UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
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 outstanding at July 31, 1997
was 6,727,423 shares.
BARRETT BUSINESS SERVICES, INC.
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 1997 and
December 31, 1996.......................................3
Statements of Operations - Three Months
Ended June 30, 1997 and 1996............................4
Statements of Operations - Six Months
Ended June 30, 1997 and 1996............................5
Statements of Cash Flows - Six Months
Ended June 30, 1997 and 1996............................6
Notes to Financial Statements...........................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................10
Part II - Other Information
Item 1. Legal Proceedings......................................16
Item 4. Submission of Matters to a Vote of Security
Holders................................................17
Item 6. Exhibits and Reports on Form 8-K.......................17
Signatures .......................................................18
Exhibit Index .......................................................19
2
PART I - Financial Information
Item 1. Financial Statements
BARRETT BUSINESS SERVICES, INC.
Balance Sheets
(Unaudited)
(In thousands)
June 30, December 31,
1997 1996
-------- ------------
Assets
Current assets:
Cash and cash equivalents $ 459 $ 1,901
Trade accounts receivable, net 22,686 19,057
Note receivable - 324
Prepaid expenses and other 1,485 914
Deferred tax asset (Note 4) 1,433 1,279
------ ------
Total current assets 26,063 23,475
Intangibles, net 12,785 10,226
Property and equipment, net 3,641 3,111
Restricted marketable securities
and workers' compensation deposits 6,074 5,707
Other assets 143 127
------ ------
$48,706 $42,646
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Advances on credit line $ 1,896 $ -
Current portion of long-term debt 70 36
Income taxes payable (Note 4) 223 -
Accounts payable 715 667
Accrued payroll, payroll taxes
and related benefits 9,967 7,354
Accrued workers' compensation claims
liabilities 2,488 2,240
Customer safety incentives payable 1,005 1,015
Other accrued liabilities 559 606
------ ------
Total current liabilities 16,923 11,918
Long-term debt, net of current portion 819 838
Customer deposits 939 890
Long-term workers' compensation
liabilities 608 613
Other long-term liabilities 1,014 -
------ ------
20,303 14,259
------ ------
Commitments and contingencies
Redeemable common stock, 159 shares issued
and outstanding (Note 2) - 2,825
Nonredeemable stockholders' equity:
Common stock, $.01 par value; 20,500
shares authorized, 6,727 and 6,625
shares issued and outstanding, respectively 67 66
Additional paid-in capital 11,685 10,929
Retained earnings 16,651 14,567
------ ------
28,403 25,562
------ ------
$48,706 $42,646
====== ======
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
June 30,
----------------------
1997 1996
------ ------
Revenues:
Staffing services $38,403 $27,091
Professional employer services 32,052 24,780
------ ------
70,455 51,871
Cost of revenues:
Direct payroll costs 54,164 39,160
Payroll taxes and benefits 6,794 4,989
Workers' compensation 1,973 1,213
Safety incentives 381 362
------ ------
63,312 45,724
------ ------
Gross margin 7,143 6,147
Selling, general and administrative
expenses 4,857 3,939
Amortization of intangibles 275 209
------ ------
Income from operations 2,011 1,999
Other income (expense):
Interest expense (42) (21)
Interest income 87 126
Other, net - 1
------ ------
45 106
------ ------
Income before provision for income taxes 2,056 2,105
Provision for income taxes 802 800
------ ------
Net income $ 1,254 $ 1,305
====== ======
Primary earnings per share (Note 6) $ .19 $ .19
====== ======
Primary weighted average number of common
stock equivalent shares outstanding 6,736 6,978
====== ======
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)
Six Months Ended
June 30,
----------------------
1997 1996
------- ------
Revenues:
Staffing services $ 71,134 $49,719
Professional employer services 62,101 45,337
------- ------
133,235 95,056
Cost of revenues:
Direct payroll costs 102,203 71,878
Payroll taxes and benefits 13,253 9,322
Workers' compensation 3,828 1,983
Safety incentives 704 709
------- ------
119,988 83,892
------- ------
Gross margin 13,247 11,164
Selling, general and administrative
expenses 9,372 7,567
Amortization of intangibles 592 369
------- ------
Income from operations 3,283 3,228
Other income (expense):
Interest expense (67) (42)
Interest income 189 252
Other, net 1 -
------- ------
123 210
------- ------
Income before provision for income taxes 3,406 3,438
Provision for income taxes 1,322 1,306
------- ------
Net income $ 2,084 $ 2,132
======= ======
Primary earnings per share (Note 6) $ .31 $ .31
======= ======
Primary weighted average number of common
stock equivalent shares outstanding 6,768 6,883
======= ======
The accompanying notes are an integral part of these financial statements.
