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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X]Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 0-21886
BARRETT BUSINESS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0812977
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4724 S.W. Macadam Avenue
Portland, Oregon 97201
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(503) 220-0988
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant.
$ 74,236,995 at February 1, 1996
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 1, 1996
- ----- -------------------------------
Common Stock, Par Value $.01 Per Share 6,554,310 Shares
DOCUMENTS INCORPORATED BY REFERENCE
None
INDEX
Page
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . .12
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . .13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . . .13
EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . .13
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . .13
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . .13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . .15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . .21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . .42
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . .42
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . .44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . .46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . .47
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . .48
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
PART I
Item 1. BUSINESS
General
Barrett Business Services, Inc. ("Barrett" or the "Company"), was
incorporated in the state of Maryland in 1965. Barrett, a professional
employer organization, provides light industrial, clerical and technical
employees to a wide range of businesses through staff leasing, contract
staffing, site management and temporary staffing arrangements. The Company's
staff leasing and staffing services are provided through a network of 14
branch offices, eight of which are located throughout Oregon, two in northern
California, two in Maryland, and two in Washington. The Company also operates
19 smaller recruiting and placement offices in its general market areas which
are managed by a branch office. The Company provides employees to a diverse
set of customers, including among others, forest products and agriculture-
based companies, electronics manufacturers, transportation and shipping
enterprises, professional firms and general contractors. See Item 6 of this
report for information regarding the Company's revenues from staffing services
and staff leasing services.
Growth Strategy
Barrett's strategic plan continues to include (1) acquisition of
additional personnel-related businesses, both in its existing markets and in
other strategic geographic areas, (2) the further expansion of its business at
existing branch offices primarily through its ongoing marketing and sales
program and (3) accelerating the growth of professional employer services
through innovative products and cost-effective services.
Recent Acquisitions
On July 17, 1995, the Company purchased certain assets of Mid-Del
Employment Service, Inc.; Sussex Employment Services, Inc.; PPI (Prestige
Personnel) - Salisbury, Inc.; and Del-Mar-Va Nurses-On-Call Inc.
(collectively, the "Maryland and Delaware companies") for $950,000 in cash.
These companies, with combined 1994 revenues of approximately $4.1 million,
were engaged in the temporary staffing business in eastern Maryland and
Delaware.
Effective December 11, 1995, the Company purchased certain assets of
Strege & Associates, Inc., a company, with 1994 revenues of approximately $2.4
million, specializing in providing highly skilled tradesmen to various
industries for maintenance and supplemental labor purposes in Portland,
Oregon. Of the $1,141,000 purchase price (inclusive of acquisition-related
costs of $4,000), the Company paid $230,000 in cash and issued 67,443 shares
of its common stock with a then-fair market value of $911,000.
The Company reviews acquisition opportunities on an ongoing basis.
While growth through acquisition is a major element of the Company's overall
strategic growth plan, there can be no assurance that any additional
acquisitions will be completed in the foreseeable future.
Staffing Services
General. Staffing services enable businesses to meet peak or
extraordinary demands caused by such factors as seasonality, increased
customer demand, vacations, illnesses, parental leave and special projects
without incurring the ongoing expense and administrative responsibilities
associated with recruiting, hiring and retaining additional permanent
employees. The use of staffing services allows businesses to utilize the
"just-in-time" approach to their personnel needs. By maintaining a core of
permanent employees to satisfy minimum requirements and managing increased
demand through greater use of a flexible workforce, companies are able to
convert a portion of their fixed personnel expense to variable expense, in
addition to reducing costs related to recruiting, training, payroll, benefits,
severance compensation, recordkeeping and other personnel matters.
The Company's Staffing Services. The Company provides light industrial,
clerical and technical workers through a variety of arrangements to a broad
range of businesses, including forest products and agriculture-based
companies, electronics manufacturers, transportation and shipping companies,
professional firms, and construction contractors.
Customers utilize the Company's staffing services, which accounted for
approximately 55% of total 1995 revenues, through a number of arrangements,
including contract staffing, site management and temporary staffing. Contract
staffing typically involves employee placements for an indefinite period. A
site management arrangement locates Barrett management personnel on site at a
customer's place of business. Barrett then conducts all recruiting,
screening, interviewing, testing, hiring and employee placement functions at
the customer's facility. The Company has full responsibility for all
personnel matters of the customer. Temporary staffing is defined as employee
assignments which are typically less than three months in duration.
Light industrial workers perform such tasks as operation of machinery,
loading and shipping, site preparation for special events, construction-site
cleanup and janitorial services. The light industrial category generated
approximately 63% of the Company's 1995 staffing services revenues. Clerical
workers, which accounted for approximately 11% of 1995 staffing services
revenues, include primarily secretaries, receptionists and office clerks.
Technical personnel include electronic parts assembly workers and designers
and drafters of electronic parts; these workers represented approximately 26%
of the Company's 1995 staffing services revenues.
The Company's staffing services customers range in size from small local
firms to large national companies which use Barrett's services on a local
basis. None of the Company's staffing services customers individually
accounted for more than 10% of its total annual revenues for 1995.
Business Strategy. The Company emphasizes prompt, personalized service
in assigning quality, trained, drug-free personnel at competitive rates to
users of its staffing services. Since 1980, the Company has relied on
internally developed computer databases of employee skills and availability to
match customer needs with available qualified employees. As a local company
operating in selected market areas, Barrett believes it has an understanding
of the unique requirements of its clientele that allows it to offer a "money-
back" guarantee to the customer if it is not satisfied with the employees
Barrett places through its staffing services.
Barrett provides training to its branch office managers and sales
personnel to develop and maintain a high level of customer service. The
Company's ongoing training program includes Barrett University (an intensive
one-week in-house training program), various seminars and video instruction.
The Company's sales staff is compensated through a combination of base salary
and an incentive sales commission. Sales commissions are earned by new
business development and the retention of existing customers. Sales
commissions may represent one-third to two-thirds of a salesperson's total
compensation. In addition, branch office staff participate in the Company's
non-qualified profit-sharing program. See "Employees and Employee Benefits,"
below.
Recruiting. The Company utilizes a variety of methods to recruit its
workforce for staff services, including among others, newspaper advertising
and marketing brochures distributed at colleges and vocational schools. In
addition, a substantial number of new employees are hired through referrals by
Barrett's existing employees. The Company believes it is easier to recruit
and retain qualified personnel during periods of higher unemployment and
therefore must devote more resources to recruiting and training new employees
during periods of lower unemployment in its market areas. The Company may be
unable to pass on the full amount of such increased recruiting and personnel
costs in the form of higher prices for staffing services, which in turn could
result in lower profit margins.
The employee application process includes an interview, skills
assessment test, reference verification and drug test. The skills test and
reference verification determine level of ability and an insight into prior
job performance. Following hire and placement, performance is reviewed with
customers to assure their satisfaction.
The Company believes that its employee wage and benefit package,
customer base, and opportunities for part-time and flexible scheduling have
contributed significantly to its success in recruiting and retaining quality,
trained, drug-free personnel in numbers sufficient to meet customer demand.
See "Employees and Employee Benefits," below.
Sales and Marketing. The Company markets its staffing services
primarily through direct sales presentations by its branch office managers and
trained sales staff and, to a lesser extent, through advertising in various
publications, including local newspapers and the Yellow Pages. Barrett also
benefits from referrals by existing staffing services customers and from the
periodic needs of the Company's staff leasing clients.
Following the development of a preliminary profile of a prospective
customer's needs, a Company salesperson typically schedules a meeting with the
customer's personnel manager to explain Barrett's services. Based on this
information, Barrett develops a market-competitive hourly charge for its
staffing services. The actual cost to the customer for staffing services may
range from 135% to 150% of the base wage rate. This composite rate includes
all payroll taxes, employee benefits, workers' compensation coverage, and
administrative costs, and takes into account the number and availability of
employees and length of the service agreement.
The Company believes it has been able to maintain a price advantage due
to the lower costs associated with its self-insured workers' compensation
program when compared to the cost of workers' compensation insurance. The
Company's marketing and sales efforts have generally increased during periods
of economic decline, when demand for staffing services decreases. As a result
of this reduced demand, the higher costs associated with marketing, sales and
training typically cannot be recovered through price increases, which may
result in lower profitability.
Billing. The Company prepares weekly customer invoices immediately
following the preparation of each payroll through the centralized payroll and
billing operations at the Company's corporate headquarters. Barrett has not
experienced significant problems in collecting its accounts receivable, which
the Company attributes to customer satisfaction, a thorough analysis of a
customer's credit history prior to agreeing to provide services and the weekly
monitoring of account aging by each branch manager.
Professional Employer (Staff Leasing) Services
General. Many businesses, particularly those with a limited number of
employees, find personnel administration requirements to be unduly complex and
time consuming. These businesses often cannot justify the expense of a full-
time human resources staff. In addition, the escalating costs of health and
workers' compensation insurance in recent years, coupled with the increased
complexity of laws and regulations affecting the workplace, have created a
compelling alternative for small to mid-sized businesses to outsource these
managerial burdens through staff leasing. The increasing trend of outsourcing
numerous business functions enables management to fully devote the
enterprise's resources to its core competencies.
The Company's Staff Leasing Services. In a staff leasing arrangement,
Barrett enters into a contract to become a co-employer of the client company's
existing workforce. Pursuant to this contract, Barrett assumes responsibility
for some or all of the personnel-related matters, including payroll and
payroll taxes, employee benefits, health insurance, workers' compensation
coverage, employee risk management and related administrative
responsibilities. Barrett also hires and fires leased employees, although the
client company remains responsible for day-to-day assignments, supervision and
training and, in most cases, recruiting.
The Company began offering staff leasing services to Oregon customers in
1990 and expanded these services to Maryland and Washington in the first and
third quarters, respectively, of 1994, and to Delaware and California in the
second quarter of 1995. The Company has entered into staff leasing
arrangements with a wide variety of clients, including companies involved in
reforestation, moving and shipping, professional firms, construction, retail,
manufacturing and distribution businesses. Staff leasing clients are
typically small to mid-sized businesses with up to 50 employees. None of the
Company's staff leasing clients individually accounted for more than 5% of its
total annual revenues during 1995.
The number of Barrett's staff leasing clients increased from
approximately 520 at December 31, 1994, to approximately 531 at year-end 1995.
Due to management's concerns regarding several worksite risk management
issues, the Company terminated or did not renew approximately 140 staff
leasing contracts during 1995, which resulted in slower growth in the overall
number of client companies, but also resulted in a noticeable reduction in
workers' compensation claims and related expenses.
Business Strategy. The Company believes that it has attracted
significant numbers of new staff leasing clients since 1990 by demonstrating
the potential for cost reductions offered by the Company's self-insured
workers' compensation program. Equally important, Barrett also offers a
variety of employee benefits and services, which it can generally provide on a
cost-effective basis due to its substantially larger employee base as compared
to its clients. The employee benefits and human resource management services
offered by the Company include a full range of health, life and disability
insurance, a Section 125 cafeteria plan, a Section 401(k) savings plan, credit
union participation, direct deposit for payroll or preferred payroll checks,
mandatory drug testing, and advisory services related to hiring, employee
evaluations and termination guidelines, among others. See "Regulatory and
Legislative Issues -- Employee Benefit Plans." The Company believes these
benefits and services are cost effective and reduce employee turnover, thereby
increasing the appeal of staff leasing arrangements to most small to mid-sized
business owners. The overall cost to the client for its leased employees is
typically at or below the cost per employee that the client would otherwise
incur if it was the sole employer of its workforce.
The Company's standard staff leasing agreement provides for services
indefinitely, until notice of termination is given by either party. The
agreement permits cancellation by either party upon 35 days' prior written
notice. In addition, the Company may terminate the agreement at any time for
specified reasons, including nonpayment or failure to follow Barrett's
workplace safety program. The agreement also provides for indemnification of
the Company by the client against losses arising out of any default by the
client under the agreement, including failure to comply with any employment-
related, health and safety or immigration laws or regulations.
Sales and Marketing. The Company markets its staff leasing services
through its branch office sales staff. Coincident with the Company's self-
insured employer status for workers' compensation purposes in California, the
Company commenced its marketing of staff leasing services in California during
the second quarter of 1995. The Company also obtains referrals from existing
clients and other third parties, and places advertisements in the Yellow
Pages. Prior to entering into a staff leasing arrangement, the Company
performs an analysis of the potential client's actual personnel and workers'
compensation costs based on information provided by the customer. Barrett
also introduces its workplace safety program and makes recommendations as to
improvements in procedures and equipment following a safety inspection of the
customer's facilities. Once the client has agreed to implement the Company's
safety program, the Company proposes a staff leasing arrangement at a price
which is typically at or below the client's current overall personnel costs.
Barrett also offers significant financial incentives to clients to maintain a
safe work environment, thus enabling clients to achieve additional savings.
