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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003
Commission File Number 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)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of class)

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

Indicate by check mark whether the Registrant is an accelerated filer (as
indicated by Exchange Act Rule 12 b-2). Yes _ No X

State the aggregate market value of the common equity held by
non-affiliates of the Registrant: $7,360,437 at June 30, 2003.

Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:

Class Outstanding at February 27, 2004
Common Stock, Par Value $.01 Per Share 5,705,050 Shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 2004 Annual Meeting of
Stockholders are hereby incorporated by reference into Part III of Form 10-K.




BARRETT BUSINESS SERVICES, INC.
2003 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

PART I Page

Item 1. Business 2

Item 2. Properties 11

Item 3. Legal Proceedings 11

Item 4. Submission of Matters to a Vote of Security Holders 12

Executive Officers of the Registrant 12

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder 13
Matters

Item 6. Selected Financial Data 14

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25

Item 8. Financial Statements and Supplementary Data 25

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 25

Item 9A. Controls and Procedures 26

PART III

Item 10. Directors and Executive Officers of the Registrant 27

Item 11. Executive Compensation 27

Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 27

Item 13. Certain Relationships and Related Transactions 28

Item 14. Principal Accountant Fees and Services 28

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 29

Financial Statements F-1

Signatures

Exhibit Index

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PART I

Item 1. BUSINESS

General
Barrett Business Services, Inc. ("Barrett" or the "Company"), was
incorporated in the state of Maryland in 1965. Barrett is a leading human
resource management company. The Company provides comprehensive outsourced
solutions addressing the costs and complexities of a broad array of
employment-related issues for businesses of all sizes. Employers are faced with
increasing complexities in employment laws and regulations, employee benefits
and administration, federal, state and local payroll tax compliance and
mandatory workers' compensation coverage, as well as the recruitment and
retention of quality employees. The Company believes that outsourcing the
management of various employer and human resource responsibilities, which are
typically considered non-core functions, enables organizations to focus on their
core competencies, thereby improving operating efficiencies.

Barrett's range of services and expertise in human resource management
encompasses five major categories: payroll processing, employee benefits and
administration, workers' compensation coverage, effective risk management and
workplace safety programs, and human resource administration, which includes
functions such as recruiting, interviewing, drug testing, hiring, placement,
training and regulatory compliance. These services are typically provided
through a variety of contractual arrangements, as part of either a traditional
staffing service or a professional employer organization ("PEO") service.
Staffing services include on-demand or short-term staffing assignments,
long-term or indefinite-term contract staffing, and comprehensive on-site
personnel management responsibilities. In a PEO arrangement, the Company enters
into a contract to become a co-employer of the client company's existing
workforce and assumes responsibility for some or all of the human resource
management responsibilities. The Company's target PEO clients typically have
limited resources available to effectively manage these matters. The Company
believes that its ability to offer clients a broad mix of staffing and PEO
services differentiates it from its competitors and benefits its clients through
(i) lower recruiting and personnel administration costs, (ii) decreases in
payroll expenses due to lower workers' compensation and health insurance costs,
(iii) improvements in workplace safety and employee benefits, (iv) lower
employee turnover and (v) reductions in management resources expended in
employment-related regulatory compliance. For 2003, Barrett's staffing services
revenues represented 76.2% of total net revenues, compared to 23.8% for PEO
services revenues, as compared to 88.5% and 11.5%, respectively, for 2002.

Barrett provides services to a diverse array of customers, including,
among others, electronics manufacturers, various light-manufacturing industries,
forest products and agriculture-based companies, transportation and shipping
enterprises, food processing, telecommunications, public utilities, general
contractors in numerous construction-related fields and various professional
services firms. During 2003, the Company provided staffing services to
approximately 2,700 customers, down from 2,900 in 2002. Although a majority of
the Company's staffing customers are small to mid-sized businesses, during 2003
approximately 30 of the Company's customers each utilized Barrett employees in a
number ranging from at least 200 employees to as many as 975 employees through
various staffing services arrangements. In addition, Barrett had approximately
500 PEO clients at December 31, 2003, compared to 300 at December 31, 2002 and
Barrett employed approximately 11,800 and 3,100 employees pursuant to PEO
contracts at December 31, 2003 and 2002, respectively. The increase in the
number of PEO customers during 2003 was primarily due to PEO growth in
California attributable to the business opportunities available to the Company
as a qualified self-insured employer for workers' compensation coverage
resulting from adverse market conditions for workers' compensation insurance in
the state.

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The Company operates through a network of 28 branch offices in
Washington, Oregon, Idaho, California, Arizona, Maryland, Delaware and North
Carolina. Barrett also has several smaller recruiting offices in its general
market areas under the direction of a branch office.

See Part II, Item 7, under the heading "Forward-Looking Information"
for a discussion of risks and other factors that may cause the Company's
operating results or financial condition to vary significantly from those
implied by statements in this Item or in Item 7 that are forward-looking rather
than historical in nature. Additional specific risks are discussed in
conjunction with forward-looking statements included in this Item and in Item 7.

Operating Strategies
The Company's principal operating strategies are to: (i) provide
effective human resource management services through a blend of staffing and PEO
arrangements, (ii) promote a decentralized and autonomous management philosophy
and structure, (iii) leverage branch office economies of scale, (iv) motivate
employees through regular profit sharing and (v) control workers' compensation
costs through effective risk management.

Growth Strategies
The Company's principal growth strategies are to: (i) support,
strengthen and expand branch office operations, (ii) enhance management
information systems to support continued growth and to improve customer services
and (iii) expand through selective acquisitions of human resource-related
businesses in new and existing geographic markets.

Acquisitions
The Company reviews acquisition opportunities on a periodic basis.
While growth through acquisition has historically been a major element of the
Company's overall strategic growth plan, there can be no assurance that any
additional acquisitions will be completed in the foreseeable future, or that any
future acquisitions will have a positive effect on the Company's performance.
Acquisitions involve a number of potential risks, including the diversion of
management's attention to the assimilation of the operations and personnel of
the acquired companies, exposure to workers' compensation and other costs in
differing regulatory environments, adverse short-term effects on the Company's
operating results and operational challenges arising out of integration of
management information systems.

Effective January 1, 2004, the Company acquired certain assets of
Skills Resource Training Center ("SRTC"), a staffing services company with nine
offices in Central Washington, Eastern Oregon and Southern Idaho. The Company
paid $3,000,000 in cash for the assets of SRTC and the selling shareholders'
noncompete agreements and agreed to issue up to 135,731 shares of its common
stock ("Earnout Shares"), with the actual number of Earnout Shares to be issued
based upon the level of financial performance achieved by the SRTC offices
during calendar 2004.

The Company's Services
Overview of Services. Barrett's services are typically provided through
a variety of contractual arrangements, as part of either a traditional staffing
service or a PEO service. These contractual arrangements also provide a
continuum of human resource management services. While some services are more
frequently associated with Barrett's co-employer arrangements, the Company's
expertise in such areas as safety services and personnel-related regulatory
compliance may also be utilized by its staffing services customers through the
Company's human resource management services. The Company's range of services
and expertise in human resource management encompasses five major categories:

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o Payroll Processing. For both the Company's staffing services and
PEO employees, the Company performs all functions associated with
payroll administration, including preparing and delivering
paychecks, computing tax withholding and payroll deductions,
handling garnishments, computing vacation and sick pay, and
preparing W-2 forms and accounting reports through centralized
operations at its headquarters in Portland, Oregon.

o Employee Benefits and Administration. As a result of its size,
Barrett is able to offer employee benefits which are typically not
available at an affordable cost to many of its customers,
particularly those with fewer than 100 employees. These benefits
include health care insurance, a 401(k) savings plan, a Section
125 cafeteria plan, life and disability insurance and claims
administration.

o Safety Services. Barrett offers safety services to both its
staffing services and PEO customers in keeping with its corporate
philosophy of "making the workplace safer." The Company has at
least one risk manager available at each branch office to perform
workplace safety assessments for each of its customers and to
recommend actions to achieve safer operations. The Company's
services include safety training and safety manuals for both
workers and supervisors, job-site visits and meetings,
improvements in workplace procedures and equipment to further
reduce the risk of injury, compliance with OSHA requirements,
environmental regulations, workplace regulation by the U.S.
Department of Labor and state agencies and accident
investigations. As discussed under "Self-Insured Workers'
Compensation Program" below, the Company also pays safety
incentives to its customers who achieve improvements in workplace
safety.

o Workers' Compensation Coverage. Beginning in 1987, the Company
obtained self-insured employer status for workers' compensation
coverage in Oregon and is currently a qualified self-insured
employer in many of the states in which it operates, including
California beginning in March, 1995. Through its third-party
administrators, Barrett provides claims management services to its
PEO customers. As discussed under "Self-Insured Workers'
Compensation Program" below, the Company works aggressively at
managing job injury claims, including identifying fraudulent
claims and utilizing its staffing services to return workers to
active employment earlier. As a result of its efforts to manage
workers' compensation costs, the Company is often able to reduce
its clients' overall expenses arising out of job-related injuries
and insurance.

o Human Resource Administration. Barrett offers its clients the
opportunity to leverage the Company's experience in
personnel-related regulatory compliance. For both its staffing
services employees and PEO clients, the Company handles the
burdens of advertising, recruitment, skills testing, evaluating
job applications and references, drug screening, criminal and
motor vehicle records reviews, hiring, and compliance with such
employment regulatory areas as immigration, the Americans with
Disabilities Act, and federal and state labor regulations.

Staffing Services. Barrett's staffing services include on-demand or
short-term staffing assignments, contract staffing, long-term or indefinite-term
on-site management and human resource administration. Short-term staffing
involves employee demands caused by such factors as seasonality, fluctuations in
customer demand, vacations, illnesses, parental leave, and special projects
without incurring the ongoing expense and administrative responsibilities
associated with recruiting, hiring and retaining additional permanent employees.

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As more and more companies focus on effectively managing variable costs and
reducing fixed overhead, the use of employees on a short-term basis allows firms
to utilize the "just-in-time" approach for their personnel needs, thereby
converting a portion of their fixed personnel costs to a variable expense.

Contract staffing refers to the Company's responsibilities for the
placement of employees for a period of more than three months or an indefinite
period. This type of arrangement often involves outsourcing an entire department
in a large corporation or providing the workforce for a large project.

In an on-site management arrangement, Barrett places an experienced
manager on site at a customer's place of business. The manager is responsible
for conducting all recruiting, screening, interviewing, testing, hiring and
employee placement functions at the customer's facility for a long-term or
indefinite period.

The Company's staffing services customers operate in a broad range of
businesses, including forest products and agriculture-based companies,
electronic manufacturers, transportation and shipping companies, food
processors, professional firms and construction contractors. Such customers
range in size from small local firms to companies with international operations,
which use Barrett's services on a domestic basis. None of the Company's staffing
services customers individually accounted for more than 4% of its total 2003
revenues.

In 2003, the light industrial sector generated approximately 75% of the
Company's staffing services revenues, while clerical office staff accounted for
19% of such revenues and technical personnel represented the balance of 6%.
Light industrial workers in the Company's employ perform such tasks as operation
of machinery, manufacturing, loading and shipping, site preparation for special
events, construction-site cleanup and janitorial services. Technical personnel
include electronic parts assembly workers and designers and drafters of
electronic parts.

Barrett emphasizes prompt, personalized service in assigning quality,
trained, drug-free personnel at competitive rates to its staffing services
customers. The Company uses internally developed computer databases of employee
skills and availability at each of its branches to match customer needs with
available qualified employees. The Company emphasizes the development of an
understanding of the unique requirements of its clientele by its account
managers. Customers are offered a "money-back" guarantee if dissatisfied with
staffing employees placed by Barrett.

The Company utilizes a variety of methods to recruit its work force for
staffing services, including among others, referrals by existing employees,
newspaper advertising and marketing brochures distributed at colleges and
vocational schools. The employee application process includes an interview,
skills assessment test, reference verification and drug screening. The
recruiting of qualified employees requires more effort when unemployment rates
are low. In mid-2000, the Company implemented a new, comprehensive
pre-employment screening test to further ensure that applicants are
appropriately qualified for employment.

Barrett's staffing services employees are not under its direct control
while working at a customer's business. Barrett has not experienced any
significant liability due to claims arising out of negligent acts or misconduct
by its staffing services employees. The possibility exists, however, of claims
being asserted against the Company which may exceed the Company's liability
insurance coverage, with a resulting negative effect on the Company's financial
condition.

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PEO Services. Many businesses, particularly those with a limited number
of employees, find personnel administration requirements to be unduly complex
and time consuming. These businesses often cannot justify the expense of a
full-time human resource staff. In addition, the escalating costs of health and
workers' compensation insurance in recent years, coupled with the increased
complexity of laws and regulations affecting the workplace, have created a
compelling opportunity for small to mid-sized businesses to outsource these
managerial burdens. The outsourcing of non-core business functions, such as
human resource administration, enables small enterprises to devote their limited
resources to their core competencies.

In a PEO services arrangement, Barrett enters into a contract to become
a co-employer of the client company's existing workforce. Pursuant to this
contract, Barrett assumes responsibility for some or all of the human resource
management responsibilities, including payroll and payroll taxes, employee
benefits, health insurance, workers' compensation coverage, workplace safety
programs, compliance with federal and state employment laws, labor and workplace
regulatory requirements and related administrative responsibilities. Barrett has
the right to hire and fire its PEO employees, although the client company
remains responsible for day-to-day assignments, supervision and training and, in
most cases, recruiting.

The Company began offering PEO services to Oregon customers in 1990 and
subsequently expanded these services to other states. The Company has entered
into co-employer arrangements with a wide variety of clients, including
companies involved in moving and shipping, professional firms, construction,
retail, manufacturing and distribution businesses. PEO clients are typically
small to mid-sized businesses with up to several hundred employees. None of the
Company's PEO clients individually accounted for more than 3% of its total
annual revenues during 2003.

Prior to entering into a co-employer arrangement, the Company performs
an analysis of the potential client's actual personnel and workers' compensation
costs based on information provided by the customer. Barrett introduces its
workplace safety program and recommends improvements in procedures and equipment
following a safety inspection of the customer's facilities which the potential
client must agree to implement as part of the co-employer arrangement. Barrett
also offers financial incentives to PEO clients to maintain a safe-work
environment.

