10-K: Annual report pursuant to Section 13 and 15(d)

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

FORM 10-K

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

For the fiscal year ended December 31, 2002
Commission File Number 0-21886

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

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

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

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

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

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

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

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 common equity held by
non-affiliates of the Registrant: $8,164,615 at June 28, 2002.

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 28, 2003
----- --------------------------------
Common Stock, Par Value $.01 Per Share 5,751,035 Shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 2003 Annual Meeting of
Stockholders are hereby incorporated by reference into Part III of Form 10-K.




BARRETT BUSINESS SERVICES, INC.
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

PART I Page
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Item 1. Business 2

Item 2. Properties 11

Item 3. Legal Proceedings 11

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

Executive Officers of the Registrant 12

PART II

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

Item 6. Selected Financial Data 14

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

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

Item 8. Financial Statements and Supplementary Data 25

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

PART III

Item 10. Directors and Executive Officers of the Registrant 26

Item 11. Executive Compensation 26

Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 26

Item 13. Certain Relationships and Related Transactions 26

Item 14. Controls and Procedures 27


PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 28

Financial Statements F-1

Signatures and Certifications

Exhibit Index

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PART I



Item 1. BUSINESS

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

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

Barrett provides services to a diverse array of customers, including, among
others, electronics manufacturers, various light-manufacturing industries,
forest products and agriculture-based companies, transportation and shipping
enterprises, food processing, telecommunications, public utilities, general
contractors in numerous construction-related fields and various professional
services firms. During 2002, the Company provided staffing services to
approximately 2,900 customers, down from 3,300 in 2001. Although a majority of
the Company's staffing customers are small to mid-sized businesses, during 2002
approximately 20 of the Company's customers each utilized Barrett employees in a
number ranging from at least 200 employees to as many as 425 employees through
various staffing services arrangements. In addition, Barrett had approximately
300 PEO clients at December 31, 2002, compared to 380 at December 31, 2001 and
Barrett employed approximately 3,100 and 3,500 employees pursuant to PEO
contracts at December 31, 2002 and 2001, respectively. The decrease in the
number of PEO customers at December 31, 2002 was primarily due to the Company's
decision to discontinue doing business with customers who were not providing
adequate profit margins or represented unacceptable levels of risk associated
with credit or workplace safety.

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PART I

The Company operates through a network of 26 branch offices in Oregon,
California, Washington, Maryland, Delaware, Arizona and North Carolina. Barrett
also has several smaller recruiting offices in its general market areas under
the direction of a branch office.

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

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

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

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

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

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

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PART I

125 cafeteria plan, life and disability insurance, claims
administration and a nonqualified deferred compensation plan.

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

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

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

STAFFING SERVICES. Barrett's staffing services include on-demand or
short-term staffing assignments, contract staffing, long-term or indefinite-term
on-site management and human resource administration. Short-term staffing
involves employee demands caused by such factors as seasonality, fluctuations in
customer demand, vacations, illnesses, parental leave, and special projects
without incurring the ongoing expense and administrative responsibilities
associated with recruiting, hiring and retaining additional permanent employees.
As more and more companies focus on effectively managing variable costs and
reducing fixed overhead, the use of employees on a short-term basis allows firms
to utilize the "just-in-time" approach for their personnel needs, thereby
converting a portion of their fixed personnel costs to a variable expense.

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

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PART I

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

The Company's staffing services customers operate in a broad range of
businesses, including forest products and agriculture-based companies,
electronic manufacturers, transportation and shipping companies, food
processors, professional firms and construction contractors. Such customers
range in size from small local firms to companies with international operations,
which use Barrett's services on a domestic basis. None of the Company's staffing
services customers individually accounted for more than 3% of its total 2002
revenues.

In 2002, the light industrial sector generated approximately 73% of the
Company's staffing services revenues, while clerical office staff accounted for
21% of such revenues and technical personnel represented the balance of 6%.
Light industrial workers in the Company's employ perform such tasks as operation
of machinery, manufacturing, loading and shipping, site preparation for special
events, construction-site cleanup and janitorial services. Technical personnel
include electronic parts assembly workers and designers and drafters of
electronic parts.

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

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

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

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

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PART I

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

The Company began offering PEO services to Oregon customers in 1990 and
subsequently expanded these services to other states. The Company has entered
into co-employer arrangements with a wide variety of clients, including
companies involved in moving and shipping, professional firms, construction,
retail, manufacturing and distribution businesses. PEO clients are typically
small to mid-sized businesses with up to 100 employees. None of the Company's
PEO clients individually accounted for more than 3% of its total annual revenues
during 2002.