Barrett strongly advocates that its client companies share these safe-work
incentives with their leased employees.
Billing. Through centralized operations at the Company's headquarters
in Portland, Oregon, payroll checks are prepared for each staff leasing client
on a frequency consistent with their typical payperiods, weekly or bi-weekly,
and delivered by courier. The Company invoices its clients following the end
of each payroll period. Such invoices are due upon receipt and are generally
paid within five business days. The costs of health insurance coverage and
Barrett's cafeteria plan are passed through to its staff leasing clients based
on the number of participating employees. The Company often requires a
deposit from its staff leasing clients to cover a portion of the anticipated
billing for one payroll period. The Company has had generally favorable
results with collecting accounts receivable, which it attributes to customer
satisfaction, the prompt payment of receivables, its analysis of potential
clients' credit histories, and weekly monitoring of account aging by each
branch manager.
Self-Insured Workers' Compensation Program
The Company believes that its self-insured workers' compensation program
is an important contributor to its growth in revenue and profitability.
Significant elements contributing to the success of the workers' compensation
program include the regulatory climate surrounding workers' compensation, the
Company's workplace safety program and the aggressive claims management
approach taken by the Company and its third-party administrators, all of which
are described in detail below.
Elements of Workers' Compensation System. State law generally mandates
that an employer reimburse its employees for the costs of medical care and
other specified benefits for injuries or illnesses incurred in the course and
scope of employment. The benefits payable for various categories of claims
are determined by state regulation and vary with the severity and nature of
the injury or illness and other specified factors. In return for this
guaranteed protection, workers' compensation is an exclusive remedy and
employees are generally precluded from seeking other damages from their
employer for workplace injuries. Most states require employers to maintain
workers' compensation insurance or otherwise demonstrate financial
responsibility to meet workers' compensation obligations to employees. In
many states, employers who meet certain financial and other requirements are
permitted to self-insure.
Self-Insurance for Workers' Compensation. In August 1987, the Company
became a self-insured employer for workers' compensation coverage in Oregon.
The Company subsequently obtained self-insured employer status for workers'
compensation in four additional states, Maryland in November 1993, Washington
in July 1994, Delaware in January 1995 and California in March 1995. In
addition, in May 1995, the Company became self-insured by the United States
Department of Labor for longshore and harbor ("USL&H") workers coverage.
Regulations governing self-insured employers in each state typically require
the employer to maintain surety deposits of cash, government securities or
other financial instruments to cover workers' claims in the event the employer
is unable to pay for such claims.
Pursuant to its self-insured status, the Company's workers' compensation
expense is tied directly to the incidence and severity of workplace injuries
to its employees. Barrett also maintains excess workers' compensation
insurance for individual claims exceeding $350,000 (except for $300,000 in
Maryland and $500,000 for USL&H coverage) in an unlimited amount pursuant to
annual policies with major insurance companies. The excess-insurance policies
contain standard exclusions from coverage, including punitive damages, fines
or penalties in connection with violation of any statute or regulation and
losses covered by other insurance or indemnity provisions.
Workplace Safety Program. In the late 1980's, the Company identified an
opportunity to market to small and mid-sized Oregon employers its safety
program designed to assist clients in managing workplace injuries and reducing
workers' compensation claims. The Company's program begins with an on-site
safety inspection by one of its risk managers. Barrett then designs a safety
program for the client, including employee and supervisor safety training and
regular meetings between management and employees to discuss safety issues and
precautionary actions. Among other safety measures, the Company encourages
clients to provide on-site first aid care and to make improvements in
workplace procedures and equipment to further reduce the risk of injury. The
Company's third-party administrators for workers' compensation claims also
assist the Company in performing safety inspections of client worksites and
provide technical advice regarding workplace safety measures.
A key factor to the success of the Company's safety program is its
system of financial incentives to reward safe-work practices which result in
reductions in the number and severity of work-related injuries. If the annual
cost of claims is less than agreed upon amounts, the Company pays an annual
cash incentive based on a percentage of the staff leasing client's payroll.
Barrett's business philosophy strongly encourages its client companies to
share these incentives with their employees. Staff leasing clients and their
leased employees are thus provided an economic incentive to maintain a safer
work environment and to reduce the frequency of fraudulent claims for work-
related injuries. Barrett also maintains a mandatory corporate-wide pre-
employment drug testing program. Results of the program are believed to
include a reduction in the frequency of fraudulent claims and in accidents in
which the use of illegal drugs appears to have been a contributing factor.
Claims Management. The Company also seeks to contain its workers'
compensation costs through an aggressive approach to claims management.
Barrett uses managed-care systems to reduce medical costs and keeps time-loss
costs to a minimum by assigning injured workers, whenever possible, to
temporary assignments which accommodate the worker's physical limitations.
The Company believes that these temporary assignments minimize both time
actually lost from work and covered time-loss costs. Barrett has also engaged
third-party administrators to provide additional claims management expertise.
Typical management procedures include performing thorough and prompt on-site
investigations of claims filed by employees, working with physicians to
encourage efficient medical management of cases, denying questionable claims
and negotiating early settlements to eliminate future case development and
costs.
Elements of Self-Insurance Costs. The costs associated with the
Company's self-insured workers' compensation program include loss and loss
adjustment expense payments with respect to claims made by employees, fees
payable to the Company's third-party administrators, assessments payable to
state workers' compensation regulatory agencies, premiums for excess workers'
compensation insurance and safety incentive payments. Although not directly
related to the size of the Company's payroll, the number of claims and
correlative loss payments may be expected to increase with growth in the total
number of employees. Third-party administrator fees also vary with the number
of claims administered. The state assessments are typically based on payroll
amounts and to a limited extent, the amount of permanent disability awards
during the previous year. Excess insurance premiums are also based in part on
the size of the Company's payroll. Safety incentives expense may increase as
the number of the Company's staff leasing employees rises, although increases
will only occur for any given client company if such client's claims costs are
below agreed upon amounts.
Workers' Compensation Claims Experience and Reserves
In connection with its workers' compensation self-insurance program, the
Company is liable for loss and loss adjustment expense payments under the
workers' compensation laws of Oregon, Washington, Maryland, and most recently,
Delaware and California. Several months may elapse between the occurrence of
a workers' compensation loss, the reporting of the claim to the Company and
the Company's payment of that claim. The Company recognizes its liability for
the ultimate payment of all incurred claims and claims adjustment expenses by
accruing liabilities which represent estimates of future amounts necessary to
pay claims and related expenses with respect to covered events that have
occurred.
When a claim involving a probable loss is reported, the Company's third-
party administrator establishes a case reserve for the estimated amount of its
ultimate loss. The estimate reflects an informed judgment based on
established case reserving practices and the experience and knowledge of
Barrett's third-party administrators regarding the nature and expected value
of the claim, as well as the estimated expense of settling the claim,
including legal and other fees and expenses of administering claims.
Additionally, on an aggregate basis, the Company has established a provision
for losses incurred but not reported and future development in excess of case
reserves on existing reported claims ("IBNR").
As part of the case reserving process, historical data is reviewed and
consideration is given to the anticipated effect of various factors, including
known and anticipated legal developments, inflation and economic conditions.
Reserve amounts are necessarily based on management's estimates, and as other
data becomes available, these estimates are revised, which may result in
increases or decreases to existing case reserves. As of December 31, 1995,
the Company's total accrued workers' compensation claims liabilities totaled
$2,705,000, compared to $2,522,000 at year-end 1994. The total number of
self-insured claims reported in 1995 was 1,132, compared to 1,080 for 1994.
Barrett has engaged a nationally-recognized, independent actuary to
periodically review the Company's total workers' compensation claims liability
and reserving practices. Based in part on such review, the Company believes
its total accrued workers' compensation claims liabilities are adequate.
There can, however, be no assurance that the Company's actual future workers'
compensation obligations will not exceed the amount of its accrued
liabilities, with a corresponding negative effect on future earnings, due to
such factors as unanticipated loss development of known claims and incurred
but not reported claims.
Employees and Employee Benefits
At December 31, 1995, the Company had approximately 13,325 employees,
including approximately 8,800 staffing services employees, approximately 4,300
leased employees and approximately 225 managerial, sales and administrative
employees. The number of employees at any given time can vary significantly
due to business conditions at customer or client companies. Less than 0.1% of
the Company's employees are covered by a collective bargaining agreement.
Each of Barrett's managerial, sales and administrative employees has entered
into a standard form of employment agreement which, among other things,
contains covenants not to engage in certain activities in competition with the
Company for 18 months following termination of employment and to maintain the
confidentiality of certain proprietary information. Barrett believes its
employee relations are good.
Benefits offered to Barrett's staffing services employees include group
health insurance, a Section 125 cafeteria plan which permits employees to use
pre-tax earnings to fund various services, including medical, dental and child
care, and a Section 401(k) savings plan pursuant to which employees may begin
making contributions upon reaching 21 years of age and completing 1,000 hours
of service in any consecutive 12-month period. The Company may also make
contributions to the savings plan, which vest over seven years and are subject
to certain legal limits, at the sole discretion of the Company's board of
directors. Leased employees may participate in the Company's benefit plans,
provided that the group health insurance premiums may, at the client's option,
be paid by payroll deduction. Barrett also maintains a nonqualified profit-
sharing plan for its managerial and administrative personnel. See "Regulatory
and Legislative Issues -- Employee Benefit Plans" below.
Regulatory and Legislative Issues
Business Operations
The Company is subject to the laws and regulations governing self-
insured employers under the workers' compensation systems in Oregon,
Washington and Maryland and, beginning in 1995, Delaware, California, and the
United States Department of Labor for longshore and harbor workers. In
addition, legislation was adopted in Oregon in 1993 requiring a staff leasing
company, such as Barrett, to be licensed by the Workers' Compensation Division
of the Oregon Department of Consumer and Business Services. Temporary
staffing companies are expressly exempt from the legislation. Oregon staff
leasing companies are also required to ensure that each leasing client
provides adequate training and supervision for its employees to comply with
statutory requirements for workplace safety and to give 30 days' written
notice in the event of a termination of its obligation to provide workers'
compensation coverage for leased employees and other subject employees of a
leasing client. Although compliance with the legislation has caused Barrett
to make certain changes in its staff leasing operations and contracts in
Oregon, which has resulted in additional financial risk, particularly with
respect to those clients who breach their payment obligations to the Company,
compliance with the legislation has not had a material impact on its business
operations, financial condition or operating results.
While it is impossible to predict if, when and in what form any health
care reform will be enacted on a state or national level, elements of such
reform may have a material adverse effect on the Company's operations and its
self-insured workers' compensation program.
Employee Benefit Plans
The Company's operations are affected by numerous federal and state laws
relating to labor, tax and employment matters. By entering into a co-employer
relationship with employees who are assigned to work at client company
locations (sometimes referred to as "worksite employees"), the Company assumes
certain obligations and responsibilities of an employer under these federal
and state laws. Because many of these federal and state laws were enacted
prior to the development of nontraditional employment relationships, such as
professional employer, temporary employment, and outsourcing arrangements,
many of these laws do not specifically address the obligations and
responsibilities of nontraditional employers. In addition, the definition of
"employer" under these laws is not uniform.
As an employer, the Company is subject to all federal statutes and
regulations governing its employer-employee relationships. Subject to the
issues discussed below, the Company believes that its operations are in
compliance in all material respects with all applicable federal statutes and
regulations.
The Company offers various employee benefit plans to its employees,
including its worksite employees. These employee benefit plans include a
savings plan under Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code"), a cafeteria plan under Code Section 125, a group health
plan, a group life insurance plan, a group disability insurance plan and an
employee assistance plan. Generally, employee benefit plans are subject to
provisions of both the Code and the Employee Retirement Income Security Act
("ERISA"). In order to qualify for favorable tax treatment under the Code,
qualified plans must be established and maintained by an employer for the
exclusive benefit of its employees. For a discussion of the current status of
the Company's plans, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- "Results of Operations."
Competition
The staff leasing and staffing services businesses are characterized by
rapid growth and intense competition. The staffing services market includes
competitors of all sizes, including several, such as Manpower, Inc., Kelly
Services, Inc., The Olsten Corporation, Interim Services, Inc., and Adia
Services, Inc., which are national in scope and have substantially greater
financial and marketing resources than the Company. In addition to national
companies, Barrett competes with numerous regional and local firms for both
customers and employees. The Company estimates that at least 100 firms
provide staffing services in Oregon. There are relatively few barriers to
entry into the staffing services business. The principal competitive factors
in the staffing services industry are price, the ability to provide qualified
workers in a timely manner and the monitoring of job performance. The Company
attributes its growth in staffing services revenues to the cost-efficiency of
its operations, which permits the Company to price its services competitively,
and to its ability through its branch office network to understand and satisfy
the needs of its customers with competent personnel.