The Company's standard PEO services agreement provides for services for
an indefinite term, until notice of termination is given by either party. The
agreement permits cancellation by either party upon 30 days written notice. In
addition, the Company may terminate the agreement at any time for specified
reasons, including nonpayment or failure to follow Barrett's workplace safety
program.

The form of agreement also provides for indemnification of the Company
by the client against losses arising out of any default by the client under the
agreement, including failure to comply with any employment-related, health and
safety or immigration laws or regulations. The Company also requires the PEO
client to maintain comprehensive liability coverage in the amount of $1 million
for acts of its work-site employees. In addition, the Company has excess
liability insurance coverage. Although no claims exceeding such policy limits
have been paid by the Company to date, the possibility exists that claims for
amounts in excess of sums available to the Company through indemnification or
insurance may be asserted in the future, which could adversely affect the
Company's profitability.

Sales and Marketing
The Company's marketing efforts are principally focused on branch-level
development of local business relationships. On a regional and national level,
efforts are made to expand and align the Company's services to fulfill the needs
of local customers with multiple locations, which may include using on-site
Barrett personnel and the opening of additional offices to better serve a
customer's broader geographic needs.

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Billing
Through centralized operations at the Company's headquarters in
Portland, Oregon, the Company prepares invoices weekly for its staffing services
customers and following the end of each payroll period for PEO clients. Health
insurance premiums are passed through to PEO clients. Payment terms for most PEO
clients are due on the invoice date.

Self-Insured Workers' Compensation Program
A principal service provided by Barrett to its customers, particularly
its PEO clients, is workers' compensation coverage. As the employer of record,
Barrett is responsible for complying with applicable statutory requirements for
workers' compensation coverage. The Company's workplace safety services, also
described under "Overview of Services," are closely tied to its approach to the
management of workers' compensation risk.

Elements of Workers' Compensation System. State law (and, for certain
types of employees, federal law) generally mandates that an employer reimburse
its employees for the costs of medical care and other specified benefits for
injuries or illnesses, including catastrophic injuries and fatalities, incurred
in the course and scope of employment. The benefits payable for various
categories of claims are determined by state regulation and vary with the
severity and nature of the injury or illness and other specified factors. In
return for this guaranteed protection, workers' compensation is an exclusive
remedy and employees are generally precluded from seeking other damages from
their employer for workplace injuries. Most states require employers to maintain
workers' compensation insurance or otherwise demonstrate financial
responsibility to meet workers' compensation obligations to employees. In many
states, employers who meet certain financial and other requirements are
permitted to self-insure.

Self Insurance for Workers' Compensation. In August 1987, Barrett
became a self-insured employer for workers' compensation coverage in Oregon. The
Company subsequently obtained self-insured employer status for workers'
compensation in four additional states, Maryland, Washington, Delaware and
California. Regulations governing self-insured employers in each jurisdiction
typically require the employer to maintain surety deposits of government
securities, letters of credit or other financial instruments to cover workers'
claims in the event the employer is unable to pay for such claims.

To manage its financial exposure from the incidence of catastrophic
injuries and fatalities, the Company maintains excess workers' compensation
insurance pursuant to an annual policy with a major insurance company. Through
December 31, 2000, such excess insurance included a self-insured retention or
deductible of $350,000. For calendar 2001, the Company's self-insured retention
was $400,000. Beginning January 1, 2002, the Company's excess workers'
compensation insurance policy provided coverage for single occurrences exceeding
$750,000 with statutory limits. Effective January 1, 2004, the per occurrence
retention increased to $1 million and the policy limit was increased to $25
million. The higher per occurrence retention may result in higher workers'
compensation costs to the Company with a corresponding negative effect on its
operating results.

Claims Management. As a self-insured employer, the Company's workers'
compensation expense is tied directly to the incidence and severity of workplace
injuries to its employees. Barrett seeks to contain its workers' compensation
costs through an aggressive approach to claims management. The Company uses
managed-care systems to reduce medical costs and keeps time-loss costs to a
minimum by assigning injured workers, whenever possible, to short-term
assignments which accommodate the workers' physical limitations. The Company
believes that these assignments minimize both time actually lost from work and
covered time-loss costs. Barrett has also engaged third-party administrators
("TPAs") to provide additional claims management expertise. Typical management
procedures include


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performing thorough and prompt on-site investigations of claims filed by
employees, working with physicians to encourage efficient medical management of
cases, denying questionable claims and attempting to negotiate early settlements
to eliminate future case development and costs. Barrett also maintains a
corporate-wide pre-employment drug screening program and a mandatory post-injury
drug test. The program is believed to have resulted in a reduction in the
frequency of fraudulent claims and in accidents in which the use of illegal
drugs appears to have been a contributing factor.

Elements of Self-Insurance Costs. The costs associated with the
Company's self-insured workers' compensation program include case reserves for
reported claims, an additional expense provision for unanticipated increases in
the cost of open injury claims (known as "adverse loss development") and for
claims incurred in prior periods but not reported (referred to as "IBNR"), fees
payable to the Company's TPAs, additional claims administration expenses,
administrative fees payable to state and federal workers' compensation
regulatory agencies, premiums for excess workers' compensation insurance and
legal fees. Although not directly related to the size of the Company's payroll,
the number of claims and correlative loss payments may be expected to increase
with growth in the total number of employees. The state assessments are
typically based on payroll amounts and, to a limited extent, the amount of
permanent disability awards during the previous year. Excess insurance premiums
are also based in part on the size and risk profile of the Company's payroll and
loss experience.

Workers' Compensation Claims Experience and Reserves
The Company recognizes its liability for the ultimate payment of
incurred claims and claims adjustment expenses by accruing liabilities which
represent estimates of future amounts necessary to pay claims and related
expenses with respect to covered events that have occurred. When a claim
involving a probable loss is reported, the Company's TPA establishes a case
reserve for the estimated amount of ultimate loss. The estimate reflects an
informed judgment based on established case reserving practices and the
experience and knowledge of the TPA regarding the nature and expected value of
the claim, as well as the estimated expense of settling the claim, including
legal and other fees and expenses of administering claims. The adequacy of such
case reserves depends on the professional judgment of each TPA to properly and
comprehensively evaluate the economic consequences of each claim. Additionally,
on an aggregate basis, the Company has established an additional expense reserve
for both future adverse loss development in excess of initial case reserves on
open claims and for claims incurred but not reported, referred to as the IBNR
reserve.

As part of the case reserving process, historical data is reviewed and
consideration is given to the anticipated effect of various factors, including
known and anticipated legal developments, inflation and economic conditions.
Reserve amounts are necessarily based on management's estimates, and as other
data becomes available, these estimates are revised, which may result in
increases or decreases in existing case reserves. Barrett has engaged a
nationally-recognized, independent actuary to review annually the Company's
total workers' compensation claims liability and reserving practices. Based in
part on such review, the Company believes its total accrued workers'
compensation claims liabilities at December 31, 2003, are adequate. It is
possible, however, that the Company's actual future workers' compensation
obligations may exceed the amount of its accrued liabilities, with a
corresponding negative effect on future earnings, due to such factors as
unanticipated adverse loss development of known claims, and the effect, if any,
of claims incurred but not reported. Refer to Part II, Item 7, under the heading
"Critical Accounting Policies".

Approximately one-fifth of the Company's total payroll exposure was in
relatively high-risk industries with respect to workplace injuries, including
trucking, construction and certain warehousing activities. Failure to
successfully manage the severity and frequency of workers' compensation injuries
results in increased workers' compensation expense and has a negative effect,
which may be substantial, on the Company's operating results and financial

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condition. Management maintains clear guidelines for its branch office managers,
account managers, and risk managers directly tying their continued employment
with the Company to their diligence in understanding and addressing the risks of
accident or injury associated with the industries in which client companies
operate and in monitoring the compliance by clients with workplace safety
requirements. The Company has a policy of "zero tolerance" for avoidable
workplace injuries.

Management Information Systems
The Company performs all functions associated with payroll
administration through its internal management information system. Each branch
office performs payroll data entry functions and maintains an independent
database of employees and customers, as well as payroll and invoicing records.
All processing functions are centralized at Barrett's corporate headquarters in
Portland, Oregon.

Employees and Employee Benefits
At December 31, 2003, the Company had approximately 17,000 employees,
including approximately 5,000 staffing services employees, approximately 11,800
PEO employees and approximately 200 managerial, sales and administrative
employees. The number of employees at any given time may vary significantly due
to business conditions at customer or client companies. During 2003,
approximately 3% of the Company's employees were covered by a collective
bargaining agreement. Each of Barrett's managerial, sales and administrative
employees has entered into a standard form of employment agreement which, among
other provisions, contains covenants not to engage in certain activities in
competition with the Company for 18 months following termination of employment
and to maintain the confidentiality of certain proprietary information. Barrett
believes its employee relations are good.

Benefits offered to Barrett's staffing services employees include group
health insurance, a Section 125 cafeteria plan which permits employees to use
pretax earnings to fund various services, including health insurance premiums
and childcare expenses, and a savings plan (the "401(k) plan") under Section
401(k) of the Internal Revenue Code (the "Code") pursuant to which employees may
begin making contributions upon reaching 21 years of age and completing 1,000
hours of service in any consecutive 12-month period. The Company may also make
contributions to the savings plan, which vest over seven years and are subject
to certain legal limits, at the sole discretion of the Company's Board of
Directors. Employees subject to a co-employer arrangement may participate in the
Company's benefit plans at the election of the co-employer. See "Regulatory and
Legislative Issues--Employee Benefit Plans."

Regulatory and Legislative Issues
Business Operations. The Company is subject to the laws and regulations
of the jurisdictions within which it operates, including those governing
self-insured employers under the workers' compensation systems in Washington,
Oregon, California, Maryland and Delaware. An Oregon PEO company, such as
Barrett, is required to be licensed as a worker-leasing company by the Workers'
Compensation Division of the Oregon Department of Consumer and Business
Services. Temporary staffing companies are expressly exempt from the Oregon
licensing requirement. Oregon PEO companies are also required to ensure that
each PEO client provides adequate training and supervision for its employees to
comply with statutory requirements for workplace safety and to give 30 days
written notice in the event of a termination of its obligation to provide
workers' compensation coverage for PEO employees and other subject employees of
a PEO client. Although compliance with these requirements imposes some
additional financial risk on Barrett, particularly with respect to those clients
who breach their payment obligation to the Company, such compliance has not had
a significant adverse impact on Barrett's business to date.

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Employee Benefit Plans. The Company's operations are affected by
numerous federal and state laws relating to labor, tax and employment matters.
By entering into a co-employer relationship with employees who are assigned to
work at client locations (sometimes referred to as "work-site employees"), the
Company assumes certain obligations and responsibilities of an employer under
these federal and state laws. Because many of these federal and state laws were
enacted prior to the development of nontraditional employment relationships,
such as professional employer, temporary employment, and outsourcing
arrangements, many of these laws do not specifically address the obligations and
responsibilities of nontraditional employers. In addition, the definition of
"employer" under these laws is not uniform.

As an employer, the Company is subject to all federal statutes and
regulations governing its employer-employee relationships. Subject to the issues
discussed below, the Company believes that its operations are in compliance in
all material respects with all applicable federal statutes and regulations.

The Company offers various qualified employee benefit plans to its
employees, including its work-site employees. These employee benefit plans
include the 401(k) plan, a cafeteria plan under Section 125 of the Code, a group
health plan, a group life insurance plan and a group disability insurance plan.
Generally, qualified employee benefit plans are subject to provisions of both
the Code and the Employee Retirement Income Security Act of 1974 ("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. See Part II, Item 7 of this report for a discussion of issues
regarding qualification of the Company's employee benefit plans arising out of
participation by the Company's PEO employees.

Competition
The staffing services and PEO businesses are characterized by intense
competition. The staffing services market includes competitors of all sizes,
including several, such as Manpower, Inc., Kelly Services, Inc. and RemedyTemp,
Inc., that are national in scope and have substantially greater financial,
marketing and other resources than the Company. In addition to national
companies, Barrett competes with numerous regional and local firms for both
customers and employees. There are relatively few barriers to entry into the
staffing services business. The principal competitive factors in the staffing
services industry are price, the ability to provide qualified workers in a
timely manner and the monitoring of job performance. The Company attributes its
internal growth in staffing services revenues to the cost-efficiency of its
operations which permits the Company to price its services competitively, and to
its ability through its branch office network to understand and satisfy the
needs of its customers with competent personnel.

Although there are believed to be at least several hundred companies
currently offering PEO services in the U.S., many of these potential
competitors are located in states in which the Company presently does not
operate. During 2003, approximately 73% and 25% of the Company's PEO service
fee revenues were earned in California and Oregon, respectively.

The Company may face additional PEO competition in the future from new
entrants to the field, including other staffing services companies, payroll
processing companies and insurance companies. Certain PEO companies operating in
areas in which Barrett does not now, but may in the future, offer its services
have greater financial and marketing resources than the Company, such as
Administaff, Inc., Gevity HR, Inc. and Paychex, Inc., among others. Competition
in the PEO industry is based largely on price, although service and quality can
also provide competitive advantages. Barrett believes that its past growth in
PEO service fee

-10-


revenues is attributable to its ability to provide small and mid-sized companies
with the opportunity to provide enhanced benefits to their employees while
reducing their overall personnel administration and workers' compensation costs.
The Company's competitive advantage may be adversely affected by a substantial
increase in the costs of maintaining its self-insured workers' compensation
program. A general market decrease in the level of workers' compensation
insurance premiums may also decrease demand for PEO services.


Item 2. PROPERTIES

The Company provides staffing and PEO services through all 28 of its
branch offices. The following table shows the number of branch offices located
in each state in which the Company operates. The Company's California and Oregon
offices accounted for 51% and 27%, respectively, of its total revenues in 2003.
The Company also leases office space in other locations in its market areas
which it uses to recruit and place employees.

Number of
Branch
State Offices
------------------ -----------

Arizona 1
California 10
Idaho 1
Oregon 9
Washington 2
Maryland 3
Delaware 1
North Carolina 1

Barrett leases office space for its corporate and branch offices. At
December 31, 2003, such leases had expiration dates ranging from less than one
year to ten years, with total minimum payments through 2013 of approximately
$4,330,000.


Item 3. LEGAL PROCEEDINGS

There were no material legal proceedings pending against the Company at
December 31, 2003, or during the period beginning with that date through March
26, 2004.

-11-


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of 2003.