5
BARRETT BUSINESS SERVICES, INC.
Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
June 30,
---------------------
1997 1996
------ ------
Cash flows from operating activities:
Net income $ 2,084 $ 2,132
Reconciliation of net income to cash
from operations:
Depreciation and amortization 775 512
Changes in certain assets and liabilities, net
of assets acquired and liabilities assumed:
Trade accounts receivable, net (3,083) (2,954)
Note receivable 324 -
Prepaid expenses and other (505) (153)
Deferred tax asset (154) 273
Accounts payable 39 (262)
Accrued payroll, payroll taxes and related
benefits 2,606 2,543
Accrued workers' compensation claims
liabilities 248 (777)
Customer safety incentives payable (10) 205
Income taxes payable 212 443
Other accrued liabilities (171) (92)
Customer deposits and long-term workers'
compensation liabilities 44 183
Other long-term liabilities 14 -
------ ------
Net cash provided by operating activities 2,423 2,053
------ ------
Cash flows from investing activities:
Cash paid for acquisitions, including other
direct costs (Note 3) (2,246) (113)
Purchases of fixed assets, net of amounts
purchased in acquisitions (639) (206)
Proceeds from maturities of marketable
securities 3,782 3,244
Purchases of marketable securities (4,149) (4,380)
------ ------
Net cash used in investing activities (3,252) (1,455)
------ ------
Cash flows from financing activities:
Payment of credit line assumed in acquisition (401) -
Proceeds from credit line borrowings 1,896 -
Payments on long-term debt (40) (16)
Repurchase of common stock (2,825) -
Proceeds from exercise of stock
options and warrants 757 109
------ ------
Net cash (used in) provided by financing activities (613) 93
------ ------
Net (decrease)increase in cash and cash equivalents (1,442) 691
Cash and cash equivalents, beginning of period 1,901 3,218
------ ------
Cash and cash equivalents, end of period $ 459 $ 3,909
====== ======
Supplemental schedule of noncash activities:
Acquisition of other businesses:
Cost of acquisitions in excess of fair market
value of net assets acquired $ 3,179 $ 2,898
Tangible assets acquired 674 472
Liabilities assumed 1,607 52
Common stock issued in connection with acquisitions - 3,205
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 financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's 1996 Annual Report on Form 10-K at pages 28-51. The results of
operations for an interim period are not necessarily indicative of the results
of operations for a full year.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
Per Share." SFAS 128 replaces APB Opinion 15, "Earnings Per Share," and
simplifies the computation of EPS by replacing the presentation of primary EPS
with a presentation of basic EPS. In accordance with this pronouncement, the
Company will adopt the new standard for periods ending after December 15, 1997.
The impact of the SFAS 128 EPS calculation for the three and six-month periods
ended June 30, 1997 is not material.
Certain prior year amounts have been reclassified to conform
with the 1997 presentation. Such reclassifications had no impact on net income
or stockholders' equity.
NOTE 2 - REDEEMABLE COMMON STOCK:
On April 11, 1997, pursuant to a Plan and Agreement of
Reorganization between StaffAmerica, Inc. and the Company dated April 1, 1996,
the Company repurchased from StaffAmerica and its two shareholders all 159,154
shares of common stock previously issued by the Company as consideration for the
acquisition, for a total of $2,824,984 or $17.75 per share. Upon completion of
the share repurchase, the Company canceled the shares of common stock.
NOTE 3 - ACQUISITIONS:
Effective February 1, 1997, the Company acquired D&L Personnel
Department Specialists, Inc., dba HR Only, a staffing services company which
specializes in human resource professionals with offices in Los Angeles and
Orange County, California. The Company paid $1,800,000 in cash for all of the
outstanding common stock of HR Only and $1,200,000 in cash for noncompete
agreements with certain individuals, of which $1,000,000 will be deferred with
7
simple interest at 5% per annum for five years and then be paid ratably over the
succeeding five-year period. The deferred portion of the noncompete agreement is
presented on the balance sheet in other long-term liabilities. HR Only's
revenues for the fiscal year ended January 31, 1997 were approximately $4.3
million. The transaction was accounted for under the purchase method of
accounting, which resulted in $3,027,000 of intangible assets, including $92,000
for acquisition-related costs, and $65,000 of net tangible assets.
