10-Q: Quarterly report pursuant to Section 13 or 15(d)

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


FORM 10-Q


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

For the Quarterly Period Ended June 30, 2001
Commission File No. 0-21886


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

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

4724 SW Macadam Avenue
Portland, Oregon 97201
(Address of principal executive offices) (Zip Code)

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

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

Yes [ X ] No [ ]

Number of shares of Common Stock, $.01 par value, outstanding at July 31, 2001
was 6,175,398 shares.



INDEX

Part I - Financial Information Page
----

Item 1. Financial Statements

Balance Sheets - June 30, 2001 and
December 31, 2000..............................................3

Statements of Operations - Three Months
Ended June 30, 2001 and 2000...................................4

Statements of Operations - Six Months
Ended June 30, 2001 and 2000...................................5

Statements of Cash Flows - Six Months
Ended June 30, 2001 and 2000...................................6

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

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................................10

Item 3. Quantitative and Qualitative Disclosure About
Market Risk...................................................17


Part II - Other Information

Item 4. Submission of Matters to a Vote of Security Holders...........18

Item 6. Exhibits and Reports on Form 8-K..............................18


Signatures ..............................................................19


Exhibit Index ..............................................................20

2
Part I - Financial Information

Item 1. Financial Statements

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

June 30, December 31,
2001 2000
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 697 $ 516
Trade accounts receivable, net 15,903 20,660
Prepaid expenses and other 1,685 1,222
Deferred tax assets 2,386 2,702
--------- --------
Total current assets 20,671 25,100

Intangibles, net 19,909 20,982
Property and equipment, net 6,547 7,177
Restricted marketable securities and workers'
compensation deposits 4,174 4,254
Unrestricted marketable securities 1,311 1,386
Deferred tax assets 1,039 839
Other assets 1,321 1,374
--------- --------
$ 54,972 $ 61,112
--------- --------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,056 $ 2,939
Line of credit 2,824 2,628
Accounts payable 551 1,013
Accrued payroll, payroll taxes and related benefits 7,756 7,893
Workers' compensation claims and safety incentive
liabilities 5,187 5,274
Other accrued liabilities 531 1,622
--------- --------
Total current liabilities 17,905 21,369

Long-term debt, net of current portion 372 1,508
Customer deposits 488 614
Long-term workers' compensation claims liabilities 674 682
Other long-term liabilities 2,045 2,022
--------- --------
21,484 26,195
--------- --------

Commitments and contingencies

Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized,
6,175 and 6,451 shares issued and outstanding 62 64
Additional paid-in capital 4,355 5,387
Retained earnings 29,071 29,466
--------- --------
33,488 34,917
--------- --------
$ 54,972 $ 61,112
========= ========

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

3




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


Three Months Ended
June 30,
----------------------
2001 2000
---------- ----------
Revenues:
Staffing services $ 29,949 $ 51,698
Professional employer services 22,602 34,804
---------- ----------
52,551 86,502
---------- ----------
Cost of revenues:
Direct payroll costs 40,623 67,155
Payroll taxes and benefits 4,309 7,306
Workers' compensation 2,441 3,263
---------- ----------
47,373 77,724
---------- ----------
Gross margin 5,178 8,778

Selling, general and administrative expenses 4,652 6,464
Depreciation and amortization 822 822
---------- ----------
(Loss) income from operations (296) 1,492
---------- ----------
Other (expense) income:
Interest expense (87) (238)
Interest income 73 86
Other, net (1) 1
---------- ----------
(15) (151)
---------- ----------
(Loss) income before provision for income taxes (311) 1,341
(Benefit from) provision for income taxes (127) 547
---------- ----------
Net (loss) income $ (184) $ 794
========== ==========
Basic (loss) earnings per share $ (.03) $ .11
========== ==========
Weighted average number of basic shares outstanding 6,252 7,416
========== ==========
Diluted (loss) earnings per share $ (.03) $ .11
========== ==========
Weighted average number of diluted shares outstanding 6,252 7,459
========== ==========
The accompanying notes are an integral part of these financial statements.

