
extent social security taxes are exceeded by some employees. Workers'
compensation expense varies with both the frequency and severity of workplace
injury claims reported during a quarter, as well as adverse loss development of
prior period claims during the current or subsequent quarters.
Liquidity and Capital Resources
- -------------------------------
The Company's cash position of $351,000 at September 30, 2000 represented
a decrease of $199,000 from December 31, 1999. The decline in the first nine
months of 2000 compares to a decrease of $4,029,000 for the comparable period in
1999. The decrease in cash at September 30, 2000, as compared to December 31,
1999, was primarily attributable to cash used to repurchase the Company's common
stock, payments on credit-line borrowings and payments on long-term debt issued
in connection with the 1999 TSU acquisition, partially offset by cash provided
by net income and depreciation and amortization.
Net cash provided by operating activities for the nine months ended
September 30, 2000 amounted to $7,412,000, as compared to $2,741,000 for the
comparable 1999 period. For the 2000 period, cash flow was primarily generated
by net
14
BARRETT BUSINESS SERVICES, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
income, together with noncash expenses of depreciation and amortization and a
decrease in accounts receivable, partially offset by an increase in deferred tax
assets and a decrease in accrued payroll, payroll taxes and related benefits.
Net cash used in investing activities totaled $845,000 for the nine months
ended September 30, 2000, as compared to $14,652,000 for the similar 1999
period. For the 2000 period, the principal use of cash for investing activities
was for costs associated with the March 1, 2000 implementation of the Company's
new management information system. The Company presently has no material
long-term capital commitments. For the 1999 period, the principal use of cash
was for the acquisition of three staffing service businesses.
Net cash used in financing activities for the nine-month period ended
September 30, 2000 was $6,766,000, which compared to $7,882,000 net cash
provided by financing activities for the similar 1999 period. For the 2000
period, the principal use of cash in financing activities was $2,103,000 of cash
used to repurchase the Company's common stock, $1,967,000 of payments made on
credit-line borrowings and $1,859,000 of payments made on long-term debt,
primarily the $8,000,000 three-year term loan in connection with the Company's
acquisition of TSU.
The Company's business strategy is based in part on growth through the
expansion of operations at existing offices, together with the acquisition of
additional personnel-related businesses, both in its existing markets and other
strategic geographic areas. The Company explores proposals for various
acquisition opportunities on an ongoing basis, but there can be no assurance
that any additional transactions will be consummated.
The Company maintains a credit arrangement with its principal bank which
provides for an unsecured revolving credit facility of $15.0 million. This
facility, which expires May 31, 2001, includes a subfeature for letters of
credit, as to which approximately $2.6 million were outstanding as of September
30, 2000. Management believes that the credit facility and other potential
sources of financing, together with anticipated funds generated from operations,
will be sufficient in the aggregate to fund the Company's working capital needs
for the foreseeable future.
During 1999, the Company's board of directors authorized a stock
repurchase program. Since inception, the board has approved three increases in
the total number of shares authorized to be repurchased under this program. The
repurchase program currently allows for the repurchase of up to 950,000 common
shares from time to time in open market purchases. During the first nine months
of 2000, the Company
15
BARRETT BUSINESS SERVICES, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
repurchased 380,500 shares at an aggregate price of $2,103,000. Since the
inception of the repurchase program through November 8, 2000, the Company has
repurchased 648,800 shares for an aggregate price of $3,848,000. Management
anticipates that the capital necessary to continue to execute this program will
be provided by existing cash balances and other available sources of financing.
Inflation
- ---------
Inflation generally has not been a significant factor in the Company's
operations during the periods discussed above. The Company has taken into
account the impact of escalating medical and other costs in establishing
reserves for future expenses for self-insured workers' compensation claims.
Forward-Looking Information
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Statements in this report which are not historical in nature, including
discussion of economic conditions in the Company's market areas, the potential
for and effect of future acquisitions, the effect of changes in the Company's
mix of services on gross margin, the adequacy of the Company's workers'
compensation reserves and allowance for doubtful accounts, the tax-qualified
status of the Company's 401(k) savings plan, and the availability of financing
and working capital to meet the Company's funding requirements, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors with
respect to the Company include difficulties associated with integrating acquired
businesses and customers into the Company's operations, economic trends in the
Company's service areas, the availability of qualified applicants for employment
opportunities, the ability of the Company to obtain adequate rates for its
services, uncertainties regarding government regulation of PEOs, including the
possible adoption by the IRS of an unfavorable position as to the tax-qualified
status of employee benefit plans maintained by PEOs, future workers'
compensation claims experience, and the availability of and costs associated
with potential sources of financing. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
16
BARRETT BUSINESS SERVICES, INC.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates
primarily relates to the Company's short-term and long-term debt obligations. As
of September 30, 2000, the Company had interest-bearing debt obligations of
approximately $9.2 million, of which approximately $7.6 million bears interest
at a variable rate and approximately $1.6 million at a fixed rate of interest.
The variable rate debt is comprised of approximately $2.9 million outstanding
under an unsecured revolving credit facility, which bears interest at the
Federal Funds rate plus 1.25% or LIBOR plus 1.00%. The Company also has an
unsecured three-year term note with its principal bank, which bears interest at
LIBOR plus 1.35%. Based on the Company's overall interest exposure at September
30, 2000, a 10 percent change in market interest rates would not have a material
effect on the fair value of the Company's long-term debt or its results of
operations. As of September 30, 2000, the Company had not entered into any
interest rate instruments to reduce its exposure to interest rate risk.
17
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed herewith are listed in the Exhibit Index
following the signature page of this Report.
(b) No Current Reports on Form 8-K were filed by the Registrant
during the quarter ended September 30, 2000.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARRETT BUSINESS SERVICES, INC.
(Registrant)
Date: November 9, 2000 By:/s/ Michael D. Mulholland
---------------------------
Michael D. Mulholland
Vice President-Finance
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit
4.1 Amendment, dated September 30, 2000, to Loan Agreement between the
Registrant and Wells Fargo Bank, N.A., dated May 31, 2000.
11 Statement of Calculation of Basic and Diluted Common Shares Outstanding
27 Financial Data Schedule
20