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, 1994
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 report), 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 at March 31,
1994: 3,164,000 shares.
BARRETT BUSINESS SERVICES, INC.
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Balance Sheet - March 31, 1994 and Dec. 31, 1993. . . 3
Statement of Operations - Three Months
Ended March 31, 1994 and 1993. . . . . . . . . . . 4
Statement of Cash Flows - Three Months
Ended March 31, 1994 and 1993. . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 9
Part II - Other Information
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . 15
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BARRETT BUSINESS SERVICES, INC.
BALANCE SHEET
Mar. 31, Dec. 31,
1994 1993
---------- --------
Unaudited
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $2,658 $1,127
Marketable securities --- 6,374
Accounts receivable, net 7,757 4,954
Prepaid expenses and other 452 145
Deferred tax asset (Note 3) 827 894
------ ------
Total current assets 11,694 13,494
Intangibles, net 4,953 294
Property and equipment, net 1,990 1,876
Restricted marketable securities
and workers' compensation deposits 2,796 2,728
Other assets 43 33
------ ------
$21,476 $18,425
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 27 $123
Income taxes payable (Note 3) 277 79
Accounts payable 166 91
Accrued payroll and related benefits 5,337 3,223
Accrued workers' compensation claims 2,268 2,434
Customer safety incentives payable 598 527
------ ------
Total current liabilities 8,673 6,477
Long-term debt, net of current portion 933 946
Customer deposits 554 522
------ ------
10,160 7,945
Stockholders' equity:
Common stock 32 32
Additional paid-in capital 8,697 8,469
Retained earnings 2,587 1,979
------ ------
11,316 10,480
------ ------
$21,476 $18,425
====== ======
The accompanying notes are an integral part of this financial statement.
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BARRETT BUSINESS SERVICES, INC.
STATEMENT OF OPERATIONS
Unaudited
--------------------------
Three Months Ended
March 31,
--------------------------
1994 1993
---- ----
(In thousands,
except per share amounts)
Revenues:
Temporary services $11,761 $ 8,214
Staff leasing services 15,306 12,321
------ ------
27,067 20,535
------ ------
Cost of revenues:
Direct payroll costs 20,396 15,421
Payroll taxes and benefits 2,566 2,103
Workers' compensation 884 836
Safety incentives 250 141
------ ------
24,096 18,501
------ ------
Gross margin 2,971 2,034
Selling, general and administrative expenses1,955 1,398
Provision for doubtful accounts 29 ---
Amortization of intangibles 67 103
------ ------
Income from operations 920 533
Other income (expense):
Interest expense (27) (10)
Interest income 55 ---
Other, net 31 115
------ ------
59 105
------ ------
Income before provision for income taxes 979 638
Provision for income taxes (Note 3) 371 ---
------ ------
Net income $ 608 $638
====== ======
Pro forma data (Note 3):
Income before provision for income taxes$ 979 $ 638
Provision for income taxes 371 249
------ ------
Net income $ 608 $389
====== ======
Primary earnings per share (Note 5) $0.19 $0.19
====== ======
Primary weighted average number of common
and common stock equivalent shares outstanding3,2712,000
====== ======
The accompanying notes are an integral part of this financial statement.
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BARRETT BUSINESS SERVICES, INC.
STATEMENT OF CASH FLOWS
Unaudited
---------------------------
Three Months Ended
March 31,
1994 1993
---- ----
(In thousands)
Cash flows from operating activities:
Net income $ 608 $ 638
Reconciliation of net income to cash from operations:
Depreciation and amortization 110 135
Gain on sales of securities --- (108)
Provision for doubtful accounts 29 ---
Changes in certain assets and liabilities:
Marketable securities 2,244 ---
Accounts receivable (2,832) (760)
Prepaid expenses and other (307) (75)
Deferred tax asset 67 ---
Accounts payable 75 12
Accrued payroll and benefits 2,114 1,110
Accrued workers' compensation claims (166) 91
Customer safety incentives payable 71 (23)
Due to stockholder --- (98)
Income taxes payable 198 ---
Customer deposits and other, net 22 (207)
----- -----
Net cash provided by operating activities 2,233 715
----- -----
Cash flows from investing activities:
Increase in intangibles through acquisitions(4,498) (10)
Purchases of fixed assets (157) (36)
Proceeds from sales of marketable securities4,062 161
Purchases of marketable securities --- (53)
----- -----
Net cash (used for) provided by investing activities(593) 62
----- -----
Cash flows from financing activities:
Distributions to stockholders --- (398)
Proceeds from debt issued --- 38
Payments on long-term debt (109) (42)
Stock issuance costs --- (154)
----- -----
Net cash used for financing activities (109) (556)
Net increase in cash and cash equivalents 1,531 221
Cash and cash equivalents, beginning of period1,127 12
----- -----
Cash and cash equivalents, end of period $2,658 $ 233
===== =====
Supplemental non-cash disclosure:
Issuance of common stock to acquire intangibles$228 $ ---
===== =====
The accompanying notes are an integral part of this financial statement.
