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


FORM 10-Q


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2004
Commission File No. 0-21886


BARRETT BUSINESS SERVICES, INC.
(Exact name of registrant as specified in its charter)

Maryland 52-0812977
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

4724 SW Macadam Avenue
Portland, Oregon 97239
(Address of principal executive offices) (Zip Code)

(503) 220-0988
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [ X ] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

Number of shares of common stock, $.01 par value, outstanding at July 30, 2004
was 5,742,037 shares.







BARRETT BUSINESS SERVICES, INC.

INDEX

Part I - Financial Information Page
----

Item 1. Consolidated Financial Statements

Consolidated Balance Sheets - June 30, 2004 and
December 31, 2003................................................3

Consolidated Statements of Operations - Three Months
Ended June 30, 2004 and 2003.....................................4

Consolidated Statements of Operations - Six Months
Ended June 30, 2004 and 2003.....................................5

Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2004 and 2003.....................................6

Notes to Consolidated Financial Statements.......................7

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................................11

Item 3. Quantitative and Qualitative Disclosure About
Market Risk.....................................................19

Item 4. Controls and Procedures.........................................19


Part II - Other Information

Item 4. Submission of Matters to Vote of Security Holders...............20

Item 6. Exhibits and Reports on Form 8-K................................20


Signatures...................................................................21


Exhibit Index ...............................................................22

-2-



Part I - Financial Information

Item 1. Financial Statements

BARRETT BUSINESS SERVICES, INC.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share amounts)





June 30, December 31,
2004 2003
------- -------
ASSETS

Current assets:
Cash and cash equivalents $ 5,374 $ 7,785
Marketable securities 4,337 --
Trade accounts receivable, net 27,952 18,481
Prepaid expenses and other 1,805 958
Deferred income taxes 3,057 2,196
------- -------
Total current assets 42,525 29,420

Goodwill, net 21,738 18,749
Intangibles, net 35 13
Property and equipment, net 4,575 3,367
Restricted marketable securities and workers' compensation
deposits 1,854 1,647
Deferred income taxes 833 1,041
Other assets 412 436
------- -------

$71,972 $54,673
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 348 $ 88
Income taxes payable 1,438 --
Accounts payable 470 727
Accrued payroll, payroll taxes and related benefits 21,471 13,881
Workers' compensation claims liabilities 6,185 3,886
Safety incentives liability 3,787 2,007
Other accrued liabilities 1,166 361
------- -------
Total current liabilities 34,865 20,950

Long-term debt, net of current portion 1,515 400
Customer deposits 514 455
Long-term workers' compensation claims liabilities 1,020 1,031
Other long-term liabilities -- 45
Deferred gain on sale and leaseback 1,097 1,158

Commitments and contingencies

Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized,
5,738 and 5,701 shares issued and outstanding 62 62
Additional paid-in capital 3,171 2,903
Employee loan (107) (107)
Other comprehensive loss (387) --
Retained earnings 30,222 27,776
------- -------
32,961 30,634
------- -------
$71,972 $54,673
======= =======






The accompanying notes are an integral part of these consolidated financial
statements.

-3-




BARRETT BUSINESS SERVICES, INC.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)

Three Months Ended
June 30,
--------------------
2004 2003
------- -------
Revenues:
Staffing services $30,470 $23,046
Professional employer service fees 17,234 4,856
------- -------
47,704 27,902
------- -------
Cost of revenues:
Direct payroll costs 22,551 17,079
Payroll taxes and benefits 10,649 4,385
Workers' compensation 5,644 1,982
------- -------
38,844 23,446
------- -------
Gross margin 8,860 4,456

Selling, general and administrative expenses 5,701 3,869
Depreciation and amortization 253 271
------- -------
Income from operations 2,906 316
------- -------
Other (expense) income:
Interest expense (23) (83)
Interest income 61 15
------- -------
38 (68)
------- -------

Income before provision for income taxes 2,944 248
Provision for income taxes 1,104 81
------- -------
Net income $ 1,840 $ 167
======= =======
Basic earnings per share $ .32 $ .03
======= =======
Weighted average number of basic shares outstanding 5,716 5,708
======= =======
Diluted earnings per share $ .30 $ .03
======= =======
Weighted average number of diluted shares outstanding 6,134 5,726
======= =======



The accompanying notes are an integral part of these consolidated financial
statements.

