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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, 2003
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 97239
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
Number of shares of common stock, $.01 par value, outstanding at April 30, 2003
was 5,711,035 shares.
BARRETT BUSINESS SERVICES, INC.
INDEX
Part I - Financial Information Page
Item 1. Financial Statements
Balance Sheets - March 31, 2003 and
December 31, 2002................................................3
Statements of Operations - Three Months
Ended March 31, 2003 and 2002....................................4
Statements of Cash Flows - Three Months
Ended March 31, 2003 and 2002....................................5
Notes to Financial Statements....................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................................................9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk.....................................................16
Item 4. Controls and Procedures.........................................16
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K................................17
Signatures ................................................................18
Exhibit Index ................................................................21
- 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,
2003 2002
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 239 $ 96
Income taxes receivable - 1,923
Trade accounts receivable, net 10,983 11,357
Prepaid expenses and other 1,811 1,040
Deferred income taxes 1,944 2,111
--------- ---------
Total current assets 14,977 16,527
Goodwill, net 18,749 18,749
Intangibles, net 46 59
Property and equipment, net 4,942 5,167
Restricted marketable securities and workers' compensation deposits 4,341 4,286
Deferred income taxes 1,445 1,445
Other assets 929 1,064
--------- ---------
$ 45,429 $ 47,297
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 422 $ 434
Line of credit 1,793 3,513
Accounts payable 979 834
Accrued payroll, payroll taxes and related benefits 6,358 4,897
Workers' compensation claims liabilities 2,127 3,903
Safety incentives payable 346 406
Other accrued liabilities 1,108 305
--------- ---------
Total current liabilities 13,133 14,292
Long-term debt, net of current portion 400 488
Customer deposits 444 443
Long-term workers' compensation claims liabilities 2,487 2,492
Other long-term liabilities 650 797
--------- ---------
17,114 18,512
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized, 5,711
and 5,751 shares issued and outstanding 57 57
Additional paid-in capital 3,017 3,144
Employee loan (107) (107)
Retained earnings 25,348 25,691
--------- ---------
28,315 28,785
--------- ---------
$ 45,429 $ 47,297
========= =========
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,
--------------------------------
2003 2002
------------ ------------
Revenues:
Staffing services $ 20,110 $ 22,570
Professional employer service fees 3,287 3,168
--------- ---------
23,397 25,738
--------- ---------
Cost of revenues:
Direct payroll costs 14,798 16,634
Payroll taxes and benefits 3,805 3,692
Workers' compensation 1,425 1,625
--------- ---------
20,028 21,951
--------- ---------
Gross margin 3,369 3,787
Selling, general and administrative expenses 3,596 4,199
Depreciation and amortization 280 312
---------- ---------
Loss from operations (507) (724)
--------- ---------
Other (expense) income:
Interest expense (95) (46)
Interest income 41 62
Other, net 48 (5)
--------- ---------
(6) 11
--------- ---------
Loss before benefit from income taxes (513) (713)
Benefit from income taxes (170) (296)
--------- ---------
Net loss $ (343) $ (417)
========= =========
Basic loss per share $ (.06) $ (.07)
========= =========
Weighted average number of basic shares outstanding 5,748 5,821
========= =========
Diluted loss per share $ (.06) $ (.07)
========= =========
Weighted average number of diluted shares outstanding 5,748 5,821
========= =========
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,
----------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net loss $ (343) $ (417)
Reconciliations of net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 280 312
Gain on sales of marketable securities (48) -
Deferred income taxes 167 10
Changes in certain assets and liabilities:
Income taxes receivable 1,923 -
Trade accounts receivable, net 374 852
Prepaid expenses and other (771) (861)
Accounts payable 145 (124)
Accrued payroll, payroll taxes and related benefits 1,461 923
Other accrued liabilities 803 837