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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. ("Company")
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
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 financial statements should be read in
conjunction with the audited financial statements and notes
thereto included in 1993 Form 10-K filed with the Securities and
Exchange Commission. The results of operations for an interim
period are not necessarily indicative of the results of
operations for a full year.
NOTE 2 - ACQUISITIONS:
On February 27, 1994, the Company purchased substantially all
of the assets of Personnel Management Consulting, Inc., a company
engaged in the temporary services business in Maryland and
Delaware. Of the $270,000 purchase price, the Company paid
$42,000 in cash and issued 12,000 shares of its common stock with
a fair market value of $228,000 at date of purchase. The
acquisition was accounted for under the purchase method of
accounting resulting in approximately $241,000 of intangible
assets and $29,000 in fixed assets.
On March 7, 1994, the Company purchased certain assets of
Golden West Temporary Services (Golden West), a company in the
temporary services business with offices in Santa Clara, San
Jose, Fremont, and Mount View, California. The purchase price of
$4,514,000 was paid from working capital. The Company accounted
for the acquisition under the purchase method of accounting
resulting in approximately $4,425,000 of intangible assets and
$89,000 of fixed assets. Additionally, the Company retained the
services of Golden West's chief executive officer to assist in
the transition of the business for the first sixty (60) days
following the acquisition.
Intangible assets related to the acquisitions are being
amortized over their estimated useful lives of fifteen years.
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NOTE 3 - PROVISION FOR INCOME TAXES AND PRO FORMA PROVISION FOR
INCOME TAXES:
Effective April 30, 1993, the Company terminated its S
Corporation status. A pro forma provision for income taxes that
would have been recorded if the Company had been a C Corporation
for all periods presented is provided for comparative purposes.
Deferred tax assets (liabilities) are comprised of the
following components (in thousands):
Mar. 31,Dec. 31,
1994 1993
----------------
Accrued workers' compensation claim liabilities$882$949
Allowance for doubtful accounts. . 20 10
Tax depreciation in excess of book depreciation(75)(65)
---- ----
Less accumulated depreciation. . $ 827 $894
==== ====
The provision for income taxes for the three months ended
March 31, 1994, is as follows (in thousands):
Pro Forma
Three MonthsThree Months
Ended Ended
Mar. 31,Mar. 31,
1994 1993
=====================
Current:
Federal. . . . . . . . . . . . . . $ 251 $ 202
State. . . . . . . . . . . . . . . 53 40
--- ---
304 242
--- ---
Deferred:
Federal. . . . . . . . . . . . . 56 6
State. . . . . . . . . . . . . . 11 1
--- ---
67 7
--- ---
Provision for income taxes . . . $ 371 $ 249
=== ===
NOTE 4 - STOCK INCENTIVE PLAN:
As of March 1, 1993, the Company adopted a stock incentive
plan ("Plan") which provides for stock-based awards to the
Company's employees, directors and outside consultants or
advisers. As of April 20, 1994, the Company increased the number
of shares of common stock reserved for issuance under the plan
from 250,000 to 400,000. An award of 2,000 restricted shares was
granted under the Plan in June 1993.
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The following table summarizes options granted under the
Plan in 1994:
SharesRange of Prices
---------------------
Outstanding at December 31, 199380,250$7.00 to $9.375
Options granted 104,750 $ 19.00
Options exercised ---
Options canceled or expired ---
-------
Outstanding at March 31, 1994185,000
=======
Available for grant at
March 31, 1994 63,000
=======
The options listed in the table will become exercisable in equal
annual installments beginning one year after the date of grant.
NOTE 5 - NET INCOME PER SHARE:
Net income per share is computed based on the weighted
average number of common stock and common stock equivalent shares
outstanding during the period.
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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 statement
of operations for the three months ended March 31, 1994 and 1993.