Although there are believed to be approximately 2,000 staff leasing
companies currently operating in the United States, many of these potential
competitors are located in states in which the Company presently does not
operate. Barrett believes that at least 30 staff leasing firms are operating
in Oregon, but that the Company has the largest presence in the State. The
Company may face additional competition in the future from new entrants to the
field, including other staffing services companies, payroll processing
companies and insurance companies. Certain staff leasing companies operating
in areas in which Barrett does not now, but may in the future, offer its
services have greater financial and marketing resources than the Company.
Competition in the staff leasing industry is based largely on price, although
service and quality are also important. Barrett believes that its growth in
staff leasing revenues is attributable to its ability to provide small and
mid-sized companies with the opportunity to provide enhanced benefits to their
employees with a concomitant reduction in the clients' overall personnel
administration and workers' compensation costs. The Company's competitive
advantage may be adversely affected by a substantial increase in the costs of
maintaining its self-insured workers' compensation program or by a general
market decrease in the level of workers' compensation insurance premiums.
Item 2. PROPERTIES
The Company provides staffing services and staff leasing through all 14
of its branch offices. The following table shows the locations of the
Company's branch offices and the year in which each branch was opened or
acquired. The Company's Oregon branches accounted for 68% of its total
revenues in 1995. The Company also leases office space in 19 other locations
in its market areas which it uses to recruit and place employees.
Year Opened Year Opened
Oregon Locations or Acquired Other Locations or Acquired
---------------- ----------- --------------- -----------
Portland (Industrial) 1984 Sacramento, California 1988
Portland (Bridgeport) 1988 Santa Clara, California 1994
Bend 1990 Lutherville, Maryland 1951
Medford 1990 Easton, Maryland 1994
Salem 1990 Seattle, Washington 1981
Albany 1991 Spokane, Washington 1994
Eugene 1991
Portland (Leasing) 1993
In May 1993, Barrett purchased an office building in Portland, Oregon,
with approximately 9,200 square feet of office space, for a total purchase
price of $925,000. The Company's corporate headquarters were relocated to the
new building in June 1993. The building is subject to a mortgage loan with a
principal balance of approximately $629,000 at December 31, 1995.
The Company also owns another office building in Portland, Oregon, in
which its headquarters were previously located. The building is subject to a
mortgage loan with a principal balance at December 31, 1995, of approximately
$279,000 and has approximately 7,000 square feet of office space. Barrett
moved its Portland (Bridgeport) branch office to this building in September
1993.
Barrett leases office space for its other branch offices. At
December 31, 1995, such leases had expiration dates ranging from less than one
year to eight years, with total minimum payments through 1999 of approximately
$1,360,000.
Item 3. LEGAL PROCEEDINGS
There were no legal proceedings requiring disclosure pursuant to this
item pending at December 31, 1995, or at the date of this report.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Barrett's executive officers appears in Item 10 of
this report.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol "BBSI." At February 1, 1996, there
were 67 stockholders of record and approximately 1,700 beneficial owners of
the Company's common stock. The Company has not declared or paid any cash
dividends since the closing of its initial public offering of its common stock
on June 18, 1993, and has no present plan to pay any cash dividends in the
foreseeable future. The following table presents the high and low sales
prices of the Company's common stock for each quarterly period during the last
two fiscal years, as reported by The Nasdaq Stock Market:
1994 High Low
- ---- ------ ------
First Quarter $ 16.00 $ 6.875
Second Quarter(1) 14.75 8.25
Third Quarter 12.25 8.00
Fourth Quarter 16.25 11.00
1995
- ----
First Quarter $ 19.50 $ 13.50
Second Quarter 15.00 10.50
Third Quarter 15.75 13.50
Fourth Quarter 15.50 12.25
(1) All per share prices prior to the second quarter of 1994 have been
restated to reflect a 2-for-1 stock split effective May 23, 1994.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's financial statements and the accompanying notes presented in
Item 8 of this report.
Years Ended December 31,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands, except per share data)
Statement of Operations Data:. . .
Revenues:. . . . . . . . . . . . .
Staffing services . . . . . . . $ 99,233$ 71,148 $ 41,755 $34,681 $31,041
Professional employer services. 80,572 69,404 58,512 45,444 16,949
------- ------- ------- ------ ------
Total . . . . . . . . . . . . 179,805 140,552 100,267 80,125 47,990
------- ------- ------- ------ ------
Cost of revenues:
Direct payroll costs. . . . . . 136,174 105,515 75,171 59,820 35,486
Payroll taxes and benefits. . . 16,088 12,758 9,911 7,826 4,309
Workers' compensation . . . . . 6,073 5,069 4,591 3,233 1,958
Safety incentives . . . . . . . 981 1,103 598 651 270
------- ------- ------- ------ ------
Total . . . . . . . . . . . . 159,316 124,445 90,271 71,530 42,023
------- ------- ------- ------ ------
Gross margin . . . . . . . . . . . 20,489 16,107 9,996 8,595 5,967
Selling, general and
administrative expenses. . . . . . 14,221 10,732 6,820 6,339 5,054
------- ------- ------- ------ ------
Income from operations . . . . . . 6,268 5,375 3,176 2,256 913
Other (expense) income: ------- ------- ------- ------ ------
Litigation settlement . . . . . -- -- -- -- (600)
Interest expense. . . . . . . . (75) (106) (86) (77) (175)
Interest income . . . . . . . . 400 224 161 70 58
Other, net. . . . . . . . . . . 32 78 133 26 (31)
------- ------- ------- ------ ------
Total . . . . . . . . . . . . . 357 196 208 19 (748)
------- ------- ------- ------ ------
Income before provision for
income taxes . . . . . . . . . . . 6,625 5,571 3,384 2,275 165
Provision for income taxes(1). . . 2,507 2,105 437 -- --
------- ------- ------- ------ ------
Net income . . . . . . . . . . . $ 4,118$ 3,466 $ 2,947 $ 2,275 $ 165
======= ======= ======= ====== ======
Net income per share . . . . . . $ .62$ .53
======= =======
Unaudited pro forma data(1):
Net income. . . . . . . . . . . $ 2,060 $ 1,385 $ 98
======= ====== ======
Net income per share(2) . . . . $ .39 $ .35 $ .02
======= ====== ======
Weighted average common shares
outstanding(2). . . . . . . . . . 6,680 6,591 5,260 4,000 3,988
======= ======= ======= ====== ======
As of December 31,
----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands)
Selected Balance Sheet Data: . . .
Working capital (deficit). . . . . $ 8,417 $ 4,889 $ 7,017 $ (678) $ (589)
Total assets . . . . . . . . . . . 31,273 24,665 18,425 7,219 5,980
Long-term debt, net of current
portion . . . . . . . . . . . . . 875 908 946 292 446
Stockholders' equity . . . . . . . 20,034 14,455 10,480 1,574 962
- -------------------------
(1) Effective July 1, 1987, the Company elected to be treated as a
corporation subject to taxation under Subchapter S of the Internal
Revenue Code, pursuant to which the net earnings of the Company were
taxed directly to the Company's stockholders rather than to the
Company. The Company terminated its election on April 30, 1993, and
recognized a cumulative net deferred tax asset of $505,000. The
amounts shown reflect a pro forma tax provision as if the Company had
been a Subchapter C corporation subject to income taxes for all
periods presented.
(2) All share and per share amounts have been restated to reflect the 2-
for-1 stock split effective May 23, 1994.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the percentages of total revenues
represented by selected items in the Company's Statements of Operations for
the years ended December 31, 1995, 1994 and 1993, included in Item 8 of this
report. References to the Notes to Financial Statements appearing below are
to the notes to the Company's financial statements included in Item 8 of this
report.
Percentage of Total
-------------------
Years Ended December 31,
1995 1994 1993
---- ---- ----
Revenues:. . . . . . . . . . . . . . . . . . . . . . . . . .
Staffing services. . . . . . . . . . . . . . . . . . . . . 55.2% 50.6% 41.6%
Professional employer services . . . . . . . . . . . . . . 44.8 49.4 58.4
----- ----- -----
Total revenues . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
Direct payroll costs . . . . . . . . . . . . . . . . . . . 75.7 75.1 74.9
Payroll taxes and benefits . . . . . . . . . . . . . . . . 8.9 9.1 9.9
Workers' compensation. . . . . . . . . . . . . . . . . . . 3.4 3.6 4.6
Safety incentives. . . . . . . . . . . . . . . . . . . . . .6 .8 .6
. . ----- ----- -----
Total cost of revenues. . . . . . . . . . . . . . . . . 88.6 88.6 90.0
. ----- ----- -----
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 11.4 11.4 10.0
Selling, general and administrative expenses . . . . . . . . 7.9 7.6 6.8
----- ----- -----
Income from operations . . . . . . . . . . . . . . . . . . . 3.5 3.8 3.2
Other income (expense) . . . . . . . . . . . . . . . . . . . .2 .2 .2
----- ----- -----
Pretax income. . . . . . . . . . . . . . . . . . . . . . . . 3.7 4.0 3.4
Provision for income taxes . . . . . . . . . . . . . . . . . 1.4 1.5 .4
----- ----- -----
Net income . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 2.5 3.0
===== ===== =====
Pro forma provision for income taxes . . . . . . . . . . . . 1.3
. . . . . . . . . . . -----
Pro forma net income . . . . . . . . . . . . . . . . . . . . 2.1
=====
Years Ended December 31, 1995 and 1994
Net income for 1995 amounted to $4,118,000, an increase of $652,000 or
18.8% over 1994 net income of $3,466,000. The increase in 1995 net income
over 1994 was primarily due to continued growth in revenues and gross margin,
which was offset in part by increased selling, general and administrative
expenses. Net income per share for 1995 was $.62 as compared to net income
per share of $.53 for 1994.
Total 1995 revenues were $179,805,000, which represented an increase of
$39,253,000 or 27.9% over 1994 revenues of $140,552,000. The increase in
revenues over 1994 was primarily due to a 1995 internal growth rate of 20.3%,
coupled with the acquisition of four temporary staffing businesses made during
the 1995 third quarter. These four acquisitions and continued growth of
staffing services in Northern California were the principal factors which
contributed to the increased mix of staffing services for 1995 to 55.2% of
total revenues, up from 50.6% of total revenues for 1994. Revenues from
professional employer (staff leasing) services, as a percent of total
revenues, declined in 1995 to 44.8% as compared to 49.4% of total revenues in
1994, despite a 16.1% growth rate over 1994.
Although staff leasing revenues declined as a percent of total revenues,
the Company believes the continued growth of its staff leasing services is due
in part to its ability to assume personnel administration functions while
providing employees to clients at an overall cost that is generally less than
the clients would have to pay if they carried such employees on their
payrolls. The Company's services are cost-effective because of (i) the
economies of scale and, in some cases, additional benefits available to it as
a professional employer organization handling a significantly larger volume of
payroll, payroll taxes and employee benefits, as compared to a customer's
typical administrative staff necessary to support its workforce and (ii) the
lower cost per employee of the Company's self-insured workers' compensation
program, as compared to the third-party insurance coverage its clients
typically would otherwise be required to maintain.
Gross margin for 1995 totaled $20,489,000, representing an increase of
$4,382,000 or 27.2% over 1994. The gross margin rate of 11.4% of revenues,
however, remained unchanged from 1994 due to a slight increase in direct
payroll costs, offset by decreases in payroll taxes and benefits, workers'
compensation and safety incentive expenses, as a percent of revenues.
Workers' compensation expense includes the cost of self-insurance (which
incorporates among other elements, case reserves for reported claims, reserves
for claims incurred but not reported, additional claims administration
expenses, reinsurance premiums, third-party administrator fees and state
assessments) for the Company's employees in Oregon, Maryland (since
November 1993), Washington (since July 1994), Delaware (since January 1995)
and California (since March 1995). Effective May 1, 1995, the Company became
self-insured by the United States Department of Labor for longshore and harbor
("USL&H") workers coverage. In addition, the Company is currently exploring
an insured large-deductible program which will allow it to become insured for
workers' compensation coverage in nearly all states where the extent of the
Company's operations does not yet warrant the investment to become a self-
insured employer. Management believes that the rates of such a program may be
significantly less than they would otherwise be if the Company were to obtain
a more traditional form of coverage through a private insurance carrier or a
state insurance fund. There can be, however, no assurances that such a multi-
state arrangement can be obtained on such terms and at a cost that are
acceptable to the Company in the foreseeable future.
The following table summarizes certain indicators of performance regarding
the Company's self-insured workers' compensation program by quarter for 1995
and 1994.