EXECUTIVE OFFICERS OF THE REGISTRANT

The following table identifies, as of February 29, 2004, each executive
officer of the Company. Executive officers are elected annually and serve at
the discretion of the Board of Directors.

Officer
Name Age Principal Positions and Business Experience Since

- --------------------------------------------------------------------------------

William W. Sherertz 58 President; Chief Executive Officer; Director 1980


Michael D. Mulholland 52 Vice President-Finance and Secretary; 1994
Chief Financial Officer


Gregory R. Vaughn 48 Vice President 1998

James D. Miller 40 Controller and Assistant Secretary; Principal 1994
Accounting Officer


- ----------------------------

William W. Sherertz has acted as Chief Executive Officer of the Company
since 1980. He has also been a director of the Company since 1980, and was
appointed President of the Company in March 1993. Mr. Sherertz also serves as
Chairman of the Board of Directors.

Michael D. Mulholland joined the Company in August 1994 as Vice
President-Finance and Secretary. From 1988 to 1994, Mr. Mulholland was employed
by Sprouse-Reitz Stores Inc. ("Sprouse"), a former Nasdaq-listed retail company,
serving as its Executive Vice President, Chief Financial Officer and Secretary.
Prior to Sprouse, Mr. Mulholland held senior management positions with
Lamb-Weston, Inc., a food processing company, from 1985 to 1988, and Keil, Inc.,
a regional retail company, from 1978 to 1985. Mr. Mulholland, a certified public
accountant on inactive status, was also employed by Touche Ross & Co., now known
as Deloitte & Touche LLP.

Gregory R. Vaughn joined the Company in July 1997 as Operations
Manager. Mr. Vaughn was appointed Vice President in January 1998. Prior to
joining Barrett, Mr. Vaughn was Chief Executive Officer of Insource America,
Inc., a privately-held human resource management company headquartered in
Portland, Oregon, since 1996. Mr. Vaughn has also held senior management
positions with Sundial Time Systems, Inc. from 1995 to 1996 and Continental
Information Systems, Inc. from 1990 to 1994. Previously, Mr. Vaughn was employed
as a technology consultant by Price Waterhouse LLP, now known as
PricewaterhouseCoopers LLP.

James D. Miller joined the Company in January 1994 as Controller. From
1991 to 1994, he was the Corporate Accounting Manager for Christensen Motor
Yacht Corporation. Mr. Miller, a certified public accountant on inactive status,
was employed by Price Waterhouse LLP, now known as PricewaterhouseCoopers LLP,
from 1987 to 1991.

-12-



PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock (the "Common Stock") trades on The Nasdaq
Stock Market's SmallCap(TM) tier under the symbol "BBSI." At February 27, 2004,
there were 59 stockholders of record and approximately 570 beneficial owners of
the Common Stock. The Company has not declared or paid any cash dividends since
the closing of its initial public offering of Common Stock on June 18, 1993, and
has no present plan to pay any cash dividends in the foreseeable future. The
following table presents the high and low sales prices of the Common Stock for
each quarterly period during the last two fiscal years, as reported by The
Nasdaq Stock Market:


High Low
---------- ----------
2002
First Quarter $ 4.00 $ 3.15
Second Quarter 4.00 2.74
Third Quarter 3.50 2.01
Fourth Quarter 4.00 2.67

2003
First Quarter $ 3.75 $ 2.31
Second Quarter 3.65 2.64
Third Quarter 7.41 3.00
Fourth Quarter 15.13 7.00


-13-


Item 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction
with the Company's financial statements and the accompanying notes listed in
Item 15 of this Report.




Year Ended December 31,
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
(In thousands, except per share data)

Statement of operations:
Revenues:

Staffing services $ 93,544 $ 96,750 $123,110 $188,500 $194,991
Professional employer service fees 29,177 12,558 16,281 22,128 24,433
--------- --------- --------- --------- ---------
Total 122,721 109,308 139,391 210,628 219,424
--------- --------- --------- --------- ---------
Cost of revenues:
Direct payroll costs 69,099 71,515 90,750 139,177 141,623
Payroll taxes and benefits 22,916 14,062 17,635 27,007 28,603
Workers' compensation 9,333 8,766 12,971 12,639 11,702
--------- --------- --------- --------- ---------
Total 101,348 94,343 121,356 178,823 181,928
--------- --------- --------- --------- ---------
Gross margin 21,373 14,965 18,035 31,805 37,496
Selling, general and administrative
expenses 17,186 16,008 18,737 24,583 25,957
Depreciation and amortization 1,058 1,162 3,277 3,192 2,461
--------- --------- --------- --------- ---------
Income (loss) from operations 3,129 (2,205) (3,979) 4,030 9,078
--------- --------- --------- --------- ---------
Other (expense) income:
Interest expense (268) (278) (359) (830) (634)
Interest income 82 217 297 341 357
Other, net 32 21 45 6 32
--------- --------- --------- --------- ---------
Total (154) (40) (17) (483) (245)
--------- --------- --------- --------- ---------
Income (loss) before income taxes 2,975 (2,245) (3,996) 3,547 8,833
Provision for (benefit from) income taxes 890 (892) (1,574) 1,446 3,684
--------- --------- --------- --------- ---------
Net income (loss) $ 2,085 $ (1,353) $ (2,422) $ 2,101 $ 5,149
========= ========= ========= ========= =========
Basic earnings (loss) per share $ .36 $ (.23) $ (.39) $ .29 $ .68
========= ========= ========= ========= =========
Weighted average number of basic
shares outstanding 5,690 5,804 6,193 7,237 7,581
========= ========= ========= ========= =========
Diluted earnings (loss) per share $ .35 $ (.23) $ (.39) $ .29 $ .68
========= ========= ========= ========= =========
Weighted average number of diluted
shares outstanding 5,876 5,804 6,193 7,277 7,627
========= ========= ========= ========= =========

Selected balance sheet data:
Cash $ 7,785 $ 96 $ 1,142 $ 516 $ 550
Working capital 8,470 2,235 2,658 3,731 7,688
Total assets 54,673 47,297 52,566 60,865 70,504
Long-term debt, net of current portion 400 488 922 2,283 5,007
Stockholders' equity 30,634 28,785 30,534 34,917 37,329






-14-



Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Overview
The Company's revenues consist of staffing services and professional
employer organization ("PEO") service fees. Staffing services revenues are
derived from services performed for short-term staffing, contract staffing and
on-site management. PEO service fees refer exclusively to co-employer
contractual agreements with PEO clients. The Company's revenues from staffing
services represent all amounts invoiced to customers for direct payroll,
employer payroll related taxes, workers' compensation coverage and a service fee
(equivalent to a mark-up percentage). PEO service fee revenues are recognized in
accordance with EITF 99-19, "Reporting Revenues Gross as a Principal Versus Net
as an Agent." As such, the Company's PEO service fee revenues include amounts
invoiced to PEO customers for employer payroll related taxes, workers'
compensation coverage and a gross profit. Thus, amounts invoiced to PEO
customers for salaries, wages, health insurance and employee out-of-pocket
expenses incurred incidental to employment are excluded from PEO service fee
revenues and cost of revenues. The Company's Oregon and California offices
accounted for approximately 78% of its total net revenues in 2003. Consequently,
weakness in economic conditions in these regions could have a material adverse
effect on the Company's financial results. Safety incentives represent cash
incentives paid to certain PEO client companies for maintaining safe-work
practices in order to minimize workplace injuries. The incentive is based on a
percentage of annual payroll and is paid annually to customers who meet
predetermined workers' compensation claims cost objectives. The safety incentive
expense is netted against PEO revenues on the Company's Statements of
Operations.

The Company's cost of revenues is comprised of direct payroll costs for
staffing services, employer payroll related taxes and employee benefits and
workers' compensation. Direct payroll costs represent the gross payroll earned
by staffing services employees based on salary or hourly wages. Payroll taxes
and employee benefits consist of the employer's portion of Social Security and
Medicare taxes, federal unemployment taxes, state unemployment taxes and
staffing services employee reimbursements for materials, supplies and other
expenses, which are paid by the customer. Workers' compensation expense consists
primarily of the costs associated with the Company's self-insured workers'
compensation program, such as claims reserves, claims administration fees, legal
fees, state and federal administrative agency fees and reinsurance costs for
catastrophic injuries. The Company also maintains separate workers' compensation
insurance policies for employees working in states where the Company is not
self-insured.

The largest portion of workers' compensation expense is the cost of
workplace injury claims. When an injury occurs and is reported to the Company,
the Company's respective independent third-party claims administrator ("TPA")
analyzes the details of the injury and develops a case reserve, which is the
TPA's estimate of the cost of the claim based on similar injuries and its
professional judgment. The Company then records, or accrues, an expense and a
corresponding liability based upon the TPA's estimates for claims reserves. As
cash payments are made by the Company's TPA against specific case reserves, the
accrued liability is reduced by the corresponding payment amount. The TPA also
reviews existing injury claims on an on-going basis and adjusts the case
reserves as new or additional information for each claim becomes available. The
Company has established additional reserves to provide for future unanticipated
increases in expenses ("adverse loss development") of the claims reserves for
open injury claims and for claims incurred but not reported related to prior and
current periods. Management believes that the Company's operational policies and
internal claims reporting system help to limit the occurrence of unreported
incurred claims.

-15-



Selling, general and administrative ("SG&A") expenses represent both
branch office and corporate-level operating expenses. Branch operating expenses
consist primarily of branch office staff payroll and personnel related costs,
advertising, rent, office supplies, depreciation and branch incentive
compensation. Corporate-level operating expenses consist primarily of executive
and office staff payroll and personnel related costs, professional and legal
fees, travel, depreciation, occupancy costs, information systems costs and
executive and corporate staff incentive bonuses.

Amortization of intangible assets consists of the amortization of
software costs, and covenants not to compete, which are amortized using the
straight-line method over their estimated useful lives, which range from two to
10 years.

Critical Accounting Policies
The Company has identified the following policies as critical to the
Company's business and the understanding of its results of operations. For a
detailed discussion of the application of these and other accounting policies,
see Note 1 in the Notes to the Financial Statements in Item 15 of this Annual
Report on Form 10-K. Note that the preparation of this Annual Report on Form
10-K requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

Self-insured workers' compensation reserves. The Company is
self-insured for workers' compensation coverage in a majority of its employee
work sites. Accruals for workers' compensation expense are made based upon the
Company's claims experience and an annual independent actuarial analysis,
utilizing Company experience, as well as claim cost development trends and
current workers' compensation industry loss information. As such, a majority of
the Company's recorded expense for workers' compensation is management's best
estimate. Management believes that the amount accrued is adequate to cover all
known and unreported claims at December 31, 2003. However, if the actual costs
of such claims and related expenses exceed the amount estimated, additional
reserves may be required, which could have a material negative effect on
operating results.

Allowance for doubtful accounts. The Company must make estimates of the
collectibility of accounts receivables. Management analyzes historical bad
debts, customer concentrations, customer credit-worthiness, current economic
trends and changes in the customers' payment tendencies when evaluating the
adequacy of the allowance for doubtful accounts. If the financial condition of
the Company's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.

Intangible assets and goodwill. The Company assesses the recoverability
of intangible assets and goodwill annually and whenever events or changes in
circumstances indicate that the carrying value might be impaired. Factors that
are considered include significant underperformance relative to expected
historical or projected future operating results, significant negative industry
trends and significant change in the manner of use of the acquired assets.
Management's current assessment of the carrying value of intangible assets and
goodwill indicates there is no impairment based upon projected future cash
flows. If these estimates or their related assumptions change in the future, the
Company may be required to record impairment charges for these assets.


-16-



New Accounting Pronouncements
For a discussion of new accounting pronouncements and their potential
effect on the Company's results of operations and financial condition, refer to
Note 1 in the Notes to the Financial Statements in Item 15 of this Annual Report
on Form 10-K.

Forward-Looking Information
Statements in this Item or in Item 1 of 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 past and future acquisitions, the effect of changes in the Company's
mix of services on gross margin, the adequacy of the Company's workers'
compensation reserves and allowance for doubtful accounts, the effectiveness of
the Company's management information systems, 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, material deviations from expected future workers'
compensation claims experience, the carrying values of deferred income tax
assets and goodwill, which may be affected by 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.

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
years ended December 31, 2003, 2002 and 2001, listed in Item 15 of this report.
References to the Notes to Financial Statements appearing below are to the notes
to the Company's financial statements listed in Item 15 of this Report.

-17-






Percentage of Total Net Revenues
----------------------------------
Years Ended December 31,
-----------------------------------
2003 2002 2001

Revenues:

Staffing services 76.2 % 88.5 % 88.3 %
Professional employer service fees 23.8 11.5 11.7
------- ------- -------
Total 100.0 100.0 100.0
------- ------- -------
Cost of revenues:
Direct payroll costs 56.3 65.4 65.1
Payroll taxes and benefits 18.7 12.9 12.7
Workers' compensation 7.6 8.0 9.3
------- ------- -------
Total 82.6 86.3 87.1
------- ------- -------
Gross margin 17.4 13.7 12.9
Selling, general and administrative expenses 14.0 14.6 13.4
Depreciation and amortization 0.9 1.1 2.4
------- ------- -------
Income (loss) from operations 2.5 (2.0) (2.9)
Other (expense) income (0.1) -- --
------- ------- -------
Pretax income (loss) 2.4 (2.0) (2.9)
Provision for (benefit from) income taxes 0.7 (0.8) (1.2)
------- ------- -------
Net income (loss) 1.7 % (1.2)% (1.7)%
======= ======= =======



The Company changed its reporting of PEO revenues from a gross basis to
a net basis in 2002 because it was determined by the requirements of EITF 99-19,
"Reporting Revenues Gross as a Principal Versus Net as an Agent", that the
Company was not the primary obligor for the services provided by employees
pursuant to its PEO contracts. The gross revenues and cost of revenues
information below, although not in accordance with generally accepted accounting
principles ("GAAP"), is presented for comparison purposes and because management
believes such information is more informative as to the level of the Company's
business activity and more useful in managing its operations.