-4-



BARRETT BUSINESS SERVICES, INC.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)


Six Months Ended
June 30,
---------------------
2004 2003
-------- --------
Revenues:
Staffing services $ 55,524 $ 43,156
Professional employer service fees 32,790 8,143
-------- --------
88,314 51,299
-------- --------

Cost of revenues:
Direct payroll costs 40,871 31,877
Payroll taxes and benefits 22,180 8,190
Workers' compensation 9,680 3,407
-------- --------
72,731 43,474
-------- --------
Gross margin 15,583 7,825

Selling, general and administrative expenses 11,233 7,465
Depreciation and amortization 495 551
-------- --------
Income (loss) from operations 3,855 (191)
-------- --------
Other (expense) income:
Interest expense (55) (178)
Interest income 82 56
Other, net 32 48
-------- --------
59 (74)
-------- --------

Income (loss) before provision for income taxes 3,914 (265)
Provision for (benefit from) income taxes 1,468 (89)
-------- --------
Net income (loss) $ 2,446 $ (176)
======== ========
Basic earnings (loss) per share $ .43 $ (.03)
======== ========
Weighted average number of basic shares outstanding 5,710 5,728
======== ========
Diluted earnings (loss) per share $ .40 $ (.03)
======== ========
Weighted average number of diluted shares outstanding 6,138 5,728
======== ========



The accompanying notes are an integral part of these consolidated financial
statements.

-5-



BARRETT BUSINESS SERVICES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)




Six Months Ended
June 30,
------------------
2004 2003
------------------

Cash flows from operating activities:
Net income (loss) $ 2,446 $ (176)
Reconciliations of net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 495 551
Gain on sales of marketable securities -- (48)
Gain recognized on sale and leaseback (61) --
Deferred income taxes (653) 272
Changes in certain assets and liabilities:
Income taxes receivable -- 1,923
Trade accounts receivable, net (9,471) (3,470)
Prepaid expenses and other (847) (853)
Income taxes payable 1,577 --
Accounts payable (257) (122)
Accrued payroll, payroll taxes and related benefits 7,590 3,332
Other accrued liabilities 805 282
Workers' compensation claims liabilities 2,288 (2,131)
Safety incentives liability 1,780 33
Customer deposits and other assets, net 83 125
Other long-term liabilities (45) (124)
------- --------
Net cash provided by (used in) operating activities 5,730 (406)
------- --------
Cash flows from investing activities:
Cash paid for acquisition, including other direct costs (3,044) --
Proceeds from sale and leaseback of buildings -- 2,338
Purchase of marketable securities (4,724) -
Purchase of equipment, net of amounts purchased in acquisition (1,670) (90)
Proceeds from maturities of restricted marketable securities 1,155 3,389
Proceeds from sales of restricted marketable securities -- 2,272
Purchase of restricted marketable securities (1,362) (5,469)
------- --------
Net cash (used in) provided by investing activities (9,645) 2,440
------- --------
Cash flows from financing activities:
Proceeds from issuance of debt 1,475 --
Proceeds from credit-line borrowings -- 20,241
Payments on credit-line borrowings -- (19,698)
Payments on long-term debt (100) (434)
Repurchase of common stock -- (262)
Proceeds from exercise of stock options 129 -
------- --------
Net cash provided by (used in) financing activities 1,504 (153)
------- --------
Net (decrease) increase in cash and cash equivalents (2,411) 1,881
Cash and cash equivalents, beginning of period 7,785 96
------- --------
Cash and cash equivalents, end of period $ 5,374 $ 1,977
======= ========




The accompanying notes are an integral part of these consolidated financial
statements.