Workers' compensation claims liabilities (1,781) (1,014)
Safety incentives payable (60) (1)
Customer deposits and other assets, net 136 (59)
Other long-term liabilities (147) -
---------- ---------
Net cash provided by operating activities 2,139 458
---------- ---------
Cash flows from investing activities:
Purchase of equipment (42) (29)
Proceeds from maturities of marketable securities 637 1,049
Proceeds from sales of marketable securities 2,271 -
Purchase of marketable securities (2,915) (715)
---------- ---------
Net cash (used in) provided by investing activities (49) 305
---------- ---------
Cash flows from financing activities:
Proceeds from credit-line borrowings 9,550 12,549
Payments on credit-line borrowings (11,270) (13,362)
Payments on long-term debt (100) (395)
Payment to shareholder - (28)
Loan to employee - (22)
Repurchase of common stock (127) (131)
---------- ---------
Net cash used in financing activities (1,947) (1,389)
---------- ---------
Net increase (decrease) in cash and cash equivalents 143 (626)
Cash and cash equivalents, beginning of period 96 1,142
---------- ---------
Cash and cash equivalents, end of period $ 239 $ 516
========== =========
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 ("GAAP")
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 2002 Annual Report on Form 10-K at pages F1 - F24. 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.
Note 2 - Recent Accounting Pronouncements:
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 148 ("SFAS 148"), "Accounting for
Stock Based Compensation-Transition and Disclosure." SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation and requires fair
value method pro forma disclosures to be displayed more prominently and in a
tabular format. Additionally, SFAS 148 requires similar disclosures in interim
financial statements. The transition and disclosure requirements of SFAS 148
were adopted by the Company in the fourth quarter of 2002.
In January 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 149 is generally effective
for contracts entered into or modified after June 30, 2003. Management believes
that the adoption of this statement will not have a material impact on its
results of operations or financial position.
- 6 -
BARRETT BUSINESS SERVICES, INC.
Notes to Financial Statements (Continued)
Note 3 - Basic and Diluted Earnings Per Share:
Basic earnings per share are computed based on the weighted average number
of common shares outstanding during the period. Diluted earnings per share
reflect the potential effects of the exercise of outstanding stock options.
Basic and diluted shares outstanding are summarized as follows:
Three Months Ended
March 31,
------------------------------
2003 2002
------------ ------------
Weighted average number of basic shares outstanding 5,748,368 5,820,556
Stock option plan shares to be issued at prices ranging from
$1.45 to $17.75 per share - -
Less: Assumed purchase at average market price during the
period using proceeds received upon exercise of
options and purchase of stock, and using tax benefits
of compensation due to premature dispositions - -
--------- ---------
Weighted average number of diluted shares outstanding 5,748,368 5,820,556
========= =========
As a result of the net loss reported for the three months ended March 31, 2003
and 2002, 14,171 and 23,354, respectively, of potential common shares have been
excluded from the calculation of diluted loss per share because their effect
would be anti-dilutive.
Note 4 - Stock Incentive Plan:
The Company's 1993 Stock Incentive Plan (the "Plan") provides for
stock-based awards to Company 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 2003:
Number
of Options Grant Prices
------------- -----------------------
Outstanding at December 31, 2002 520,195 $ 1.45 to $17.75
Options granted -
Options exercised -
Options canceled or expired (100) $ 3.63 to $ 7.06
-------
Outstanding at March 31, 2003 520,095 $ 1.45 to $17.75
=======
Exercisable at March 31, 2003 102,994
=======
Available for grant at March 31, 2003 788,915
=======
- 7 -
Note 4 - Stock Incentive Plan (Continued):
The options listed in the table generally become exercisable in four equal
annual install-ments beginning one year after the date of grant.
Note 5 - Stock Option Compensation
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock incentive plan. Accordingly, no compensation expense
has been recognized for its stock option grants issued at market price because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of the grant.