4




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


Six Months Ended
June 30,
----------------------
2001 2000
---------- ----------
Revenues:
Staffing services $ 61,221 $ 99,465
Professional employer services 46,483 74,159
---------- ----------
107,704 173,624
---------- ----------
Cost of revenues:
Direct payroll costs 83,383 135,159
Payroll taxes and benefits 9,183 15,224
Workers' compensation 4,618 5,860
---------- ----------
97,184 156,243
---------- ----------
Gross margin 10,520 17,381

Selling, general and administrative expenses 9,528 12,949
Depreciation and amortization 1,651 1,553
---------- ----------
(Loss) income from operations (659) 2,879
---------- ----------
Other (expense) income:
Interest expense (208) (459)
Interest income 154 172
Other, net 46 4
---------- ----------
(8) (283)
---------- ----------
(Loss) income before provision for income taxes (667) 2,596
(Benefit from) provision for income taxes (272) 1,058
---------- ----------
Net (loss) income $ (395) $ 1,538
========== ==========
Basic (loss) earnings per share $ (.06) $ .21
========== ==========
Weighted average number of basic shares outstanding 6,326 7,438
========== ==========
Diluted (loss) earnings per share $ (.06) $ .21
========== ==========
Weighted average number of diluted shares outstanding 6,326 7,484
========== ==========

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

5




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


Six Months Ended
June 30,
---------------------
2001 2000
---------- ----------
Cash flows from operating activities:
Net (loss) income $ (395) $ 1,538
Reconciliations of net (loss) income to
cash from operations:
Depreciation and amortization 1,651 1,553
Gain on sale of property (46) -
Changes in certain assets and liabilities:
Trade accounts receivable, net 4,757 765
Prepaid expenses and other (463) 11
Deferred tax assets 116 (753)
Accounts payable (462) (737)
Accrued payroll, payroll taxes and related benefits (137) 577
Workers' compensation claims and safety incentive
liabilities (87) 482
Other accrued liabilities (1,091) 290
Customer deposits and long-term workers' compensation
liabilities and other assets, net (81) (287)
Other long-term liabilities 23 195
---------- ----------
Net cash provided by operating activities 3,785 3,634
---------- ----------
Cash flows from investing activities:
Cash paid for acquisitions, including other direct costs - (67)
Proceeds from sale of property 266 -
Purchase of fixed assets (168) (911)
Proceeds from maturities of marketable securities 239 853
Purchase of marketable securities (84) (637)
---------- ----------
Net cash provided by (used in) investing activities 253 (762)
---------- ----------
Cash flows from financing activities:
Net proceeds from credit-line borrowings 196 110
Payments on long-term debt (3,019) (1,389)
Payment of notes payable - (865)
Repurchase of common stock (1,034) (974)
Proceeds from exercise of stock options - 28
---------- ----------
Net cash used in financing activities (3,857) (3,090)
---------- ----------
Net increase (decrease) in cash and cash equivalents 181 (218)

Cash and cash equivalents, beginning of period 516 550
---------- ----------
Cash and cash equivalents, end of period $ 697 $ 332
========== ==========

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

6


BARRETT BUSINESS SERVICES, INC.
Notes to Financial Statements

Note 1 - Basis of Presentation of Interim Period Statements:

The accompanying financial statements are unaudited and have been
prepared by Barrett Business Services, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures typically included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, the financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the interim periods presented. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from such estimates and assumptions. The financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's 2000 Annual Report on Form 10-K at
pages F1 - F20. The results of operations for an interim period are not
necessarily indicative of the results of operations for a full year.

Note 2 - Recent Accounting Pronouncements:

In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 141 ("SFAS 141") "Business
Combinations" and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets."
The Company's adoption date for SFAS 141 is immediate and the anticipated
adoption date for SFAS 142 is January 1, 2002. With respect to SFAS 142, we will
perform a goodwill impairment test as of the adoption date as required.
Thereafter, we will perform a goodwill impairment test annually and whenever
events or circumstances occur indicating that goodwill might be impaired.
Amortization of goodwill, including goodwill recorded in past business
combinations, will cease. We have not yet determined what the impact from SFAS
142 will be on our results of operations and financial position.