Year Ended
(in thousands) December 31,
--------------------
2003 2002
--------- ---------
Revenues:
Staffing services $ 93,544 $ 96,750
Professional employer services 173,134 73,952
--------- ---------

Total revenues 266,678 170,702
--------- ---------
Cost of revenues:
Direct payroll costs 210,785 132,909
Payroll taxes and benefits 22,916 14,062
Workers' compensation 11,604 8,766
--------- ---------

Total cost of revenues 245,305 155,737
--------- ---------

Gross margin $ 21,373 $ 14,965
========= =========


-18-



A reconciliation of non-GAAP gross revenues to net revenues is as
follows for the years ended December 31, 2003 and 2002 (in thousands):




Gross Revenue Net Revenue
Reporting Method Reclassification Reporting Method
--------------------- ----------------------- ---------------------
2003 2002 2003 2002 2003 2002
--------- --------- ---------- ---------- --------- ---------
Revenues:

Staffing services $ 93,544 $ 96,750 $ -- $ -- $ 93,544 $ 96,750
Professional employer
services 173,134 73,952 (143,957) (61,394) 29,177 12,558
--------- --------- ---------- ---------- --------- ---------
Total revenues $266,678 $170,702 $(143,957) $ (61,394) $122,721 $109,308
========= ========= ========== ========== ========= =========
Cost of revenues: $245,305 $155,737 $(143,957) $ (61,394) $101,348 $ 94,343
========= ========= ========== ========== ========= =========





Years Ended December 31, 2003 and 2002

Net income for the year ended December 31, 2003 was $2,085,000, an
improvement of $3,438,000 over the net loss of $1,353,000 for 2002. The
improvement in the net income was primarily attributable to higher gross margin
dollars, primarily due to a 12.3% increase in revenues, offset in part by an
increase in selling, general and administrative ("SG&A") expenses to support the
increase in business activity. Basic income per share for 2003 was $.36 and
diluted income per share for 2003 was $.35 as compared to basic and diluted loss
per share of $.23 for 2002.

Revenues for 2003 totaled $122,721,000, an increase of approximately
$13,413,000 or 12.3% over 2002 revenues of $109,308,000. The increase in total
revenues was due primarily to the significant growth in the Company's
professional employer ("PEO") service fee revenue in California, partially
offset by a small decline in staffing service revenue.

PEO service fee revenue increased $16,619,000 or 132.3%, while staffing
services revenue decreased $3,206,000 or 3.3%, which resulted in an increase in
the share of PEO service fee revenue to 23.8% of total revenues for 2003, as
compared to 11.5% for 2002. The increase in PEO service fee revenue for 2003 was
primarily due to strong growth in California attributable to business
opportunities available to the Company as a qualified self-insured employer for
workers' compensation coverage resulting from the adverse market conditions for
workers' compensation insurance in the state. Management expects growth in
demand for its PEO services to continue in the foreseeable future. The decrease
in staffing services revenue for 2003 was primarily attributable to continued
weak demand for the Company's services in the majority of areas in which the
Company does business owing to general weak economic conditions. The share of
staffing services revenues had a corresponding decrease from 88.5% of total
revenues for 2002 to 76.2% for 2003.

Gross margin for 2003 totaled $21,373,000, which represented an
increase of $6,408,000 or 42.8% over 2002. The gross margin percent increased
from 13.7% of revenues for 2002 to 17.4% for 2003. The increase in the gross
margin percentage was due to lower direct payroll costs and workers'
compensation costs, offset in part by higher payroll taxes and benefit costs, as
a percentage of net revenues. The decrease in direct payroll costs as a
percentage of net revenues from 65.4% for 2002 to 56.3% for 2003 primarily
reflects the current mix of services to the current customer base and to the
effect of their unique mark-up percent. The decrease in workers' compensation
costs, as a percentage of net revenues, from 8.0% of

-19-



revenues for 2002 to 7.6% for 2003, was principally due to a lessening of the
increase in the adverse development of estimated future costs of workers'
compensation claims primarily concentrated in the Company's California
operations. The increase in payroll taxes and benefits as a percentage of net
revenues from 12.9% for 2002 to 18.7% for 2003 was primarily attributable to
higher state unemployment tax rates in various states in which the Company
operates, as well as to the effect of significant growth in PEO services. The
Company expects gross margin, as a percentage of net revenues, to continue to be
influenced by fluctuations in the mix between staffing and PEO services,
including the mix within the staffing segment, as well as the adequacy of its
estimates for workers' compensation liabilities, which may be negatively
affected by unanticipated adverse loss development of claims reserves.

In connection with the Company's self-insured workers' compensation
program, the Company has maintained an excess workers' compensation policy which
limits the financial effect of costly workers' compensation claims. For the
calendar year 2001, such policies included a self-insured retention or
deductible of $400,000 per occurrence. Effective January 1, 2002, the
self-insured retention or deductible increased to $750,000 per occurrence.
Effective January 1, 2004, the self-insured retention or deductible on the
Company's excess workers' compensation policy increased to $1,000,000 per
occurrence, although the premium cost per $100 of payroll declined
significantly. Management believes that the Company obtained the most favorable
terms and conditions available in the market, in view of the effect of the
events of September 11, 2001, on the insurance industry and the Company's size
and scope of operations.

SG&A expenses consist of compensation and other expenses incident to
the operation of the Company's headquarters and the branch offices and the
marketing of its services. SG&A expenses for 2003 amounted to $17,186,000, an
increase of $1,178,000 or 7.4% over 2002. SG&A expenses, expressed as a
percentage of net revenues, declined from 14.6% for 2002 to 14.0% for 2003. The
increase in total SG&A dollars was primarily due to increases in branch
management personnel and related expenses as a result of the growth in the
Company's PEO business.

Depreciation and amortization totaled $1,058,000 for 2003, which
compares to $1,162,000 for 2002. The depreciation and amortization expense level
remained comparable to 2002 amounts due to the Company's current low level of
capital expenditures.

At December 31, 2003, the Company had net deferred income tax assets of
$3,237,000 primarily reflecting temporary differences between taxable income for
financial accounting and tax purposes and tax credit carryforwards, which will
reduce taxable income in future years. Pursuant to generally accepted accounting
principles, the Company is required to assess the realization of the deferred
income tax assets as significant changes in circumstances may require
adjustments during future periods. Although realization is not assured,
management has concluded that it is more likely than not that the remaining net
deferred income tax assets will be realized, principally based upon projected
taxable income for the next two years. The amount of the net deferred income tax
assets actually realized could vary, if there are differences in the timing or
amount of future reversals of existing deferred income tax assets or changes in
the actual amounts of future taxable income as compared to operating forecasts.
If the Company's operating forecast is determined to no longer be reliable due
to uncertain market conditions, the Company's long-term forecast may require
reassessment. As a result, in the future, a valuation allowance may be required
to be established for all or a portion of the net deferred income tax assets.
Such a valuation allowance could have a significant effect on the Company's
future results of operations and financial position.

-20-



Effective January 1, 2004, the Company acquired certain assets of
Skills Resource Training Center ("SRTC"), a staffing services company with nine
offices in Central Washington, Eastern Oregon and Southern Idaho. The Company
paid $3,000,000 in cash for the assets of SRTC and the selling shareholders'
noncompete agreements and agreed to issue up to 135,731 shares of its common
stock ("Earnout Shares"), with the actual number of Earnout Shares to be issued
based upon the level of financial performance achieved by the SRTC offices
during calendar 2004.

The Company offers various qualified employee benefit plans to its
employees, including its PEO employees. These qualified 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 Section 125 of the Code, a
group health plan, a group life insurance plan and group disability insurance
plan. Generally, qualified employee benefit plans are subject to provisions of
both the Code and the Employee Retirement Income Security Act of 1974 ("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.

After several years of study, on April 24, 2002, the Internal Revenue
Service ("IRS") issued Revenue Procedure 2002-21 ("Rev Proc") to provide relief
with respect to certain defined contribution retirement plans maintained by a
PEO that benefit worksite employees. The Rev Proc outlines the steps necessary
for a PEO to avoid plan disqualification for violating the exclusive benefit
rule. Essentially, a PEO must either (1) terminate the plan; (2) convert its
plan to a "multiple employer plan" by December 31, 2003; or (3) transfer the
plan assets and liabilities to a customer plan. Effective December 1, 2002, the
Company converted its 401(k) plan to a "multiple employer plan".


Years Ended December 31, 2002 and 2001

Net loss for the year ended December 31, 2002 was $1,353,000, an
improvement of $1,069,000 over the net loss of $2,422,000 for 2001. The
improvement in the net loss was attributable to a 14.6% reduction in SG&A
expenses and a 64.5% reduction in depreciation and amortization expenses,
partially offset by a 17.0% decline in gross margin dollars, primarily resulting
from a 21.6% decrease in net revenues. Basic and diluted loss per share for 2002
were $.23 as compared to basic and diluted loss per share of $.39 for 2001.

Revenues for 2002 totaled $109,308,000, a decrease of approximately
$30,083,000 or 21.6% from 2001 revenues of $139,391,000. The decrease in total
net revenues was due, in part, to the continued softening of business conditions
in the Company's market areas, particularly in the Company's Northern California
operations, which accounted for approximately 46.0% of the decline in total net
revenues for 2002, as well as to management's decision to terminate the
Company's relationship with certain customers who provided insufficient gross
margin in relation to such risk factors as workplace safety and credit.

Staffing services revenue decreased $26,360,000 or 21.4%, while PEO
service fee revenue decreased $3,723,000 or 22.9%, which resulted in an increase
in the share of staffing services to 88.5% of total revenues for 2002, as
compared to 88.3% for 2001. The decrease in staffing services revenue for 2002
was primarily attributable to a continued decrease in demand for the Company's
services in the majority of areas in which the Company does business owing to
general weak economic conditions. The share of PEO service fee revenues had a
corresponding decrease from 11.7% of total revenues for 2001 to 11.5% for 2002.
The decrease in PEO service fee revenue for 2002 was primarily due to
management's decision to discontinue its services to certain PEO customers which
provided insufficient gross margin or represented unacceptable levels of risk
associated with credit or workplace safety.

-21-



Gross margin for 2002 totaled $14,965,000, which represented a decrease
of $3,070,000 or 17.0% from 2001. The gross margin percent increased from 12.9%
of revenues for 2001 to 13.7% for 2002. The increase in the gross margin
percentage was due to lower workers' compensation costs offset in part by higher
direct payroll costs and payroll taxes and benefits, as a percentage of
revenues. The decrease in workers' compensation costs, as a percentage or
revenues, from 9.3% of revenues for 2001 to 8.0% for 2002, was principally due
to a lessening of the increase in the adverse development of estimated future
costs of workers' compensation claims primarily concentrated in the Company's
California operations. The increase in direct payroll costs as a percentage of
revenues from 65.1% for 2001 to 65.4% for 2002 primarily reflected the
then-current mix of services to the then-current customer base. The increase in
payroll taxes and benefits as a percentage of revenues from 12.7% for 2001 to
12.9% for 2002 was primarily attributable to slightly higher state unemployment
tax rates in various states in which the Company operates.

SG&A expenses for 2002 amounted to $16,008,000, a decrease of
$2,729,000 or 14.6% from 2001. SG&A expenses, expressed as a percentage of
revenues, increased from 13.4% for 2001 to 14.6% for 2002. The decrease in total
SG&A dollars was primarily due to reductions in branch management personnel and
related expenses as a result of the continued downturn in the Company's
business.

Depreciation and amortization totaled $1,162,000 for 2002, which
compares to $3,277,000 for 2001. The decreased expense was primarily due the
Company's adoption of Statement of Financial Accounting Standard No. 142
"Goodwill and Other Intangible Assets" effective January 1, 2002, whereby the
Company ceased the amortization of its recorded goodwill. 2001 included
$1,783,000 of goodwill amortization. (See Note 1 in the Notes to the Financial
Statements in Item 15 of this Annual Report on Form 10-K.)


Fluctuations in Quarterly Operating Results
The Company has historically experienced significant fluctuations in
its quarterly operating results and expects such fluctuations to continue in the
future. The Company's operating results may fluctuate due to a number of factors
such as seasonality, wage limits on payroll taxes, claims experience for
workers' compensation, demand and competition for the Company's services and the
effect of acquisitions. The Company's revenue levels fluctuate from quarter to
quarter primarily due to the impact of seasonality 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 and the estimated future costs of such
claims. In addition, adverse loss development of prior period claims during a
subsequent quarter may also contribute to the volatility in the Company's
estimated workers' compensation expense.


Liquidity and Capital Resources
The Company's cash position at December 31, 2003 of $7,785,000
increased $7,689,000 over December 31, 2002. The increase in cash at December
31, 2003 was primarily generated from net income, the proceeds of a sale and
leaseback of two Company-owned office buildings, the receipt of the Company's
2002 income tax refund, the release of a workers' compensation surety deposit
from restricted marketable securities to

-22-




cash and an increase in accrued payroll, payroll taxes and related benefits,
offset in part by payments on workers' compensation claims liabilities, net
payments on the Company's credit-line and an increase in trade accounts
receivable.

Net cash provided by operating activities for 2003 amounted to
$7,176,000 , as compared to net cash used in operating activities of $906,000
for 2002. For 2003, net cash provided by operating activities was primarily
attributable to net income of $2,085,000, a $1,923,000 decrease in income taxes
receivable as a result of the receipt of the 2002 federal income tax refund and
an increase in accrued payroll and related benefits of $8,984,000, offset in
part by a net decrease of workers' compensation claims of $1,478,000, coupled
with an increase of $7,124,000 in trade accounts receivable. For 2002, net cash
used in operating activities was primarily attributable to a $1,353,000 net
loss, a $2,475,000 decrease in workers' compensation claims liabilities and a
$1,923,000 increase in income taxes receivable, partially offset by a $2,403,000
decrease in accounts receivable, a $1,553,000 decrease in deferred income tax
assets and depreciation and amortization of $1,162,000.

Net cash provided by investing activities totaled $4,695,000 for 2003,
as compared to net cash provided by investing activities of $988,000 for 2002.
For 2003, the principal source of cash provided by investing activities was from
$2,338,000 of proceeds from the sale and leaseback of two office buildings and
from net proceeds totaling $9,914,000 from maturities and sales of marketable
securities, offset in part by $7,226,000 of net purchases of marketable
securities. These transactions generally represent scheduled maturities and the
replacement of such securities held for workers' compensation surety deposit
purposes. For 2002, the principal source of cash provided by investing
activities was from proceeds of $4,279,000 from maturities and sales of
marketable securities, offset in part by $3,116,000 of purchases of marketable
securities. The Company presently has no material long-term commitments for
capital expenditures, nor does it anticipate any in the foreseeable future.

