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

- --------------------------------------------------------------------------------
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, 2003
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 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.

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

State the aggregate market value of the common equity held by
non-affiliates of the Registrant: $7,360,437 at June 30, 2003.

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 27, 2004
Common Stock, Par Value $.01 Per Share 5,705,050 Shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 2004 Annual Meeting of
Stockholders are hereby incorporated by reference into Part III of Form 10-K.



BARRETT BUSINESS SERVICES, INC.
2003 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

PART I Page

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

Item 9A. Controls and Procedures 26

PART III

Item 10. Directors and Executive Officers of the Registrant 27

Item 11. Executive Compensation 27

Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 27

Item 13. Certain Relationships and Related Transactions 28

Item 14. Principal Accountant Fees and Services 28

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 29

Financial Statements F-1

Signatures

Exhibit Index

-1-


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 2003, Barrett's staffing services
revenues represented 76.2% of total net revenues, compared to 23.8% for PEO
services revenues, as compared to 88.5% and 11.5%, respectively, for 2002.

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 2003, the Company provided staffing services to
approximately 2,700 customers, down from 2,900 in 2002. Although a majority of
the Company's staffing customers are small to mid-sized businesses, during 2003
approximately 30 of the Company's customers each utilized Barrett employees in a
number ranging from at least 200 employees to as many as 975 employees through
various staffing services arrangements. In addition, Barrett had approximately
500 PEO clients at December 31, 2003, compared to 300 at December 31, 2002 and
Barrett employed approximately 11,800 and 3,100 employees pursuant to PEO
contracts at December 31, 2003 and 2002, respectively. The increase in the
number of PEO customers during 2003 was primarily due to PEO growth in
California attributable to the business opportunities available to the Company
as a qualified self-insured employer for workers' compensation coverage
resulting from adverse market conditions for workers' compensation insurance in
the state.

-2-

The Company operates through a network of 28 branch offices in
Washington, Oregon, Idaho, California, Arizona, Maryland, Delaware and North
Carolina. Barrett also has several smaller recruiting offices in its general
market areas under the direction of a branch office.

See Part II, Item 7, under the heading "Forward-Looking Information"
for a discussion of risks and other factors that may cause the Company's
operating results or financial condition to vary significantly from those
implied by statements in this Item or in Item 7 that are forward-looking rather
than historical in nature. Additional specific risks are discussed in
conjunction with forward-looking statements included in this Item and in Item 7.

Operating Strategies
The Company's principal operating strategies are to: (i) provide
effective human resource management services through a 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 selective 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 operational challenges arising out of integration of
management information systems.

Effective January 1, 2004, the Company acquired certain assets of
Skills Resource Training Center ("SRTC"), a staffing services company with nine
offices in Central Washington, Eastern Oregon and Southern Idaho. The Company
paid $3,000,000 in cash for the assets of SRTC and the selling shareholders'
noncompete agreements and agreed to issue up to 135,731 shares of its common
stock ("Earnout Shares"), with the actual number of Earnout Shares to be issued
based upon the level of financial performance achieved by the SRTC offices
during calendar 2004.

The 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:

-3-


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
125 cafeteria plan, life and disability insurance and claims
administration.

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, including
California beginning in March, 1995. 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.

-4-


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.

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 4% of its total 2003
revenues.

In 2003, the light industrial sector generated approximately 75% of the
Company's staffing services revenues, while clerical office staff accounted for
19% 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.

-5-


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.

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 several hundred employees. None of the
Company's PEO clients individually accounted for more than 3% of its total
annual revenues during 2003.

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.

-6-



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.

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. Regulations governing self-insured employers in each jurisdiction
typically require the employer to maintain surety deposits of government
securities, letters of credit 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, 2000, such excess insurance included a self-insured retention or
deductible of $350,000. For calendar 2001, the Company's self-insured retention
was $400,000. 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, 2004, the per occurrence
retention increased to $1 million and the policy limit was increased to $25
million. The higher per occurrence retention may result in higher workers'
compensation costs to the Company with a corresponding negative effect on its
operating results.

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


-7-


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 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, 2003, 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 negative effect,
which may be substantial, on the Company's operating results and financial

-8-


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, 2003, the Company had approximately 17,000 employees,
including approximately 5,000 staffing services employees, approximately 11,800
PEO employees and approximately 200 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 2003,
approximately 3% 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 health insurance premiums
and childcare expenses, and a savings plan (the "401(k) plan") under Section
401(k) of the Internal Revenue Code (the "Code") 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. Employees subject to a co-employer arrangement may participate in the
Company's benefit plans at the election of the co-employer. 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 Washington,
Oregon, California, Maryland and Delaware. 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 breach their payment obligation to the Company, such compliance has not had
a significant adverse impact on Barrett's business to date.

-9-


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 the 401(k) plan, a cafeteria plan under Section 125 of the Code, a group
health plan, a group life insurance plan and a group disability insurance 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 Part II, 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 several hundred 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. During 2003, approximately 73% and 25% of the Company's PEO service
fee revenues were earned in California and Oregon, respectively.

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

-10-

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 28 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 51% and 27%, respectively, of its total revenues in 2003.
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
Idaho 1
Oregon 9
Washington 2
Maryland 3
Delaware 1
North Carolina 1

Barrett leases office space for its corporate and branch offices. At
December 31, 2003, such leases had expiration dates ranging from less than one
year to ten years, with total minimum payments through 2013 of approximately
$4,330,000.


Item 3. LEGAL PROCEEDINGS

There were no material legal proceedings pending against the Company at
December 31, 2003, or during the period beginning with that date through March
26, 2004.

-11-

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 2003.


EXECUTIVE OFFICERS OF THE REGISTRANT

The following table identifies, as of February 29, 2004, 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 Business Experience Since

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

William W. Sherertz 58 President; Chief Executive Officer; Director 1980


Michael D. Mulholland 52 Vice President-Finance and Secretary; 1994
Chief Financial Officer


Gregory R. Vaughn 48 Vice President 1998

James D. Miller 40 Controller and Assistant Secretary; 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
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 27, 2004,
there were 59 stockholders of record and approximately 570 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
---------- ----------
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

2003
First Quarter $ 3.75 $ 2.31
Second Quarter 3.65 2.64
Third Quarter 7.41 3.00
Fourth Quarter 15.13 7.00


-13-

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.