Note 3 - Provision For Income Taxes:

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

June 30, December 31,
2001 2000
----------- -----------

Gross deferred tax assets:
Workers' compensation claims and safety
incentive liabilities $ 2,244 $ 2,206
Allowance for doubtful accounts 101 205
Amortization of intangibles 577 519
Deferred compensation 408 408
Other 190 289
-------- --------
3,520 3,627
-------- --------
Gross deferred tax liabilities:
Tax depreciation in excess of book
depreciation (95) (86)
-------- --------
Net deferred tax assets $ 3,425 $ 3,541
======== ========

7



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


Note 3 - Provision For Income Taxes (Continued):

The (benefit from) provision for income taxes for the six months
ended June 30, 2001 and 2000 is as follows (in thousands):

Six Months Ended
June 30,
-------------------
2001 2000
--------- ---------
Current:
Federal $ (324) $ 1,423
State (64) 388
--------- ---------
(388) 1,811
--------- ---------
Deferred:
Federal 102 (606)
State 14 (147)
--------- ---------
116 (753)
--------- ---------
(Benefit from) provision for income taxes $ (272) $ 1,058
========= =========


Note 4 - Stock Incentive Plan:

The Company has a Stock Incentive Plan (the "Plan") which provides
for stock-based awards to the Company's employees, directors and outside
consultants or advisers. The number of shares of common stock reserved for
issuance under the Plan is 1,550,000.

The following table summarizes options granted under the Plan in 2001:

Outstanding at December 31, 2000 955,662 $1.93 to $17.94

Options granted 99,248 $1.45 to $3.75
Options exercised -
Options canceled or expired (13,600) $6.50 to $8.91
----------

Outstanding at June 30, 2001 1,041,310 $1.45 to $17.94
==========

Exercisable at June 30, 2001 729,217
==========

Available for grant at June 30, 2001 284,256
==========


The options listed in the table generally become exercisable in four equal
annual installments beginning one year after the date of grant.

8

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

Note 4 - Stock Incentive Plan (Continued):

Certain of the Company's zone and branch management employees elect
to receive a portion of their quarterly cash profit sharing distribution in the
form of nonqualified deferred compensation stock options. Such options are
awarded at a sixty percent discount from the then-fair market value of the
Company's stock and are fully vested and immediately exercisable upon grant.
Such discounts are recorded as compensation expense within selling, general and
administrative expenses. The amount of the grantee's deferred compensation
(discount from fair market value) is subject to market risk. During the first
six months of 2001, the Company awarded deferred compensation stock options for
9,786 shares at exercise prices ranging from $1.45 to $1.49 per share.


9


BARRETT BUSINESS SERVICES, INC.


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

Results of Operations
- ---------------------
The following table sets forth the percentages of total revenues
represented by selected items in the Company's Statements of Operations for the
three and six months ended June 30, 2001 and 2000.

Percentage of Total Revenues
------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------
2001 2000 2001 2000
------- ------- ------- -------
Revenues:
Staffing services 57.0 % 59.8 % 56.8 % 57.3 %
Professional employer services 43.0 40.2 43.2 42.7
------- ------- ------- -------
100.0 100.0 100.0 100.0
------- ------- ------- -------
Cost of revenues:
Direct payroll costs 77.3 77.6 77.4 77.8
Payroll taxes and benefits 8.2 8.5 8.5 8.8
Workers' compensation 4.6 3.8 4.3 3.4
------- ------- ------- -------
Total cost of revenues 90.1 89.9 90.2 90.0
------- ------- ------- -------

Gross margin 9.9 10.1 9.8 10.0

Selling, general and administrative
expense 8.9 7.4 8.9 7.4
Depreciation and amortization 1.6 0.9 1.5 0.9
------- ------- ------- -------
(Loss) income from operations (0.6) 1.8 (0.6) 1.7

Other expense - (0.2) - (0.2)
------- ------- ------- -------

(Loss) income before provision for
income taxes (0.6) 1.6 (0.6) 1.5

(Benefit from) provision for
income taxes (0.2) 0.7 (0.2) 0.6
------- ------- ------- -------
Net (loss) income (0.4)% 0.9 % (0.4)% 0.9 %
======= ======= ======= =======

Three months ended June 30, 2001 and 2000

Net loss for the second quarter of 2001 was $184,000, a decline of
$978,000 from net income of $794,000 for the second quarter of 2000. The decline
for the second quarter of 2001 was attributable to lower gross margin dollars as
a result of a 39.2% decrease in revenue, offset in part by a 28.0% reduction in
selling, general and administrative expenses. Basic and diluted loss per share
for the second quarter of 2001 were $.03 as compared to basic and diluted
earnings per share of $.11 for the second quarter of 2000.