Effective April 13, 1997, the Company acquired certain assets
of JRL Services, Inc., dba TLC Staffing, a provider of clerical staffing
services located in Tucson, Arizona. TLC Staffing had revenues of approximately
$800,000 (unaudited) for the year ended December 31, 1996. The Company paid
$150,000 in cash for the assets, assumed an $18,000 office lease liability and
incurred approximately $4,000 in acquisition related costs. The transaction was
accounted for under the purchase method of accounting, which resulted in
$152,000 of intangible assets and $2,000 of fixed assets.
NOTE 4 - PROVISION FOR INCOME TAXES:
Deferred tax assets (liabilities) are comprised of the
following components (in thousands):
June 30, 1997 December 31, 1996
------------ -----------------
Accrued workers' compensation claims
liabilities $1,213 $1,113
Allowance for doubtful accounts 30 10
Tax depreciation in excess of book
depreciation (161) (154)
Safety incentives 284 281
Book amortization of intangibles in excess
of tax amortization 67 29
----- -----
$1,433 $1,279
===== =====
The provision for income taxes for the six months ended June 30, 1997 and 1996,
is as follows (in thousands):
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
Current:
Federal $1,195 $ 843
State 281 190
----- -----
1,476 1,033
Deferred:
Federal (127) 228
State (27) 45
----- -----
(154) 273
----- -----
Provision for income taxes $1,322 $1,306
===== =====
8
NOTE 5 - STOCK INCENTIVE PLAN:
In 1993, the Company adopted 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 1,300,000.
The following table summarizes options granted under the Plan
in 1997:
Outstanding at December 31, 1996 491,998 $ 3.50 to $16.36
Options granted 111,011 $13.38 to $17.94
Options exercised (42,375) $ 3.50 to $15.06
Options canceled or expired (39,375) $ 3.50 to $15.06
-------
Outstanding at June 30, 1997 521,259 $ 3.50 to $17.94
=======
Exercisable at June 30, 1997 199,708
=======
Available for grant at
June 30, 1997 612,616
=======
The options listed in the table generally become exercisable in four equal
annual installments beginning one year after the date of grant.
NOTE 6- NET INCOME PER SHARE:
Net income per share for 1997 is computed based on the
weighted average number of actual shares of common stock outstanding during the
period, without giving effect to securities that would otherwise be considered
to be common stock equivalents because such securities aggregate less than 3% of
shares outstanding and, thus, are not considered dilutive. Net income per share
for 1996 is computed based on the weighted average number of common stock and
common stock equivalent shares outstanding during the period; common stock
equivalents aggregated more than 3% of shares outstanding for such period.
9
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 six-month periods ended June 30, 1997 and 1996.
Percentage of Total Revenues
----------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Staffing services 54.5% 52.2% 53.4% 52.3%
Professional employer services 45.5 47.8 46.6 47.7
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
Direct payroll costs 76.9 75.5 76.7 75.6
Payroll taxes and benefits 9.7 9.6 10.0 9.8
Workers' compensation 2.8 2.3 2.9 2.1
Safety incentives .5 .7 .5 .8
----- ----- ----- -----
Total cost of revenues 89.9 88.1 90.1 88.3
----- ----- ----- -----
Gross margin 10.1 11.9 9.9 11.7
Selling, general and administrative
expenses 6.9 7.6 7.0 8.0
Amortization of intangibles .4 .4 .4 .3
----- ----- ----- -----
Income from operations 2.8 3.9 2.5 3.4
Other income (expense) .1 .2 .1 .2
----- ----- ----- -----
Pretax income 2.9 4.1 2.6 3.6
Provision for income taxes 1.1 1.6 1.0 1.4
----- ----- ----- -----
Net income 1.8 2.5 1.6 2.2
===== ===== ===== =====
Three months ended June 30, 1997 and 1996
Net income for the second quarter of 1997 was $1,254,000, a
decrease of $51,000 or 3.9% from the same period in 1996. The decrease in net
income was attributable to a lower gross margin percent and increased selling,
general and administrative expenses. Earnings per share for the second quarter
of 1997 were $.19, the same amount as the second quarter of 1996.