Percentage of Total Revenues
----------------------------
Three Months Ended
Mar. 31,
---------------------------
1994 1993
---- ----
Temporary services revenues. 43.4% 40.0%
Staff leasing services revenues 56.6 60.0
Direct payroll costs . . . . 75.3 75.1
Payroll taxes and benefits . 9.5 10.2
Workers' compensation. . . . 3.3 4.1
Safety incentives. . . . . . .9 .7
Gross margin . . . . . . . . 11.0 9.9
Selling, general and administrative expenses
(Including provision for doubtful accounts
and amortization of intangibles) 7.6 7.3
Income from operations . . . 3.4 2.6
Other income . . . . . . . . .2 .5
Pretax income. . . . . . . . 3.6 3.1
Provision for income taxes . 1.4 -.-
Net income . . . . . . . . . 2.2 3.1
Pro forma provision for income taxes 1.4 1.2
Pro forma net income . . . . 2.2 1.9
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
TEMPORARY AND STAFF LEASING SERVICES REVENUES. Total
revenues increased $6,532,000 (31.8%) to $27,067,000 for the
first quarter of 1994, compared to the comparable period of the
prior year. The increase in total revenues was attributable to
growth in temporary service revenues and staff leasing services
revenues of $3,547,000 (43.2%) and $2,985,000 (24.2%),
respectively.
Approximately 55% of the increase in temporary services
revenues was due to the acquisition of two temporary services
businesses, and the balance to the Company's ongoing internal
sales program. The acquired companies had total revenues of
approximately $25,000,000 during 1993.
The increase in staff leasing services revenues in the first
quarter of 1994, compared to 1993, is primarily attributable to
the addition of new clients in Oregon. The company markets its
staff leasing services through its Oregon and Maryland branches
using its branch office sales staff. The Company also obtains
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referrals from existing clients and other third parties, and
places advertisements in the Yellow Pages.
PAYROLL COSTS, PAYROLL TAXES, AND BENEFITS. Payroll costs,
payroll taxes, and benefits for the Company's temporary services
and staff leasing services employees increased by $5,438,000
(31.0%) in the first quarter of 1994 compared to the same period
in 1993, primarily as a result of growth in the number of
employees. As a percentage of revenues, such costs decreased
from 85.3% in the first quarter of 1993 to 84.8% in the 1993
period, reflecting a decrease in the Company's statutory payroll
taxes for 1994.
WORKERS' COMPENSATION AND SAFETY INCENTIVES EXPENSE. The
Company has been a self-insured employer for workers'
compensation coverage in Oregon since August 1987 and became
self-insured in Maryland in November 1993. Workers' compensation
expense currently includes the cost of self-insurance for the
Company's employees in Oregon and Maryland, and third party
insurance coverage for such employees in California and
Washington. As a percentage of revenues, workers' compensation
expense decreased from 4.1% in 1993 to 3.3% in 1994, due
primarily to better performance of the Company's self-insured
workers' compensation program in the first quarter of 1994
compared to the same period in 1993. The Company's self-insured
workers' compensation expense is tied directly to the incidents
and severity of workplace injuries to its employees. Significant
elements affecting the performance of the self-insured workers'
compensation program include the regulatory climate surrounding
workers' compensation, the Company's workplace safety program,
and the claims management efforts of the Company and its third
party administrators.
In April 1994 the Company incurred a self-insured workers'
compensation fatality claim in Oregon. The estimated present
value of the future benefits payable to the beneficiary of the
fatally injured employee is expected to be at least $350,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
general and administrative expenses (including the provision for
doubtful accounts and the amortization of intangibles) primarily
consists of compensation and other expenses incident to the
operation of the Company's headquarters and branch offices in
marketing of its services. As a percentage of total revenues,
selling, general and administrative expenses increased from 7.3%
during 1993 to 7.6% during 1994, due primarily to the shift of
the Company's business toward temporary services through the
acquisition of two temporary services businesses. Temporary
services have higher overhead requirements as compared to staff
leasing services.
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PROVISION AND PRO FORMA PROVISION FOR INCOME TAXES. The
Company was exempt from taxation as an S corporation until its S
corporation election was terminated on April 30, 1993. The pro
forma effective tax rate of 39.0% is effective tax rate that
would have been recorded if the Company had been a C corporation
for the first quarter of 1993. The effective tax rate for the
first quarter of 1994 was 37.9%.