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

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

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

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

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


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PART I

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

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

SELF INSURANCE FOR WORKERS' COMPENSATION. In August 1987, Barrett became a
self-insured employer for workers' compensation coverage in Oregon. The Company
subsequently obtained self-insured employer status for workers' compensation in
four additional states, Maryland, Washington, Delaware and California. In
addition, in May 1995, the Company was granted self-insured employer status by
the U.S. Department of Labor for longshore and harbor ("USL&H") workers'
compensation coverage. Effective April 16, 2001, the Company voluntarily elected
to terminate its USL&H self-insured status. Regulations governing self-insured
employers in each jurisdiction 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.

To manage its financial exposure from the incidence of catastrophic
injuries and fatalities, the Company maintains excess workers' compensation
insurance pursuant to an annual policy with a major insurance company. Through
December 31, 2001, such excess insurance included a self-insured retention or
deductible of $350,000. Beginning January 1, 2002, the Company's excess workers'
compensation insurance policy provided coverage for single occurrences exceeding
$750,000 with statutory limits. Effective January 1, 2003, the per occurrence
retention remained at $750,000, but the policy limit was changed to $20 million.
The excess-insurance policy contains 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.

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

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PART I

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

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

WORKERS' COMPENSATION CLAIMS EXPERIENCE AND RESERVES

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

As part of the case reserving process, historical data is reviewed and
consideration is given to the anticipated effect of various factors, including
known and anticipated legal developments, inflation and economic conditions.
Reserve amounts are necessarily based on management's estimates, and as other
data becomes available, these estimates are revised, which may result in
increases or decreases in existing case reserves. Barrett has engaged a
nationally-recognized, independent actuary to review annually the Company's
total workers' compensation claims liability and reserving practices. Based in
part on such review, the Company believes its total accrued workers'
compensation claims liabilities at December 31, 2002, are adequate. It is
possible, however, that the Company's actual future workers' compensation
obligations may exceed the amount of its accrued liabilities, with a
corresponding negative effect on future earnings, due to such factors as
unanticipated adverse loss development of known claims, and the effect, if any,
of claims incurred but not reported. Refer to Part II, Item 7, under the heading
"Critical Accounting Policies".

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

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PART I


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

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

EMPLOYEES AND EMPLOYEE BENEFITS
At December 31, 2002, the Company had approximately 8,380 employees,
including approximately 5,100 staffing services employees, approximately 3,100
PEO employees and approximately 180 managerial, sales and administrative
employees. The number of employees at any given time may vary significantly due
to business conditions at customer or client companies. During 2002, less than
1% of the Company's employees were covered by a collective bargaining agreement.
Each of Barrett's managerial, sales and administrative employees has entered
into a standard form of employment agreement which, among other provisions,
contains covenants not to engage in certain activities in competition with the
Company for 18 months following termination of employment and to maintain the
confidentiality of certain proprietary information. Barrett believes its
employee relations are good.

Benefits offered to Barrett's staffing services employees include group
health insurance, a Section 125 cafeteria plan which permits employees to use
pretax earnings to fund various services, including medical, dental and
childcare, 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. In addition, the Company offers a nonqualified deferred compensation
plan for highly compensated employees who are precluded from participation in
the 401(k) plan. Employees subject to a co-employer arrangement 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. See
"Regulatory and Legislative Issues--Employee Benefit Plans."

REGULATORY AND LEGISLATIVE ISSUES
BUSINESS OPERATIONS. The Company is subject to the laws and regulations of
the jurisdictions within which it operates, including those governing
self-insured employers under the workers' compensation systems in Oregon,
Washington, Maryland, Delaware and California. An Oregon PEO company, such as
Barrett, is required to be licensed as a worker-leasing company by the Workers'
Compensation Division of the Oregon Department of Consumer and Business
Services. Temporary staffing companies are expressly exempt from the Oregon
licensing requirement. Oregon PEO companies are also required to ensure that
each PEO client provides adequate training and supervision for its employees to
comply with statutory requirements for workplace safety and to give 30 days
written notice in the event of a termination of its obligation to provide
workers' compensation coverage for PEO employees and other subject employees of
a PEO client. Although compliance with these requirements imposes some
additional financial risk on Barrett, particularly with respect to those clients
who


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PART I


breach their payment obligation to the Company, such compliance has not had a
significant adverse impact on Barrett's business to date.

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

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

The Company offers various qualified employee benefit plans to its
employees, including its work-site employees. These employee benefit plans
include a savings plan (the "401(k) 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 and a group disability insurance plan.
In addition, the Company offers a nonqualified deferred compensation plan, which
is available to highly compensated employees who are not eligible to participate
in the Company's 401(k) plan. Generally, qualified employee benefit plans are
subject to provisions of both the Code and the Employee Retirement Income
Security Act of 1974 ("ERISA"). In order to qualify for favorable tax treatment
under the Code, qualified plans must be established and maintained by an
employer for the exclusive benefit of its employees. See Item 7 of this report
for a discussion of issues regarding qualification of the Company's employee
benefit plans arising out of participation by the Company's PEO employees.