If compensation expense for the Company's stock-based compensation plan
had been determined based on the fair market value at the grant date for awards
under the Plan consistent with the method of SFAS No. 123, the Company's net
loss and loss per share would have been adjusted to the pro forma amounts
indicated below:
Three Months Ended
March 31,
-------------------------------
2003 2002
------------ ------------
(in thousands, except per share amounts)
Net loss, as reported $ (343) $ (417)
Add back compensation expense recognized under
APB No. 25 - -
Deduct: Total stock-based compensation expense
determined under fair value based method for all awards,
net of related tax effects (38) (42)
--------- ---------
Net loss, pro forma $ (381) $ (459)
========= =========
Basic loss per share, as reported $ (.06) $ (.07)
Basic loss per share, pro forma (.07) (.08)
Diluted loss per share, as reported (.06) (.07)
Diluted loss per share, pro forma (.07) (.08)
The effects of applying SFAS No. 123 for providing pro forma disclosures
for the three months ended March 31, 2003 and 2002 are not likely to be
representative of the effects on reported net income for future periods because
options vest over several years and additional awards generally are made each
year.
- 8 -
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, 2003 and 2002.
Percentage of Total Revenues
----------------------------------
Three Months Ended
March 31,
----------------------------------
2003 2002
------------ ------------
Revenues:
Staffing services 86.0 % 87.7 %
Professional employer service fees 14.0 12.3
----- -----
100.0 100.0
----- -----
Cost of revenues:
Direct payroll costs 63.2 64.6
Payroll taxes and benefits 16.3 14.4
Workers' compensation 6.1 6.3
----- -----
Total cost of revenues 85.6 85.3
----- -----
Gross margin 14.4 14.7
Selling, general and administrative expenses 15.4 16.3
Depreciation and amortization 1.2 1.2
----- -----
Loss from operations (2.2) (2.8)
Other (expense) income - -
----- -----
Pretax loss (2.2) (2.8)
Benefit from income taxes (0.7) (1.2)
----- -----
Net loss (1.5)% (1.6)%
===== =====
Three months ended March 31, 2003 and 2002
Net loss for the first quarter of 2003 was $343,000, an improvement of
$74,000 from a net loss of $417,000 for the first quarter of 2002. The
improvement for the first quarter of 2003 was primarily due to lower selling,
general and administrative expenses, offset in part by a decline in gross margin
dollars. Basic and diluted loss per share for the first quarter of 2003 were
$(.06) as compared to basic and diluted loss per share of $(.07) for the 2002
first quarter.
- 9 -
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 2003 totaled approximately $23.4
million, a decrease of approximately $2.3 million or 9.1% from the first quarter
of 2002. The decrease in revenues primarily reflects weak business activity for
staffing services in the Company's market areas. Management expects that revenue
growth for staffing services will be difficult to achieve for the foreseeable
future due to generally soft economic conditions.
Staffing services revenue decreased approximately $2.5 million or 10.9%
primarily due to a decline in demand for personnel in the majority of areas in
which the Company operates. Professional employer ("PEO") service fee revenue,
however, increased approximately $119,000 or 3.8%.
The Company changed its reporting of PEO revenues from a gross basis to a
net basis in 2002 because it was determined that the Company was not the primary
obligor for the services provided by employees pursuant to its PEO contracts
with its customers. Gross revenue information, although not in accordance with
GAAP, is presented below because management believes it provides more
information related to the business activity level of PEO customers.