-6-




BARRETT BUSINESS SERVICES, INC.
Notes to Consolidated Financial Statements

Note 1 - Basis of Presentation of Interim Period Statements

The accompanying consolidated financial statements are unaudited and have
been prepared by Barrett Business Services, Inc. ("Barrett" or the "Company"),
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures typically included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods presented. The preparation of financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from such estimates
and assumptions. The consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's 2003 Annual Report on Form 10-K at pages F1 - F26. The results of
operations for an interim period are not necessarily indicative of the results
of operations for a full year. Certain prior year amounts have been reclassified
to conform with the current year presentation. Such reclassifications had no
impact on gross margin, net income or stockholders' equity.

During May 2004, the Company formed a wholly-owned subsidiary which
acquired an aircraft. The subsidiary incurred debt of $1,475,000 to finance the
purchase of the aircraft. The consolidated financial statements include the
accounts of the subsidiary, after elimination of intercompany accounts and
transactions.

Barrett, 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 Oregon, Washington, Idaho, California,
Arizona, Maryland, Delaware and North Carolina. 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.


Note 2 - Significant Accounting Policies

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in equity during a period
except those that resulted from investments by or distributions to a company's
stockholders. Other comprehensive income (loss) refers to revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income (loss), but excluded from net income as these
amounts are recorded directly as an adjustment to stockholders' equity.
Barrett's other comprehensive income (loss) is comprised of unrealized holding
gains and losses on its publicly traded marketable securities, net of realized
gains included in net income.

-7-




BARRETT BUSINESS SERVICES, INC.
Notes to Consolidated Financial Statements (Continued)

Note 3 - Acquisition

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 acquisition
provides the Company with the opportunity to geographically expand and diversify
its business, particularly in the agricultural, food packing and processing
industries. 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 transaction resulted in $2,989,000 of
goodwill (including $44,000 for acquisition-related costs), $40,000 of
intangible assets and $15,000 of fixed assets. The Company's consolidated income
statements for the three and six-month periods ended June 30, 2004 includes
SRTC's results of operations since January 1, 2004.


Note 4 - Basic and Diluted Earnings Per Share

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




Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------

Weighted average number of basic shares
outstanding 5,715,515 5,707,782 5,709,584 5,728,075

Stock option plan shares to be issued at prices
ranging from $1.45 to $17.75 per share 614,407 553,439 604,396 --

Less: Assumed purchase at average market
price during the period using proceeds
received upon exercise of options and
purchase of stock, and using tax
benefits of compensation due to
premature dispositions (196,414) (534,947) (175,870) --
--------- --------- --------- ---------

Weighted average number of diluted shares
outstanding 6,133,508 5,726,274 6,138,110 5,728,075
========= ========= ========= =========




As a result of the net loss reported for the six months ended June 30,
2003, potential common shares of 16,332 have been excluded from the calculation
of diluted loss per share because their effect would be anti-dilutive.

-8-



BARRETT BUSINESS SERVICES, INC.
Notes to Consolidated Financial Statements (Continued)

Note 5 - 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. No
options have been issued to outside consultants or advisors. 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 June 30, 2004, there were option awards covering
386,423 shares outstanding under the 1993 Plan, which, to the extent they are
terminated unexercised, will be 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.

The following table summarizes options activity in 2004:


Number
of Options Grant Prices
------- ----------------
Outstanding at December 31, 2003 585,459 $ 1.45 to $17.75

Options granted 51,597 $13.23 to $13.91
Options exercised (37,487) $ 2.80 to $ 5.91
Options cancelled or expired (10,750) $ 3.02 to $13.23
-------

Outstanding at June 30, 2004 588,819 $ 1.45 to $17.75
=======

Exercisable at June 30, 2004 144,906
=======

Available for grant at June 30, 2004 218,070
=======


Note 6 - Stock Option Compensation

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock incentive plan. Accordingly, no compensation expense
has been recognized for its stock option grants issued at market price because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of the grant.

