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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 September 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 October 29,
2004 was 5,740,692 shares.






BARRETT BUSINESS SERVICES, INC.

INDEX

Part I - Financial Information Page
----

Item 1. Consolidated Financial Statements

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

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

Consolidated Statements of Operations - Nine Months
Ended September 30, 2004 and 2003................................5

Consolidated Statements of Cash Flows - Nine Months
Ended September 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 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities..................................20

Item 6. Exhibits........................................................20


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


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





Part I - Financial Information

Item 1. Financial Statements

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



September 30, December 31,
2004 2003
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $10,009 $ 7,785
Marketable securities 4,503 --
Trade accounts receivable, net 30,523 18,481
Prepaid expenses and other 1,243 958
Deferred income taxes 5,168 2,196
------- -------

Total current assets 51,446 29,420

Goodwill, net 21,738 18,749
Intangibles, net 30 13
Property and equipment, net 4,439 3,367
Restricted marketable securities and workers' compensation
deposits 1,775 1,647
Deferred income taxes 758 1,041
Other assets 399 436
------- -------

$80,585 $54,673
------- -------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 348 $ 88
Income taxes payable 2,685 --
Accounts payable 430 727
Accrued payroll, payroll taxes and related benefits 23,829 13,881
Workers' compensation claims liabilities 4,977 3,886
Safety incentives liability 4,534 2,007
Other accrued liabilities 606 361
------- -------

Total current liabilities 37,409 20,950

Long-term debt, net of current portion 1,478 400
Customer deposits 501 455
Long-term workers' compensation claims liabilities 4,576 1,031
Other long-term liabilities -- 45
Deferred gain on sale and leaseback 1,067 1,158

Commitments and contingencies

Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized,
5,740 and 5,701 shares issued and outstanding 62 62
Additional paid-in capital 3,100 2,903
Employee loan -- (107)
Other comprehensive loss (278) --
Retained earnings 32,670 27,776
------- -------

35,554 30,634
------- -------

$80,585 $54,673
------- -------



-3-

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




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


Three Months Ended
September 30,
--------------------
2004 2003
------- -------
Revenues:
Staffing services $35,673 $26,727
Professional employer service fees 19,006 8,046
------- -------

54,679 34,773
------- -------

Cost of revenues:
Direct payroll costs 26,436 19,740
Payroll taxes and benefits 11,376 6,181
Workers' compensation 6,094 2,622
------- -------

43,906 28,543
------- -------

Gross margin 10,773 6,230

Selling, general and administrative expenses 6,404 4,461
Depreciation and amortization 257 256
------- -------

Income from operations 4,112 1,513
------- -------

Other income (expense):
Interest expense (22) (55)
Interest income 95 13
Other, net -- (20)
------- -------

73 (62)
------- -------

Income before provision for income taxes 4,185 1,451
Provision for income taxes 1,737 508
------- -------

Net income $ 2,448 $ 943
======= =======

Basic earnings per share $ .43 $ .17
======= =======

Weighted average number of basic shares outstanding 5,739 5,645
======= =======

Diluted earnings per share $ .40 $ .16
======= =======

Weighted average number of diluted shares outstanding 6,144 5,927
======= =======


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)

Nine Months Ended
September 30,
------------------------
2004 2003
----------- -----------
Revenues:
Staffing services $ 91,197 $ 69,883
Professional employer service fees 51,796 16,189
-------- --------

142,993 86,072
-------- --------

Cost of revenues:
Direct payroll costs 67,307 51,617
Payroll taxes and benefits 33,556 14,371
Workers' compensation 15,774 6,029
-------- --------

116,637 72,017
-------- --------

Gross margin 26,356 14,055

Selling, general and administrative expenses 17,637 11,926
Depreciation and amortization 752 807
-------- --------

Income from operations 7,967 1,322
-------- --------

Other income (expense) :
Interest expense (77) (233)
Interest income 177 69
Other, net 32 28
-------- --------

132 (136)
-------- --------

Income before provision for income taxes 8,099 1,186
Provision for income taxes 3,205 419
-------- --------

Net income $ 4,894 $ 767
======== ========

Basic earnings per share $ .86 $ .13
======== ========

Weighted average number of basic shares outstanding 5,720 5,700
======== ========

Diluted earnings per share $ .80 $ .13
======== ========

Weighted average number of diluted shares outstanding 6,140 5,805
======== ========



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)





