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 March 31, 2002
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 April 30, 2002
was 5,809,098 shares.
BARRETT BUSINESS SERVICES, INC.
INDEX
Part I - Financial Information Page
----
Item 1. Financial Statements
Balance Sheets - March 31, 2002 and
December 31, 2001................................................3
Statements of Operations - Three Months
Ended March 31, 2002 and 2001....................................4
Statements of Cash Flows - Three Months
Ended March 31, 2002 and 2001....................................5
Notes to Financial Statements....................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................................10
Item 3. Quantitative and Qualitative Disclosure About
Market Risk.....................................................15
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K................................16
Signatures ............................................................17
Exhibit Index ............................................................18
2
Part I - Financial Information
Item 1. Financial Statements
BARRETT BUSINESS SERVICES, INC.
Balance Sheets
(Unaudited)
(In thousands, except per share amounts)
March 31, December 31,
2002 2001
------------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 516 $ 1,142
Trade accounts receivable, net 12,908 13,760
Prepaid expenses and other 1,883 1,022
Deferred tax assets 2,882 2,841
------------------ -----------------
Total current assets 18,189 18,765
Goodwill, net 18,749 18,749
Intangibles, net 96 129
Property and equipment, net 5,834 6,084
Restricted marketable securities and workers' compensation deposits 5,091 5,425
Deferred tax assets 2,217 2,268
Other assets 1,158 1,146
------------------ -----------------
$ 51,334 $ 52,566
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 413 $ 708
Line of credit 2,611 3,424
Accounts payable 562 686
Accrued payroll, payroll taxes and related benefits 6,088 5,165
Workers' compensation claims and safety incentive liabilities 4,725 5,735
Other accrued liabilities 1,226 389
------------------ -----------------
Total current liabilities 15,625 16,107
Long-term debt, net of current portion 822 922
Customer deposits 473 520
Long-term workers' compensation claims liabilities 3,510 3,515
Other long-term liabilities 968 968
------------------ -----------------
21,398 22,032
------------------ -----------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized, 5,813
and 5,847 shares issued and outstanding 58 58
Additional paid-in capital 3,302 3,461
Employee loan (51) (29)
Retained earnings 26,627 27,044
------------------ -----------------
29,936 30,534
------------------ -----------------
$ 51,334 $ 52,566
------------------ -----------------
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
March 31,
------------------------------------
2002 2001
----------------- -----------------
Revenues:
Staffing services $ 22,570 $ 31,272
Professional employer services 18,395 23,881
----------------- -----------------
40,965 55,153
----------------- -----------------
Cost of revenues:
Direct payroll costs 31,861 42,760
Payroll taxes and benefits 3,692 4,874
Workers' compensation 1,625 2,177
----------------- -----------------
37,178 49,811
----------------- -----------------
Gross margin 3,787 5,342
Selling, general and administrative expenses 4,199 4,876
Depreciation and amortization 312 829
----------------- -----------------
Loss from operations (724) (363)
----------------- -----------------
Other (expense) income:
Interest expense (46) (121)
Interest income 62 81
Other, net (5) 47
----------------- -----------------
11 7
----------------- -----------------
Loss before benefit from income taxes (713) (356)
Benefit from income taxes (296) (145)
----------------- -----------------
Net loss $ (417) $ (211)
================= =================
Basic loss per share $ (.07) $ (.03)
================= =================
Weighted average number of basic shares outstanding 5,821 6,400
================= =================
Diluted loss per share $ (.07) $ (.03)
================= =================
Weighted average number of diluted shares outstanding 5,821 6,400
================= =================
The accompanying notes are an integral part of these financial statements.
4
BARRETT BUSINESS SERVICES, INC.
Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
---------------------------------
2002 2001
---------------- ----------------
Cash flows from operating activities:
Net loss $ (417) $ (211)
Reconciliations of net loss to net cash provided by operating
activities:
Depreciation and amortization 312 829
Gain on sale of property - (46)
Deferred taxes 10 215
Changes in certain assets and liabilities:
Trade accounts receivable, net 852 3,810
Prepaid expenses and other (861) (877)
Accounts payable (124) (394)
Accrued payroll, payroll taxes and related benefits 923 125
Other accrued liabilities 837 (1,202)
Workers' compensation claims and safety incentive liabilities (1,015) (426)
Customer deposits and other assets, net (59) (100)
Other long-term liabilities - 48
---------------- ----------------
Net cash provided by operating activities 458 1,771
---------------- ----------------
Cash flows from investing activities:
Proceeds from sale of property - 266
Purchase of equipment (29) (112)
Proceeds from maturities of marketable securities 1,049 135
Purchase of marketable securities (715) (105)
---------------- ----------------
Net cash provided by investing activities 305 184
---------------- ----------------
Cash flows from financing activities:
Net payments on credit-line borrowings (813) (991)
Payments on long-term debt (395) (683)
Payment to shareholder (28) -
Loan to employee (22) -
Repurchase of common stock (131) (479)
---------------- ----------------
Net cash used in financing activities (1,389) (2,153)
---------------- ----------------
Net decrease in cash and cash equivalents (626) (198)
Cash and cash equivalents, beginning of period 1,142 516
---------------- ----------------
Cash and cash equivalents, end of period $ 516 $ 318
================ ================
The accompanying notes are an integral part of these financial statements.
5
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 accounting principles generally accepted in the United States of
America 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 2001 Annual Report on Form 10-K at pages F1 - F20. 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 current year presentation. Such reclassifications had no
impact on gross margin, net income or stockholders' equity.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 141 ("SFAS 141") "Business
Combinations" and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets."
The Company's adoption date for SFAS 141 was immediate and the adoption date for
SFAS 142 was January 1, 2002. With respect to SFAS 142, the Company is in the
process of performing a goodwill impairment test as of the adoption date, as
required. Thereafter, the Company will perform a goodwill impairment test
annually and whenever events or circumstances occur indicating that goodwill
might be impaired. Effective January 1, 2002, amortization of goodwill,
including goodwill recorded in past business combinations, ceased. The Company
has not yet determined what the impact of SFAS 142 will be on its results of
operations and financial position, if any.
Pro forma net income, without the amortization of goodwill of $438,000, for
the three months ended March 31, 2001 was $113,000. Pro forma basic and diluted
earnings per share for the three months ended March 31, 2001 were $.02.
The Company's intangible assets are comprised of covenants not to compete
resulting from prior year acquisitions and have contractual lives principally
ranging from three to five years. The Company's intangible assets are summarized
as follows (in thousands):
March 31, December 31,
2002 2001
-------- -----------
Covenants not to compete $ 3,709 $ 3,709
Less accumulated amortization 3,613 3,580
------- -------
Intangibles, net $ 96 $ 129
======= =======
6
BARRETT BUSINESS SERVICES, INC.
Notes to Financial Statements (Continued)
Note 1 - Basis Of Presentation Of Interim Period Statements (Continued):
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standard No. 144 ("SFAS 144") "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 supersedes FASB Statement No. 121
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of" and
certain provisions of Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" related to the disposal of a segment of a business. The adoption
of SFAS 144 did not have any impact on the Company's results of operations or
its financial position.
Note 2 - Recent Accounting Pronouncements:
In May 2002, the FASB issued SFAS 145, "Rescission of FAS Nos. 4, 44 and
64, Amendment of FAS 13, and Technical Corrections." Among other things, SFAS
145 rescinds various pronouncements regarding early extinguishment of debt and
allows extraordinary accounting treatment for early extinguishment only when the
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
are met. SFAS 145 provisions regarding early extinguishment of debt are
generally effective for fiscal years beginning after May 15, 2002. Management
does not believe that the adoption of this statement will have a material impact
on its results of operations or financial position.