If compensation expense for the Company's stock-based compensation plan
had been determined based on the fair market value at the grant date for awards
under the 2003 Plan consistent with the method of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net loss and loss per share would have
been adjusted to the pro forma amounts indicated below:

-9-



BARRETT BUSINESS SERVICES, INC.
Notes to Consolidated Financial Statements (Continued)

Note 6 - Stock Option Compensation (Continued)


Three Months Ended Six Months Ended
June 30, June 30,
----------------- ---------------
2004 2003 2004 2003
------ --------- ------ ------
(in thousands, except per share amounts)
Net income (loss), as reported $1,840 $ 167 $2,446 $ (176)
Add back compensation expense recognized
under APB No. 25 -- -- -- --
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax
effects (53) (40) (98) (78)
------ ------ ------ ------
Net income (loss), pro forma $1,787 $ 127 $2,348 $ (254)
====== ====== ====== ======
Basic income (loss) per share, as reported $ .32 $ .03 $ .43 $ (.03)
Basic income (loss) per share, pro forma .31 .02 .41 (.04)
Diluted income (loss) per share, as reported .30 .03 .40 (.03)
Diluted income (loss) per share, pro forma .29 .02 .38 (.04)


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


Note 7 - Subsequent Events

On August 2, 2004, subsequent to quarter end and pursuant to the approval
of a majority of the Company's independent directors, the Company's President
and Chief Executive Officer, William W. Sherertz, paid in full certain
obligations owed to the Company by tendering to the Company for cancellation and
retirement 8,095 shares of common stock valued at $16.835 per share. This
transaction discharged Mr. Sherertz's obligations to the Company totaling
$136,274, including an employee loan in the amount of $107,000 reflected on the
Company's balance sheet at June 30, 2004.

-10-






BARRETT BUSINESS SERVICES, INC.


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Results of Operations

The following table sets forth the percentages of total revenues
represented by selected items in the Company's Consolidated Statements of
Operations for the three and six months ended June 30, 2004 and 2003.


Percentage of Total Revenues
--------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------- --------------
2004 2003 2004 2003
----- ----- ----- -----
Revenues:
Staffing services 63.9 % 82.6 % 62.9 % 84.1 %
Professional employer service fees 36.1 17.4 37.1 15.9
----- ----- ----- -----
100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
Direct payroll costs 47.3 61.2 46.3 62.1
Payroll taxes and benefits 22.3 15.7 25.1 16.0
Workers' compensation 11.8 7.1 11.0 6.6
----- ----- ----- -----
Total cost of revenues 81.4 84.0 82.4 84.7
----- ----- ----- -----

Gross margin 18.6 16.0 17.6 15.3

Selling, general and administrative expenses 12.0 13.9 12.7 14.6
Depreciation and amortization 0.5 1.0 0.6 1.1
----- ----- ----- -----
Income (loss) from operations 6.1 1.1 4.3 (0.4)

Other income (loss) 0.1 (0.2) 0.1 (0.1)
----- ----- ----- -----
Pretax income (loss) 6.2 0.9 4.4 (0.5)

Provision for (benefit from) income taxes 2.3 0.3 1.6 (0.2)
----- ----- ----- -----
Net income (loss) 3.9 % 0.6 % 2.8 % (0.3)%
===== ===== ===== =====


The Company changed its reporting of PEO revenues from a gross basis to a
net basis in 2002 because it was determined that the Company was not the primary
obligor for the services provided by employees pursuant to its PEO contracts
with its customers. Gross revenue information, although not in accordance with
GAAP, is presented below because management believes such information is more
informative as to the level of the Company's business activity and more useful
in managing its operations.

-11-



BARRETT BUSINESS SERVICES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

Results of Operations (Continued)


Unaudited Unaudited
Three Months Ended Six Months Ended
(in thousands) June 30, June 30,
------------------- --------------------
2004 2003 2004 2003
-------- ------- -------- -------
Revenues:
Staffing services $ 30,470 $23,046 $ 55,524 $43,156
Professional employer services 97,984 28,342 189,704 48,881
-------- ------- -------- -------

Total revenues 128,454 51,388 245,228 92,037
-------- ------- -------- -------

Cost of revenues:
Direct payroll costs 102,390 40,565 195,757 72,615
Payroll taxes and benefits 10,648 4,385 22,179 8,190
Workers' compensation 6,556 1,982 11,709 3,407
-------- ------- -------- -------

Total cost of revenues 119,594 46,932 229,645 84,212
-------- ------- -------- -------