Nine Months Ended
September 30,
-------------------
2004 2003
-------- -------

Cash flows from operating activities:
Net income $ 4,894 $ 767
Reconciliations of net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 752 807
Gain on sales of marketable securities -- (48)
Gain recognized on sale and leaseback (91) (31)
Deferred income taxes (2,689) 784
Changes in certain assets and liabilities:
Income taxes receivable -- 1,923
Trade accounts receivable, net (12,056) (7,092)
Prepaid expenses and other (285) (709)
Income taxes payable 2,853 --
Accounts payable (297) (53)
Accrued payroll, payroll taxes and related benefits 9,948 8,036
Other accrued liabilities 245 21
Workers' compensation claims liabilities 4,636 (2,170)
Safety incentives liability 2,527 275
Customer deposits and other assets, net 83 586
Other long-term liabilities (45) (770)
-------- -------
Net cash provided by operating activities 10,475 2,326
-------- -------

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 (4,781) --
Purchase of equipment, net of amounts purchased in acquisition (1,801) (188)
Proceeds from maturities of restricted marketable securities 1,463 4,361
Proceeds from sales of restricted marketable securities -- 2,272
Purchase of restricted marketable securities (1,591) (6,362)
-------- -------
Net cash (used in) provided by investing activities (9,754) 2,421
-------- -------

Cash flows from financing activities:
Proceeds from issuance of debt 1,475 --
Proceeds from credit-line borrowings 148 38,750
Payments on credit-line borrowings (148) (42,263)
Payments on long-term debt (137) (434)
Repurchase of common stock -- (446)
Proceeds from exercise of stock options 165 --
-------- -------
Net cash provided by (used in) financing activities 1,503 (4,393)
-------- -------
Net increase in cash and cash equivalents 2,224 354

Cash and cash equivalents, beginning of period 7,785 96
-------- -------
Cash and cash equivalents, end of period $ 10,009 $ 450
-------- -------


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.

Certain prior period amounts have been reclassified to conform with the
current period presentation. Such reclassifications had no impact on operating
results or stockholders' equity.


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 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 nine-month periods ended September 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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------


Weighted average number of basic shares
outstanding 5,738,702 5,644,946 5,719,290 5,700,366

Stock option plan shares to be issued at prices
ranging from $1.45 to $17.75 per share 582,963 643,379 597,252 572,308

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 (177,643) (360,995) (176,461) (467,292)
--------- --------- --------- ---------

Weighted average number of diluted shares
outstanding 6,144,022 5,927,330 6,140,081 5,805,382
========= ========= ========= =========




-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 September 30, 2004, there were option awards covering
376,423 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 (47,737) $ 2.80 to $ 5.91
Options cancelled or expired (10,750) $ 3.02 to $13.23
-------

Outstanding at September 30, 2004 578,569 $ 1.45 to $17.75
=======

Exercisable at September 30, 2004 211,406
=======

Available for grant at September 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 Nine Months Ended
September 30, September 30,
------------------ -----------------
2004 2003 2004 2003
------- ------ ------ ------
(in thousands, except per share amounts)


Net income, as reported $2,448 $ 943 $4,894 $ 767
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 (56) (47) (154) (125)
------ ------ ------ ------
Net income, pro forma $2,392 $ 896 $4,740 $ 642
====== ====== ====== ======
Basic income per share, as reported $ .43 $ .17 $ .86 $ .13
Basic income per share, pro forma .42 .16 .83 .11
Diluted income per share, as reported .40 .16 .80 .13
Diluted income per share, pro forma .39 .15 .77 .11




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 - Stockholders' Equity

On August 2, 2004, 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 December 31,
2003.



-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 nine months ended September 30, 2004 and 2003.


Percentage of Total Revenues
--------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- --------------
2004 2003 2004 2003
----- ----- ----- -----
Revenues:
Staffing services 65.2 % 76.9 % 63.8 % 81.2 %
Professional employer service fees 34.8 23.1 36.2 18.8
----- ----- ----- -----

100.0 100.0 100.0 100.0

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

Cost of revenues:
Direct payroll costs 48.4 56.8 47.1 60.0
Payroll taxes and benefits 20.8 17.8 23.5 16.7
Workers' compensation 11.1 7.5 11.0 7.0
----- ----- ----- -----

Total cost of revenues 80.3 82.1 81.6 83.7
----- ----- ----- -----

Gross margin 19.7 17.9 18.4 16.3

Selling, general and administrative expenses 11.7 12.8 12.3 13.8
Depreciation and amortization 0.5 0.7 0.5 0.9
----- ----- ----- -----

Income from operations 7.5 4.4 5.6 1.6

Other income (expense) 0.2 (0.2) 0.1 (0.2)
----- ----- ----- -----

Pretax income 7.7 4.2 5.7 1.4

Provision for income taxes 3.2 1.5 2.3 0.5
----- ----- ----- -----

Net income 4.5 % 2.7 % 3.4 % 0.9 %
===== ===== ===== =====


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 Nine Months Ended
(in thousands) September 30, September 30,
------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues:
Staffing services $ 35,673 $ 26,727 $ 91,197 $ 69,883
Professional employer services 109,435 46,886 299,139 95,767
-------- -------- -------- --------