Note 3 - Provision For Income Taxes:
Deferred tax assets (liabilities) are comprised of the following components
(in thousands):
March 31, December 31,
2002 2001
----------------- -----------------
Gross deferred tax assets:
Workers' compensation claims and safety incentive liabilities $ 3,089 $ 3,517
Allowance for doubtful accounts 218 159
Amortization of intangibles 633 634
Deferred compensation 444 447
Net operating losses and tax credits 516 146
Other 293 303
----------------- -----------------
5,193 5,206
Gross deferred tax liabilities:
Tax depreciation in excess of book depreciation (94) (97)
----------------- -----------------
Net deferred tax assets $ 5,099 $ 5,109
================= =================
7
BARRETT BUSINESS SERVICES, INC.
Notes to Financial Statements (Continued)
Note 3 - Provision For Income Taxes (Continued):
The benefit from income taxes for the three months ended March 31, 2002
and 2001 is as follows (in thousands):
Three Months Ended
March 31,
------------------------------------
2002 2001
----------------- -----------------
Current:
Federal $ (269) $ (351)
State (37) (9)
----------------- -----------------
(306) (360)
----------------- -----------------
Deferred:
Federal 8 182
State 2 33
----------------- -----------------
10 215
----------------- -----------------
Total benefit $ (296) $ (145)
================= =================
Note 4 - 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 2002:
Outstanding at December 31, 2001 252,206 $ 1.45 to $ 17.75
Options granted -
Options exercised -
Options canceled or expired (3,550) $ 3.63 to $ 12.50
--------------
Outstanding at March 31, 2002 248,656 $ 1.45 to $ 17.75
==============
Exercisable at March 31, 2002 153,683
==============
Available for grant at March 31, 2002 1,076,910
==============
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 4 - Stock Incentive Plan (Continued):
On August 22, 2001, the Company offered to all optionees who held options
with an exercise price of more than $5.85 per share (covering a total of 812,329
shares), the opportunity to voluntarily return for cancellation without payment
any stock option award with an exercise price above that price. At the close of
the offer period on September 20, 2001, stock options for a total of 797,229
shares were voluntarily surrendered for cancellation. The Compensation Committee
of the Company's board of directors may consider whether or not to grant
stock-based awards under the Plan to optionees who surrendered stock options
during the above offer period at its discretion after March 21, 2002.
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 months ended March 31, 2002 and 2001.
Percentage of
Total Revenues
Three Months Ended
March 31,
--------------------------------
2002 2001
-------------- --------------
Revenues:
Staffing services 55.1 % 56.7 %
Professional employer services 44.9 43.3
-------------- --------------
100.0 100.0
-------------- --------------
Cost of revenues:
Direct payroll costs 77.8 77.5
Payroll taxes and benefits 9.0 8.8
Workers' compensation 4.0 4.0
-------------- --------------
Total cost of revenues 90.8 90.3
-------------- --------------
Gross margin 9.2 9.7
Selling, general and administrative expenses 10.1 8.9
Depreciation and amortization 0.8 1.5
-------------- --------------
Loss from operations (1.7) (0.7)
Other income - -
-------------- --------------
Pretax loss (1.7) (0.7)
Benefit from income taxes (0.7) (0.3)
-------------- --------------
Net loss (1.0)% (0.4)%
============== ==============
Three months ended March 31, 2002 and 2001
Net loss for the first quarter of 2002 was $417,000, a decline of $206,000
from a net loss of $211,000 for the first quarter of 2001. The decline for the
first quarter of 2002 was attributable to lower gross margin dollars, as a
result of a 25.7% decrease in revenues, offset in part by a 62.4% reduction in
depreciation and amortization and a 13.9% reduction in selling, general and
administrative expenses. Basic and diluted loss per share for the first quarter
of 2002 were $(.07) as compared to basic and diluted loss per share of $(.03)
for the first quarter of 2001. Cash flow per share (defined as net income plus
depreciation and amortization divided by weighted average diluted shares
outstanding) for the 2002 first quarter totaled a negative $(.02) as compared to
a positive $.10 for the 2001 first 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 first quarter of 2002 totaled approximately $41.0 million,
a decrease of approximately $14.2 million or 25.7% from the first quarter of
2001. The decrease in revenues reflects the general softening of business
conditions in the Company's market areas, particularly in the Company's Northern
California operations, which accounted for approximately 48.4% of the decline in
total revenues. The Company's Northern California operations have been adversely
affected by the significant downturn in the "high-tech" industry and related
sectors. Management believes that the decline in revenues as compared to prior
quarters has stabilized during the first half of the second quarter of 2002.