Gross margin $ 8,860 $ 4,456 $ 15,583 $ 7,825
======== ======= ======== =======


A reconciliation of non-GAAP gross PEO revenues to net PEO revenues is as
follows:




Unaudited
Three Months Ended June 30,
---------------------------------------------------------------
Gross Revenue Net Revenue
(in thousands) Reporting Method Reclassification Reporting Method
------------------ -------------------- -----------------
2004 2003 2004 2003 2004 2003
-------- ------- -------- -------- ------- -------

Revenues:
Staffing services $ 30,470 $23,046 $ -- $ -- $30,470 $23,046
Professional employer
services 97,984 28,342 (80,750) (23,486) 17,234 4,856
-------- ------- -------- -------- ------- -------
Total revenues $128,454 $51,388 $(80,750) $(23,486) $47,704 $27,902
======== ======= ======== ======== ======= =======

Cost of revenues: $119,594 $46,932 $(80,750) $(23,486) $38,844 $23,446
======== ======= ======== ======== ======= =======



-12-



BARRETT BUSINESS SERVICES, INC.


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

Results of Operations (Continued)




Unaudited
Six Months Ended June 30,
---------------------------------------------------------------
Gross Revenue Net Revenue
(in thousands) Reporting Method Reclassification Reporting Method
------------------ --------------------- ----------------
2004 2003 2004 2003 2004 2003
-------- ------- --------- -------- ------- -------

Revenues:
Staffing services $ 55,524 $43,156 $ -- $ -- $55,524 $43,156
Professional employer
services 189,704 48,881 (156,914) (40,738) 32,790 8,143
-------- ------- --------- -------- ------- -------
Total revenues $245,228 $92,037 $(156,914) $(40,738) $88,314 $51,299
======== ======= ========= ======== ======= =======

Cost of revenues: $229,645 $84,212 $(156,914) $(40,738) $72,731 $43,474
======== ======= ========= ======== ======= =======


Three months ended June 30, 2004 and 2003

Net income for the second quarter of 2004 amounted to $1,840,000, an
improvement of $1,673,000 over net income of $167,000 for the second quarter of
2003. The improvement for the second quarter of 2004 was primarily due to higher
gross margin dollars as a result of significant growth in professional employer
("PEO") services business, partially offset by higher selling, general and
administrative expenses. The diluted earnings per share for the second quarter
of 2004 was $.30 compared to $.03 for the comparable 2003 period. The Company's
improved operating results continue to reflect, in part, the competitive
advantage of offering a broad array of human resource management services. This
competitive advantage has enabled the Company to significantly increase its
business opportunities in California. The Company expects this favorable trend
to continue into the foreseeable future, particularly in California.

Revenues for the second quarter of 2004 totaled $47.7 million, an increase
of approximately $19.8 million or 71.0% over the $27.9 million for the second
quarter of 2003. The increase in revenues primarily reflects significant growth
in the Company's PEO service fee revenue, combined with an increase in staffing
services revenue.

PEO service fee revenue increased approximately $12.4 million or 253.1%
primarily due to increased demand for the Company's broad array of competitively
priced human resource management services that satisfy customers' needs.
Management believes that the favorable trend in PEO revenues will continue for
the foreseeable future.

-13-



BARRETT BUSINESS SERVICES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

Results of Operations (Continued)

Three months ended June 30, 2004 and 2003 (continued)

Staffing services revenue increased approximately $7.4 million or 32.2%
primarily due to improved economic conditions for such services in the majority
of areas in which the Company operates and to the Company's acquisition of SRTC
effective January 1, 2004. Operations of SRTC accounted for approximately $6.0
million or 81.0% of the increase. Management expects demand for the Company's
staffing services will continue to reflect overall economic conditions in its
market areas.