Revenues for the second quarter of 1997 totaled approximately
$70.5 million, an increase of approximately $18.6 million or 35.8% over the
second quarter of 1996. The quarter-over-quarter internal growth rate of
revenues was 25.1%. The percentage increase in total revenues exceeded the
internal growth rate of revenues primarily due to the acquisition of five
staffing and PEO businesses since July 1, 1996.
10
The higher internal growth rate of revenues of 25.1% for the
1997 second quarter compared to 4.8% for the 1996 second quarter was primarily
attributable to the opening of four new branch offices during 1996 and early
1997 in Boise, Idaho, Tucson, Arizona, Ontario, California, and Flint, Michigan,
coupled with the continued growth in business at existing branch offices.
Staffing services revenue increased approximately $11.3 million or 41.8%, while
professional employer services revenue increased approximately $7.3 million or
29.3%, which resulted in an increase in the mix of staffing services to 54.5% of
total revenues for the second quarter of 1997, as compared to 52.2% for the
second quarter of 1996. The mix of professional employer services revenues had a
corresponding decline from 47.8% for the second quarter of 1996 to 45.5% for the
second quarter of 1997.
Gross margin for the second quarter of 1997 totaled
approximately $7.1 million, which represented an increase of $1.0 million or
16.2% over the second quarter of 1996. The gross margin percent decreased to
10.1% of revenues for the second quarter of 1997, as compared to 11.9% for the
same period of 1996. The decline in the gross margin percentage was due to
higher direct payroll costs and workers' compensation expense, both in terms of
total dollars and as a percentage of revenues. The increase in the percentage of
direct payroll costs from 75.5% for the second quarter of 1996 to 76.9% for the
second quarter of 1997 was primarily attributable to increased business activity
in contract staffing and on-site management arrangements, which also have a
lower workers' compensation risk profile. The increase in workers' compensation
expense to 2.8% of revenues for the 1997 second quarter, up from the 1996 second
quarter level of 2.3% of revenues, was due to a higher incidence of injuries
during the 1997 period as compared to 1996 and management's decision to (i)
continue to increase the Company's accrual for future adverse loss development
of open claims, and (ii) build an accrual for potential future catastrophic
workers' compensation claims.
The following table summarizes certain indicators of
performance regarding the Company's self-insured workers' compensation program
for each of the first two quarters of 1997 and 1996.
Self-Insured Workers' Compensation Profile
Total Workers'
Total Workers' Comp Expense
No. of Injury Comp Expense as a % of
Claims (in thousands) Total Payroll
----------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
Q1 321 193 $1,855 $ 770 3.9% 2.4%
Q2 419 312 1,973 1,213 3.6 3.1
--- --- ----- ----- --- ---
YTD 740 505 $3,828 $1,983 3.7% 2.8%
=== === ===== ===== === ===
11
Selling, general and administrative expenses for the 1997
second quarter amounted to approximately $4.9 million, an increase of $918,000
or 23.3% over the comparable period in 1996. These expenses, however, decreased
from 7.6% of revenues for the second quarter of 1996 to 6.9% of revenues for the
second quarter of 1997. The increase in total dollars was primarily attributable
to additional branch office expenses as a result of the five acquisitions since
July 1, 1996, and the opening of four new offices in 1996 and early 1997.
Amortization of intangibles totaled $275,000, or .4% of
revenues for the second quarter of 1997, which compares to $209,000 or .4% of
revenues for the same period in 1996. The increased amortization expense was
primarily due to amortization from the Company's five acquisitions since July 1,
1996.
The Company offers various employee benefit plans to its
employees, including its worksite employees. These employee benefit plans
include a savings plan (the "401(k) 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, 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 12-14 of the Company's 1996 Annual Report on Form 10-K for a more detailed
discussion of this issue.
Six Months Ended June 30, 1997 and 1996
Net income for the six months ended June 30, 1997 was
$2,084,000, a decrease of $48,000 or 2.3% from the same period in 1996. The
decrease in net income was primarily due to a lower gross margin percentage
owing to increased direct payroll costs and workers' compensation expense. Net
income per share for the six months ended June 30, 1997 was $.31, the same
amount as the six months ended June 30, 1996.
Revenues for the six months ended June 30, 1997 totaled
approximately $133.2 million, an increase of approximately $38.2 million or
40.2% over the comparable period of 1996. The internal growth rate of revenues
was 25.1%. The growth rate of total revenues exceeded the internal growth rate
of revenues primarily due to the acquisition of five staffing and PEO businesses
between August 1996 and April 1997.