Management believes that this current trend in revenues is attributable to a
very moderate increase in general business activity in most of the geographic
markets that the Company serves.
Staffing services revenue decreased approximately $8.7 million or 27.8%
primarily due to a decline in demand for personnel in the majority of areas in
which the Company does business. Professional employer ("PEO") services revenue
decreased approximately $5.5 million or 23.0%, which was primarily due to a
20.6% decline in the Company's Oregon operations resulting from a softening in
demand from existing customers, coupled with management's decision to
discontinue the Company's business relationship with customers who generated
insufficient margins. The larger decline in staffing services revenue resulted
in a decrease in the share of staffing services from 56.7% of total revenues for
the first quarter of 2001 to 55.1% for the first quarter of 2002. The share of
revenues for PEO services had a corresponding increase from 43.3% of total
revenues for the first quarter of 2001 to 44.9% for the first quarter of 2002.
Gross margin for the first quarter of 2002 totaled approximately $3.8
million, which represented a decrease of $1.6 million or 29.1% from the first
quarter of 2001 primarily resulting from the 25.7% decline in revenues
experienced in the first quarter of 2002. The gross margin percent decreased
from 9.7% of revenues for the first quarter of 2001 to 9.2% for the first
quarter of 2002. The decrease in the gross margin percentage was due to higher
direct payroll costs, and higher payroll taxes and benefits, as a percentage of
revenues. The increase in direct payroll costs, as a percentage of revenues, for
the first quarter of 2002 simply reflects the current mix of services to the
current customer base. The increase in payroll taxes and benefits, as a
percentage of revenues for the first quarter of 2002, was primarily due to
higher statutory state unemployment tax rates in various states in which the
Company operates as compared to the first quarter of 2001. Workers' compensation
expense for the first quarter of 2002 totaled $1.6 million or 4.0% of revenues,
which compares to $2.2 million or 4.0% of revenues for the first quarter of
2001. The decline in total dollars was due, in part, to a decrease in the number
of injury claims in the 2002 first quarter compared to the same period in 2001,
which is consistent with the downturn in the Company's business.
Selling, general and administrative ("SG&A") expenses for the 2002 first
quarter amounted to approximately $4.2 million, a decrease of $677,000 or 13.9%
from the comparable period in 2001. SG&A expenses, expressed as a percentage of
revenues, increased from 8.9% for the first quarter of 2001 to 10.1% for the
first quarter of 2002. The decrease in total dollars from 2001 was primarily
attributable to branch office reductions in management personnel and related
expenses as a result of the downturn in business.
11
BARRETT BUSINESS SERVICES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations (Continued)
Depreciation and amortization totaled $312,000 or 0.8% of revenues for the
first quarter of 2002, as compared to $829,000 or 1.5% of revenues for the same
period in 2001. The decrease of $517,000 was principally due to the Company's
adoption of SFAS 142 effective January 1, 2002, whereby the Company ceased the
amortization of its recorded goodwill. The first quarter of 2001 included
$438,000 of goodwill amortization. (See Note 1 to the financial statements.)
Other income totaled $11,000 for the first quarter of 2002, which compares
to $7,000 of other income for the first quarter of 2001. The small increase in
other income was primarily attributable to a reduction in net interest expense
due to lower debt levels during the first quarter of 2002 as compared to the
same quarter of 2001, offset in part by lower interest income and other, net.