Self-Insured Workers' Compensation Profile
Total Workers' "Reserve" (1)
Total Workers' Comp Expense as a % of
No. of Comp Expense as a % of "At Risk
Injury Claims (in thousands) Total Payroll Claims" (2)
------------- -------------- ------------- ------------
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
Q1 266 219 $2,307 $ 884 7.8% 4.3% 33.0% 39.2%
Q2 309 259 1,707 1,511 5.1 5.8 40.6 32.0
Q3 287 339 1,160 1,308 3.1 4.2 40.9 32.9
Q4 270 263 899 1,366 2.5 4.9 41.0 37.0
----- ----- ----- -----
For the Year 1,132 1,080 $6,073 $5,069 4.5 4.8
===== ===== ===== =====
(1) "Reserve" in this context is defined as an additional expense provision
for the unexpected future adverse development of claims expense
(commonly referred to as "IBNR").
(2) "At Risk Claims" are defined as the dollar amount of all injury claims
submitted under self-insured payroll less amounts covered by excess
reinsurance.
The preceding table illustrates the improvement since the 1995 first
quarter in the Company's total workers' compensation expense both in terms of
total dollars and, more importantly, as a percent of total payroll dollars.
The Company believes the improvement is primarily due to management's enhanced
monitoring of safe-work practices and the termination of its staff leasing
relationship with client companies that did not conform to Barrett's business
philosophies and operating standards. Concurrent with the improved expense
level and percentage of workers' compensation expense, expressed as a percent
of total payroll, the Company has increased its reserves for future adverse
claim development to 41.0% of "at risk claims" as of December 31, 1995.
Selling, general and administrative expenses consist of compensation and
other expenses incident to the operation of the Company's headquarters and
branch offices and marketing of its services. These expenses (including the
amortization of intangibles) amounted to $14,221,000 or 7.9% of revenues for
1995, as compared to $10,732,000 or 7.6% of revenues for 1994. The increase
for 1995 was primarily due to additional branch office staff added to support
the increased business activity and additional workers' compensation loss
control branch personnel to enhance the administration of the Company's self-
insured workers' compensation programs.
The Company offers various employee benefit plans, including a savings plan
pursuant to Code Section 401(k) and a cafeteria plan pursuant to Code Section
125, to its employees, including its worksite employees. In order to qualify
for favorable tax treatment under the Code, such plans must be established and
maintained by an employer for the exclusive benefit of its employees.
The Internal Revenue Service (the "IRS") has established a Market Segment
Study Group regarding Employee Leasing for the stated purpose of examining
whether Professional Employer Organizations ("PEOs"), such as the Company, are
the employers of worksite employees under the Code provisions applicable to
employee benefit plans and are, therefore, able to offer to worksite employees
benefit plans that qualify for favorable tax treatment. The Market Segment
Study Group is also examining whether the owners of client companies are
employees of PEOs under Code provisions applicable to employee benefit plans.
Preliminary indications are that the Market Segment Study Group may adopt the
position that only a common-law employer may sponsor tax qualified benefit
plans. It is not clear whether this position will adversely affect the type
of co-employer relationship the Company maintains with its client companies.
The Company is unable to predict the ultimate findings of the Market Segment
Study Group and the ultimate effect of such conclusions or findings.
A definitive judicial interpretation of "employer" in the context of a PEO
or employee leasing arrangement has not been established. The tax-exempt
status of the Company's plans is subject to continuing scrutiny and approval
by the IRS and depends upon the Company's ability to establish the Company's
employer-employee relationship with leased employees.
The Company is aware of an audit of a PEO company which includes an audit
of the tax qualified plans sponsored by the company. As part of the PEO
company's audit, the IRS District Office reportedly asked the IRS National
Office to issue a Technical Advice Memorandum ("TAM") regarding whether the
PEO is the employer for benefit plan purposes.
Generally, a TAM may be requested by either the IRS District Office or the
taxpayer. The stated purpose of TAMs is to help IRS personnel close cases and
establish and maintain consistent holdings. The stated position of the IRS is
that TAMs are not precedential; that is, they are limited to the particular
taxpayer involved and that taxpayer's set of facts. TAMs are published
approximately three months after they are issued to the District Office and
the taxpayer.
The TAM regarding the PEO company has apparently been issued, but has not
yet been published. The Company has learned that the TAM apparently holds
that the pension plan involved violates the exclusive benefit rule (which
requires that plans benefit only employees) as the PEO is not the employer for
ERISA purposes. The TAM apparently disqualifies the plan retroactively to its
inception.
Since the TAM has not yet been published, the Company cannot determine if
the facts involved in the PEO company's situation are comparable to those of
the Company. If the facts are comparable and the IRS applied the holding to
the Company as a result of an audit or requalification of the Company's
benefit plans, disqualification of the plans could result, as it apparently
has for the PEO company.
It is not clear at this time whether the IRS will apply the conclusion of
this TAM, namely, that an exclusive benefit rule violation has occurred, to
all PEO situations. Such action could potentially disqualify from favorable
tax treatment all the employee benefit plans of all PEOs. It is, therefore,
possible that the IRS may propose some form of administrative relief to avoid
this result, but it is unclear at this time whether it will do so. It is also
possible that any IRS action in this area could be reversed or modified
through judicial proceedings or Congressional action.
In the event the tax-exempt status of the Company's benefit plans were to
be discontinued and the benefit plans were to be disqualified, there could be
a material adverse effect on the operations of the Company. The Company has
not recorded any provision for this potential contingency, as neither the
likelihood of disqualification nor the resulting range of loss, if any, is
currently estimable, in light of the Company's current inability to properly
analyze the TAM regarding the PEO company and the lack of public direction
from the IRS Market Segment Study Group.
Years Ended December 31, 1994 and 1993
Net income for 1994 amounted to $3,466,000, an increase of $1,406,000 or
68.3% over 1993 pro forma net income of $2,060,000. The increase in 1994 net
income over 1993 was primarily due to substantial increases in revenues and
gross margin. Net income per share for 1994 was $.53 as compared to pro forma
net income per share of $.39 for 1993.
Total 1994 revenues were $140,552,000, which represented an increase of
$40,285,000 or 40.2% over 1993. The increase in revenues over 1993 was due in
part to a 1994 internal growth rate of 18.3%, coupled with two acquisitions
during the 1994 first quarter. See Note 2 of the Notes to Financial
Statements. 1994 revenues from staffing services increased $29,393,000 or
70.4% over 1993, while 1994 staff leasing revenues rose $10,892,000 or 18.6%
over 1993. The disproportionate growth rate of staffing services as compared
to staff leasing services was principally due to the acquisition of Golden
West Temporary Services in March 1994, which provided only staffing services.
Gross margin for 1994 totaled $16,107,000 or 11.4% of revenues, which
represented an increase of $6,111,000 or 61.1% over 1993. The improvement in
gross margin for 1994 of approximately 140 basis points over 1993 was due in
large part to a decrease in workers' compensation expense (expressed as a
percent of revenues) and to a reduction in the Oregon unemployment payroll tax
rate.
Workers' compensation and safety incentives expense, expressed as a
percentage of revenues, decreased to 4.4% in 1994 from 5.2% in 1993. This
overall decrease was attributable in part to a reduction in the number of
injury claims and a small increase in claim reserves, despite substantial
increases in the number of covered workers, as reflected by the Company's
increased revenues.
Selling, general and administrative expenses for 1994 amounted to 7.6% of
revenues compared to 6.8% of revenues in 1993. The increase for 1994 over
1993 was primarily due to (i) the acquisition of two temporary staffing
businesses in the first quarter of 1994, which have higher administrative
overhead requirements as compared to staff leasing services and (ii)
additional management staff to support increased business activity, together
with higher profit sharing and bonuses based on improved Company performance.
The Company was exempt from taxation as a Subchapter S corporation until
its S corporation election was terminated on April 30, 1993. A one-time tax
benefit arising from net cumulative temporary differences in the timing of
reporting certain deductible items for financial statement and income tax
purposes was recognized by the Company as a reduction in its provision for
income taxes for the year ended December 31, 1993 in the amount of $505,000.
The pro forma effective tax rate of 39.1% was the effective tax rate that
would have been recorded if the Company had been a Subchapter C corporation.
See Note 12 of the Notes to Financial Statements.
Seasonal Fluctuations
The Company's revenues historically have been subject to some seasonal
fluctuation, particularly in its staffing services business. Demand for the
Company's staffing services and certain staff leasing clients decline during
the year-end holiday season and periods of inclement weather.
Correspondingly, demand for staffing services and the operations of some staff
leasing clients, particularly agricultural and forest products-related
companies, increase during the second and third quarters.
Liquidity and Capital Resources
The Company's net cash position of $3,218,000 at December 31, 1995
increased $1,004,000 from year-end 1994. The increase was primarily due to
cash provided by operating activities and proceeds from the exercise of
warrants to purchase common stock, offset in part by funds used to acquire two
temporary staffing businesses and funds used for net purchases of restricted
marketable securities.
Net cash provided by operating activities for 1995 amounted to $2,496,000
compared to $1,315,000 for 1994. For 1995, the cash flow generated by net
income and increases in accrued payroll and related benefits was offset in
part by a $3,482,000 increase in accounts receivable. The increase in the
1995 year-end accounts receivable over 1994 was the result of higher sales
levels, the acquisition of four businesses in Maryland and Delaware and an
increase in the number of days' sales in receivables from 24 days in 1994 to
28 days at December 31, 1995. The increase in this ratio is primarily
attributable to the increase in the sales mix of staffing services which have
longer credit terms than professional employer (staff leasing) services.
Net cash used by investing activities totaled $2,011,000 for 1995, which
compares to $139,000 for 1994. During 1995, the Company paid $1,199,000 in
cash in connection with two acquisitions and had net purchases of $443,000 of
restricted marketable securities to satisfy various state and federal self-
insured workers' compensation surety deposit requirements. During 1994 the
Company paid $4,737,000 in cash in connection with four acquisitions and
purchased $3,713,000 in marketable securities. These activities were
primarily funded by the sale of $8,619,000 of marketable securities. Capital
expenditures for 1995, consisting principally of office equipment, totaled
$369,000. The Company presently has no material long-term capital
commitments.
Net cash provided by financing activities for 1995 totaled $519,000 which
compares to net cash used by financing activities for 1994 of $89,000. The
principal source of cash provided by financing activities arose from the
exercise of warrants by underwriters to purchase 110,000 shares of the
Company's common stock at $4.20 per share. Such warrants were received by the
Company's underwriters in connection with its June 1993 initial public
offering of common stock. As of the date of this filing, an underwriter
continues to hold warrants to purchase 90,000 shares of common stock at $4.20
per share. The remainder of the increase was due to the exercise of employee
incentive stock options.
The Company's business strategy continues to be focused on the acquisition
of additional personnel-related businesses, both in its existing markets and
other strategic geographic areas and growth through the expansion of
operations at existing offices. The Company actively explores proposals for
various acquisition opportunities on an ongoing basis, but there can be no
assurance that any additional transactions will be consummated.
The Company has an unsecured $4.0 million revolving credit facility of
which there was no outstanding balance at December 31, 1995. See Note 7 of
the Notes to Financial Statements. Management believes that the available
credit facility and other sources of financing, together with anticipated
funds generated from operations, will be sufficient in the aggregate to fund
the Company's working capital needs for the foreseeable future.
Inflation
Inflation generally has not been a significant factor in the Company's
operations during the periods discussed above. The Company has taken into
account the impact of escalating medical and other costs in establishing
reserves for future expenses for self-insured workers' compensation claims.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following audited financial statements of Barrett Business
Services, Inc., and related documents are set forth herein on the pages
indicated:
Page
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . .22
Balance Sheets at December 31, 1995 and 1994 . . . . . . . . . . . . . . . .23
Statements of Operations for the years ended
December 31, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . . . . .24
Statements of Stockholders' Equity for the
years ended December 31, 1995, 1994, and 1993. . . . . . . . . . . . . . .25
Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . . . . .26
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .27
Other financial statement schedules are omitted because they are
not applicable or not required.
Report of Independent Accountants
February 9, 1996
To the Stockholders and Board of Directors of
Barrett Business Services, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Barrett Business Services, Inc.
at December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Portland, Oregon
Barrett Business Services, Inc.