10


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

Results of Operations (Continued)
- --------------------------------
Revenues for the second quarter of 2001 totaled approximately $52.6
million, a decrease of approximately $33.9 million or 39.2% from the second
quarter of 2000. The decrease in revenues reflects the general softening of
business conditions in the Company's market areas, particularly in the Company's
Northern California operations, which accounted for nearly 51% of the decline in
total revenues. The Company's Northern California operations have been adversely
affected by the significant downturn in the "high-tech" industry and related
sectors.

Staffing services revenue decreased approximately $21.7 million or 42.1%
primarily due to a decline in demand for personnel in the majority of areas in
which the Company does business. Professional employer ("PEO") services revenue
decreased approximately $12.2 million or 35.1%, which was primarily due to a
57.1% decline in the Company's Northern California region. The decline in PEO
revenues for Northern California from a year ago was due in large part to
management's decision to discontinue its services to a few high volume, low
margin customers. The larger decline in staffing services revenue resulted in a
decrease in the share of staffing services from 59.8% of total revenues for the
second quarter of 2000 to 57.0% for the second quarter of 2001. The share of
revenues for PEO services had a corresponding increase from 40.2% of total
revenues for the second quarter of 2000 to 43.0% for the second quarter of 2001.

Gross margin for the second quarter of 2001 totaled approximately $5.2
million, which represented a decrease of $3.6 million or 41.0% from the second
quarter of 2000 primarily resulting from the 39.2% decline in revenues
experienced in the second quarter of 2001. The gross margin percent decreased
from 10.1% of revenues for the second quarter of 2000 to 9.9% for the second
quarter of 2001. The decrease in the gross margin percentage was due to higher
workers' compensation expense, offset in part by lower direct payroll costs and
lower payroll taxes and benefits. Workers' compensation expense for the second
quarter of 2001 totaled $2.4 million or 4.6% of revenues, which compares to $3.3
million or 3.8% of revenues for the second quarter of 2000. The increase in the
percentage of revenues for workers' compensation expense was primarily
attributable to higher estimates for the cost of claims, as the number of claims
declined on a quarter-over-quarter basis. The decrease in direct payroll costs,
as a percentage of revenues, for the second quarter of 2001 was primarily due to
substantial decreases in contract staffing and on-site management, which
generally have a lower mark-up rate (and thus higher direct payroll costs as a
percentage of revenues) relative to other services provided by the Company and
to a lesser extent higher mark-up rates charged by the Company for its services.
The decline in payroll taxes and benefits, as a percentage of revenues for the
second quarter of 2001, was primarily due to a reduction in state unemployment
tax rates in various states in which the Company operates as compared to the
second quarter of 2000.

Selling, general and administrative ("SG&A") expenses for the 2001 second
quarter amounted to approximately $4.7 million, a decrease of $1.8 million or
28.0% from the comparable period in 2000. SG&A expenses, expressed as a
percentage of revenues, increased from 7.4% for the second quarter of 2000 to
8.9% for the second quarter of 2001. The decrease in total dollars from 2000 was
primarily attributable to branch office reductions in management personnel and
related expenses as a result in the downturn in business.

11



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

Results of Operations (Continued)
- --------------------------------
Depreciation and amortization totaled $822,000 or 1.6% of revenues for the
second quarter of 2001, which was comparable to the total dollars for the same
period in 2000. The expense level remained constant on terms of total dollars
primarily due to a low level of capital expenditures since the second quarter of
2000.