Unaudited
First Quarter Ended
March 31,
-------------------------------------
2003 2002
--------------- -------------
Revenues:
Staffing services $ 20,110 $ 22,570
Professional employer services 20,539 18,395
-------- --------
Total revenues 40,649 40,965
-------- --------
Cost of revenues:
Direct payroll costs 32,050 31,861
Payroll taxes and benefits 3,805 3,692
Workers' compensation 1,425 1,625
-------- --------
Total cost of revenues 37,280 37,178
-------- --------
Gross margin $ 3,369 $ 3,787
======== ========
- 10 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations (Continued)
A reconciliation of non-GAAP gross PEO revenues to net PEO revenues is as
follows:
For the quarter ended March 31, 2003 (unaudited, in thousands):
Gross Revenue Net Revenue
Reporting Method Reclassification Reporting Method
--------------------- ------------------- ---------------------
Revenues:
Staffing services $ 20,110 $ - $ 20,110
Professional employer services 20,539 (17,252) 3,287
-------- ---------- --------
Total revenues $ 40,649 $ (17,252) $ 23,397
======== ========== ========
Cost of revenues:
Direct payroll costs $ 32,050 $ (17,252) $ 14,798
======== ========== ========
For the quarter ended March 31, 2002 (unaudited, in thousands):
Gross Revenue Net Revenue
Reporting Method Reclassification Reporting Method
--------------------- ------------------- ---------------------
Revenues:
Staffing services $ 22,570 $ - $ 22,570
Professional employer services 18,395 (15,227) 3,168
-------- ---------- --------
Total revenues $ 40,965 $ (15,227) $ 25,738
======== ========== ========
Cost of revenues:
Direct payroll costs $ 31,861 $ (15,227) $ 16,634
======== ========== ========
Gross margin for the first quarter of 2003 totaled approximately $3.4
million, which represented a decrease of $418,000 or 11.0% from the first
quarter of 2002 primarily due to the 9.1% decline in revenues. The gross margin
percent decreased from 14.7% of revenues for the first quarter of 2002 to 14.4%
for the first quarter of 2003. The decrease in the gross margin percentage was
due to higher payroll taxes and benefits, offset in part by lower direct payroll
costs and slightly lower workers' compensation expense as a percentage of
revenues. The increase in payroll taxes and benefits, as a percentage of
revenues, for the first quarter of 2003, was principally due to higher statutory
state unemployment tax rates in various states in which the Company operates as
compared to the first quarter of 2002. The decline in direct payroll costs, as a
percentage of revenues, for the first quarter of 2003 simply reflects the
current mix of services to our customer base. Workers' compensation expense for
the first quarter of 2003 totaled $1.4 million or 6.1% of revenues, which
compares to $1.6 million or 6.3% of revenues for the first quarter of 2002. The
decline in workers' compensation expense, in terms of total dollars, was
generally due to a decrease in the number of injury claims in the 2003 first
quarter compared to the same period in 2002, which management believes has been
influenced by the Company's strengthened loss control procedures.
- 11 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Results of Operations (Continued)
Selling, general and administrative ("SG&A") expenses for the 2003 first
quarter amounted to approximately $3.6 million, a decrease of $603,000 or 14.4%
from the comparable period in 2002. SG&A expenses, expressed as a percentage of
revenues, decreased from 16.3% for the first quarter of 2002 to 15.4% for the
first quarter of 2003. The decrease in total dollars from 2002 was primarily
attributable to reductions in branch office management personnel and related
expenses to more closely align internal staffing levels with current business
conditions.
Depreciation and amortization totaled $280,000 or 1.2% of revenues for the
first quarter of 2003, as compared to $312,000 or 1.2% of revenues for the same
period in 2002. The depreciation and amortization expense level remained
comparable to 2002 amounts due to the Company's current low level of capital
expenditures.
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 and demand and competition for the Company's services. 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.
Liquidity and Capital Resources
The Company's cash position of $239,000 at March 31, 2003 increased by
$143,000 from December 31, 2002, which compares to a decrease of $626,000 for
the comparable period in 2002. The increase in cash at March 31, 2003, as
compared to March 31, 2002, was primarily generated from the receipt of the
Company's income taxes receivable and an increase in accrued payroll, payroll
taxes and related benefits, offset in part by payments on workers' compensation
claims liabilities and net payments on the Company's credit-line borrowings.