Balance Sheets
(In thousands)
December 31,
1995 1994
---- ----
Assets
Current assets:
Cash and cash equivalents $ 3,218 $ 2,214
Trade accounts receivable, net 13,151 9,631
Prepaid expenses and other 478 599
Deferred tax assets (Note 13) 937 914
-------- --------
Total current assets 17,784 13,358
Intangibles, net (Note 4) 6,452 4,936
Property and equipment, net (Notes 5 and 8) 2,261 2,110
Restricted marketable securities and workers'
compensation deposits (Note 6) 4,681 4,196
Other assets 95 65
-------- --------
$ 31,273 $ 24,665
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt (Notes 8 and 11) $ 33 $ 31
Accounts payable 378 218
Accrued payroll, payroll taxes and related benefits 5,797 5,057
Accrued workers' compensation claim liabilities
(Note 6) 2,383 2,358
Customer safety incentives payable 776 805
-------- --------
Total current liabilities 9,367 8,469
Long-term debt, net of current portion (Notes 8 and 11) 875 908
Customer deposits 675 669
Long-term workers' compensation liabilities (Note 6) 322 164
-------- --------
11,239 10,210
-------- --------
Commitments and contingencies (Notes 9, 10 and 15)
Stockholders' equity:
Common stock, $.01 par value; 20,500 shares
authorized,6,551 and 6,367 shares issued and
outstanding(Notes 12 and 14) 66 64
Additional paid-in capital 10,437 8,978
Retained earnings 9,531 5,413
-------- --------
20,034 14,455
-------- --------
$ 31,273 $ 24,665
======== ========
The accompanying notes are an integral part of these financial statements.
Barrett Business Services, Inc.
Statements of Operations
(In thousands, except per share amounts)
Year ended December 31,
1995 1994 1993
---- ---- ----
Revenues:
Staffing services $ 99,233 $ 71,148 $ 41,755
Professional employer services 80,572 69,404 58,512
------- ------- -------
179,805 140,552 100,267
------- ------- -------
Cost of revenues:
Direct payroll costs 136,174 105,515 75,171
Payroll taxes and benefits 16,088 12,758 9,911
Workers' compensation (Note 6) 6,073 5,069 4,591
Safety incentives 981 1,103 598
------- ------- -------
159,316 124,445 90,271
------- ------- -------
Gross margin 20,489 16,107 9,996
Selling, general and administrative
expenses 13,657 10,302 6,450
Amortization of intangibles (Note 4) 564 430 370
------- ------- -------
Income from operations 6,268 5,375 3,176
------- ------- -------
Other (expense) income:
Interest expense (75) (106) (86)
Interest income 400 224 161
Other, net 32 78 133
------- ------- -------
357 196 208
------- ------- -------
Income before provision for taxes 6,625 5,571 3,384
Provision for income taxes (Note 13) 2,507 2,105 437
------- ------- -------
Net income $ 4,118 $ 3,466 $ 2,947
======= ======= =======
Net income per share $ .62 $ .53 $ -
======= ======= =======
Unaudited pro forma information (Note 13):
Income before provision for income taxes $ 3,384
Pro forma provision for income taxes 1,324
-------
Pro forma net income $ 2,060
=======
Pro forma net income per share $ .39
=======
Weighted average number of shares
outstanding 6,680 6,591 5,260
======= ======= =======
The accompanying notes are an integral part of these financial statements.
Barrett Business Services, Inc.
Statements of Stockholders' Equity
(In thousands)
Common stock Additional
--------------- paid-in Retained
Shares Amount capital earnings Total
------ ------ ------- -------- -----
Balance, December 31, 1992 2,000 $ 20 $ 190 $ 1,364 $ 1,574
Common stock issued 1,152 12 6,816 6,828
Net income 2,947 2,947
Distributions to stockholders (869) (869)
Reclassification of retained
earnings on issuance of
common stock 2,332 (2,332) -
----- ----- ------ ----- ------
Balance, December 31, 1993 3,152 32 8,469 1,979 10,480
Common stock issued for
acquisitions 29 468 468
Common stock issued on
exercise of options 22 41 41
Net income 3,466 3,466
Reclassification of retained
earnings for stock split 3,164 32 (32) -
----- ----- ------ ----- ------
Balance, December 31, 1994 6,367 64 8,978 5,413 14,455
Common stock issued for
acquisitions 67 1 910 911
Common stock issued on exercise
of options and warrants 124 1 549 550
Net income 4,118 4,118
Contribution of common stock
(Note 11) (7) -
----- ----- ------ ----- ------
Balance, December 31, 1995 6,551 $ 66 $10,437 $ 9,531 $20,034
===== ===== ====== ===== ======
The accompanying notes are an integral part of these financial statements.
Barrett Business Services, Inc.
Statements of Cash Flows
(In thousands)
Year ended December 31,
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income $ 4,118 $ 3,466 $ 2,947
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization 812 637 530
Gain on sales of marketable securities (42) - (112)
Provision for doubtful accounts (38) 136 160
Deferred taxes (23) (20) (894)
Changes in certain assets and
liabilities:
Trade accounts receivable (3,482) (4,813) (969)
Prepaid expenses and other 121 (454) 2
Income taxes payable - (79) 79
Accounts payable 160 127 (135)
Accrued payroll, payroll taxes
and related benefits 740 1,834 658
Accrued workers' compensation
claim liabilities 183 88 1,097
Customer safety incentives
payable (29) 278 (8)
Customer deposits, other
liabilities and other assets, net (24) 115 60
----- ----- ------
Net cash provided by operating activities 2,496 1,315 3,415
----- ----- ------
Cash flows from investing activities:
Cash paid for acquisitions, including
other direct costs (1,199) (4,737) (10)
Purchases of fixed assets, net of
amounts purchased in acquisitions (369) (308) (1,280)
Proceeds from sales of marketable
securities 1,862 8,619 8,413
Purchases of marketable securities (2,305) (3,713) (15,938)
Net cash used by investing activities (2,011) (139) (8,815)
Cash flows from financing activities:
Distributions to stockholders - - (869)
Proceeds from debt issued - - 752
Payments on long-term debt (31) (130) (196)
Proceeds from issuance of common stock - - 6,828
Proceeds from the exercise of stock
options and warrants 550 41 -
----- ----- ------
Net cash provided (used) by financing
activities 519 (89) 6,515
----- ----- ------
Net increase in cash and cash equivalents 1,004 1,087 1,115
Cash and cash equivalents, beginning of year 2,214 1,127 12
----- ----- ------
Cash and cash equivalents, end of year $ 3,218 $ 2,214 $ 1,127
===== ===== ======
The accompanying notes are an integral part of these financial statements.
Barrett Business Services, Inc.
Notes to Financial Statements
1. Summary of Operations and Significant Accounting Policies
Nature of operations
Barrett Business Services, Inc. ("Barrett" or the "Company"), a Maryland
corporation, is engaged in providing staffing and professional employer
services to a diversified group of customers through a network of branch
offices throughout Oregon, Washington, northern California, Maryland and
Delaware. Approximately 68%, 78% and 92%, respectively, of the
Company's revenues during 1995, 1994 and 1993 was attributable to its
Oregon operations.
Revenue recognition
The Company recognizes revenue as the services are rendered by its work
force. Staffing services are engaged by customers to meet short-term
fluctuations in personnel needs. Professional employer services are
normally used by organizations to satisfy ongoing personnel needs and
typically involve contracts with a minimum term of one year, renewable
annually, which cover all employees at a particular work site.
Cash and cash equivalents
The Company considers nonrestricted short-term investments which are
highly liquid, readily convertible into cash and have original
maturities of less than three months to be cash equivalents for purposes
of the statements of cash flows.
Allowance for doubtful accounts
The Company had an allowance for doubtful accounts of $25,000 and
$62,500 at December 31, 1995 and 1994, respectively.
Marketable securities
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
effective December 31, 1994. At December 31, 1995 and 1994, marketable
securities consisted primarily of governmental debt instruments with
maturities generally from 90 days to 30 years (see Note 6). Marketable
equity and debt securities have been categorized as held-to-maturity
and, as a result, are stated at amortized cost. Realized gains and
losses on sales of marketable securities are included in other, net on
the Company's statements of operations.
Intangibles
Intangible assets consist primarily of identifiable intangible assets
acquired and the cost of acquisition in excess of the fair value of net
assets acquired (goodwill). Intangible assets acquired are recorded at
their estimated fair value at the acquisition date.
The Company uses a fifteen-year estimate as the useful life of goodwill.
This life is based on an analysis of industry practice and the factors
influencing the acquisition decision. Other intangible assets are
amortized on the straight-line method over their estimated useful lives,
ranging from two to fifteen years. (See Note 4.)
1. Summary of Operations and Significant Accounting Policies (Continued)
Intangibles (continued)
The Company reviews for asset impairment at the end of each quarter or
more frequently when events or changes in circumstances indicate that
the carrying amount of intangible assets may not be recoverable. To
perform that review, the Company estimates the sum of expected future
undiscounted net cash flows from the intangible assets. If the
estimated net cash flows are less than the carrying amount of the
intangible asset, the Company recognizes an impairment loss in an amount
necessary to write down the intangible asset to a fair value as
determined from expected future cash flows. No write-down for
impairment loss was recorded for the years ended December 31, 1995, 1994
and 1993.
Property and equipment
Property and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to operating expense as incurred and
expenditures for additions and betterments are capitalized. The cost of
assets sold or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts, and any resulting gain or
loss is reflected in the statements of operations.
Depreciation of property and equipment is calculated using either
straight-line or accelerated methods over estimated useful lives which
range from 3 years to 31.5 years.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
Company will adopt the statement in 1996; however, the adoption is not
expected to have a significant impact on the Company's financial
statements.
Customer safety incentives payable
Safety incentives are paid annually to professional employer services
clients if the cost of workers' compensation claims is less than agreed
upon amounts; amounts paid are based on a percentage of payroll. The
Company accrues the amounts payable under this program on a monthly
basis.
Income taxes
Effective July 1, 1987, the Company elected to be treated as an S
Corporation under certain provisions of the Internal Revenue Code. As
such, the income or losses of the Company were attributable to its
stockholders in their individual tax returns. Effective April 30, 1993,
the Company terminated its S Corporation status. A pro forma provision
for income taxes that would have been recorded if the Company had been a
C Corporation for the year ended December 31, 1993 is provided for
comparative purposes in the statements of operations.
Customer deposits
The Company requires deposits from certain professional employer
services customers to cover a portion of its accounts receivable due
from such customers in event of default of payment.
1. Summary of Operations and Significant Accounting Policies (Continued)
Common stock split and change in authorized shares
The Company's stockholders approved a 7,968-for-1 split of its common
stock, an increase in authorized common shares and the authorization of
preferred stock which became effective March 25, 1993. Additionally,
the par value of common stock was changed to $.01 from $10 per share.
Common stock and additional paid-in capital as of December 31, 1992 have
been adjusted to reflect this change. On April 20, 1994, the Company's
board of directors approved a 2-for-1 stock split in the form of a stock
dividend, paid May 23, 1994, to holders of record of its common stock at
the close of business on May 2, 1994 (the "Record Date"), at the rate of
one new share for each share outstanding on the Record Date.
Common stock split and change in authorized shares (continued)
All earnings per share amounts have been adjusted to reflect these
transactions for all periods presented.
A special meeting of stockholders was held on August 10, 1994, pursuant
to which the stockholders approved an amendment to the Company's charter
to increase the number of authorized shares of common stock from
7,500,000 shares to 20,500,000 shares.
Statements of cash flows
The Company has recorded the following non-cash transactions:
During 1994, the Company issued common stock with an aggregate fair
market value of $468,000 in connection with the acquisition of certain
assets of Personnel Management & Consulting, Inc. and Construction
Workforce (see Note 2).
During 1995, the Company issued 67,443 shares of common stock with an
aggregate fair market value of $911,000 in connection with the
acquisition of certain assets of Strege & Associates, Inc. (see Note 2).
During 1995, the President and Chief Executive Officer of the Company
contributed 7,400 shares of common stock of the Company with a then-fair
market value of $111,000 to the Company in settlement of a personal
guarantee of a receivable from an insolvent customer (see Note 11).
Interest paid during 1995, 1994 and 1993 did not materially differ from
interest expense.
Income taxes paid by the Company in 1995 and 1994 totaled $2,510,700 and
$2,144,800, respectively.
Net income per share
Net income per share for the years ended December 31, 1995 and 1994 are
computed based on the weighted average number of common stock and common
stock equivalents outstanding during the periods. For the year ended
December 31, 1993, such pro forma computation was made without giving
effect to securities that would otherwise be considered to be common
stock equivalents, because such securities aggregated less than 3% of
shares outstanding and thus were not considered dilutive. Outstanding
stock options and warrants, net of assumed buy-back, are considered
common stock equivalents.
1. Summary of Operations and Significant Accounting Policies (Continued)
Accounting estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported periods.
2. Acquisitions
Personnel Management & Consulting, Inc.
On February 27, 1994 the Company purchased substantially all of the assets
of Personnel Management & Consulting, Inc., a company engaged in the
temporary staffing business in Maryland and Delaware. Of the $270,000
purchase price, the Company paid $42,000 in cash and issued 12,000 shares
of its common stock with a then-fair market value of $228,000. The
acquisition was accounted for under the purchase method of accounting
which resulted in approximately $241,000 of intangible assets and $29,000
of fixed assets.