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

Although there are believed to be at least 800 companies currently offering
PEO services in the U.S., many of these potential competitors are located in
states in which the Company presently does not operate. Barrett believes that
there are approximately 60 firms offering PEO services in Oregon, but the
Company has the largest presence in the state. During 2002, approximately 63%
and 31% of the Company's PEO service fee revenues were earned in Oregon and
California, respectively.

-10-
PART I

The Company may face additional PEO competition in the future from new
entrants to the field, including other staffing services companies, payroll
processing companies and insurance companies. Certain PEO companies operating in
areas in which Barrett does not now, but may in the future, offer its services
have greater financial and marketing resources than the Company, such as
Administaff, Inc., Gevity HR, Inc. and Paychex, Inc., among others. Competition
in the PEO industry is based largely on price, although service and quality can
also provide competitive advantages. Barrett believes that its past growth in
PEO service fee revenues is attributable to its ability to provide small and
mid-sized companies with the opportunity to provide enhanced benefits to their
employees while reducing their overall personnel administration and workers'
compensation costs. The Company's competitive advantage may be adversely
affected by a substantial increase in the costs of maintaining its self-insured
workers' compensation program. A general market decrease in the level of
workers' compensation insurance premiums may also decrease demand for PEO
services.


Item 2. PROPERTIES

The Company provides staffing and PEO services through all 26 of its branch
offices. The following table shows the number of branch offices located in each
state in which the Company operates. The Company's California and Oregon offices
accounted for 44% and 30%, respectively, of its total revenues in 2002. The
Company also leases office space in other locations in its market areas which it
uses to recruit and place employees.

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

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

The Company's corporate headquarters are located in an office building in
Portland, Oregon, with approximately 9,500 square feet of office space. The
building is subject to a mortgage loan with a principal balance of approximately
$347,000 at December 31, 2002. The Company also owns one other office building,
in Portland, Oregon with approximately 8,200 square feet of office space, which
houses its Portland/Bridgeport branch office. The Company recently entered into
a definitive agreement with a third party for the sale and leaseback of both
properties to the Company pursuant to long-term leases. Refer to Part II, Item
7, under the heading "Liquidity and Capital Resources" below.

Barrett leases office space for its other branch offices. At December 31,
2002, such leases had expiration dates ranging from less than one year to five
years, with total minimum payments through 2007 of approximately $2,747,000.


Item 3. LEGAL PROCEEDINGS

There were no material legal proceedings pending against the Company at
December 31, 2002, or during the period beginning with that date through March
31, 2003.


-11-
PART I

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 2002.


EXECUTIVE OFFICERS OF THE REGISTRANT

The following table identifies, as of February 28, 2003, each executive
officer of the Company. Executive officers are elected annually and serve at the
discretion of the Board of Directors.

Officer
Name Age Principal Positions and Since
Business Experience
- --------------------------------------------------------------------------------

William W. 57 President; Chief Executive 1980
Sherertz Officer; Director

Michael D. 51 Vice President-Finance and 1994
Mulholland Secretary; Chief Financial
Officer

Gregory R. Vaughn 47 Vice President 1998

James D. Miller 39 Controller and Assistant 1994
Secretary; Principal Accounting
Officer

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

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

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

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

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

-12-


PART II


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

The Company's common stock (the "Common Stock") trades on The Nasdaq Stock
Market's SmallCap(TM) tier under the symbol "BBSI." At February 28, 2003, there
were 61 stockholders of record and approximately 500 beneficial owners of the
Common Stock. The Company has not declared or paid any cash dividends since the
closing of its initial public offering of Common Stock on June 18, 1993, and has
no present plan to pay any cash dividends in the foreseeable future. The
following table presents the high and low sales prices of the Common Stock for
each quarterly period during the last two fiscal years, as reported by The
Nasdaq Stock Market:


High Low
----------- ---------
2001
----
First Quarter $ 4.00 $ 3.38
Second Quarter 3.97 3.30
Third Quarter 4.25 3.05
Fourth Quarter 5.06 3.04

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



-13-
PART II

Item 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the Company's financial statements and the accompanying notes listed in Item 15
of this report. The Company's financial statements for the years ended December
31, 2001, 2000, 1999 and 1998 have been restated because the Company has
determined that it is not the primary obligor for the services provided by
employees pursuant to its PEO arrangements. Accordingly, the requirements of
EITF 99-19, "Reporting Revenues Gross as a Principal Versus Net as an Agent",
require that it not reflect the direct payroll costs paid to such employees and
its PEO customers in both revenues and cost of revenues. Professional employer
service fees and direct payroll costs were both reduced by $77,272, $111,838,
$128,426 and $113,710 (in thousands) for the years ended December 31, 2001,
2000, 1999 and 1998, respectively. Quarterly amounts appearing in Note 17 have
been restated for the first, second, and third quarters of 2002 and all quarters
for the years ended December 31, 2001 and 2000.