Other expense totaled $15,000 for the second quarter of 2001, which
compares to $151,000 of other expense for the second quarter of 2000. The
decrease in other expense was primarily attributable to a reduction in net
interest expense of $166,000 due to lower debt levels during the second quarter
of 2001 as compared to the same quarter of 2000.

The Company offers various qualified employee benefit plans to its
employees, including its worksite employees. These qualified employee benefit
plans include a savings plan under Section 401(k) of the Internal Revenue Code
(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, qualified 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. 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, such actions could have a material adverse effect on the Company's
business, financial condition and results of operations. Reference is made to
pages 18-19 of the Company's 2000 Annual Report on Form 10-K for a more detailed
discussion of this issue.

Six Months Ended June 30, 2001 and 2000

Net loss for the six months ended June 30, 2001 was $395,000, a decline of
$1,933,000 from net income of $1,538,000 for the same period in 2000. The
decrease in net income was attributable to lower gross margin dollars primarily
resulting from a 38.0% decrease in revenue, partially offset by a 26.4%
reduction in SG&A expenses and a 97.1% reduction in other expenses. Basic and
diluted loss per share for the first six months of 2001 were $.06 as compared to
basic and diluted earnings per share of $.21 for the same period of 2000.

Revenues for the six months ended June 30, 2001 totaled approximately
$107.7 million, a decrease of approximately $65.9 million or 38.0% from the
similar period in 2000. The decrease in total revenues was primarily due to the
continued softening of business conditions in the Company's market areas,
particularly in the Company's Northern California operations, which accounted
for approximately 50% of the decline in total revenues for the first six months
of 2001.

Gross margin for the six months ended June 30, 2001 totaled approximately
$10.5 million, which represented a decrease of $6.9 million or 39.5% from the
similar period of 2000. The gross margin percent decreased from 10.0% of
revenues for the six-month period of 2000 to 9.8% for the same period of 2001.
The decrease in the gross margin percentage was primarily due to higher workers'
compensation expense, partially offset by lower direct payroll costs and lower
payroll taxes and benefits. Workers' compensation expense for the six months
ended June 30, 2001 totaled $4.6 million or 4.3% of revenues, which compares to
$5.9 million

12


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

Results of Operations (Continued)
- --------------------------------
or 3.4% or revenues for the similar period of 2000. The increase in the
percentage of revenues for the 2001 period was primarily due to higher estimates
for the cost of claims, as the number of claims declined compared to the same
period in 2000. The decrease in direct payroll costs, as a percentage of
revenues, was attributable to decreases in contract staffing and on-site
management, of which payroll generally represents a higher percentage of
revenues, and to a lesser extent increases in the rates the Company charges for
its services. The decrease in payroll taxes and benefits for the six-month
period of 2001 was primarily attributable to lower state unemployment tax rates
in various states in which the Company operates as compared to the six-month
period of 2000.

SG&A expenses for the six months ended June 30, 2001 amounted to
approximately $9.5 million, a decrease of $3.4 million or 26.4% from the similar
period of 2000. SG&A expenses, expressed as a percentage of revenues, increased
from 7.4% for the six-month period of 2000 to 8.9% for the same period of 2001.
The decrease in total SG&A dollars was primarily due to reductions in branch
management personnel and related expenses as a result of the downturn in
business.

Depreciation and amortization totaled $1.7 million or 1.5% of revenues for
the six months ended June 30, 2001, which compares to $1.6 million or 0.9% of
revenues for the same period of 2000. The increased expense was primarily due to
recognizing a full six months of expense during 2001 as a result of the March 1,
2000 implementation of the Company's new information system.

Other expense totaled $8,000 for the six-month period ended June 30, 2001,
which compares to $283,000 of other expense for the comparable 2000 period. The
decrease in expense was primarily due to a reduction in net interest expense
attributable to lower debt levels during the first six months of 2001 as
compared to the similar period of 2000.