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 on 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 tend to
represent a smaller percentage of revenues and direct payroll later in the
Company's fiscal year as federal and state statutory wage limits for
unemployment and 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 a subsequent quarter.
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, a group disability insurance plan and an employee
assistance 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 20-21 of the Company's 2001 Annual Report on Form 10-K for a more detailed
discussion of this issue.
After several years of study, on April 24, 2002, the Internal Revenue
Service ("IRS") issued Revenue Procedure 2002-21 ("Rev Proc") to provide relief
with respect to certain defined contribution retirement plans maintained by a
PEO that benefit worksite employees. The Rev Proc outlines the steps necessary
for a PEO to avoid plan disqualification for violating the exclusive benefit
rule. Essentially, a PEO can (1) terminate its plan; (2) convert its plan to a
12
BARRETT BUSINESS SERVICES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations (Continued)
"multiple employer plan" by December 31, 2003; or (3) transfer the plan assets
and liabilities to a customer plan. Although management has not fully evaluated
the Rev Proc to determine which alternatives the Company will pursue to maintain
the qualified status of its plans, it believes that the Company has adequate
time to fully evaluate the Rev Proc and to develop a comprehensive timetable to
ensure compliance with the new law. Under the Rev Proc, the Company must file a
notice with the IRS by May 2, 2003, indicating the actions it intends to take.
Liquidity and Capital Resources
The Company's cash position of $516,000 at March 31, 2002 decreased by
$626,000 from December 31, 2001, which compares to a decrease of $198,000 for
the comparable period in 2001. The decrease in cash at March 31, 2002, as
compared to December 31, 2001, was primarily attributable to net payments on the
Company's revolving credit line and payments on long-term debt offset in part by
cash provided by operating activities and investing activities.
Net cash provided by operating activities for the three months ended March
31, 2002 amounted to $458,000, as compared to $1,771,000 for the comparable 2001
period. For the 2002 period, cash flow was generated by decreases in trade
accounts receivable and increases in accrued payroll and related benefits and
other accrued liabilities totaling $2,612,000, offset in part by decreases in
workers' compensation claims and safety incentive liabilities and an increase in
prepaid expenses and other totaling $1,876,000.
Net cash provided by investing activities totaled $305,000 for the three
months ended March 31, 2002, as compared to $184,000 net cash provided by
investing activities for the similar 2001 period. For the 2002 period, the
principal source of cash provided by investing activities was from net proceeds
of $1,049,000 from maturities of marketable securities, offset in part by
$715,000 of net purchases of marketable securities. The Company presently has no
material long-term capital commitments.
Net cash used in financing activities for the three-month period ended
March 31, 2002 was $1,389,000, compared to $2,153,000 net cash used in financing
activities for the similar 2001 period. For the 2002 period, the principal use
of cash for financing activities was $813,000 of net payments on the Company's
credit line, $395,000 of payments made on long-term debt, primarily related to
the $8,000,000 three-year term loan in connection with the Company's 1999
acquisition of Temporary Skills Unlimited, Inc., and $131,000 used to repurchase
the Company's common stock.
The Company's business strategy continues to focus on growth through the
expansion of operations at existing offices, together with the selective
acquisition of additional personnel-related businesses, both in its existing
markets and other strategic geographic areas. The Company periodically explores
proposals for various acquisition opportunities, but there can be no assurance
that any additional transactions will be consummated.