Total revenues 145,108 73,613 390,336 165,650
-------- -------- -------- --------

Cost of revenues:
Direct payroll costs 115,580 57,977 311,337 130,592
Payroll taxes and benefits 11,376 6,181 33,555 14,371
Workers' compensation 7,379 3,225 19,088 6,632
-------- -------- -------- --------

Total cost of revenues 134,335 67,383 363,980 151,595
-------- -------- -------- --------

Gross margin $ 10,773 $ 6,230 $ 26,356 $ 14,055
======== ======== ======== ========


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




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

Revenues:
Staffing services $ 35,673 $ 26,727 $ -- $ -- $ 35,673 $ 26,727
Professional employer
services 109,435 46,886 (90,429) (38,840) 19,006 8,046
-------- -------- -------- -------- -------- --------
Total revenues $145,108 $ 73,613 $(90,429) $(38,840) $ 54,679 $ 34,773
======== ======== ======== ======== ======== ========

Cost of revenues: $134,335 $ 67,383 $(90,429) $(38,840) $ 43,906 $ 28,543
======== ======== ======== ======== ======== ========






-12-



BARRETT BUSINESS SERVICES, INC.

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

Results of Operations (Continued)



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

Revenues:
Staffing services $ 91,197 $ 69,883 $ -- $ -- $ 91,197 $ 69,883
Professional employer
services 299,139 95,767 (247,343) (79,578) 51,796 16,189
-------- -------- --------- -------- -------- --------
Total revenues $390,336 $165,650 $(247,343) $(79,578) $142,993 $ 86,072
======== ======== ========= ======== ======== ========

Cost of revenues: $363,980 $151,595 $(247,343) $(79,578) $116,637 $ 72,017
======== ======== ========= ======== ======== ========




Three months ended September 30, 2004 and 2003

Net income for the third quarter of 2004 amounted to $2,448,000, an
improvement of $1,505,000 over net income of $943,000 for the third quarter of
2003. The improvement for the third 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 third quarter of
2004 was $.40 compared to $.16 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
through its PEO arrangements. 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 third quarter of 2004 totaled $54.7 million, an increase
of approximately $19.9 million or 57.2% over the $34.8 million for the third
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 $11.0 million or 136.2%
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 September 30, 2004 and 2003 (Continued)

Staffing services revenue increased approximately $8.9 million or 33.5%
over the comparable 2003 quarter primarily due to the Company's acquisition of
SRTC effective January 1, 2004, as the Company's internal growth rate for
staffing services revenue was flat compared to a year ago. Management expects
demand for the Company's staffing services will continue to reflect overall
economic conditions in its market areas.

Gross margin for the third quarter of 2004 totaled approximately $10.8
million, which represented an increase of $4.5 million or 72.9% over the third
quarter of 2003, primarily due to the 57.2% increase in revenues. The gross
margin percent increased from 17.9% of revenues for the third quarter of 2003 to
19.7% for the third 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 56.8% for the third quarter of 2003 to 48.4% for the third
quarter of 2004 reflects the shift in the relative mix of services to the
Company's customer base and the effect of each customer's unique mark-up
percent. The increase in payroll taxes and benefits, as a percentage of
revenues, from 17.8% for the third quarter of 2003 to 20.8% for the third
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 third
quarter of 2003, as well as to the effect of significant growth in PEO services.

Workers' compensation expense for the third quarter of 2004 totaled $6.1
million, which compares to $2.6 million for the third 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 third
quarter of 2004 amounted to approximately $6.4 million, an increase of $1.9
million or 43.6% over the third quarter of 2003. The increase over the third
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
12.8% in the third quarter of 2003 to 11.7% in the third quarter of 2004.


Nine months ended September 30, 2004 and 2003

Net income for the nine months ended September 30, 2004 was $4,894,000, an
improvement of $4,127,000 over net income of $767,000 for the first nine months
of 2003. The improvement for the first nine months of 2004 was primarily due to
increased gross margin dollars as a result of significant growth in PEO
business, partially offset by higher SG&A expenses. The diluted earnings per
share for the first nine months of 2004 was $.80 as compared to diluted earnings
per share of $.13 for the same 2003 period. The Company's

-14-




BARRETT BUSINESS SERVICES, INC.

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

Results of Operations (Continued)

Nine months ended September 30, 2004 and 2003 (Continued)

improved operating results for the first nine months of 2004 over the same 2003
period reflect, in part, the same competitive advantage generated from its
ability to offer a broad array of human resource management services.

Revenues for the nine months ended September 30, 2004 totaled $143.0
million, an increase of approximately $56.9 million or 66.1% over the $86.1
million for the first nine 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 $35.6 million or 219.9%
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 $21.3 million or 30.5%
primarily due to the Company's acquisition of SRTC effective January 1, 2004 and
to improved economic conditions for such services in the majority of areas in
which the Company operates. Operations of SRTC accounted for approximately $18.1
million or 85.0% of the increase.