12
The higher internal growth rate of revenues of 25.1% for 1997
compared to the 1996 period internal growth rate of 5.1% was primarily
attributable to the opening of four new branch offices during 1996 and in early
1997, coupled with the continued growth in business at existing branch offices.
Gross margin for the six months ended June 30, 1997 totaled
approximately $13.2 million, which represented an increase of $2.1 million or
18.7% over the same period of 1996. The gross margin percent decreased to 9.9%
of revenues for the first six months of 1997, as compared to 11.7% for the same
period of 1996. The decline in the gross margin percentage was due to higher
direct payroll costs and workers' compensation expense, both in terms of total
dollars and as a percentage of revenues. The increase in the percentage of
direct payroll costs from 75.6% for the first six months of 1996 to 76.7% for
the first six months of 1997 was primarily attributable to increased business
activity in contract staffing and on-site management arrangements. The increase
in workers' compensation expense to 2.9% of revenues for the six months ended
June 30, 1997, up from the 1996 period of 2.1% of revenues, was due to a higher
incidence of injuries during the 1997 period as compared to 1996 and
management's decision to (i) continue to increase the Company's accrual for
future adverse loss development of open claims, and (ii) build an accrual for
potential future catastrophic workers' compensation claims.
Selling, general and administrative expenses for the six
months ended June 30, 1997 amounted to approximately $9.4 million, an increase
of $1.8 million or 23.9% over the comparable period in 1996. These expenses,
however, decreased from 8.0% of revenues for the 1996 period to 7.0% of revenues
for 1997. The increase in total dollars was primarily attributable to additional
branch office expenses as a result of the five acquisitions made since July 1,
1996, and the opening of four new offices.
Amortization of intangibles totaled $592,000 or .4% of
revenues for the six-month period ended June 30, 1997, which compares to
$369,000 for the same period in 1996. The increased amortization expense was
attributable to amortization from the five acquisitions made since July 1, 1996.
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
expense 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
13
percentage of revenues later in the Company's fiscal year as federal and state
statutory wage limits for unemployment and social security taxes are exceeded by
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 quarter.
Liquidity and Capital Resources
- -------------------------------
The Company's cash position of $459,000 at June 30, 1997
decreased by $1,442,000 from December 31, 1996. The decrease was primarily due
to cash used in financing activities to satisfy the Company's obligation to
repurchase shares of its common stock, offset in part by the cash provided by
operating activities.
Net cash provided by operating activities for the six months
ended June 30, 1997 amounted to $2,423,000 as compared to $2,053,000 for the
comparable 1996 period. For the 1997 period, cash flow generated by net income,
together with an increase of $2,606,000 in accrued payroll and benefits, was
offset in part by a $3,083,000 increase in trade accounts receivable. The
$1,014,000 increase in other long-term liabilities includes the $1,000,000
deferred noncompete agreement arising from the acquisition of HR Only and is
reflected in the supplemental schedule of noncash activities within the
liabilities assumed caption.
Net cash used in investing activities totaled $3,252,000 for
the six months ended June 30, 1997, as compared to $1,455,000 for the similar
1996 period. For the 1997 period, the principal use of cash for investing
activities was the acquisition of HR Only and funds used to purchase office
equipment and software. The Company presently has no material long-term capital
commitments.
Net cash used in financing activities for the six-month period
ended June 30, 1997 was $613,000, which compares to net cash provided by
financing activities of $93,000 for the comparable 1996 period. For the 1997
period, the principal use of cash for financing activities arose from the
Company's obligation to redeem 159,154 shares of its common stock at a value of
$2,824,984 pursuant to a Plan and Agreement of Reorganization between
StaffAmerica, Inc. and the Company, offset in part by net proceeds from
borrowings on the Company's revolving credit line in the amount of $1,896,000
and proceeds from the exercise of stock options and warrants totaling $757,000.
As of the date of this report, an underwriter continues to hold warrants to
purchase 30,000 shares of common stock at $4.20 per share issued in connection
with the Company's 1993 initial public offering of its common stock.
The Company's business strategy continues to focus on growth
through the acquisition of additional personnel-related businesses, both in its
existing markets and other strategic geographic areas, together with the
expansion of operations at existing offices. As disclosed in Note 3 to the
financial statements included herein, the Company purchased, during February
1997, a staffing services company located in the Los Angeles, California area
for $2,092,000 in cash, plus an additional
14
$1,000,000 for a noncompete agreement which will be paid ratably, with accrued
interest, over five years beginning after the end of the fifth year following
the acquisition. As also disclosed in Note 3, the Company purchased in April
1997, certain assets of a staffing services company located in Tucson, Arizona
for $154,000 in cash. 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.