Gross margin for the second quarter of 2004 totaled approximately $8.9
million, which represented an increase of $4.4 million or 97.8% over the second
quarter of 2003, primarily due to the 71.0% increase in revenues. The gross
margin percent increased from 16.0% of revenues for the second quarter of 2003
to 18.6% for the second quarter of 2004. The increase in the gross margin
percentage was due to lower direct payroll costs, offset in part by higher
payroll taxes and benefits and higher workers' compensation expense, all
expressed as a percent of revenues. The decline in direct payroll costs, as a
percentage of revenues, from 61.2% for the second quarter of 2003 to 47.3% for
the second quarter of 2004 reflects the shift in the relative mix of services to
the Company's customer base and the effect of their unique mark-up percent. The
increase in payroll taxes and benefits, as a percentage of revenues, from 15.7%
for the second quarter of 2003 to 22.3% for the second quarter of 2004, was due
in part to higher statutory state unemployment tax rates in various states in
which the Company operates as compared to the second quarter of 2003, as well as
to the effect of significant growth in PEO services.

Workers' compensation expense for the second quarter of 2004 totaled $5.6
million, which compares to $2.0 million for the second quarter of 2003. The
increase in workers' compensation expense was generally due to an increased
provision for the future estimated costs of existing claims, as well as to the
effect from increased business activity in California, where injury claims are
more costly as compared to other states in which the Company operates.

Selling, general and administrative ("SG&A") expenses for the second
quarter of 2004 amounted to approximately $5.7 million, an increase of $1.8
million or 46.2% over the second quarter of 2003. The increase over the second
quarter of 2003 was primarily attributable to increases in branch management
personnel and related expenses as a result of growth in the Company's PEO
business and, to a lesser extent, the incremental SG&A expenses associated with
the SRTC acquisition. SG&A expenses, as a percent of revenues, declined from
13.9% in the second quarter of 2003 to 12.0% in the second quarter of 2004.


Six months ended June 30, 2004 and 2003

Net income for the six months ended June 30, 2004 was $2,446,000, an
improvement of $2,622,000 over a net loss of $176,000 for the first six months
of 2003. The improvement for the first six months of 2004 was primarily due to
increased gross margin dollars

-14-



BARRETT BUSINESS SERVICES, INC.


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

Results of Operations (Continued)

Six months ended June 30, 2004 and 2003 (continued)

as a result of significant growth in PEO business, partially offset by higher
SG&A expenses. The diluted earnings per share for the first six months of 2004
was $.40 as compared to a diluted loss per share of $.03 for the same 2003
period. The Company's improved operating results for the first six months of
2004 over the same 2003 period reflect, in part, the same competitive advantage
generated by its ability to offer a broad array of human resource management
services.

Revenues for the six months ended June 30, 2004 totaled $88.3 million, an
increase of approximately $37.0 million or 72.1% over the $51.3 million for the
first six months of 2003. The increase in revenues primarily reflects
significant growth in the Company's PEO service fee revenue, combined with an
increase in staffing services revenue.

PEO service fee revenue increased approximately $24.7 million or 304.9%
primarily due to increased demand for the Company's broad array of competitively
priced human resource management services that satisfy customers' needs.

Staffing services revenue increased approximately $12.3 million or 28.5%
primarily due to improved economic conditions for such services in the majority
of areas in which the Company operates and to the Company's acquisition of SRTC
effective January 1, 2004. Operations of SRTC accounted for approximately $9.0
million or 73.2% of the increase.

Gross margin for the six months ended June 30, 2004 totaled approximately
$15.6 million, which represented an increase of $7.8 million or 99.1% over the
similar period of 2003, primarily due to the 72.1% increase in revenues. The
gross margin percent increased to 17.6% of revenues for the first six months of
2004, up from 15.3% for the similar period of 2003. The increase in the gross
margin percentage was due to lower direct payroll costs, offset in part by
higher payroll taxes and benefits and higher workers' compensation expense
expressed as a percent of revenues. The decline in direct payroll costs, as a
percentage of revenues, from 62.1% for the first six months of 2003 to 46.3% for
the first six months of 2004 reflects the current mix of services to the
Company's customer base and the effect of their unique mark-up percent. The
increase in payroll taxes and benefits, as a percentage of revenues, from 16.0%
for the first six months of 2003 to 25.1% for the first six months of 2004, was
due in part to higher statutory state unemployment tax rates in various states
in which the Company operates as compared to the first six months of 2003, as
well as to the effect of significant growth in PEO services.