Net cash provided by operating activities for the three months ended March
31, 2003 amounted to $2,139,000, as compared to $458,000 of net cash provided by
operating activities for the comparable 2002 period. For the three months ended
March 31, 2003, net cash provided by operating activities was generated by a
decrease of $1,923,000 in income taxes receivable as of result of the receipt of
a federal income tax refund and an increase in accrued payroll and related
benefits of $1,461,000, offset in part by payments on workers' compensation
claims of $1,781,000.
- 12 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources (Continued)
Net cash used in investing activities totaled $49,000 for the three months
ended March 31, 2003, as compared to $305,000 net cash provided by investing
activities for the similar 2002 period. For the 2003 period, the principal
source of cash used in investing activities was from $2,915,000 of net purchases
of marketable securities, offset in part by net proceeds totaling $2,908,000
from maturities and sales 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, 2003, was $1,947,000, compared to $1,389,000 net cash used in
financing activities for the similar 2002 period. For the 2003 period, the
principal use of cash for financing activities was $1,720,000 of net payments
made on the Company's revolving credit line, $127,000 used to repurchase the
Company's common stock and $100,000 of payments made on long-term debt.
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 markets. The Company periodically
evaluates proposals for various acquisition opportunities, but there can be no
assurance that any additional transactions will be consummated.
Effective April 30, 2003, the Company entered into a second amendment to
the Amended and Restated Credit Agreement (the "Agreement") with its principal
bank. The Agreement provides for a revolving credit facility of up to $8.0
million, which includes a subfeature under the line of credit for standby
letters of credit for not more than $5.0 million and a term loan in the original
amount of $693,750 bearing interest at an annual rate 7.4%, as to which the
outstanding principal balance was approximately $334,000 as of March 31, 2003.
Under the terms of the Agreement, the Company's total outstanding
borrowings, to a maximum of $8.0 million, may not at any time exceed an
aggregate of (i) 85% of the Company's eligible billed accounts receivable, plus
(ii) 65% of the Company's eligible unbilled accounts receivable (not to exceed
$1.5 million), plus (iii) only to June 30, 2003, 75% of the appraised value of
the Company's real property collateral granted to the bank, minus the amount
outstanding under the term loan. Advances bear interest at an annual rate of
prime rate plus two percent. The Agreement expires March 31, 2004. As of March
31, 2003, the Company had approximately $1.4 million available under its credit
facility.
The revolving credit facility is secured by the Company's assets,
including, without limitation, its accounts receivable, equipment, intellectual
property, real property and bank deposits, and may be prepaid at anytime without
penalty. Pursuant to the Agreement, the Company is required to maintain
compliance with the following financial covenants: (1) a Current Ratio not less
than 1.10 to 1.0 through June 29, 2003, and not less than 1.15 to 1.0 from and
after June 30, 2003, with "Current Ratio" defined as total current assets
divided by total current liabilities: (2) EBITDA not less than negative $700,000
as of the quarter ended March 31, 2003, not less than negative $350,000 as of
the quarter ending June 30, 2003, not less than $250,000 as of the quarter
ending September 30, 2003, and not less than $1,500,000 as of the quarter ending
December 31, 2003 and thereafter, measured on a trailing four-quarter
- 13 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Liquidity and Capital Resources (Continued)
basis, with "EBITDA" defined as net profit before taxes, interest expense (net
of capitalized interest expense), depreciation expense and amortization expense;
(3) Funded Debt to EBITDA Ratio not more than 4.0 to 1.0 as of September 30,
2003 and not more than 2.25 to 1.0 as of December 31, 2003 and thereafter, with
"Funded Debt" defined as all borrowed funds plus the amount of all capitalized
lease obligations of the Company and "Funded Debt to EBITDA Ratio" defined as
Funded Debt divided by EBITDA; and (4) EBITDA Coverage Ratio not less than 1.0
to 1.0 as of September 30, 2003 and not less than 1.75 to 1.0 as of December 31,
2003, with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of
total interest expense plus the prior period current maturity of long-term debt
and the prior period current maturity of subordinated debt. The outstanding
balance on the revolving credit facility is expected to be substantially reduced
in the second quarter of 2003.