Fluctuations in Quarterly Operating Results
- -------------------------------------------
The Company has historically experienced significant fluctuations in its
quarterly operating results and expects such fluctuations to continue in the
future. The Company's operating results may fluctuate due to a number of factors
such as seasonality, wage limits on payroll taxes, claims experience for
workers' compensation, demand and competition for the Company's services and the
effect of acquisitions. The Company's revenue levels fluctuate from quarter to
quarter primarily due to the impact of seasonality on its staffing services
business and on certain of its PEO clients in the agriculture and forest
products-related industries. As a result, the Company may have greater revenues
and net income in the third and fourth quarters of its fiscal year. Payroll
taxes and benefits fluctuate with the level of direct payroll costs, but tend to
represent a smaller percentage of revenues and direct payroll later in the
Company's fiscal year as federal and state statutory wage limits for
unemployment and social security taxes are exceeded by some employees. Workers'
compensation expense varies with both the frequency and severity of workplace
injury claims reported during a quarter, as well as adverse loss development of
prior period claims during a subsequent quarter.

13



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

Liquidity and Capital Resources
- -------------------------------
The Company's cash position of $697,000 at June 30, 2001 increased by
$181,000 over December 31, 2000, which compares to a decrease of $218,000 for
the comparable period in 2000. The increase in cash at June 30, 2001, as
compared to December 31, 2000, was primarily attributable to cash provided by
operating activities, offset in part by payments on long-term debt and
repurchases of the Company's common stock.

Net cash provided by operating activities for the six months ended June
30, 2001 amounted to $3,785,000, as compared to $3,634,000 for the comparable
2000 period. For the 2001 period, cash flow was generated by a $4,757,000
decrease in trade accounts receivable, together with depreciation and
amortization, offset in part by decreases in other accrued liabilities and
accounts payable and an increase in prepaid expenses and other.

Net cash provided by investing activities totaled $253,000 for the six
months ended June 30, 2001, as compared to $762,000 net cash used in investing
activities for the similar 2000 period. For the 2001 period, the principal
source of cash provided by investing activities was from net proceeds of
$266,000 associated with the sale of a Company-owned office condominium and
$239,000 of proceeds from maturities of marketable securities, offset in part by
purchases of office equipment. The Company presently has no material long-term
capital commitments.

Net cash used in financing activities for the six-month period ended June
30, 2001 was $3,857,000, compared to $3,090,000 net cash provided by financing
activities for the similar 2000 period. For the 2001 period, the principal use
of cash for financing activities was $3,019,000 of payments made on long-term
debt, primarily related to the $8,000,000 three-year term loan in connection
with the Company's 1999 acquisition of Temporary Skills Unlimited, Inc., and
$1,034,000 used to repurchase the Company's common stock.

The Company's business strategy continues to focus on growth through the
expansion of operations at existing offices, together with the selective
acquisition of additional personnel-related businesses, both in its existing
markets and other strategic geographic areas. The Company periodically explores
proposals for various acquisition opportunities, but there can be no assurance
that any additional transactions will be consummated.

Effective May 31, 2001, the Company's loan agreement with its principal
bank was renewed on terms and conditions which were generally more favorable
than the prior agreement, as amended. The new agreement provides for (1)
borrowings on the revolving credit facility up to the lesser of (i) $13.0
million or (ii) 65 percent of total trade accounts receivable at the end of any
fiscal quarter, and (2) a security interest in all trade accounts receivable.
This facility, which expires July 1, 2002, includes a subfeature for standby
letters of credit in connection with certain workers' compensation surety
arrangements, as to which approximately $3.9 million were outstanding as of June
30, 2001. Additionally, in connection with the loan agreement renewal, the
$8,000,000 three-year term loan related to the Company's acquisition of TSU in
1999 was restructured whereby approximately $1.6 million of the outstanding
principal balance transferred to the revolving credit facility. The remaining
balance of approximately $1.0 million at June 30, 2001, on the term loan was
collateralized by the

14


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

Liquidity and Capital Resources (Continued)
- ------------------------------------------
Company's unrestricted marketable securities with a par value of $1.295 million.
In addition, the monthly debt service on the term loan was reduced from $222,222
per month to $91,667 per month. The maturity date of the term loan, May 31,
2002, remained unchanged. Management expects that the funds anticipated to be
generated from operations, together with the bank-provided credit facility and
other potential sources of financing, will be sufficient in the aggregate to
fund the Company's working capital needs for the foreseeable future.