Net cash used in financing activities for 2003 amounted to $4,182,000,
which compares to $1,128,000 in 2002. For 2003, the principal use of cash for
financing activities was for $3,513,000 of net payments made on the Company's
revolving credit line, common stock repurchases totaling $446,000 pursuant to
its repurchase program and scheduled payments on long-term debt of $433,000. For
2002, the principal use of cash in financing activities was for scheduled
payments on long-term debt of $708,000 and common stock repurchases totaling
$386,000.

The Company entered into a new Credit Agreement (the "New Credit
Agreement") with its principal bank on March 23, 2004, to be effective March 31,
2004. The New Credit Agreement provides for a revolving credit facility of up to
$6.0 million, which includes a subfeature under the line of credit for standby
letters of credit for not more than $4.0 million. The interest rate on advances,
if any, will be, at the Company's discretion, either (i) equal to the prime rate
or (ii) LIBOR plus 1.50%. The New Credit Agreement expires July 1, 2005.

The revolving credit facility is collateralized by the Company's
assets, including, without limitation, its accounts receivable, equipment,
intellectual property and bank deposits, and may be prepaid at any time without
penalty. Pursuant to the New Credit 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 with "Current Ratio" defined as total current assets
divided by total current liabilities; (2) Tangible Net Worth not less than $8
million, determined at each fiscal quarter end, with "Tangible Net Worth"
defined as the aggregate of total stockholders' equity plus subordinated debt
less any intangible assets; (3) Total Liabilities divided by Tangible Net Worth
not greater than 5.00 to 1.0, determined at each fiscal quarter end, with "Total
Liabilities" defined as the aggregate of current liabilities and non-current
liabilities, less subordinated debt

-23-



and the deferred gain on the Company's sale and leaseback transaction, and with
"Tangible Net Worth" as defined above; and (4) Net income after taxes not less
than $1.00 on an annual basis, determined as of each fiscal year end, and
pre-tax profit not less than $1.00 on a quarterly basis, determined as of each
fiscal quarter end.

The New Credit Agreement replaces the Company's prior Amended and
Restated Credit Agreement (the "Prior Agreement") with the same bank, which was
amended three times during fiscal year 2003. The Prior Agreement provided for a
revolving credit facility of up to $8.0 million, which included a subfeature for
standby letters of credit for not more than $5.0 million and a term loan but was
subject to asset-based limits on the amount of available credit. The term loan
was paid in full as of June 30, 2003.

Effective June 30, 2003, the Company completed a sale and leaseback
transaction involving two office buildings owned by the Company. The sale and
leaseback transaction provided net cash proceeds of approximately $2.0 million
(after the June 30, 2003 payment of the outstanding mortgage balance). The net
proceeds from the transaction were applied to the outstanding balance on the
Company's credit facility.

As of December 31, 2003, the Company had approximately $4.7 million
available under its prior $8.0 million credit facility and was in compliance
with all loan covenants.

Management expects that current liquid assets, the funds anticipated to
be generated from operations, and credit available under the New Credit
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.

During 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 seven increases
in the total number of shares or dollars authorized to be repurchased under the
program. The stock repurchase program had $443,000 of remaining authorization
for the repurchase of additional shares at December 31, 2003. During 2003, the
Company repurchased 112,655 shares at an aggregate price of $446,000. Management
anticipates that the capital necessary to execute this program will be provided
by existing cash balances and other available resources.

Contractual Obligations
The Company's contractual obligations as of December 31, 2003,
including long-term debt, commitments for future payments under non-cancelable
lease arrangements and long-term workers' compensation claims liabilities for
catastrophic injuries, are summarized below:




Payments Due by Period
------------------------------------------
(in thousands) Less than 1 - 3 4 - 5 After
Total 1 year years years 5 years
------- ------- ------- ------- -------


Long-term debt $ 488 $ 88 $ 400 $ - $ -
Operating leases 4,330 1,297 1,380 521 1,132
Long-term workers' compensation claims
liabilities for catastrophic injuries 625 22 50 59 494
------- ------- ------- ------- -------
Total contractual cash obligations $5,443 $1,407 $1,830 $ 580 $1,626
======= ======= ======= ======= =======




-24-



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.


Item 7A. 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 December 31, 2003, the Company had interest-bearing debt obligations of
approximately $0.5 million, which bears interest at a fixed rate. Based on the
Company's overall interest rate exposure at December 31, 2003, a 10% 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 December 31, 2003,
the Company had not entered into any interest rate instruments to reduce its
exposure to interest rate risk.


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and notes thereto required by this item begin
on page F-1 of this report, as listed in Item 15.


Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

-25-



Item 9A. CONTROLS AND PROCEDURES

The Company's disclosure controls and procedures 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. The Company's
management has evaluated, with the participation and under the supervision of
our chief executive officer ("CEO") and chief financial officer ("CFO"), the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered
by this report. Based on this evaluation, our CEO and CFO have concluded that,
as of such date, the Company's disclosure controls and procedures are effective
in ensuring that information relating to the Company required to be disclosed in
reports that it files under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms, and
is communicated to our management, including our CEO and CFO, as appropriate to
allow timely decisions regarding required disclosures.

No change in the Company's internal control over financial reporting
occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.

-26-



PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this Item 10 concerning directors and executive
officers of the Company appears under the heading "Executive Officers of the
Registrant" on page 12 of this report or is incorporated into this report by
reference to the Company's definitive Proxy Statement for its 2004 Annual
Meeting of Shareholders to be filed within 120 days of the Company's fiscal year
end of December 31, 2003 (the "Proxy Statement"), in which additional required
information is included under the headings "Election of Directors," "Stock
Ownership by Principal Stockholders and Management--Section 16(a) Beneficial
Ownership Reporting Compliance," and "Code of Ethics."

Audit Committee
The Company has a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act known as
the Audit and Compliance Committee. The members of the Audit and Compliance
Committee are Thomas J. Carley, chairman, and Fores J. Beaudry, James B. Hicks,
Ph.D., and Anthony Meeker, each of whom is independent as that term is used in
Nasdaq listing standards applicable to the Company.

Audit Committee Financial Expert
The Company's Board of Directors has determined that Thomas J. Carley,
an audit committee member, qualifies as an "audit committee financial expert" as
defined by Item 401(h) of Regulation S-K under the Exchange Act and is
independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Exchange Act.


Item 11. EXECUTIVE COMPENSATION

Information required by this Item 11 concerning executive and director
compensation is incorporated into this report by reference to the Proxy
Statement, in which required information is set forth under the headings
"Executive Compensation" and "Meetings and Committees of the Board of Directors
- - Compensation Committee Interlocks and Insider Participation."


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information required by this Item 12 concerning the security ownership
of certain beneficial owners and management is incorporated into this report by
reference to the Proxy Statement, in which required information is set forth
under the heading "Stock Ownership of Principal Stockholders and Management -
Beneficial Ownership Table" and "Executive Compensation - Additional Equity
Compensation Plan Information."

-27-



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item 13 concerning certain relationships
and related transactions is incorporated into this report by reference to the
Proxy Statement, in which required information is set forth under the headings
"Meetings and Committees of the Board of Directors - Compensation Committee
Interlocks and Insider Participation" and "Transactions with Management."


Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Item 14 concerning fees paid to our
accountants is incorporated into this report by reference to the Proxy
Statement, in which required information is set forth under the heading "Matters
Relating to Our Auditor."

-28-



PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

Financial Statements and Schedules
The Financial Statements, together with the report thereon of
PricewaterhouseCoopers LLP, are included on the pages indicated below:

Page
Report of Independent Auditors F-1

Balance Sheets - December 31, 2003 and 2002 F-2

Statements of Operations for the Years Ended December 31, 2003, 2002 F-3
and 2001

Statements of Stockholders' Equity for the Years Ended December 31,
2003, 2002 and 2001 F-4

Statements of Cash Flows for the Years Ended December 31, 2003, 2002 F-5
and 2001

Notes to Financial Statements F-6

No schedules are required to be filed herewith.

Reports on Form 8-K
The Company filed on December 5, 2003, a Current Report on Form 8-K dated as of
December 4, 2003, to report under Item 5 that the Company had reached an
agreement in principle to acquire certain assets of Skills Resource Training
Center ("SRTC") pursuant to an asset purchase agreement effective January 1,
2004.

Exhibits
Exhibits are listed in the Exhibit Index that follows the signature page of this
report.

-29-



Report of Independent Auditors


To the Board of Directors and Stockholders of
Barrett Business Services, Inc.


In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Barrett Business Services, Inc.
(the Company) at December 31, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, the Company adopted the
provisions of Statement Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective January 1, 2002.



/s/ PricewaterhouseCoopers LLP

Portland, Oregon
February 20, 2004, except as to Note 6, which is as of March 23, 2004

F-1


Barrett Business Services, Inc.
Balance Sheets
December 31, 2003 and 2002
(In Thousands, Except Par Value)





2003 2002
-------- --------
ASSETS
Current assets:

Cash and cash equivalents $ 7,785 $ 96
Income taxes receivable -- 1,923
Trade accounts receivable, net 18,481 11,357
Prepaid expenses and other 958 1,040
Deferred income taxes 2,196 2,111
-------- --------

Total current assets 29,420 16,527

Goodwill, net 18,749 18,749
Intangibles, net 13 59
Property and equipment, net 3,367 5,167
Restricted marketable securities and workers' compensation deposits 1,647 4,286
Deferred income taxes 1,041 1,445
Other assets 436 1,064
-------- --------
$54,673 $47,297
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 88 $ 434
Line of credit -- 3,513
Accounts payable 727 834
Accrued payroll, payroll taxes and related benefits 13,881 4,897
Workers' compensation claims liabilities 3,886 3,903
Safety incentives liability 2,007 406
Other accrued liabilities 361 305
-------- --------

Total current liabilities 20,950 14,292

Long-term debt, net of current portion 400 488
Customer deposits 455 443
Long-term workers' compensation claims liabilities 1,031 2,492
Other long-term liabilities 45 797
Deferred gain on sale and leaseback 1,158 --

Commitments and contingencies (Notes 8, 9 and 15)

Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized,
5,701 and 5,751 shares issued and outstanding 62 57
Additional paid-in capital 2,903 3,144
Employee loan (107) (107)
Retained earnings 27,776 25,691
-------- --------

30,634 28,785
-------- --------

$54,673 $47,297
======== ========




The accompanying notes are an integral part of these financial statements.
F-2


Barrett Business Services, Inc.
Statements of Operations
Years Ended December 31, 2003, 2002 and 2001
(In Thousands, Except Per Share Amounts)





2003 2002 2001
--------- ---------- ----------
Revenues:

Staffing services $ 93,544 $ 96,750 $123,110
Professional employer service fees 29,177 12,558 16,281
--------- ---------- ----------

122,721 109,308 139,391
--------- ---------- ----------

Cost of revenues:
Direct payroll costs 69,099 71,515 90,750
Payroll taxes and benefits 22,916 14,062 17,635
Workers' compensation 9,333 8,766 12,971
--------- ---------- ----------

101,348 94,343 121,356
--------- ---------- ----------

Gross margin 21,373 14,965 18,035

Selling, general and administrative expenses 17,186 16,008 18,737
Depreciation and amortization 1,058 1,162 3,277
--------- ---------- ----------

Income (loss) from operations 3,129 (2,205) (3,979)
--------- ---------- ----------

Other (expense) income:
Interest expense (268) (278) (359)
Interest income 82 217 297
Other, net 32 21 45
--------- ---------- ----------

(154) (40) (17)
--------- ---------- ----------

Income (loss) before income taxes 2,975 (2,245) (3,996)

Provision for (benefit from) income taxes 890 (892) (1,574)
--------- ---------- ----------

Net income (loss) $ 2,085 $ (1,353) $ (2,422)
========= ========== ==========

Basic earnings (loss) per share $ .36 $ (.23) $ (.39)
========= ========== ==========

Weighted average number of basic shares outstanding 5,690 5,804 6,193
========= ========== ==========

Diluted earnings (loss) per share $ . 35 $ (.23) $ (.39)
========= ========== ==========

Weighted average number of diluted shares outstanding 5,876 5,804 6,193
========= ========== ==========




The accompanying notes are an integral part of these financial statements.
F-3



Barrett Business Services, Inc.
Statements of Stockholders' Equity
Years Ended December 31, 2003, 2002 and 2001
(In Thousands)






Common Stock Additional
----------------- Paid-in Employee Retained
Shares Amount Capital Loan Earnings Total
-------- -------- -------- --------- -------- ---------


Balance, December 31, 2000 6,451 $ 64 $ 5,387 $ -- $ 29,466 $ 34,917

Repurchase of common stock (604) (6) (2,301) -- -- (2,307)
Stock option compensation -- -- 17 -- -- 17
Reclassification of accrued stock
option compensation to equity -- -- 358 -- -- 358
Employee loan -- -- -- (29) -- (29)
Net loss -- -- -- -- (2,422) (2,422)
-------- -------- -------- --------- -------- ---------

Balance, December 31, 2001 5,847 58 3,461 (29) 27,044 30,534

Common stock issued on exercise of
options 5 -- 14 -- -- 14
Repurchase of common stock (101) (1) (385) -- -- (386)
Payment to shareholder -- -- (28) -- -- (28)
Purchase of option rights -- -- (31) -- -- (31)
Reclassification of accrued stock
option compensation to equity -- -- 113 -- -- 113
Employee loan -- -- -- (78) -- (78)
Net loss -- -- -- -- (1,353) (1,353)
-------- -------- -------- --------- -------- ---------

Balance, December 31, 2002 5,751 57 3,144 (107) 25,691 28,785

Common stock issued on exercise of
options 63 6 67 -- -- 73
Repurchase of common stock (113) (1) (445) -- -- (446)
Tax benefit of stock option exercises -- -- 137 -- -- 137
Net income -- -- -- -- 2,085 2,085
-------- -------- -------- --------- -------- ---------

Balance, December 31, 2003 5,701 $ 62 $ 2,903 $ (107) $ 27,776 $ 30,634
======== ====== ======== ========= ========= =========






The accompanying notes are an integral part of these financial statements.
F-4



Barrett Business Services, Inc.
Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001
(In Thousands)





2003 2002 2001
------- ------- -------
Cash flows from operating activities:

Net income (loss) $ 2,085 $(1,353) $(2,422)
Reconciliations of net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 1,058 1,162 3,277
Gain on sale of property -- -- (46)
Gain on sale of marketable securities (49) (24) --
Gain recognized on sale and leaseback (61) -- --
Deferred income taxes 319 1,553 (1,568)
Changes in certain assets and liabilities, net of amounts purchased
in acquisitions:
Trade accounts receivable, net (7,124) 2,403 6,900
Income taxes receivable 1,923 (1,923) --
Prepaid expenses and other 82 (18) 200
Accounts payable (107) 148 (327)
Accrued payroll, payroll taxes and related benefits 8,984 (155) (2,353)
Other accrued liabilities 56 (84) (1,233)
Workers' compensation claims liabilities (1,478) (2,475) 3,343
Safety incentives liability 1,601 26 (49)
Customer deposits and other assets, net 639 5 (113)
Other long-term liabilities (752) (171) (32)
------- ------- -------

Net cash provided by (used in) operating activities 7,176 (906) 5,577
------- ------- -------

Cash flows from investing activities:
Proceeds from sale and leaseback of buildings 2,338 -- --
Cash paid for acquisitions, including other direct costs -- -- (31)
Proceeds from sale of property -- -- 266
Purchase of equipment, net of amounts purchased in acquisitions (331) (175) (269)
Proceeds from maturities of marketable securities 7,642 3,472 2,436
Proceeds from sales of marketable securities 2,272 807 --
Purchase of marketable securities (7,226) (3,116) (2,221)
------- ------- -------

Net cash provided by investing activities 4,695 988 181
------- ------- -------

Cash flows from financing activities:
Proceeds from credit-line borrowings 46,042 48,629 62,638
Payments on credit-line borrowings (49,555) (48,540) (61,842)
Payments on long-term debt (433) (708) (3,592)
Payment to shareholder -- (28) --
Purchase of option rights -- (31) --
Loan to employee -- (78) (29)
Repurchase of common stock (446) (386) (2,307)
Proceeds from the exercise of stock options 73 14 --
Tax benefit of stock option exercises 137 -- --
------- ------- -------

Net cash used in financing activities (4,182) (1,128) (5,132)
------- ------- -------

Net increase (decrease) in cash and cash equivalents 7,689 (1,046) 626

Cash and cash equivalents, beginning of year 96 1,142 516
------- ------- -------

Cash and cash equivalents, end of year $ 7,785 $ 96 $ 1,142
------- ------- -------

Supplemental schedule of noncash activities:
Acquisition of other businesses:
Cost of acquisitions in excess of fair market value of net assets
acquired $ -- $ -- $ 31




The accompanying notes are an integral part of these financial statements.
F-5



Barrett Business Services, Inc.
Notes to Financial Statements


1. Summary of Operations and Significant Accounting Policies

Nature of operations
Barrett Business Services, Inc. ("Barrett" or the "Company"), a Maryland
corporation, is engaged in providing both staffing and professional employer
services to a diversified group of customers through a network of branch
offices throughout Washington, Oregon, California, Arizona, Maryland,
Delaware and North Carolina. Approximately 78%, 74% and 79%, respectively,
of the Company's revenues during 2003, 2002 and 2001 were attributable to
its Oregon and California operations.

Revenue recognition
The Company recognizes revenue as services are rendered by its workforce.
Staffing services are engaged by customers to meet short-term and long-term
personnel needs. Professional employer services ("PEO") are normally used by
organizations to satisfy ongoing human resource management needs and
typically involve contracts with a minimum term of one year, renewable
annually, which cover all employees at a particular work site.

The Company's cost of revenues for staffing services is comprised of direct
payroll costs, employer payroll related taxes and employee benefits and
workers' compensation. The Company's cost of revenues for PEO services
includes employer payroll related taxes and workers' compensation. Direct
payroll costs represent the gross payroll earned by staffing services
employees based on salary or hourly wages. Payroll taxes and employee
benefits consist of the employer's portion of Social Security and Medicare
taxes, federal unemploy-ment taxes, state unemployment taxes and staffing
services employee reimbursements for materials, supplies and other expenses,
which are paid by the customer. Workers' compensation costs consists
primarily of the costs associated with the Company's self-insured workers'
compensation program, such as claims reserves, claims administration fees,
legal fees, state and federal administrative agency fees and reinsurance
costs for catastrophic injuries. The Company also maintains separate
workers' compensation insurance policies for employees working in states
where the Company is not self-insured. Safety incentives represent cash
incentives paid to certain PEO client companies for maintaining safe-work
practices in order to minimize workplace injuries. The incentive is based on
a percentage of annual payroll and is paid annually to customers who meet
predetermined workers' compensation claims cost objectives.

Cash and cash equivalents
The Company considers non-restricted short-term investments, which are
highly liquid, readily convertible into cash, and have original maturities
of less than three months, to be cash equivalents for purposes of the
statements of cash flows.

Allowance for doubtful accounts
The Company had an allowance for doubtful accounts of $146,000 and $41,000
at December 31, 2003 and 2002, respectively. The Company must make estimates
of the collectibility of accounts receivables. Management analyzes
historical bad debts, customer concentrations, customer credit-worthiness,
current economic conditions and changes in customers' payment trends when
evaluating the adequacy of the allowance for doubtful accounts.

F-6



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


1. Summary of Operations and Significant Accounting Policies (Continued)

Deferred income taxes
The Company calculates income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which requires recognition of deferred income
tax assets and liabilities for the expected tax consequences of events that
have been included in the financial statements and income tax returns.
Valuation allowances are established when necessary to reduce deferred
income tax assets to the amount expected to be realized.

Marketable securities
At December 31, 2003 and 2002, marketable securities consisted primarily of
governmental debt instruments with maturities generally from 90 days to 20
years (see Note 5). Marketable securities have been categorized as
held-to-maturity and, as a result, are stated at amortized cost. Realized
gains and losses on sales of marketable securities are included in other
(expense) income on the Company's statements of operations. During the year
ended December 31, 2003, the Company sold certain restricted marketable
securities due to a decrease in the statutory surety requirements
established by the State of Oregon Workers' Compensation Division.

Intangibles
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. ("SFAS") 141, "Business
Combinations" and SFAS 142, "Goodwill and Other Intangible Assets." The
Company's adoption date for SFAS 141 was July 1, 2001 and the adoption date
for SFAS 142 was January 1, 2002. With respect to SFAS 142, the Company
performed a goodwill impairment test as of the adoption date and at December
31, 2002 and 2003 and has determined there was no impairment to its recorded
goodwill. The Company will perform a goodwill impairment test annually
during the fourth quarter and whenever events or circumstances occur
indicating that goodwill might be impaired. Effective January 1, 2002,
amortization of all goodwill ceased. There were no changes in goodwill from
December 31, 2001 to December 31, 2003. The impact of this change is
summarized as follows (in thousands):

Year ended December 31,
---------------------------------
2003 2002 2001
--------- --------- ---------
Reported net income (loss) $ 2,085 $ (1,353) $ (2,422)
Add back: goodwill amortization, net of tax -- -- 1,327
--------- --------- ---------
Adjusted net income (loss) $ 2,085 $ (1,353) $ (1,095)
--------- --------- ---------

Reported net income (loss) per share $ .35 $ (.23) $ (.39)
Adjusted net income (loss) per share .35 (.23) (.18)



The Company's intangible assets are comprised of covenants not to compete
arising from prior year acquisitions and have contractual lives principally
ranging from three to five years. (See Note 3.)

F-7



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


1. Summary of Operations and Significant Accounting Policies (Continued)

Property and equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to operating expense as incurred, and expenditures for
additions and betterments are capitalized. The cost of assets sold or
otherwise disposed of and the related accumulated depreciation are
eliminated from the accounts, and any resulting gain or loss is reflected in
the statements of operations.

Depreciation of property and equipment is calculated using either
straight-line or accelerated methods over estimated useful lives, which
range from 3 years to 10 years.

Safety incentives liability
Safety incentives represent cash incentives paid to certain PEO client
companies for maintaining safe-work practices in order to minimize workplace
injuries. The incentive is based on a percentage of annual payroll and is
paid annually to customers who meet predetermined workers' compensation
claims cost objectives. Safety incentive payments are made only after
closure of all workers' compensation claims incurred during the customer's
contract period. The liability is estimated and accrued each month based
upon the then-current amount of the customer's estimated workers'
compensation claims reserves as established by the Company's third party
administrator.

Customer deposits
The Company requires deposits from certain professional employer services
customers to cover a portion of its accounts receivable due from such
customers in the event of default of payment.

Statements of cash flows
Interest paid during 2003, 2002 and 2001 did not materially differ from
interest expense.

Income taxes paid by the Company in 2003 totaled $567,000. The Company paid
no income taxes in 2002 and 2001.

Basic and diluted earnings per share
Basic earnings per share are computed based on the weighted average number
of common shares outstanding for each year. Diluted earnings per share
reflect the potential effects of the exercise of outstanding stock options.
Basic and diluted shares outstanding are summarized as follows:

F-8


Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


1. Summary of Operations and Significant Accounting Policies (Continued)

Basic and diluted earnings per share (Continued)





Year Ended
December 31,
---------------------------------
2003 2002 2001
--------- --------- ---------


Weighted average number of basic shares outstanding 5,690,261 5,804,231 6,193,119

Stock option plan shares to be issued at prices ranging from
$1.45 to $17.75 per share 586,674 -- --

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 dispositio (400,808) -- --
--------- --------- ---------

Weighted average number of diluted shares outstanding 5,876,127 5,804,231 6,193,119
========= ========= =========



As a result of the net loss reported for the years ended December 31, 2002
and 2001, 23,978 and 25,779, respectively, of potential common shares have
been excluded from the calculation of diluted loss per share because their
effect would be anti-dilutive.

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 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 Statement of Financial
Accounting Standards ("SFAS") No. 123, the Company's net income (loss) and
earnings (loss) per share would have been adjusted to the pro forma amounts
indicated below:

F-9



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


1. Summary of Operations and Significant Accounting Policies (Continued)

Stock option compensation (Continued)




2003 2002 2001
------- -------- --------
(in thousands, except per share amounts)

Net income (loss), as reported $ 2,085 $ (1,353) $ (2,422)
Add back compensation expense recognized under
APB No. 25 -- -- 17
Deduct: Total stock-based compensation expense
determined under fair value based method for all awards,
net of related tax effects (176) (168) (237)
------- ------- --------
Net income (loss), pro forma $ 1,909 $ (1,521) $ (2,642)
------- ------- --------
Basic earnings (loss) per share, as reported $ .36 $ (.23) $ (.39)
Basic earnings (loss) per share, pro forma .34 (.26) (.43)
Diluted earnings (loss) per share, as reported .35 (.23) (.39)
Diluted earnings (loss) per share, pro forma .33 (.26) (.43)




The effects of applying SFAS No. 123 for providing pro forma disclosures for
2003, 2002 and 2001 are not likely to be representative of the effects on
reported net income for future years, because options vest over several
years and additional awards generally are made each year.

Reclassifications Certain prior year amounts have been reclassified to
conform with the 2003 presentation. Such reclassifications had no impact on
gross margin, operating results or shareholder equity.

Accounting estimates
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from such estimates.

F-10


Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


1. Summary of Operations and Significant Accounting Policies (Continued)

Recent accounting pronouncements
In June 2001, the Financial Accounting Standards Board (FASB or the "Board")
issued Statement of Financial Accounting Standards No. 142 (SFAS 142),
"Goodwill and Other Intangible Assets." SFAS 142 supersedes APB 17,
Intangible Assets, and is effective for fiscal years beginning after
December 14, 2001. SFAS 142 primarily addresses the accounting for goodwill
and intangible assets subsequent to their initial recognition. The
provisions of SFAS 142 prohibit the amortization of goodwill and
indefinite-lived intangible assets, and require that goodwill and
indefinite-lived intangible assets be tested annually for impairment. The
Company adopted the provisions of SFAS 141 and 142 in the first quarter of
2002.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets." SFAS 143 establishes
accounting standards for the recognition and measurement of asset retirement
obligations and the associated asset retirement costs. The Company adopted
the provisions of SFAS No. 143 in the first quarter of 2003. The adoption of
SFAS 143 did not have a material impact on the Company's results of
operations or financial position.

In May 2002, the FASB issued SFAS 145, "Rescission of FAS Nos. 4, 44 and 64,
Amendment of FAS 13, and Technical Corrections." Among other things, SFAS
145 rescinds various pronouncements regarding early extinguishment of debt
and allows extraordinary accounting treatment for early extinguishment only
when the provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" are met. SFAS 145 provisions regarding
early extinguishment of debt are generally effective for fiscal years
beginning after May 15, 2002. The adoption of SFAS 145 did not have a
material impact on the Company's results of operations or financial
position.

In July 2002, the FASB issued SFAS 146, "Accounting for the Costs Associated
with Exit or Disposal Activities." SFAS 146 addresses the financial
accounting and reporting for obligations associated with an exit activity,
including restructuring. Exit activities include, but are not limited to,
eliminating or reducing product lines, terminating employees and contracts
and relocating plant facilities or personnel. SFAS 146 specifies that a
company will record a liability for a cost associated with an exit or
disposal activity only when that liability is incurred and can be measured
at fair value. Therefore, commitment to an exit plan or a plan of disposal
expresses only management's intended future actions and, therefore, does not
meet the requirement for recognizing a liability and the related expense.
SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002. The adoption of SFAS 146 in 2003 did not
have a material impact on the Company's results of operations or financial
position.

In December 2002, the FASB issued 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

F-11



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


1. Summary of Operations and Significant Accounting Policies (Continued)

Recent accounting pronouncements (Continued)
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 November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45), which elaborates on required
disclosures by a guarantor in its financial statements about obligations
under certain guarantees that it has issued and clarifies the need for a
guarantor to recognize, at the inception of certain guarantees, a liability
for the fair value of the obligation undertaken in issuing the guarantee.
The Company has reviewed the provisions of FIN 45 relating to initial
recognition and measurement of guarantor liabilities, which are effective
for qualifying guarantees entered into or modified after December 31, 2002.
The adoption of FIN 45 did not have a material impact on the Company's
results of operations or financial position.

In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities" (FIN 46). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties, In December 2003, the FASB published a
revision of FIN 46 (FIN 46R), in part to clarify certain of the provisions
and implementation issues of FIN 46. Fin 46 applies immediately to variable
interest entities (VIEs created after January 31, 2003, and to VIEs in which
an enterprise obtains an interest after that date). It applies in the first
fiscal year or interim period ending after December 15, 2003, to VIEs in
which an enterprise holds a variable interest that it acquired before
February 1, 2003. The adoption of FIN 46 did not have a material impact on
the Company's results of operations or financial position.