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BARRETT BUSINESS SERVICES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

Results of Operations (Continued)

Six months ended June 30, 2004 and 2003 (continued)

Workers' compensation expense for the six months ended June 30, 2004
totaled $9.7 million, which compares to $3.4 million for the first six months of
2003. The increase in workers' compensation expense was generally due to an
increased provision for the future estimated costs of existing claims and to the
effect from increased business activity in California, which has higher claim
costs as compared to other states in which the Company operates.

SG&A expenses for the six months ended June 30, 2004 amounted to
approximately $11.2 million, an increase of $3.8 million or 50.5% over the first
six months of 2003. The increase over the first six months of 2003 was primarily
attributable to increases in branch management personnel and related expenses as
a result of growth in the Company's PEO business and, to a lesser extent, the
incremental SG&A expenses associated with the SRTC acquisition. SG&A expenses,
as a percent of net revenues, declined from 14.6% in the first six months of
2003 to 12.7% in the first six months of 2004.

Factors Affecting Quarterly 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 statutory 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 may 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, food
processing 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. 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 of $5,374,000 at June 30, 2004, decreased by
$2,411,000 from December 31, 2003, which compares to an increase of $1,881,000
for the comparable period in 2003. The decrease in cash at June 30, 2004, as
compared to December 31, 2003, was primarily due to excess cash used to purchase
marketable securities of $4,724,000 for investment purposes, cash used for the
acquisition of SRTC of $3,044,000, and an increase in trade accounts receivable,
offset in part by increases in accrued payroll, payroll taxes and related
benefits and increases in workers' compensation claim liabilities and safety
incentives liabilities.

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BARRETT BUSINESS SERVICES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

Liquidity and Capital Resources (Continued)

Net cash provided by operating activities for the six months ended June
30, 2004 amounted to $5,730,000, as compared to net cash used in operating
activities of $406,000 for the comparable 2003 period. For the six months ended
June 30, 2004, cash flow was provided by net income of $2,446,000, together with
increases in accrued payroll and related benefits of $7,590,000 and increases in
workers' compensation claims liabilities and safety incentives liabilities
totaling $4,078,000, offset in part by an increase of $9,471,000 in trade
accounts receivable.

Net cash used in investing activities totaled $9,645,000 for the six
months ended June 30, 2004, compared to net cash provided by investing
activities of $2,440,000 for the similar 2003 period. For the 2004 period, the
principal uses of cash for investing activities were purchases of marketable
securities for investment purposes of $4,724,000, the acquisition of SRTC and
related costs totaling $3,044,000, purchases of equipment of $1,670,00 and
$1,362,000 of net purchases of restricted marketable securities, offset in part
by net proceeds totaling $1,155,000 from maturities of restricted marketable
securities. The transactions related to restricted marketable securities were
scheduled maturities and the related replacement of such securities held for
workers' compensation surety deposit purposes. The Company presently has no
material long-term capital commitments.

Net cash provided by financing activities for the six-month period ended
June 30, 2004, was $1,504,000, compared to net cash used in financing activities
of $153,000 for the similar 2003 period. For the 2004 period, the principal
source of cash for financing activities was $1,475,000 of debt incurred in
connection with the Company's purchase of an aircraft for use in management's
frequent travel to California to oversee its growth in business.

The Company's business strategy continues to focus on growth through the
expansion of operations at existing offices, together with the selective
acquisition of additional personnel-related businesses, both in its existing
markets and other strategic geographic markets. The Company periodically
evaluates proposals for various acquisition opportunities, but there can be no
assurance that any additional transactions will be consummated. As disclosed in
Note 3 to the consolidated financial statements included in this report, the
Company acquired certain assets of Skills Resource Training Center ("SRTC"), a
staffing services company headquartered in Central Washington, effective January
1, 2004. As consideration for the acquisition, the Company paid $3,000,000 in
cash and agreed to issue up to 135,731 shares of its common stock, with the
actual number of shares to be issued based upon the level of financial
performance achieved by the SRTC offices during calendar year 2004.

The Company entered into a new Credit Agreement (the "New Credit
Agreement") with its principal bank 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.