In February 1999, the Company's Board of Directors authorized a stock
repurchase program to repurchase common shares from time to time in open market
purchases. Since inception, the Board of Directors has approved five increases
in the total number of shares or dollars authorized to be repurchased under the
program. As of June 30, 2001, the repurchase program had authorized availability
of $549,000 for the repurchase of additional shares. During the first six months
of 2001, the Company repurchased 275,300 shares at an aggregate price of
$1,034,000. Since the inception of the repurchase program through August 8,
2001, the Company has repurchased 1,511,700 shares for an aggregate price of
$7,082,000. Management anticipates that the capital necessary to execute this
program will be provided by existing cash balances and other available
resources.

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

Forward-Looking Information
- ---------------------------
Statements in this report which are not historical in nature, including
discussion of economic conditions in the Company's market areas, the potential
for and effect of recent and future acquisitions, the effect of changes in the
Company's mix of services on gross margin, the adequacy of the Company's
workers' compensation reserves and allowance for doubtful accounts, the
effectiveness of the Company's management information systems, the tax-qualified
status of the Company's 401(k) savings plan and the availability of financing
and working capital to meet the Company's funding requirements, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors with
respect to the Company include difficulties associated with integrating acquired
businesses and clients into the Company's operations, economic trends in the
Company's service areas, the effect of power shortages in California and the
Pacific Northwest on the Company's customers, uncertainties regarding government
regulation of PEOs, including the possible adoption by the IRS of an unfavorable

15


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

Forward-Looking Information (Continued)
- --------------------------------------
position as to the tax-qualified status of employee benefit plans maintained by
PEOs, future workers' compensation claims experience, and the availability of
and costs associated with potential sources of financing. The Company disclaims
any obligation to update any such factors or to publicly announce the result of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.

16


Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's exposure to market risk for changes in interest rates
primarily relates to the Company's short-term and long-term debt obligations. As
of June 30, 2001, the Company had interest-bearing debt obligations of
approximately $5.4 million, of which approximately $3.8 million bears interest
at a variable rate and approximately $1.6 million at a fixed rate of interest.
The variable rate debt is comprised of approximately $2.8 million outstanding
under a secured revolving credit facility, which bears interest at the prime
rate less 1.70%. The Company also has a secured term note due May 31, 2002, with
its principal bank, which bears interest at LIBOR plus 1.35%. Based on the
Company's overall interest exposure at June 30, 2001, a 10 percent change in
market interest rates would not have a material effect on the fair value of the
Company's long-term debt or its results of operations. As of June 30, 2001, the
Company had not entered into any interest rate instruments to reduce its
exposure to interest rate risk.



17


Part II - Other Information


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

The Company held its 2001 annual meeting of stockholders on May 17, 2001.
The following directors were elected at the annual meeting:

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

Robert R. Ames 6,249,006 27,535
Thomas J. Carley 6,249,006 27,535
Richard W. Godard 6,162,769 113,772
James B. Hicks 6,248,606 27,935
Anthony Meeker 6,249,006 27,535
Nancy B. Sherertz 6,248,576 27,965
William W. Sherertz 6,162,806 113,735

The other matters presented for action at the annual meeting were approved
by the following vote:

For Against Abstain
---------- ---------- -----------

Approval of the appointment
of PricewaterhouseCoopers LLP
as independent accountants 6,249,531 27,000 10


Item 6. Exhibits and Reports on Form 8-K

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

(b) No Current Reports on Form 8-K were filed by the Registrant
during the quarter ended June 30, 2001.


18


SIGNATURES


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

BARRETT BUSINESS SERVICES, INC.
(Registrant)






Date: August 10, 2001 By: /s/ Michael D. Mulholland
-----------------------------
Michael D. Mulholland
Vice President - Finance
(Principal Financial Officer)


19


EXHIBIT INDEX
Exhibit

4.1 Amendment, dated May 31, 2001, to Loan Agreement between the Registrant
and Wells Fargo Bank, N.A., dated May 31, 2000, Revolving Line of Credit
Note in the amount of $13,000,000 dated May 31, 2001, and related loan
documents

11. Statement of Calculation of Basic and Diluted Common Shares Outstanding


20