Golden West Temporary Services
On March 7, 1994, the Company purchased certain assets of Golden West
Temporary Services (Golden West), a company in the temporary staffing
business with four offices in northern California. The cash purchase
price of $4,514,000 was paid by liquidating a portion of the Company's
short-term marketable securities. The Company accounted for the
acquisition under the purchase method of accounting which resulted in
approximately $4,425,000 of intangible assets and $89,000 of fixed assets.
Construction Workforce
On December 26, 1994, the Company purchased certain assets of Max Johnson
Enterprises, Inc., operating as Construction Workforce, a company located
in Spokane, Washington which specializes in providing highly skilled
temporary craftsmen to the commercial construction industry. Of the
$300,000 purchase price, the Company paid $60,000 in cash and issued
17,142 shares of its common stock with a then-fair market value of
$240,000. The acquisition was accounted for under the purchase method of
accounting which resulted in $285,000 of intangible assets and $15,000 of
fixed assets.
Advanced Temporary Systems, Inc.
On December 29, 1994, the Company purchased, for $51,000 in cash, certain
assets of Advanced Temporary Systems, Inc., a company engaged in the
temporary staffing business in Kent, Washington. The Company accounted
for the acquisition under the purchase method of accounting which resulted
in $51,000 of intangible assets.
Mid-Del Employment Service, Inc.; Sussex Employment Services, Inc.; PPI
(Prestige Personnel) - Salisbury, Inc.; and Del-Mar-Va Nurses-On-Call Inc.
2. Acquisitions (Continued)
On July 17, 1995, the Company purchased certain assets of Mid-Del
Employment Service, Inc.; Sussex Employment Services, Inc.; PPI (Prestige
Personnel) - Salisbury, Inc.; and Del-Mar-Va Nurses-On-Call Inc.
(collectively, the Maryland and Delaware companies). These companies are
engaged in the temporary staffing business in eastern Maryland and
Delaware. The all-cash purchase price of $969,000 (inclusive of
acquisition-related costs of $19,000) was accounted for under the purchase
method of accounting which resulted in $944,000 of intangible assets and
$25,000 of fixed assets.
Strege & Associates, Inc.
Effective December 11, 1995, the Company purchased certain assets of
Strege & Associates, Inc., a company specializing in providing highly
skilled tradesmen to various industries for maintenance and supplemental
labor purposes in Portland, Oregon. Of the $1,141,000 purchase price
(inclusive of acquisition-related costs of $4,000), the Company paid
$230,000 in cash and issued 67,443 shares of its common stock with a then-
fair market value of $911,000. The acquisition was accounted for under
the purchase method of accounting which resulted in $1,136,000 of
intangible assets and $5,000 of fixed assets.
Pro forma results of operations (unaudited)
The operating results of each of the above acquisitions are included in
the Company's results of operations from the respective date of
acquisition. The following unaudited pro forma summary presents the
combined results of operations as if the Personnel Management &
Consulting, Golden West, Maryland and Delaware companies, and Strege &
Associates acquisitions had occurred at the beginning of 1994, after
giving effect to certain adjustments for the amortization of intangible
assets, taxation and cost of capital.
The other acquisitions are not included in the pro forma information as
their effect is not material.
Year ended December 31,
1995 1994
---- ----
(in thousands, except
per share amounts)
Revenue $ 183,776 $ 151,861
======= =======
Net income $ 4,314 $ 3,725
======= =======
Net income per share $ .64 $ .56
======= =======
The unaudited pro forma results above have been prepared for comparative
purposes only and do not purport to be indicative of what would have
occurred had the acquisitions been made as of that date or of results
which may occur in the future.
3. Fair Value of Financial Instruments and Concentration of Credit Risk
All of the Company's significant financial instruments are recognized in
its balance sheet. Carrying values approximate fair market value of most
financial assets and liabilities. The fair market value of certain
financial instruments was estimated as follows:
- Marketable securities - Marketable securities primarily consist of
U.S. Treasury bills and municipal bonds. The interest rate on the
Company's marketable security investments approximate current market
rates for these types of investments; therefore, the recorded value of
the marketable securities approximates fair market value.
- Long-term debt - The estimated fair market value of the Company's
long-term debt, based upon interest rates at December 31, 1995 for
similar obligations with like maturities, was approximately $1,022,000
and was carried at $875,000.
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of temporary cash
investments, marketable securities and trade accounts receivables. The
Company restricts investment of temporary cash investments and marketable
securities to financial institutions with high credit ratings and to
investments in governmental debt instruments. Credit risk on trade
receivables is minimized as a result of the large and diverse nature of
the Company's customer base. At December 31, 1995, the Company had
significant concentrations of credit risks as follows:
- Trade receivables - $2,276,000 of trade receivables were with one
customer at December 31, 1995 (17% of trade receivables outstanding at
December 31, 1995);
- Marketable securities - $2,210,000 of marketable securities at
December 31, 1995 consisted of Oregon State Housing & Community
Service Bonds.
4. Intangibles
Intangibles consist of the following (in thousands):
December 31,
1995 1994
---- ----
Covenants not to compete $ 1,614 $ 1,490
Goodwill 6,826 4,870
Customer lists 358 358
----- -----
8,798 6,718
Less accumulated amortization 2,346 1,782
----- -----
$ 6,452 $ 4,936
===== =====
5. Property and Equipment
Property and equipment consist of the following (in thousands):
December 31,
1995 1994
---- ----
Office furniture and fixtures $ 1,908 $ 1,509
Buildings 1,175 1,175
Vehicles 41 41
----- -----
3,124 2,725
Less accumulated depreciation 1,171 923
----- -----
1,953 1,802
Land 308 308
----- -----
$ 2,261 $ 2,110
===== =====
6. Accrued Workers' Compensation Claim Liabilities
In August 1987, the Company became a self-insured employer with respect to
workers' compensation coverage for all its employees working or living in
Oregon. The Company also became a self-insured employer for workers'
compensation coverage in the states of Maryland effective November 1993,
Washington effective July 1994, Delaware effective January 1995, and
California effective March 1995. Effective May 1995, the Company also
became self-insured for workers' compensation purposes by the United
States Department of Labor for longshore and harbor (USL&H) workers'
coverage.
The Company has provided $2,705,000 and $2,522,000 at December 31, 1995
and 1994, respectively, as an estimated liability for unsettled workers'
compensation claims. This estimated liability represents management's
best estimate which includes, in part, an evaluation of information
provided by the Company's third-party administrators and its independent
actuary. Included in the claims liabilities are case reserve estimates
for reported losses, plus additional amounts based on projections for
incurred but not reported claims, anticipated increases in case reserve
estimates and additional claims administration expenses. These estimates
are continually reviewed and adjustments to liabilities are reflected in
current operations as they become known. The Company believes that the
difference between amounts recorded at December 31, 1995 for its estimated
liability and the possible range of costs of settling related claims is
not material to results of operations; nevertheless, it is reasonably
possible that adjustments required in future periods may be material to
results of operations.
The United States Department of Labor and the states of Oregon, Maryland,
Washington, and California require the Company to maintain specified
investment balances or other financial instruments, totaling $5,974,000 at
December 31, 1995 and $3,802,000 at December 31, 1994, to cover potential
claims losses. In partial satisfaction of these requirements, at
6. Accrued Workers' Compensation Claim Liabilities (Continued)
December 31, 1995, the Company has provided a letter of credit in the
amount of $1,572,000 and a $300,000 surety bond guaranteed by an
irrevocable standby letter of credit. The investments are included in
restricted marketable securities and workers' compensation deposits in the
accompanying balance sheets.
Liabilities incurred for work-related employee fatalities are recorded
either at an agreed lump-sum settlement amount or the net present value of
future fixed and determinable payments over the actuarially determined
remaining life of the beneficiary, discounted at a rate that approximates
a long-term high quality corporate bond rate. The Company has obtained
excess workers' compensation insurance to limit its self-insurance
exposure to $350,000 per occurrence ($300,000 for claims before December
31, 1993) in all states, except for $300,000 in Maryland, and $500,000 per
occurrence for USL&H exposure. The excess insurance provides coverage up
to $10 million per occurrence for claims through December 31, 1993 and
unlimited excess coverage after that date. At December 31, 1995, the
Company has recorded $322,000 for work-related fatalities in long-term
workers' compensation liabilities in the accompanying balance sheet.
The workers' compensation expense in the accompanying statement of
operations consists of $5,802,000, $4,254,000 and $4,075,000 for
self-insurance expense for 1995, 1994 and 1993, respectively. Premiums in
the insured states were $271,000, $815,000 and $516,000 for 1995, 1994 and
1993, respectively.
7. Credit Facility
On August 12, 1993, the Company entered into a loan agreement (the
"Agreement") with a major bank, which provides for (a) an unsecured
revolving credit facility for working capital purposes and (b) a term real
estate loan (Note 8). The Agreement, as amended, expires on May 30, 1996
and currently permits total borrowings of up to $4,000,000 under the
revolving credit facility. The interest rates available on outstanding
balances under the revolving credit facility include Prime Rate, Federal
Funds Rate plus 1.75%, or Adjusted Eurodollar Rate plus 1.25%. Under the
amended loan agreement, the Company is required to maintain (i) a ratio of
total liabilities to tangible net worth of not more than 2.0 to 1.0,
(ii) positive quarterly income before taxes, (iii) tangible net worth of
not less than $6,000,000, (iv) a minimum debt coverage ratio of 1.20 to
1.00 at the end of each fiscal year, and (v) a zero outstanding balance
against the revolving credit facility for a minimum of 60 consecutive days
during each year. The Company is also prohibited from pledging any of its
assets other than existing mortgages on its real property. There were no
borrowings outstanding under the revolving credit facility at December 31,
1995 or 1994.
There were no borrowings on the revolving credit facility during 1995.
During the years ended December 31, 1994 and 1993, the maximum balances
outstanding under the revolving credit facility were $1,500,069 and
7. Credit Facility (Continued)
$1,189,000, respectively; the average balances outstanding were $165,000
and $59,000, respectively; and the weighted average interest rates during
the period were 6.9% and 6.6%, respectively. The weighted average interest
rate during the periods was calculated using daily weighted averages.
8. Long-Term Debt
Long-term debt consists of the following:
December 31,
1995 1994
---- ----
(in thousands)
Mortgage note payable in monthly installments
of $2,784, including interest at 11% per
annum through 1998, with a principal payment
of $269,485 due in 1998, secured by land
and building $ 279 $ 281
Mortgage note payable in monthly installments
of $6,730, including interest at 8.15% per
annum through 2003, with a principal payment
of $366,900 due in 2003, secured by land and
building (Note 7) 629 658
----- -----
908 939
Less portion due within one year 33 31
----- -----
$ 875 $ 908
===== =====
Maturities on long-term debt are summarized as follows at December 31,
1995 (in thousands):
Year ending
December 31,
------------
1996 $ 33
1997 36
1998 308
1999 36
2000 40
Thereafter 455
-----
$ 908
=====
9. Savings Plan
On April 1, 1990, the Company established a Section 401(k) employee
savings plan for the benefit of its eligible employees. All employees 21
years of age or older, except those covered under a co-employer (leasing)
contract, become eligible to participate in the savings plan upon
completion of 1,000 hours of service in any consecutive 12-month period
following the initial date of employment. Employees covered under a co-
employer (leasing) contract are eligible to participate in the savings
plan beginning with their respective dates of employment. The
determination of Company contributions to the plan, if any, is subject to
the sole discretion of the Company. Participants' interests in Company
contributions to the plan vest over a 7-year period. Company
contributions to the plan were $142,000, $103,000 and $44,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
Recent attention has been placed by the Internal Revenue Service (the IRS)
and the staff leasing industry on IRC Section 401(k) plans sponsored by
staff leasing companies. As such, the tax-exempt status of the Company's
plan is subject to continuing scrutiny and approval by the IRS and to the
Company's ability to support to the IRS the Company's employer-employee
relationship with leased employees. In the event the tax-exempt status
were to be discontinued and the plan were to be disqualified, the
operations of the Company could be adversely affected. The Company has
not recorded any provision for this potential contingency, as neither the
likelihood of disqualification nor the resulting range of loss, if any, is
currently estimable.
10. Commitments
Lease commitments
The Company leases its branch offices under operating lease agreements
which require minimum annual payments as follows (in thousands):
Year ending
December 31,
------------
1996 $ 466
1997 402
1998 257
1999 171
2000 64
-----
Total minimum payments $ 1,360
=====
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
approximately $607,000, $423,000 and $295,000, respectively.
11. Related Party Transactions
During 1995, 1994 and 1993, the Company recorded revenues of $3,753,000,
$3,261,000 and $2,404,000, respectively, and cost of revenues of
$3,661,000, $3,112,000 and $2,316,000, respectively, for providing
services to a company of which a director of the Company is president and
majority stockholder. At December 31, 1995 and 1994, Barrett had trade
receivables from this company of $160,000 and $140,000, respectively.