In April 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. The adoption of SFAS 149 did not have a material impact on
the Company's results of operations or financial position.

In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
SFAS 150 requires that an issuer classify a financial instrument that is
within its scope as a liability if that financial instrument embodies an
obligation to the issuer.

F-12



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


1. Summary of Operations and Significant Accounting Policies (Continued)

Recent accounting pronouncements (Continued)
SFAS 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities. The adoption of SFAS
150 did not have a material impact on the Company's results of operations or
financial position.


2. Fair Value of Financial Instruments and Concentration of Credit Risk

All of the Company's financial instruments are recognized in its balance
sheet. Carrying values approximate fair market value of most financial
assets and liabilities. The fair market value of certain financial
instruments was estimated as follows:

- Marketable securities - Marketable securities primarily consist of U.S.
Treasury bills and municipal bonds. The interest rates on the Company's
marketable security investments approximate current market rates for
these types of investments; therefore, the recorded value of the
marketable securities approximates fair market value.

- Long-term debt - The interest rates on the Company's long-term debt
approximate current market rates, based upon similar obligations with
like maturities; therefore, the recorded value of long-term debt
approximates the fair market value.

Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments, marketable
securities and trade accounts receivable. The Company restricts investment
of temporary cash investments and marketable securities to financial
institutions with high credit ratings and to investments in governmental
debt instruments. Credit risk on trade receivables is minimized as a result
of the large and diverse nature of the Company's customer base. At December
31, 2003, the Company had significant concentrations of credit risk as
follows:

- Marketable securities - $1,296,000 of marketable securities at December
31, 2003 consisted of U.S. Treasury bills and U.S. Treasury notes.

- Trade receivables - Trade receivables from two customers aggregated
$910,000 at December 31, 2003 (6% of trade receivables outstanding at
December 31, 2003).

F-13



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


3. Intangibles

Intangibles consist of the following (in thousands):


December 31,
------------------
2003 2002
-------- --------

Covenants not to compete $ 3,709 $ 3,709

Less accumulated amortization 3,696 3,650
-------- --------

$ 13 $ 59
======== ========


4. Property and Equipment

Property and equipment consist of the following (in thousands):


December 31,
------------------
2003 2002
-------- --------

Office furniture and fixtures $ 4,443 $ 4,474
Computer hardware and software 4,582 4,581
Buildings -- 1,272
-------- --------

9,025 10,327

Less accumulated depreciation and amortization 5,658 5,468
-------- --------

3,367 4,859

Land -- 308
-------- --------

$ 3,367 $ 5,167
======== ========

Effective June 30, 2003, the Company completed a sale and leaseback
transaction involving two office buildings owned by the Company providing
net cash proceeds of approximately $2.0 million (after payment of the
outstanding mortgage balance).


5. Workers' Compensation Claims Liabilities

The Company is a self-insured employer with respect to workers' compensation
coverage for all its employees (including employees subject to PEO
contracts) working in Oregon, Maryland, Delaware and California. In the
state of Washington, state law allows only the Company's staffing services
and management employees to be covered under the Company's self-insured
workers' compensation program.

The Company has provided a total of $4,917,000 and $6,395,000 at December
31, 2003 and 2002, respectively, as an estimated liability for unsettled
workers' compensation claims liabilities. The estimated liability for
unsettled workers' compensation claims represents management's best
estimate, which includes, in part, an evaluation of information provided

F-14



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


5. Workers' Compensation Claims Liabilities (Continued)

by the Company's third-party administrators for workers' compensation claims
and its independent actuary, who annually assist management to estimate the
total future costs of all claims, including potential future adverse loss
development. Included in the claims liabilities are case reserve estimates
for reported losses, plus additional amounts based on projections for
incurred but not reported claims, anticipated increases in case reserve
estimates and additional claims administration expenses. These estimates are
continually reviewed and adjustments to liabilities are reflected in current
operating results as they become known. The Company believes that the
difference between amounts recorded for its estimated liabilities and the
possible range of costs to settle related claims is not material to results
of operations; nevertheless, it is reasonably possible that adjustments
required in future periods may be material to results of operations.

Liabilities incurred for work-related employee fatalities, as determined by
the state in which the accident occurred, are recorded either at an agreed
lump-sum settlement amount or the net present value of future fixed and
determinable payments over the actuarially determined remaining life
expectancy of the beneficiary, discounted at a rate that approximates a
long-term, high-quality corporate bond rate. During 2003, the Company
maintained excess workers' compensation insurance to limit its
self-insurance exposure to $750,000 per occurrence in all states. The excess
insurance provided statutory coverage above the aforementioned exposures.

At December 31, 2003, the Company's long-term workers' compensation claims
liabilities in the accompanying balance sheet included $625,000 for
work-related fatalities. The aggregate undiscounted pay-out amount related
to the catastrophic injuries and fatalities is $1,304,000. The discount
rates applied to the discounted liabilities range from 7.05% to 9.00%. These
rates represented the then-current rates for high quality long-term debt
securities available at the date of loss with maturities equal to the length
of the pay-out period to the beneficiaries. The actuarially determined
pay-out periods to the beneficiaries range from 7 to 38 years. As a result,
the five-year cash requirements related to these claims are immaterial.

The states of Oregon, Maryland, Washington, Delaware and the United States
Department of Labor require the Company to maintain specified investment
balances or other financial instruments, totaling $4,737,000 at December 31,
2003 and $8,968,000 at December 31, 2002, to cover potential claims losses.
In partial satisfaction of these requirements, at December 31, 2003, the
Company has provided standby letters of credit in the amount of $3,141,000
and surety bonds totaling $907,000. The investments are included in
restricted marketable securities and workers' compensation deposits in the
accompanying balance sheets. Prior to July 1, 2003, the state of California
required the Company to maintain a $4,036,000 letter of credit to cover
potential claims losses. Effective July 1, 2003, the Company became a
participant in California's new alternative security program and paid the
state an annual fee of $234,000, which was determined by several factors,
including the amount of a future security deposit and the Company's overall
credit rating. Upon payment of the alternative security program fee, the
State of California agreed to allow the Company's letter of credit to be
terminated. For the period May 1, 1996 through July 1, 2001, the Company
maintained a multi-state workers' compensation insurance policy with a

F-15




Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


5. Workers' Compensation Claims Liabilities (Continued)

retention level of $350,000 per occurrence. This policy provided workers'
compensation coverage for most of the states in which the Company operated
for which the Company was not self-insured for workers' compensation
purposes. Pursuant to this arrangement, the Company provided standby letters
of credit to the insurance company totaling $145,000 at December 31, 2003
and $685,000 at December 31, 2002.


6. Credit Facility

The Company entered into a second amendment to the Amended and Restated
Credit Agreement (the "Agreement") with its principal bank effective April
30, 2003. 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 of 7.4%,
as to which the outstanding principal balance was paid in full as of June
30, 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). Subsequent to the quarter ended September 30, 2003,
the bank reduced the interest rate on advances from an annual rate of prime
rate plus two percent to prime plus one percent. The Agreement expires March
31, 2004.

Effective June 30, 2003, the Company completed a sale and leaseback
transaction involving two office buildings owned by the Company. The sale
and leaseback transaction provided net cash proceeds of approximately $2.0
million (after the June 30, 2003 payment of the outstanding mortgage
balance). The net proceeds from the transaction were applied to the
outstanding balance on the Company's credit facility, effective July 1,
2003.

Effective May 22, 2003, the Company entered into a third amendment to the
Agreement with its principal bank, whereby the bank agreed to temporarily
increase the total amount available under the credit facility from $8.0
million to $11.0 million until July 30, 2003 to accommodate a short delay in
the closing of the Company's sale and leaseback of two office buildings.
Effective July 31, 2003, the amount available under the credit facility was
$8.0 million.

Effective July 22, 2003, the Company entered into a fourth amendment to the
Agreement with its principal bank, whereby the bank agreed to allow the
Company to invest in equity securities of publicly-traded companies believed
to offer strategic value or benefit to the Company, in amounts not to exceed
an aggregate of $200,000 plus any investment gains (net of any losses)
thereon.

F-16



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


6. Credit Facility (Continued)

As of December 31, 2003, the Company had approximately $4.7 million
available under its $8.0 million credit facility and was in compliance with
all loan covenants.

The Company entered into a new Credit Agreement (the "New Credit Agreement")
with its principal bank on March 23, 2004, effective March 31, 2004. The New
Credit Agreement provides for a revolving credit facility of up to $6.0
million, which includes a subfeature under the line of credit for standby
letters of credit for not more than $4.0 million. The interest rate options
on advances, if any, will be, at the Company's discretion, either (i) equal
to the prime rate or (ii) LIBOR plus 1.50%. The New Credit Agreement expires
July 1, 2005.

The revolving credit facility is collateralized by the Company's assets,
including, without limitation, its accounts receivable, equipment,
intellectual property and bank deposits, and may be prepaid at any time
without penalty. Pursuant to the New Credit 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 with "Current Ratio" defined as
total current assets divided by total current liabilities; (2) Tangible Net
Worth not less than $8.0 million, determined at each fiscal quarter end,
with "Tangible Net Worth" defined as the aggregate of total stockholders'
equity plus subordinated debt less any intangible assets; (3) Total
Liabilities divided by Tangible Net Worth not greater than 5.00 to 1.0,
determined at each fiscal quarter end, with "Total Liabilities" defined as
the aggregate of current liabilities and non-current liabilities, less
subordinated debt and the current and long-term portion of the Deferred Gain
on Sale and Leaseback, and with "Tangible Net Worth" as defined above; and
(4) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit not less than
$1.00 on a quarterly basis, determined as of each fiscal quarter end.

During the year ended December 31, 2003, the maximum balance outstanding
under the revolving credit facility was $4,846,000, the average balance
outstanding was $2,141,000, and the weighted average interest rate during
the period was 5.74%. The weighted average interest rate during 2003 was
calculated using daily weighted averages.


F-17



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


7. Long-Term Debt

Long-term debt consists of the following:


December 31,
---------------
2003 2002
------ ------
(in thousands)
Note payable in annual installments of $200,000 for years
2002, 2005 and 2006 and $87,500 for years 2003 and 2004,
plus simple interest at 5.00% per annum through 2006 $ 488 $ 575
Mortgage note payable in monthly installments of $6,408,
including interest at 7.40% per annum through 2003, with a
principal payment of $325,000 paid in 2003, secured by land -- 347
and building ------ ------
488 922

Less portion due within one year 88 434
------ ------

$ 400 $ 488
====== ======

Maturities on long-term debt are summarized as follows at December 31, 2003
(in thousands):

Year ending
December 31,
------------

2004 $ 88
2005 200
2006 200
------

$ 488
======


8. Savings Plan

The Company has a Section 401(k) employee savings plan for the benefit of
its eligible employees. All employees 21 years of age or older become
eligible to participate in the savings plan upon completion of 1,000 hours
of service in any consecutive 12-month period following the initial date of
employment. Employees covered under a co-employer ("PEO") contract receive
credit for prior employment with the PEO client for purposes of meeting
savings plan service eligibility. The determination of Company contributions
to the plan, if any, is subject to the sole discretion of the Company.

Participants' interests in Company contributions to the plan vest over a
seven-year period. No discretionary company contributions were made to the
plan for the years ended December 31, 2003 and 2002.

After several years of study, on April 24, 2002, the Internal Revenue
Service ("IRS") issued Revenue Procedure 2002-21 ("Rev Proc") to provide
relief with respect to certain defined contribution retirement plans
maintained by a PEO that benefit worksite employees. The Rev Proc outlines
the steps necessary for a PEO to avoid plan disqualification for violating

F-18



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


8. Savings Plan (Continued)

the exclusive benefit rule. Essentially, a PEO must either (1) terminate its
plan; (2) convert its plan to a "multiple employer plan" by December 31,
2003; or (3) transfer the plan assets and liabilities to a customer plan.
Effective December 1, 2002, the Company converted its 401(k) plan to a
"multiple employer plan".


9. Commitments

Lease commitments
The Company leases its offices under operating lease agreements that require
minimum annual payments as follows (in thousands):


Year ending
December 31,
------------

2004 $ 1,297
2005 915
2006 465
2007 279
2008 242
2009 and thereafter 1,132
--------

$ 4,330
========

Rent expense for the years ended December 31, 2003, 2002 and 2001 was
approximately $1,499,000, $1,741,000 and $1,811,000, respectively.


10. Related Party Transactions

During the period from January 1, 2002 to May 1, 2002, the Company recorded
revenues of $138,000 and cost of revenues of $132,000 for providing services
to a company owned by Barrett's President and Chief Executive Officer, Mr.
William W. Sherertz. Effective May 1, 2002, this company was sold to an
unrelated third-party. During 2001, the Company recorded revenues of $26,000
and cost of revenues of $25,000 to this Company and at December 31, 2001,
Barrett had trade receivables due from this Company of $19,000.

During 2001, pursuant to the approval of all disinterested outside
directors, the Company agreed to loan Mr. Sherertz up to $60,000 between
December 2001 and June 2002 to assist Mr. Sherertz in meeting his debt
service obligations of interest only on a personal loan from the Company's
principal bank, which is secured by his holdings of Company stock. In the
spring of 2002, with the approval of all disinterested outside directors,
the Company agreed to extend its financial commitment to lend to Mr.
Sherertz amounts equal to an additional two quarterly interest-only payments
in July and September 2002. The Company's note receivable from Mr. Sherertz
bears interest at prime less 50 basis points, which is the same rate as Mr.
Sherertz's personal loan from the bank. As of December 31, 2003, the note
receivable from Mr. Sherertz totaled approximately $107,000 and is shown as
contra equity in the Statements of Stockholders' Equity.

F-19



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


10. Related Party Transactions (Continued)

During 2001, pursuant to the approval of all disinterested outside
directors, the Company entered into a split dollar life insurance agreement
with Mr. Sherertz's personal trust. Terms of the agreement provide that upon
Mr. Sherertz's death, the Company will recoup from his trust all insurance
premiums paid by the Company. During each of 2002 and 2001, the Company paid
annual life insurance premiums of approximately $56,000. In addition, during
each of 2002 and 2001, the Company paid a cash bonus of approximately
$39,000 to Mr. Sherertz in connection with his personal expenses related to
the split dollar life insurance program. During 2003, the Company paid no
insurance premiums in connection with this split dollar life insurance
agreement.