SEASONAL FLUCTUATIONS
The Company's revenues historically have been subject to
some seasonal fluctuation, particularly in its temporary services
business. Demand for the Company's temporary employees and its
payroll requirements (and associated mark-ups) for certain of its
staff leasing clients decline during the year-end holiday season
and periods of bad weather. Correspondingly, demand for
temporary services and the operations of some staff leasing
clients, particularly agricultural and forest products-based
companies, increase during the second and third quarters. Since
1990, staff leasing revenues have represented a significant
portion of total revenues and this has diminished the effect of
seasonal fluctuations since staff leasing clients are engaged in
a wide range of industries with varying seasonal demands.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and met its
liquidity needs primarily from cash flow from operations of
$2,233,000 and $715,000 during the first three months of 1994 and
1993, respectively. The principal uses of funds during 1994 was
for the acquisition of two temporary services businesses and the
repayment of a note payable, in the amount of $103,000, to the
estate of the former majority stockholder.
In February 1994, the Company acquired the assets of
Personnel Management and Consulting, Inc. ("PMC"), a Maryland
corporation, for $270,000, of which $42,000 was paid in cash and
$228,000 was paid in the form of 12,000 shares of common stock in
the Company. PMC had unaudited revenues of approximately
$800,000 for the year ended December 31, 1993, primarily from
sales of temporary services provided through three branch
offices, one in each of Salisbury and Easton, Maryland; and
Seaford, Delaware.
In March 1994, the Company acquired the assets of Golden
West Temporary Services ("Golden West"), a California
corporation, for $4,514,000 in cash from working capital. Golden
West had total revenues of $24,533,000 for the year ended
December 31, 1993, from the sales of temporary services provided
through four branch offices, one in each of San Jose, Santa
Clara, Mountain View and Fremont, California.
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The Company has an unsecured bank line of credit for a
maximum amount of $2,000,000, expiring subject to renewal on May
31, 1994. Outstanding balances against the line of credit accrue
interest at the bank's prime rate. The highest borrowing against
the line during 1994 and 1993 was $60,158 and $1,189,000,
respectively. The average balance outstanding against the line
for the three months ended March 31, 1994 was $668, compared to
$5,444 during 1993. There was a zero balance outstanding under
the credit line at March 31, 1994, and 1993. The line of credit
agreement contains certain covenants and restrictions that were
amended on March 29, 1994. Under the amended agreement, the
Company is required to maintain (i) a ratio of total liabilities
to tangible net worth of not more than 2.0 to 1.0, (ii) positive
quarterly net income before taxes, (iii) tangible net worth of at
least $6,000,000, and (iv) a zero outstanding balance against the
line for a minimum of sixty (60) consecutive days during each
year. The Company is also prohibited from pledging any of its
assets other than existing mortgages on its real property.
The Company hopes to expand its self-insured workers'
compensation and staff leasing program to Washington during the
second quarter of 1994 and to California before the end of 1994.
If self-insured status is obtained, the required surety deposits
for these two states are expected to total at least $2,500,000 to
be paid from cash or other funding sources, potentially including
letters of credit from the Company's lender and surety bonds from
providers of third party insurance.
A key part of the Company's business strategy is continued
growth through the expansion of operations at existing offices
and the acquisition of additional personnel related businesses,
both in its existing markets and other geographic areas. The
Company actively 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 believes that available credit lines, other sources of
financing, and anticipated funds to be generated from operations
will be sufficient in the aggregate to provide funds for
expansion and its working capital needs for the foreseeable
future.
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 in Oregon and Maryland.
- 12 -
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1994 annual meeting of stockholders on
April 20, 1994. The following directors were elected at the
annual meeting to serve until the next annual meeting:
ABSTENTION AND
FOR WITHHELD BROKER NON-VOTES
--- -------- ----------------
Robert R. Ames 2,626,246 10,300
Jeffrey L. Beaudoin 2,626,246 10,300
Anthony Meeker 2,625,746 10,800
Stanley G. Renecker 2,626,246 10,300
William W. Sherertz 2,636,246 300
Jack D. Williamson, Jr. 2,636,246 300
Other matters presented for action at the annual meeting
were approved by the following vote:
BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
--- -------- ----------- ---------
Approval of amendment
to the Company's 1993
Stock Incentive Plan 2,541,933 690 93,923
Approval of the appoint-
ment of Price Waterhouse
as independent auditors 2,626,40110,118 27
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 reports on Form 8-K were filed by the Company during
the quarter ended March 31, 1994.
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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 12, 1994 By: /s/ William W. Sherertz
William W. Sherertz
President
(Principal Executive Officer)
Date: May 12, 1994 By: /s/ Jack D. Williamson, Jr.
Jack D. Williamson, Jr.
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
Exhibit
- - -------
4 First Amendment to Loan Agreement Between
the Registrant and First Interstate Bank
of Oregon, N.A., dated March 29, 1994
11 Statement Showing Calculation of Average
Common Shares Outstanding
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