During 1994 and 1993, the Company recorded revenues of $119,000 and
$480,000, respectively, and cost of revenues of $110,000 and $475,000,
respectively, for providing professional employer services to a company
owned by Barrett's President and Chief Executive Officer. At December 31,
1993, Barrett had recorded a receivable of $35,000 from this company.
At December 31, 1993, the President and Chief Executive Officer of the
Company, pursuant to the approval of a majority of the disinterested
outside directors, agreed to personally guarantee, at no cost to the
Company, the repayment of a $111,000 receivable from an unrelated,
insolvent customer. During 1995, pursuant to this agreement, the Company
exercised its right to the personal guarantee provided by the Company's
Chief Executive Officer. Accordingly, the Chief Executive Officer
surrendered to the Company 7,400 shares of common stock of Barrett
Business Services, Inc. with a then-fair market value of $111,000 or
$15.00 per share in satisfaction of the guarantee. The Company
subsequently retired the shares, and the par value of the shares was
reclassified to additional paid-in capital. The uncollectible account was
included in the Company's provisions for doubtful accounts during 1993 and
1994.
Through June 1995, a director of the Company was Vice Chairman of the
board of directors of the bank that provides the Company's unsecured
revolving credit facility and certain mortgage financing. In addition to
providing other banking services, the bank serves as the transfer agent
for the Company's common stock. See Notes 7 and 8.
12. Public Stock Offering
In June 1993, the Company completed an initial public offering of
1,000,000 shares of common stock at $7.00 per share. In July 1993, the
underwriters exercised an option to purchase 150,000 additional shares at
$7.00 per share to cover over-allotments. Total net proceeds to the
Company were $6,828,000 after deducting the underwriting discount and
offering expenses.
13. Income Taxes
In conjunction with the Company's public offering, the Company terminated
its S Corporation status effective April 30, 1993. Accordingly, unaudited
pro forma income tax information is presented below, which would have been
recorded if the Company had been a C Corporation during all periods
presented, based on tax laws in effect during those periods, as calculated
under Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes."
13. Income Taxes (Continued)
The provisions for income taxes are as follows (in thousands):
Year ended December 31,
1995 1994 1993
---- ---- ----
(unaudited
pro forma)
Current:
Federal $ 2,067 $ 1,750 $ 1,439
State 463 375 284
----- ----- -----
2,530 2,125 1,723
----- ----- -----
Deferred:
Federal (19) (17) (338)
State (4) (3) (61)
----- ----- -----
(23) (20) (399)
----- ----- -----
Total provision $ 2,507 $ 2,105 $ 1,324
===== ===== =====
The actual provision for income taxes for the first eight months of
operation as a C Corporation (May 1, 1993 to December 31, 1993) is as
follows (in thousands):
Current:
Federal $ 1,110
State 221
-----
1,331
-----
Deferred:
Federal (327)
State (62)
-----
(389)
-----
Provision before recognition of
cumulative deferred tax asset 942
Recognition of cumulative deferred tax asset (505)
-----
$ 437
=====
The provision for income taxes for the year ended December 31, 1993 is
partially offset by recognition of a cumulative net deferred tax asset of
$505,000 associated with the termination of the Company's S Corporation
status on April 30, 1993, in accordance with SFAS 109.
13. Income Taxes (Continued)
Deferred tax assets (liabilities) are comprised of the following
components (in thousands):
December 31,
1995 1994
---- ----
Accrued workers' compensation claim liabilities $1,053 $ 982
Allowance for doubtful accounts 10 25
Tax depreciation in excess of book depreciation (126) (93)
----- -----
$ 937 $ 914
===== =====
The effective tax rate differed from the U.S. statutory federal tax rate
due to the following:
Year ended December 31,
1995 1994 1993
---- ---- ----
(unaudited
pro forma)
Statutory federal tax rate 34.0 % 34.0% 34.0%
State taxes, net of federal benefit 4.6 4.4 4.3
Goodwill amortization .1 .2 .5
Federal tax-exempt interest income (1.3) (1.1) --
Other, net .6 .3 .3
---- ---- ----
38.0 % 37.8 % 39.1 %
==== ==== ====
14. Stockholders' Equity
As of March 1, 1993, the Company adopted the 1993 Stock Incentive Plan
(the "Plan") which provides for stock-based awards to the Company's
employees, non-employee directors, and outside consultants or advisers.
As of April 20, 1994, the Company increased the number of shares of common
stock reserved for issuance under the Plan from 500,000 to 800,000.
14. Stockholders' Equity (continued)
The following table summarizes option activity under the Plan:
Options Range of prices
------- ---------------
Outstanding at March 1, 1993 -
Options granted 166,500 $ 3.50 to $ 4.69
Options exercised -
Options canceled or expired (6,000)
-------
Outstanding at December 31, 1993 160,500
Options granted 233,500 $ 9.50 to $ 13.56
Options exercised (22,175) $ 3.50
Options canceled or expired (65,250)
-------
Outstanding at December 31, 1994 306,575
Options granted 221,500 $ 11.50 to $ 16.36
Options exercised (13,950) $ 3.50 to $ 9.50
Options canceled or expired (17,500)
-------
Outstanding at December 31, 1995 496,625
=======
Exercisable at December 31, 1995 94,375
=======
Available for grant at
December 31, 1995 263,250
=======
14. Stockholders' Equity (Continued)
The options listed in the table generally become exercisable in four equal
annual instalments beginning one year after the date of grant. The number
of options and the price per share have been restated to reflect the 2-
for-1 stock split effective May 23, 1994.
In connection with the initial public offering, the Company issued 200,000
warrants to its underwriters and related parties for the purchase of
shares of the Company's common stock exercisable in whole at any time or
in part from time to time commencing June 11, 1994 at $4.20 per share,
after giving effect for the 2-for-1 stock split. A total of 110,000
warrants was exercised in January 1995 for proceeds of $462,000.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which allows companies to choose whether to account for
stock-based compensation under the current intrinsic value method as
prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees, or under the fair value method permitted by the new
pronouncement, effective for years beginning after December 15, 1995. The
new pronouncement will also require additional disclosures regarding the
pro forma effect of fair value accounting for stock options on net income
and net income per share. The Company plans to continue to follow the
provisions of APB Opinion No. 25. As a result, management does not
believe the implementation of this pronouncement in 1996 will have a
material impact on future earnings.
15. Litigation
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to currently pending or threatened
actions will not materially affect the financial position or results of
operations of the Company.
16. Quarterly Financial Information (Unaudited)
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share amounts)
Year ended December 31, 1993:
Revenues $ 20,535 $ 25,386 $ 28,076 $26,270
Cost of revenues 18,501 22,931 25,147 23,692
Pro forma net income 389 488
Pro forma net income per
share .09 .11
Net income 702 481
Net income per share .11 .08
Year ended December 31, 1994:
Revenues 27,067 35,136 41,149 37,200
Cost of revenues 24,096 31,217 36,107 33,025
Net income 608 765 1,235 858
Net income per share .09 .12 .19 .13
Year ended December 31, 1995:
Revenues 39,298 44,564 49,636 46,306
Cost of revenues 35,819 39,645 43,378 40,474
Net income 344 1,039 1,513 1,223
Net income per share .05 .16 .23 .18
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table identifies, as of February 1, 1996, each director
and executive officer of the Company. Directors serve until the next annual
meeting of stockholders, or until their successors are elected and qualified.
Executive officers serve at the discretion of the Board of Directors.
Principal Positions and Director Officer
Name Age Business Experience since since
-----------------------------------------------------------------------------------
William W. Sherertz 49 President; Chief Executive 1980 1980
Officer; Acting Chairman of
the Board of Directors
Robert R. Ames 55 Director; retired Vice 1993
Chairman of First Interstate
Bank of Oregon, N.A.
Jeffrey L. Beaudoin 41 Director; President of 1993
Rose City Moving and
Storage Co.
Stephen A. Gregg 51 Director; Principal, The 1995
Alternare Group
Anthony Meeker 56 Director; Vice President of 1993
Spears Benzak Salomon &
Farrell
Stanley G. Renecker 41 Director; Vice President- 1993
Acquisitions of The Campbell
Group
Michael D. Mulholland 43 Vice President-Finance 1994
and Secretary; Chief
Financial Officer
Christopher J.
McLaughlin 40 Vice President-Operations 1994
Michael K. Barrett 32 Vice President-Business 1995
Development
James D. Miller 32 Controller; Principal 1994
Accounting Officer
William W. Sherertz has acted as Chief Executive Officer of the Company
since 1980. He has also been a director of the Company since 1980, and was
appointed President of the Company in March 1993. Mr. Sherertz also serves as
Acting Chairman of the Board of Directors.
Robert R. Ames has served as a director of the Company since 1993.
Mr. Ames currently is actively engaged in numerous real estate development
ventures. From 1992 to 1995, he was the Vice Chairman of the Board of
Directors of First Interstate Bank of Oregon, N.A. From 1983 to 1991,
Mr. Ames served as President of the Bank.
Jeffrey L. Beaudoin has served as a director of the Company since 1993.
He is presently the President and a director of Rose City Moving and Storage
Co., of Portland, Oregon, a staff leasing client of the Company.
Stephen A. Gregg was elected to the Company's Board of Directors in
February 1995. He is currently a principal in The Alternare Group, a national
provider of alternative medicine services. From 1985 to 1994, Mr. Gregg was
Chairman and Chief Executive Officer of The Ethix Corporation, a national
provider of health care programs headquartered in Portland, Oregon.
Anthony Meeker has served as a director of the Company since 1993. He
has been a Vice President with Spears Benzak Salomon & Farrell, Portland,
Oregon, an investment research firm, since 1993. From 1987 to 1993,
Mr. Meeker was Treasurer of the State of Oregon. He has also been President
and Chief Executive Officer and a director of Meeker Seed & Grain Co. since
1975.
Stanley G. Renecker has been a director of the Company since 1993.
Mr. Renecker is currently Vice President-Acquisitions of The Campbell Group, a
timberland management firm, where he has been employed since 1989.
Michael D. Mulholland joined the Company in August 1994 as Vice
President-Finance and Secretary. From 1988 to 1994, Mr. Mulholland was
employed by Sprouse-Reitz Stores Inc., a former Nasdaq-listed retail company,
serving as its Executive Vice President, Chief Financial Officer and
Secretary. In November 1991, Sprouse-Reitz filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code. Its plan of reorganization was
confirmed by the Bankruptcy Court in June 1992. Subsequently, Mr. Mulholland
was appointed to the additional position of Acting Chief Executive Officer
prior to Sprouse's filing of a voluntary petition in connection with a
prepackaged liquidating Chapter 11 in November 1993.
Christopher J. McLaughlin joined the Company in May 1993 and was
appointed Corporate Operations Manager in December 1993. Mr. McLaughlin is
currently Vice President - Operations, a position held since July 1994. Prior
to joining the Company, Mr. McLaughlin owned and operated an organizational
development consulting firm.
Michael K. Barrett joined the Company as Vice President-Business
Development in December 1995. Prior to joining the Company, Mr. Barrett was
Vice President of Marketing for Your Staff, Inc., a wholly-owned staff leasing
subsidiary of Kelly Services, Inc., from May 1994 to December 1995. From
November 1989 to May 1994, Mr. Barrett owned and operated an advertising firm.
James D. Miller joined the Company in January 1994 as Controller. From
1991 to 1994, he was the Corporate Accounting Manager for Christensen Motor
Yacht Corporation. Mr. Miller, a certified public accountant, was employed by
Price Waterhouse from 1987 to 1991.
Section 16 of the Securities Exchange Act of 1934 ("Section 16")
requires that reports of beneficial ownership of Barrett common stock and
changes in such ownership be filed with the Securities and Exchange Commission
("SEC") by Section 16 "reporting persons," including directors, executive
officers, and certain holders of more than 10% of the outstanding common stock
or trusts of which reporting persons are trustees. To the Company's
knowledge, all Section 16 reporting requirements applicable to known reporting
persons were complied with for transactions and stock holdings during 1995,
except that William W. Sherertz, who is an executive officer of the Company,
filed a report of the grant of a stock option two days after the filing
deadline.
Item 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth for the years
indicated the compensation awarded or paid to, or earned by, the Company's
chief executive officer and the Company's other executive officers whose
salary level and bonus in 1995 exceeded $100,000:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
------------------- Underlying
Name and Principal Salary Bonus Options (2)
Position Year ($) ($) (#)
----------------- ---- ------ ----- ------------
William W. Sherertz 1995 $144,000 -- 70,000
President and 1994 144,000 -- 77,000
Chief Executive Officer 1993 144,000 -- 70,000
Michael D. Mulholland 1995 115,000 $42,550 30,000
Vice President-Finance 1994 42,486(1) -- 20,000
and Secretary; Chief 1993 -- -- --
Financial Officer
Christopher J. McLaughlin 1995 90,000 33,300 26,000
Vice President-Operations 1994(3) 79,583 39,300 20,000
1993 -- -- --
- --------------------------
(1) Mr. Mulholland's annual salary of $115,000 became effective with his date
of employment, August 17, 1994.