Gross margin for the nine months ended September 30, 2004 totaled
approximately $26.4 million, which represented an increase of $12.3 million or
87.5% over the similar period of 2003, primarily due to the 66.1% increase in
revenues. The gross margin percent increased to 18.4% of revenues for the first
nine months of 2004, up from 16.3% 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 60.0% for the first nine months of 2003 to
47.1% for the first nine months of 2004 reflects the current mix between
staffing and PEO services provided to the Company's customer base and the effect
of the unique mark-up percent for each customer. The increase in payroll taxes
and benefits, as a percentage of revenues, from 16.7% for the first nine months
of 2003 to 23.5% for the first nine 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 nine months of 2003, as well as to the effect
of significant growth in PEO services, for which payroll taxes and benefits
represent a higher percentage of revenues.

Workers' compensation expense for the nine months ended September 30, 2004
totaled $15.8 million, which compares to $6.0 million for the first nine 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.

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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)

Nine months ended September 30, 2004 and 2003 (Continued)

SG&A expenses for the nine months ended September 30, 2004 amounted to
approximately $17.6 million, an increase of $5.7 million or 47.9% over the first
nine months of 2003. The increase over the first nine 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 13.8% in the first nine
months of 2003 to 12.3% in the first nine 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 $10,009,000 at September 30, 2004,
increased by $2,224,000 over December 31, 2003, which compares to an increase of
$354,000 for the comparable period in 2003. The increase in cash at September
30, 2004, as compared to December 31, 2003, was primarily due to net income of
$4,894,000 and increases in accrued payroll, payroll taxes and related benefits
and increases in workers' compensation claim liabilities and safety incentives
liabilities, offset in part by excess cash used to purchase marketable
securities of $4,781,000 for investment purposes, cash used for the acquisition
of SRTC of $3,044,000, and an increase in trade accounts receivable.

Net cash provided by operating activities for the nine months ended
September 30, 2004 amounted to $10,475,000, as compared to net cash provided by
operating activities of $2,326,000 for the comparable 2003 period. For the nine
months ended September 30, 2004, cash flow was provided by net income of
$4,894,000, together with increases in accrued payroll


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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)

and related benefits of $9,948,000 and increases in workers' compensation claims
liabilities and safety incentives liabilities totaling $7,163,000, offset in
part by an increase of $12,056,000 in trade accounts receivable.

Net cash used in investing activities totaled $9,754,000 for the nine
months ended September 30, 2004, compared to net cash provided by investing
activities of $2,421,000 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 $4,781,000, the acquisition of SRTC and
related costs totaling $3,044,000, purchases of equipment of $1,801,000 and
$1,591,000 of net purchases of restricted marketable securities, offset in part
by net proceeds totaling $1,463,000 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 nine-month period ended
September 30, 2004, was $1,503,000 compared to net cash used in financing
activities of $4,393,000 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 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 state, 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.

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

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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)

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
September 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 November 11, 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 nine months of 2004. Since
the inception of the repurchase program through November 11, 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 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

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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)

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 September 30, 2004, the Company had interest-bearing debt obligations of
approximately $1.8 million, of which approximately $1.4 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 September 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 September 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 Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Company'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 the
Company's disclosure controls and procedures as of September 30, 2004 were
effective in providing a reasonable level of assurance that information required
to be disclosed by the Company 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.

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BARRETT BUSINESS SERVICES, INC.

Item 4. Controls and Procedures (Continued)

There were no changes in the Registrant's internal control over financial
reporting that occurred during the quarter ended September 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 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities

(e) The following table provides information about reacquisition of
common stock by the Company during the quarter ended September 30,
2004.




Authorized Availability
Total Number of Shares Remaining at Period End
Total Number of Average Price Purchased as Part of that May be Used Under the
Shares Reacquired (1) per Share Stock Repurchase Program Stock Repurchase Program



8,095 $16.84 0 $443,800




(1) Shares reaquired by the Company during the quarter were
tendered to the Company by the Company's President and Chief
Executive Officer in full settlement of certain obligations
owed to the Company. Shares were valued at the fair market
value at the date shares were tendered for cancellation.

(2) 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. Since the inception of the repurchase program through
November 11, 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.


Item 6. Exhibits

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


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SIGNATURES

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

BARRETT BUSINESS SERVICES, INC.
(Registrant)






Date: November 11, 2004 /s/ Michael D. Mulholland
---------------------------------
Michael D. Mulholland
Vice President - Finance
(Principal Financial Officer)



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EXHIBIT INDEX

Exhibit


10.1 Summary of Compensatory Arrangement with William W. Sherertz.

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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