Management recently renewed the Company's credit arrangement
with its principal bank on terms and conditions which were generally more
favorable than the prior agreement. The amount of the credit facility remained
unchanged, which primarily includes an unsecured $4.0 million revolving credit
facility and $1.6 million for previously existing standby letters of credit in
connection with certain workers' compensation surety arrangements. Management
expects the funds anticipated to be generated from operations, together with the
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.
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
- ---------------------------
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, the tax-qualified status of the Company's 401(k)
savings plan, the outcome of various legal proceedings, 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 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
15
statements contained herein to reflect future events or developments.
Part II - Other Information
Item 1. Legal Proceedings
A lawsuit was filed in the Circuit Court of the State of
Oregon for the County of Multnomah on February 5, 1997, by Javier and Ester
Munoz, husband and wife, against Asger M. Nielson, doing business as Nielson and
Son ("Nielson"), Rain-Master Roofing, Inc. ("Rain-Master"), and the Company. Mr.
Munoz was employed by the Company under a PEO arrangement with Rain-Master,
which is in the roofing business. On February 1, 1995, Rain-Master was providing
roofing services at a construction site for which Nielson was serving as a
general contractor. Mr. Munoz fell from the roof at the site in the course of
his employment and is now a paraplegic as a result of the injuries he suffered.
Until the filing of the lawsuit referred to above, Mr. Munoz's claim was being
defended as a workers' compensation claim. In the lawsuit, the plaintiffs are
seeking damages in the amount of $10,000,000 pursuant to claims for relief based
on employer liability, intentional injury, product liability, negligence, breach
of implied warranty and loss of consortium. On July 14, 1997, the court granted
the Company's motion to dismiss the Company as a party to the lawsuit. The
dismissal is without prejudice such that the plaintiff may seek to file an
amended complaint alleging facts which would serve as a basis for a claim
against the Company.
On March 11, 1997, a Notice of Intent to Revoke Farm/Forest
Labor Contractor License and to Assess Civil Penalties (the "Notice") was served
on the Company by the Bureau of Labor and Industries of the State of Oregon (the
"Bureau"). The Notice also names Daniel A. Hatfield, an employee of the Company.
The Notice proposes to assess civil penalties in the amount of $488,000, based
on the numbers of workers allegedly affected, for alleged noncompliance with
various duties imposed on farm labor contracts by Oregon law, including
licensing violations, failure to comply with wage payment laws, and failure to
maintain and to provide workers and the Bureau with required documentation. A
default judgment entered against the Company was withdrawn by an administrative
law judge on April 23, 1997. Management intends to vigorously contest the claims
asserted in the Notice; an administrative hearing is presently scheduled for
September 1997.
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Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1997 annual meeting of stockholders on
May 14, 1997. The following directors were elected at the annual meeting:
ABSTENTIONS AND
FOR WITHHELD BROKER NON-VOTES
--- -------- ----------------
Robert R. Ames 6,170,376 211,710
Jeffrey L. Beaudoin 6,170,476 211,610
Stephen A. Gregg 6,170,376 211,710
Anthony Meeker 6,170,476 211,610
Stanley G. Renecker 6,170,276 211,810
William W. Sherertz 6,170,276 211,810
The other matters presented for action at the annual meeting
were approved by the following vote:
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
--- ------- ----------------
Approval of amendment 3,961,585 520,466 1,900,035
to the Company's 1993
Stock Incentive Plan
Approval of the 6,366,186 14,400 1,500
appointment of Price
Waterhouse LLP as
independent accountants
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) Reports on Form 8-K
Except as set forth in the Registrant's Quarterly Report on
Form 10-Q, Item 6 (b), for the quarterly period ended March
31, 1997, no reports on Form 8-K were filed by the Registrant
during the quarter for which this report is filed.
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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: August 12, 1997 By: /s/ Michael D. Mulholland
--------------------------
Michael D. Mulholland
Vice President-Finance
(Principal Financial Officer)
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EXHIBIT INDEX
EXHIBIT
4.1 Loan agreement between the Registrant and Wells Fargo Bank, N.A. dated
May 30, 1997.
11 Statement of Calculation of Average
Common Shares Outstanding
27 Financial Data Schedule
19