13
BARRETT BUSINESS SERVICES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources (Continued)
The Company maintains a credit arrangement with its principal bank which
provides for (1) borrowings on a revolving credit facility up to the lesser of
(i) $13.0 million or (ii) 65 percent of total trade accounts receivable at the
end of any fiscal quarter, and (2) a security interest in all trade accounts
receivable. This facility, which expires July 1, 2002, includes a subfeature for
standby letters of credit in connection with certain workers' compensation
surety arrangements, as to which approximately $3.9 million were outstanding as
of March 31, 2002. Effective March 31, 2002, the Company's bank agreed to
certain amendments to the existing loan agreement. These amendments included (i)
an increase in the subfeature under the line of credit to allow for letters of
credit totaling not more than $5.5 million, (ii) elimination of the funded debt
to EBITDA ratio, (iii) elimination of the EBITDA coverage ratio and (iv) the
addition of a minimum EBITDA requirement measured on a trailing four-quarter
basis. All other terms and conditions of the loan agreement remained unchanged.
In connection with the July 1, 2002 expiration date of the Company's current
loan agreement, management is currently negotiating the terms and conditions of
a new loan agreement with the bank's asset-based lending affiliate. Management
believes that the terms and conditions of a new loan agreement will be
competitive with current credit-market conditions and the Company's projected
operating performance. If, however, the terms and conditions for a new loan
agreement with the bank's asset-based lending affiliate are unacceptable to the
Company, management will negotiate a loan agreement with one of the alternative
lenders from which management is concurrently obtaining competing proposals.
While the financial effect of new terms and conditions will likely increase the
Company's overall borrowing costs, such increased costs are not expected to be
materially adverse to the Company. Management expects that the funds anticipated
to be generated from operations, together with the bank-provided credit facility
and other potential sources of financing, will be sufficient in the aggregate to
fund the Company's working capital needs for the foreseeable future.
In February 1999, the Company's board of directors authorized a stock
repurchase program to repurchase common shares from time to time in open market
purchases. Since inception, the board of directors has approved six increases in
the total number of shares or dollars authorized to be repurchased under the
program. As of May 8, 2002, the repurchase program had authorized availability
of $129,000 for the repurchase of additional shares. During the first three
months of 2002, the Company repurchased 34,000 shares at an aggregate price of
$131,000. Since the inception of the repurchase program through May 8, 2002, the
Company has repurchased 1,878,000 shares for an aggregate price of $8,502,000.
Management anticipates that the capital necessary to continue this program will
be provided by existing cash balances and other available resources.
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.
14
BARRETT BUSINESS SERVICES, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Forward-Looking Information
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 recent and 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
effectiveness of the Company's management information systems, 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 clients into the Company's operations, economic trends in the
Company's service areas, uncertainties regarding government regulation of PEOs,
including the ability of the Company to meet the new IRS requirements to retain
the tax-qualified status of employee benefit plans offered by PEOs, future
workers' compensation claims experience, the availability of capital or letters
of credit necessary to meet state-mandated surety deposit requirements for
maintaining the Company's status as a qualified self-insured employer for
workers' compensation coverage, collectibility of accounts receivable, 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.
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 March 31, 2002, the Company had interest-bearing debt obligations of
approximately $3.8 million, of which approximately $2.9 million bears interest
at a variable rate and approximately $0.9 million at a fixed rate of interest.
The variable rate debt is comprised of approximately $2.6 million outstanding
under a secured revolving credit facility, which bears interest at the prime
rate less 1.70%. The Company also has a secured term note due May 31, 2002, with
its principal bank, which bears interest at LIBOR plus 1.35%. Based on the
Company's overall interest exposure at March 31, 2002, 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 March 31, 2002, the
Company had not entered into any interest rate instruments to reduce its
exposure to interest rate risk.
15
BARRETT BUSINESS SERVICES, INC.
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 March 31, 2002.
16
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: May 14, 2002 By: /s/ Michael D. Mulholland
-------------------------------------
Michael D. Mulholland
Vice President - Finance
(Principal Financial Officer)
17
EXHIBIT INDEX
4.5 Amendment, dated March 31, 2002, to Loan Agreement between Registrant and
Wells Fargo Bank, N.A., dated May 31, 2000.
11 Statement of Calculation of Basic and Diluted Common Shares Outstanding.
18