In October 2001, the Company entered into an agreement with Mr. Sherertz to
rent a residence in La Quinta, California owned by Mr. Sherertz for use in
entertaining the Company's customers. During 2003, 2002 and 2001, the
Company paid Mr. Sherertz $99,000, $97,000 and $23,000, respectively, for
rental of the property.


11. Income Taxes

The provisions for (benefit from) income taxes are as follows (in
thousands):

Year ended December 31,
2003 2002 2001
--------- ---------- ----------
Current:
Federal $ 500 $ (2,452) $ 24
State 52 7 2
------- --------- ---------
552 (2,445) 26
------- --------- ---------
Deferred:
Federal 210 1,592 (1,356)
State 128 (39) (244)
------- --------- ---------
338 1,553 (1,600)
------- --------- ---------

Total provision (benefit) $ 890 $ (892) $ (1,574)
======= ========= =========

F-20



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


11. Income Taxes (Continued)

Deferred income tax assets (liabilities) are comprised of the following
components (in thousands):


2003 2002
--------- ----------

Gross deferred income tax assets:
Workers' compensation claims liabilities $ 1,913 $ 2,488
Safety incentives payable 722 99
Allowance for doubtful accounts 57 16
Fixed assets 474 --
Deferred compensation 101 510
Net operating losses and tax credits 562 542
Other 94 63
-------- --------
3,923 3,718
-------- --------
Gross deferred income tax liabilities:
Tax depreciation in excess of book depreciation (54) (93)
Amortization of intangibles (632) (69)
-------- --------
(686) (162)
-------- --------

Net deferred income tax assets $ 3,237 $ 3,556
======== ========

The effective tax rate differed from the U.S. statutory federal tax rate due
to the following:


Year ended December 31,
2003 2002 2001
------- ------- -------

Statutory federal tax rate 34.0 % (34.0)% (34.0)%
State taxes, net of federal benefit 4.0 (1.0) (4.0)
Nondeductible expenses and other, net (2.4) 5.9 0.2
Nondeductible amortization of intangibles -- -- 2.2
Federal tax-exempt interest income (.5) (2.6) (1.8)
Federal tax credits (5.2) (8.0) (2.0)
------- ------- -------

29.9 % (39.7)% (39.4)%
======= ======= =======

At December 31, 2003, the Company had state tax loss carryforwards of
$5,403,000, which expire in varying amounts between 2008 and 2023.

In the tax year ended December 31, 2003, the Company generated and utilized
$177,000 and $56,000 in U.S. Federal Work Opportunity Tax Credits and
Welfare to Work Tax Credits, respectively. At December 31, 2003, the Company
had $304,000 and $88,000 of unused U.S. Federal Work Opportunity Tax Credits
and Welfare to Work Tax Credits.

The nondeductible expenses pertain to meals, certain entertainment expenses
and life insurance premiums.

F-21



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


12. Stock Incentive Plans

The Company's 2003 Stock Incentive Plan (the "2003 Plan") which provides for
stock-based awards to Company employees, non-employee directors and outside
consultants or advisors, was approved by shareholders on May 14, 2003. The
number of shares of common stock reserved for issuance under the 2003 Plan
is 400,000. No new grants of stock options may be made under the Company's
1993 Stock Incentive Plan (the "1993 Plan"). At March 10, 2003 there were
option awards covering 520,095 shares outstanding under the 1993 Plan,
which, to the extent they are terminated unexercised, are carried over to
the 2003 Plan as shares authorized to be issued under the 2003 Plan.
Outstanding options under both plans generally become exercisable in four
equal annual installments beginning one year after the date of grant and
expire ten years after the date of grant. The exercise price of incentive
stock options must not be less than the fair market value of the Company's
stock on the date of grant.

In addition, certain of the Company's branch management employees have
elected to receive a portion of their quarterly cash bonus in the form of
nonqualified deferred compensation stock options. Such options are awarded
at a 60% discount from the then-fair market value of the Company's stock and
are fully vested and immediately exercisable upon grant. During 2001, the
Company awarded deferred compensation stock options for 7,811 shares at an
average exercise price of $1.45 per share. During 2002 and 2003, the Company
made no awards of deferred compensation stock options. In accordance with
Accounting Principles Board ("APB") Opinion No. 25, the Company recognized
compensation expense of $17,000 for the year ended December 31, 2001, in
connection with the issuance of these discounted options.

On August 22, 2001, the Company offered to all employee optionees who held
options with an exercise price of more than $5.85 per share (covering a
total of 812,329 shares), the opportunity to voluntarily return for
cancellation without payment any stock option award with an exercise price
above that price. At the close of the offer period on September 20, 2001,
stock options for a total of 797,229 shares were voluntarily surrendered for
cancellation. On August 20, 2002, the Compensation Committee of the
Company's board of directors approved the issuance of options covering a
total of 357,000 shares to then-current employees.

F-22



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


12. Stock Incentive Plans (Continued)

A summary of the status of the Company's stock options at December 31, 2003,
2002 and 2001, together with changes during the periods then ended, are
presented below:

Weighted
Number average
of exercise
options price
--------- --------

Outstanding at December 31, 2000 955,662 $ 10.44

Options granted at market price 99,562 3.74
Options granted below market price 7,811 1.45
Options voluntarily surrendered (797,229) 11.53
Options canceled or expired (13,600) 8.72
---------

Outstanding at December 31, 2001 252,206

Options granted at market price 372,719 3.16
Options exercised (16,556) 3.67
Options canceled or expired (88,174) 3.58
---------

Outstanding at December 31, 2002 520,195
Options granted at market price 170,549 3.98
Options exercised (75,719) 3.59
Options canceled or expired (29,566) 4.02
---------

Outstanding at December 31, 2003 585,459
=========

Available for grant at December 31, 2003 258,917
=========


The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model, with the following weighted-average
assumptions used for grants in 2003, 2002 and 2001:


2003 2002 2001
------- ------- -------
Expected volatility 62% 58% 56%
Risk free rate of return 3.22% 2.94% 4.59%
Expected dividend yield 0% 0% 0%
Expected life (years) 5.0 5.0 5.0



Total fair value of options granted at market price was computed to be
$369,000, $571,000 and $197,000 for the years ended December 31, 2003, 2002
and 2001, respectively. Total fair value of options granted at 60% discount
to market price was computed to be approximately $21,000 for the year ended
December 31, 2001. There were no options granted during 2003 and 2002 below
market price. The weighted average fair value per share of all options
granted in 2003, 2002 and 2001 was $2.16, $1.53 and $2.03, respectively.

F-23



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


12. Stock Incentive Plans (Continued)

The following table summarizes information about stock options outstanding
at December 31, 2003:




Options outstanding Options exercisable
- ----------------------------------------------------------- -------------------------
Weighted-
Weighted- average Exercisable Weighted-
average remaining at average
Number exercise contractual December 31, exercise
Exercise price range of shares price life (years) 2003 price
- -------------------- ---------- --------- ------------ ------------ ---------

$ 1.45 - $ 3.58 472,717 $ 3.07 8.8 60,467 $ 2.92
3.63 - 7.75 92,193 4.29 6.9 36,061 4.87
11.50 - 17.75 20,549 14.38 7.5 7,000 13.58
--------- -----------
585,459 103,528
========= ===========



At December 31, 2003, 2002 and 2001, 103,528, 84,778 and 135,344 options
were exercisable at weighted average exercise prices of $4.32, $4.79 and
$4.21, respectively.


13. Stockholders' Equity

During 2002 and 2001, the Company reclassified accrued stock option
compensation from current liabilities to equity related to stock options
previously issued at a 60% discount to market price. The compensation cost
associated with the options was previously recognized as an expense by the
Company in the year of grant.

During 2002, the Company received a final liquidating distribution from a
former insolvent customer. The customer's receivable was personally
guaranteed by the Company's President and Chief Executive Officer, who had
previously satisfied the guarantee to the Company in full. As such, the
payment by the Company of approximately $28,000 to the Company's President
represented a partial recovery for the guarantor of the guaranteed
receivable.

During 2003, the Company recognized a tax benefit of $137,000 resulting from
disqualifying dispositions of stock option exercises. The Company recorded
this tax benefit in additional paid-in capital.


14. Stock Repurchase Program

During 1999, the Company's Board of Directors authorized a stock repurchase
program to purchase common shares from time to time in open market
purchases. Since inception, the Board has approved seven increases in the
total number of shares or dollars authorized to be repurchased under the
program. The repurchase program currently allows for $444,000 to be used for
the repurchase of additional shares as of December 31, 2003. During 2003,
the Company repurchased 112,700 shares at an aggregate price of $446,000.
During 2002, the Company repurchased 100,900 shares at an aggregate price of
$386,000. During 2001,

F-24



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)


14. Stock Repurchase Program (Continued)

the Company repurchased 603,600 shares at an aggregate price of $2,307,000.
In accordance with Maryland corporation law, all repurchased shares are
immediately cancelled.


15. Litigation

The Company is subject to legal proceedings and claims, which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to currently pending or threatened actions
is not expected to materially affect the financial position or results of
operations of the Company.


16. Quarterly Financial Information (Unaudited)





(in thousands, except per share amounts and market price per share)

First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Year ended December 31, 2001

Revenues $ 35,397 $ 33,853 $ 37,901 $ 32,240
Cost of revenues 30,055 28,675 31,927 30,699
Net (loss) income (211) (184) 242 (2,269)
Basic (loss) earnings per share (.03) (.03) .04 (.38)
Diluted (loss) earnings per share (.03) (.03) .04 (.38)
Common stock market prices:
High $ 4.00 $ 3.97 $ 4.25 $ 5.06
Low 3.38 3.30 3.05 3.04

Year ended December 31, 2002
Revenues $ 25,738 $ 27,766 $ 30,090 $ 25,714
Cost of revenues 21,951 23,414 25,717 23,261
Net (loss) income (417) 1 56 (993)
Basic (loss) earnings per share (.07) -- .01 (.17)
Diluted (loss) earnings per share (.07) -- .01 (.17)
Common stock market prices:
High $ 4.00 $ 4.00 $ 3.50 $ 4.00
Low 3.15 2.74 2.01 2.67

Year ended December 31, 2003
Revenues $ 23,397 $ 27,902 $ 34,773 $ 36,649
Cost of revenues 20,028 23,446 28,422 29,452
Net (loss) income (343) 167 943 1,318
Basic (loss) earnings per share (.06) .03 .17 .23
Diluted (loss) earnings per share (.06) .03 .16 .22
Common stock market prices:
High $ 3.75 $ 3.65 $ 7.41 $ 15.13
Low 2.31 2.64 3.00 7.00






F-25



Barrett Business Services, Inc.
Notes to Financial Statements (Continued)

17. Subsequent Event

Subsequent to year end, effective January 1, 2004, the Company acquired
certain assets of Skills Resource Training Center ("SRTC"), a staffing
services company with nine offices in Central Washington, Eastern Oregon and
Southern Idaho. The Company paid $3,000,000 in cash for the assets of SRTC
and the selling shareholders' noncompete agreements and agreed to issue up
to 135,731 shares of its common stock ("Earnout Shares"), with the actual
number of Earnout Shares to be issued based upon the level of financial
performance achieved by the SRTC offices during calendar 2004.


F-26





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: March 29, 2004 By: /s/ Michael D. Mulholland
------------------------------------
Michael D. Mulholland
Vice President-Finance and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 29th day of March, 2004.

Principal Executive Officer and Director:

* WILLIAM W. SHERERTZ President and Chief Executive Officer
and Director

Principal Financial Officer:

/s/ Michael D. Mulholland Vice President-Finance and Secretary
- -------------------------
Michael D. Mulholland

Principal Accounting Officer:

/s/ James D. Miller Controller and Assistant Secretary
- -------------------------
James D. Miller

Majority of Directors:

* FORES J. BEAUDRY Director

* JAMES B. HICKS Director

* ANTHONY MEEKER Director

* NANCY B. SHERERTZ Director


* By /s/ Michael D. Mulholland
-------------------------
Michael D. Mulholland
Attorney-in-Fact


EXHIBIT INDEX

3.1 Charter of the Registrant, as amended. Incorporated by reference to
Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.

3.2 Bylaws of the Registrant, as amended. Incorporated by reference to Exhibit
3.2 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.

The Registrant has incurred long-term indebtedness as to which the amount
involved is less than 10 percent of the Registrant's total assets. The
Registrant agrees to furnish copies of the instruments relating to such
indebtedness to the Commission upon request.

10.1 Second Amended and Restated 1993 Stock Incentive Plan of the Registrant.
Incorporated by reference to Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2001.*

10.2 Form of Indemnification Agreement with each director of the Registrant.
Incorporated by reference to Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (No. 33-61804).*

10.3 Deferred Compensation Plan for Management Employees of the Registrant.
Incorporated by reference to Exhibit 10.3 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.*

10.4 Employment Agreement between the Registrant and Michael D. Mulholland,
dated January 26, 1999. Incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1998.*

10.5 Promissory note of William W. Sherertz dated December 10, 2001.
Incorporated by reference to Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2001.*

10.6 Credit Agreement dated as of March 31, 2004, between the Registrant and
Wells Fargo Bank, N.A.

10.7 Revolving Line of Credit Note dated as of March 31, 2004, in the amount of
$6,000,000 issued to Wells Fargo Bank, N.A.

10.8 Continuing Security Agreement Equipment dated as of May 22, 2003.
Incorporated by reference to Exhibit 10.3 to the Registrant's Current
Report on Form 8-K filed June 12, 2003.

10.9 Continuing Security Agreement Rights to Payment dated as of September 2,
2002, executed in favor of Wells Fargo Bank, N.A. Incorporated by
reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K
filed on September 4, 2002.

10.10 2003 Stock Incentive Plan of the Registrant (the "2003 Plan").
Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2003.*

10.11 Form of Incentive Stock Option Agreement under the 2003 Plan.*

10.12 Form of Nonqualified Stock Option Agreement under the 2003 Plan.*

10.13 Form of Annual Director Option Agreement under the 2003 Plan.*



14 Code of Business Conduct.

23 Consent of PricewaterhouseCoopers LLP, independent auditors.

24 Power of attorney of certain officers and directors.

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).

31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a).

32 Certification pursuant to 18 U.S.C. Section 1350.


* Denotes a management contract or a compensatory plan or arrangement.