On March 24, 2003, the Company received a $2.2 million federal income tax
refund generated by a net operating loss carryback from the tax year ended
December 31, 2002. The Company used this tax refund to reduce the outstanding
balance on its revolving credit facility.
The Company has announced a pending sale-leaseback transaction involving
the two office buildings owned by the Company. The sale-leaseback transaction,
which is expected to close during the second quarter of 2003, is projected to
provide net cash proceeds of approximately $2.0 million. The proceeds from the
transaction will be applied to the outstanding balance on the Company's credit
facility.
Management expects that the funds anticipated from operations, together
with available credit under the Agreement 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 9, 2003, the repurchase program had remaining authorized
availability of $263,000 for the repurchase of additional shares. During the
first three months of 2003, the Company repurchased 40,000 shares at an
aggregate price of $126,800. Since the inception of the repurchase program
through May 9, 2003, the Company has repurchased 1,980,900 shares for an
aggregate price of $8,868,000. 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 -
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 and effect on
revenue growth, 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
Company's sources of working capital and expected use of credit, including its
ability to pay the balance on its line of credit, the adequacy of the Company's
workers' compensation reserves and allowance for doubtful accounts, the
effectiveness of the Company's management information systems 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 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, material deviations from expected future workers'
compensation claims experience, the carrying values of deferred income tax
assets and goodwill, which are subject to the improvement in the Company's
future operating results, 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 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.
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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, 2003, the Company had interest-bearing debt obligations of
approximately $2.6 million, of which approximately $1.8 million bears interest
at a variable rate and approximately $0.8 million at a fixed rate of interest.
The variable rate debt is comprised of approximately $1.8 million outstanding
under a secured revolving credit facility, which bears interest at the prime
rate plus 2.0%. Based on the Company's overall interest exposure at March 31,
2003, 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, 2003, the Company had not entered into any interest
rate instruments to reduce its exposure to interest rate risk.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's
chief executive officer and its chief financial officer,
evaluated the effectiveness of the Company's disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14(c) and
15d-14(c)), which are designed to ensure that information the
Company must disclose in its reports filed or submitted under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
is recorded, processed, summarized, and reported on a timely
basis, on May 12, 2003 and have concluded that, as of such date,
the Company's disclosure controls and procedures were adequate
and effective to ensure that information required to be disclosed
by the Company in reports that it files or submits under the
Exchange Act is brought to their attention on a timely basis.
(b) Changes in internal controls. There were no significant changes
in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of
their evaluation, nor were there any significant deficiencies or
material weaknesses identified in the Company's internal
controls. As a result, no corrective actions were undertaken.
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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) The following Current Report on Form 8-K was filed by the
Registrant during the quarter ended March 31, 2003:
The Company filed a Current Report on Form 8-K dated March 19,
2003, to announce (i) its determination to restate PEO revenues
on a net rather than gross basis and (ii) a sale-leaseback
transaction involving its headquarters and one of its branch
office buildings.
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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 14, 2003 /s/ Michael D. Mulholland
---------------------------------
Michael D. Mulholland
Vice President - Finance
(Principal Financial Officer)
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CERTIFICATIONS
I, William W. Sherertz certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Barrett Business
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant is made known to us
by others within the Company, particularly during the period in which
this quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 14, 2003 /s/ William W. Sherertz
---------------------------------
William W. Sherertz
Chief Executive Officer
- 19 -
I, Michael D. Mulholland certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Barrett Business
Services, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant is made known to us
by others within the Company, particularly during the period in which
this quarterly report is being prepared;
b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 14, 2003 /s/ Michael D. Mulholland
---------------------------------
Michael D. Mulholland
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
10.1 2003 Stock Incentive Plan
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.