(2) Option grants do not include stock appreciation rights ("SARs").
(3) Mr. McLaughlin became an executive officer during 1994; the amounts shown
are for the full fiscal year.
Stock Option Data
The following table provides information as to options to purchase
Barrett common stock granted to Messrs. Sherertz, Mulholland and McLaughlin
during 1995.
Number of % of Total
Securities Options
Underlying Granted to Exer- Grant
Options Employees cise Expira- Date
Granted (1) in Price tion Present
(#) Fiscal Year ($/Share) Date Value ($)(2)
----------- ----------- --------- ---- ----------
William W. Sherertz 18,654 9.3% $16.3625 9/17/2000 $133,376
51,346 25.7% 14.8750 9/17/2005 528,864
Michael D. Mulholland 10,000 5.0% 14.8750 9/17/2005 103,000
20,000 10.0% 14.6250 11/9/2005 201,400
Christopher J.
McLaughlin 5,000 2.5% 14.8750 9/17/2005 51,500
21,000 10.5% 14.6250 11/9/2005 211,470
- -------------------------
(1) Options become exercisable cumulatively in four equal annual
installments beginning one year after the date of grant; provided that
the option will become exercisable in full upon the officer's death,
disability or retirement, or in the event of a change in control of the
Company. A change in control is defined in the option agreements to
include (i) any occurrence which would be required to be reported as
such by the proxy disclosure rules of the Securities and Exchange
Commission, (ii) the acquisition by a person or group (other than the
Company or one of its employee benefit plans) of 30% or more of the
combined voting power of its voting securities, (iii) with certain
exceptions, the existing directors' ceasing to constitute a majority of
the Board of Directors, (iv) certain transactions involving the merger,
or sale or transfer of a majority of the assets, of the Company, or (v)
approval by the stockholders of a plan of liquidation or dissolution of
the Company. The options include a feature which entitles an optionee
who tenders previously-acquired shares of common stock to pay all or
part of the exercise price of the option, to receive a replacement
option (a "reload option") to purchase a number of shares equal to the
number of shares tendered at an exercise price equal to the fair market
value of the common stock on the date of exercise. No SARs were granted
to Messrs. Sherertz, Mulholland or McLaughlin during 1995.
(2) The values shown have been calculated based on the Black-Scholes option
pricing model and do not reflect the effect of restrictions on
transferability or vesting. The values were calculated based on the
following assumptions: (i) expectations regarding volatility of 50%
were based on monthly stock price data for the Company; (ii) the risk-
free rate of return was assumed to be the Treasury Bond rate whose
maturity corresponds to the maturity of the option granted; and (iii) no
dividends on the Barrett common stock will be paid during the option
term. The values which may ultimately be realized will depend on the
market value of the common stock during the periods during which the
options are exercisable, which may vary significantly from the
assumptions underlying the Black-Scholes model.
Information concerning each exercise of stock options and the fiscal
year-end value of unexercised options held by Messrs. Sherertz, Mulholland and
McLaughlin as of December 31, 1995 is summarized in the table below.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values (1)
Number of Value of
Securities Unexercised
Underlying Unexer- In-the-
cised Options at Money Options at
Shares Fiscal Year-End Fiscal Year-End (2)
Acquired Value --------------- ------------------
on Exer- Realized Exer- Unexer- Exer- Unexer-
Name cise (#) ($) cisable cisable cisable cisable
---- -------- -------- ------- ------- ------- -------
William W. Sherertz -- -- 42,000 157,500 $330,750 $669,375
Michael D. Mulholland -- -- 5,000 45,000 20,000 62,500
Christopher J.
McLaughlin -- -- 7,000 43,000 48,750 103,875
- --------------------------
(1) Messrs. Sherertz, Mulholland and McLaughlin did not exercise any SARs
during 1995 and did not hold any SARs at December 31, 1995.
(2) The values shown have been calculated based on the difference between
$14.75, which was the closing sale price of Barrett common stock
reported on The Nasdaq Stock Market on December 29, 1995, and the per
share exercise price of unexercised options.
Directors' Compensation
Under the standard arrangement in effect at the end of 1995, directors
(other than directors who are full-time employees of the Company, who do not
receive directors' fees) are entitled to receive a fee of $500 for each Board
meeting attended and each meeting of a committee of the Board attended other
than a committee meeting held on the same day as a Board meeting.
In June 1993, concurrent with the closing of the Company's initial
public offering, each person who was then a non-employee director of the
Company received a nonqualified option, as adjusted for the May 1994 two-for-
one stock split, to purchase 3,000 shares of the Company's common stock at an
exercise price of $3.50. Also, a nonqualified option for 1,000 shares of
common stock (adjusted for the stock split) is granted automatically to each
non-employee director whose term begins on or continues after the date of each
annual meeting of stockholders at an exercise price equal to the fair market
value of the common stock on the date of the meeting. Accordingly, on May 18,
1995, Messrs. Ames, Beaudoin, Gregg, Meeker and Renecker each received an
option for 1,000 shares at an exercise price of $11.50 per share.
Payment of the exercise price of options granted to non-employee
directors may be in cash or in previously-acquired shares of Barrett common
stock. Each option includes a reload option feature to the extent that
previously-acquired shares are used to pay the exercise price. Non-employee
director options (other than reload options) become exercisable in four equal
annual installments beginning one year after the date of grant. Reload
options become exercisable six months following the date of grant. All
options granted to a non-employee director will be exercisable in full upon
the director's death, disability or retirement, or in the event of a change in
control of the Company. The option term will expire three months following
the date upon which the holder ceases to be a director other than by reason of
death, disability or retirement; in the event of death or disability, the
option will expire one year thereafter, while non-employee director options
will expire five years after retirement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table gives certain information regarding the beneficial
ownership of Barrett common stock as of February 1, 1996, by each director, by
each executive officer named in Item 11 above, and by all directors and
executive officers of the Company as a group. In addition, it gives
information about each person or group known to the Company to own
beneficially more than 5% of the outstanding shares of its common stock.
Information as to beneficial stock ownership is based on data furnished by the
persons concerning whom such information is given. Unless otherwise
indicated, all shares listed as beneficially owned are held with sole voting
and dispositive power.
Amount and
Name and Nature of Percent
Address of Beneficial of
Beneficial Owner Ownership Class
---------------- ---------- -----
Robert R. Ames 2,000(1) *
Jeffrey L. Beaudoin 6,900(1)(2) *
Stephen A. Gregg 1,000 *
Christopher J. McLaughlin 14,400(1) *
Anthony Meeker 2,450(1) *
Michael D. Mulholland 5,000(1) *
Stanley G. Renecker 2,000(1) *
Nancy B. Sherertz
27023 Rigby Lot Road
Easton, Maryland 21601 1,659,000 25.3%
William W. Sherertz
4724 S.W. Macadam Avenue
Portland, Oregon 97201 1,841,600(1) 27.8%
Wasatch Advisors, Inc.
68 South Main Street
Suite 400
Salt Lake City, Utah 84101 548,675(3) 8.4%
All directors and executive
officers as a group
(10 persons) 1,880,350(1) 28.3%
* Less than 1% of the outstanding shares of Common Stock.
(1) Includes options to purchase Barrett common stock which are presently
exercisable as follows: Mr. Ames, 2,000 shares; Mr. Beaudoin, 2,000
shares; Mr. McLaughlin, 12,000 shares; Mr. Meeker, 2,000 shares;
Mr. Mulholland, 5,000 shares; Mr. Renecker, 2,000 shares; Mr. Sherertz,
59,500 shares; and all directors and executive officers as a group,
89,500 shares.
(2) Includes 400 shares owned by Mr. Beaudoin's wife as to which he shares
voting and dispositive powers.
(3) A registered investment advisor who has filed a report of beneficial
ownership on Schedule 13G reporting sole voting and dispositive power
as to the indicated shares.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
William W. Sherertz agreed, at December 31, 1993, to personally
guarantee, at no cost to the Company and pursuant to the approval of a
majority of the disinterested outside directors, the repayment of a $111,000
account receivable from an unrelated, insolvent customer. The Company
exercised its right to the personal garantee during 1995 and accordingly,
Mr. Sherertz surrendered to the Company 7,400 shares of the Company's common
stock with a then-fair market value of $111,000 or $15.00 per share in
satisfaction of the guarantee.
Robert R. Ames, a director of the Company, was Vice Chairman of the
board of directors of First Interstate Bank of Oregon, N.A. through June 1995,
which bank has provided an unsecured revolving credit facility in the amount
of $4,000,000 and mortgage financing totaling approximately $629,000 to the
Company.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of the board of directors of
the Company during 1995 were Jeffrey L. Beaudoin, Stephen A. Gregg and Anthony
Meeker. During 1995, the Company provided services to Rose City Moving &
Storage Co., of which Mr. Beaudoin, a Barrett director and a member of its
compensation committee, is President and a majority stockholder. Barrett
recorded revenues and cost of revenues during 1995 related to such services of
$3,753,000 and $3,661,000, respectively. At December 31, 1995, the Company's
assets included trade accounts receivable totaling $160,000 with respect to
the above services; the highest amount of such receivables outstanding at any
time during 1995 was $187,000 as of September 30, 1995.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2.
The financial statements listed in the index set forth in Item 8
of this report are filed as part of this report.
(b) 3.
Exhibits are listed in the Exhibit Index beginning on page 51 of
this report. Each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report is
listed under Item 10, "Executive Compensation Plans and Arrangements
and Other Management Contracts," in the Exhibit Index.
(c) Reports on Form 8-K.
No Current Reports on Form 8-K were filed by the Registrant during
the quarter ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BARRETT BUSINESS SERVICES, INC.
--------------------------------------
Registrant
Date: March 26, 1996 By: /s/William W. Sherertz
William W. Sherertz
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 26th day of March, 1996.
Principal Executive Officer and Director:
/s/William W. Sherertz President and Chief Executive Officer
William W. Sherertz and Director
Principal Financial Officer:
/s/Michael D. Mulholland Vice President-Finance and
Michael D. Mulholland Secretary
Principal Accounting Officer:
/s/James D. Miller Controller
James D. Miller
Other Directors:
* Director
Robert R. Ames
* Director
Jeffrey L. Beaudoin
* Director
Stephen A. Gregg
* Director
Anthony Meeker
* Director
Stanley G. Renecker
* By /s/Michael D. Mulholland
Michael D. Mulholland
Attorney-in-fact
EXHIBIT INDEX
Exhibits
3.1 Charter of the registrant, as amended. Incorporated by reference to
Exhibit 3 to the registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.
3.2 Bylaws of the registrant, as amended. Incorporated by reference to
Exhibit 3.2 to the registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.
4.1 Loan Agreement between the registrant and First Interstate Bank of
Oregon, N.A., dated August 12, 1993 ("Loan Agreement"). Incorporated by
reference to Exhibit 10 to the registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993.
4.2 First Amendment to Loan Agreement dated March 29, 1994. Incorporated by
reference to Exhibit 4 to the registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994.
4.3 Second Amendment to Loan Agreement dated May 31, 1994, together with
Optional Advance Note dated May 31, 1994. Incorporated by reference to
Exhibit 4 to the registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.
4.4 Third Amendment to Loan Agreement dated January 3, 1995, together with
Optional Advance Note dated January 3, 1995. Incorporated by reference
to Exhibit 4.4 to the registrant's Annual Report on Form 10-K for the
year ended December 31, 1994.
4.5 Fourth Amendment to Loan Agreement dated June 1, 1995, together with
Optional Advance Note dated June 1, 1995 and Interest Rate Option
Agreement dated June 1, 1995. Incorporated by reference to Exhibit 4.4
to the registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995.
The registrant has incurred other long-term indebtedness as to
which the amount involved is less than 10 percent of the
registrant's total assets. The registrant agrees to furnish
copies of the instruments relating to such indebtedness to the
Commission upon request.
10 Executive Compensation Plans and Arrangements and Other Management
Contracts.
10.1 1993 Stock Incentive Plan of the registrant as amended March 8,
1994. Incorporated by reference to Exhibit 10.1 to the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.2 Form of Indemnification Agreement with each director of the
registrant. Incorporated by reference to Exhibit 10.8 to the
registrant's Registration Statement on Form S-1 (No.33-61804).
11 Statement of Calculation of Average Common Shares Outstanding.
23 Consent of Price Waterhouse LLP, independent accountants.
24 Power of attorney of certain officers and directors.
27 Financial Data Schedule.
Other exhibits listed in Item 601 of Regulation S-K are not applicable.