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BARRETT BUSINESS SERVICES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

Liquidity and Capital Resources (Continued)

The 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 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 Company was in compliance
with all covenants at June 30, 2004.

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.

Stock Repurchase Program

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. As of August 12, 2004, the repurchase program had remaining authorized
availability of $443,800 for the repurchase of additional shares. The Company
made no share repurchases during the first six months of 2004. Since the
inception of the repurchase program through August 12, 2004, the Company has
repurchased 2,053,555 shares for an aggregate price of $9,187,200 and an average
price of $4.47 per share. Management anticipates that the capital necessary to
continue this program will be provided by existing cash balances, cash generated
from operations and other available resources.

Inflation

Inflation generally has not been a significant factor in the Company's
operations during the periods discussed above. The Company has taken into
account the impact of escalating medical and other costs in establishing
reserves for future expenses for self-insured workers' compensation claims.

Forward-Looking Information

Statements in this report which are not historical in nature, including
discussion of economic conditions in the Company's market areas and effect on
revenue growth, the potential for and effect of recent and future acquisitions,
the effect of changes in the Company's mix of

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BARRETT BUSINESS SERVICES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

Forward-Looking Information (Continued)

services on gross margin, market conditions for workers' compensation coverage
in California, the adequacy of the Company's workers' compensation reserves and
allowance for doubtful accounts, the effectiveness of the Company's management
information systems, and the availability of financing and working capital to
meet the Company's funding requirements, are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company or industry to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors with respect to the Company include difficulties
associated with integrating new customers 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 effect of
changes in the workers' compensation regulatory environment in one or more of
the Company's primary markets, the availability of excess workers' compensation
insurance on acceptable terms and conditions, 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.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's exposure to market risk for changes in interest rates
primarily relates to the Company's short-term and long-term debt obligations. As
of June 30, 2004, the Company had interest-bearing debt obligations of
approximately $1.9 million, of which approximately $1.5 million bears interest
at a variable rate and approximately $0.4 million at a fixed rate of interest.
The variable rate debt is comprised of a $1.475 million note payable with a
10-year term, which bears interest at the three-month LIBOR rate plus 240 basis
points. Based on the Company's overall interest exposure at June 30, 2004, a 100
basis point increase 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 June 30, 2004, the Company had not entered into any interest rate
instruments to reduce its exposure to interest rate risk.


Item 4. Controls and Procedures

The Registrant carried out an evaluation, under the supervision and with
the participation of the Registrant's management, including the Registrant's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
Registrant's disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer have concluded that

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BARRETT BUSINESS SERVICES, INC.

Item 4. Controls and Procedures (Continued)

the Registrant's disclosure controls and procedures as of June 30, 2004 were
effective in providing a reasonable level of assurance that information required
to be disclosed by the Registrant in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.

There were no changes in the Registrant's internal control over financial
reporting that occurred during the quarter ended June 30, 2004 that have
materially affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.


Part II - Other Information

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

The Company held its 2004 annual meeting of stockholders on May 12, 2004.
The following directors were elected at the annual meeting:

For Withheld Exception
---------- ---------- -----------

Fores J. Beaudry 5,526,380 18,100
Thomas J. Carley 5,526,380 18,100
James B. Hicks, Ph.D. 5,526,380 18,100
Anthony Meeker 5,526,380 18,100
Nancy B. Sherertz 5,405,595 138,885
William W. Sherertz 5,510,580 33,900


Item 6. Exhibits and Reports on Form 8-K

(a) The exhibits filed with this Report are listed in the Exhibit
Index following the signature page of this Report.

(b) No Current Reports on Form 8-K were filed by the Registrant during
the quarter ended June 30, 2004.


-20-




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

BARRETT BUSINESS SERVICES, INC.
(Registrant)






Date: August 12, 2004 /s/ Michael D. Mulholland
---------------------------------
Michael D. Mulholland
Vice President - Finance
(Principal Financial Officer)



-21-



EXHIBIT INDEX

Exhibit


31.1 Certification of the Chief Executive Officer under Rule 13a-14(a).

31.2 Certification of the Chief Financial Officer under Rule 13a-14(a).

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

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