Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 16, 2005

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

Published on May 16, 2005

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 March 31, 2005
Commission File No. 0-21886


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

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

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

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

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

Yes [ X ] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

Number of shares of common stock, $.01 par value, outstanding at April 29, 2005
was 5,810,254 shares.





BARRETT BUSINESS SERVICES, INC.

INDEX

Part I - Financial Information Page
----

Item 1.Consolidated Financial Statements

Consolidated Balance Sheets - March 31, 2005 and
December 31, 2004................................................3

Consolidated Statements of Operations - Three Months
Ended March 31, 2005 and 2004....................................4

Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2005 and 2004....................................5

Notes to Consolidated Financial Statements.......................6

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

Item 3.Quantitative and Qualitative Disclosures About
Market Risk.....................................................16

Item 4.Controls and Procedures.........................................16


Part II - Other Information

Item 6.Exhibits........................................................17


Signatures ................................................................18


Exhibit Index...............................................................19




Part I - Financial Information

Item 1. Financial Statements

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





March 31, December 31,
2005 2004
------- -------
ASSETS

Current assets:
Cash and cash equivalents $20,667 $12,153
Marketable securities 4,584 4,630
Trade accounts receivable, net 31,264 23,840
Prepaid expenses and other 3,249 1,364
Deferred income taxes 4,910 4,100
Workers' compensation receivables for insured claims 213 213
------- -------
Total current assets 64,887 46,300

Goodwill, net 22,516 22,516
Intangibles, net 20 25
Property and equipment, net 4,221 4,301
Restricted marketable securities and workers' compensation
deposits 1,734 1,702
Deferred income taxes 459 582
Other assets 395 401
Workers' compensation receivables for insured claims 4,090 4,158
------- -------
$98,322 $79,985
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 348 $ 348
Income taxes payable 213 --
Accounts payable 774 994
Accrued payroll, payroll taxes and related benefits 31,246 17,427
Workers' compensation claims liabilities 5,530 4,946
Workers' compensation claims liabilities for insured claims 213 213
Safety incentives liability 5,618 4,807
Other accrued liabilities 2,013 414
------- -------
Total current liabilities 45,955 29,149

Long-term debt, net of current portion 1,204 1,441
Customer deposits 635 608
Long-term workers' compensation claims liabilities 4,956 4,840
Long-term workers' compensation claims liabilities for insured claims 4,090 4,158
Deferred gain on sale and leaseback 1,006 1,036

Commitments and contingencies

Stockholders' equity:
Common stock, $.01 par value; 20,500 shares authorized, 5,810
and 5,741 shares issued and outstanding 64 63
Additional paid-in capital 4,662 3,897
Other comprehensive loss (328) (354)
Retained earnings 36,078 35,147
------- -------
40,476 38,753
------- -------
$98,322 $79,985
======= =======



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

-3-




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


Three Months Ended
March 31,
--------------------
2005 2004
------- -------
Revenues:
Staffing services $28,542 $25,054
Professional employer service fees 20,702 15,556
------- -------

49,244 40,610
------- -------

Cost of revenues:
Direct payroll costs 21,017 18,320
Payroll taxes and benefits 15,697 11,531
Workers' compensation 4,930 4,036
------- -------

41,644 33,887
------- -------

Gross margin 7,600 6,723

Selling, general and administrative expenses 5,946 5,532
Depreciation and amortization 236 242
------- -------

Income from operations 1,418 949
------- -------

Other income (expense):
Interest expense (27) (32)
Interest income 147 21
Other, net (12) 32
------- -------

108 21
------- -------

Income before provision for income taxes 1,526 970
Provision for income taxes 595 364
------- -------

Net income $ 931 $ 606
======= =======

Basic earnings per share $ .16 $ .11
======= =======

Weighted average number of basic shares outstanding 5,764 5,704
======= =======

Diluted earnings per share $ .15 $ .10
======= =======

Weighted average number of diluted shares outstanding 6,234 6,196
======= =======




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

-4-




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






Three Months Ended
March 31,
-----------------
2005 2004
------- -------

Cash flows from operating activities:
Net income $ 931 $ 606
Reconciliations of net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 236 242
Losses recognized on marketable securities 72 --
Gain recognized on sale and leaseback (30) (30)
Deferred income taxes (687) 132
Changes in certain assets and liabilities, net of amounts purchased
in acquisitions:
Trade accounts receivable, net (7,424) (6,335)
Prepaid expenses and other (1,885) (1,618)
Income taxes payable 213 227
Accounts payable (220) (88)
Accrued payroll, payroll taxes and related benefits 13,819 8,853
Other accrued liabilities 1,599 1,361
Workers' compensation claims liabilities 700 1,224
Safety incentives liability 811 954
Customer deposits and other assets, net 33 (12)
Other long-term liabilities -- (45)
------- -------
Net cash provided by operating activities 8,168 5,471
------- -------

Cash flows from investing activities:
Cash paid for acquisition, including other direct costs -- (3,044)
Purchase of marketable securities -- (3,907)
Purchase of equipment, net of amounts purchased in acquisition (151) (98)
Proceeds from maturities of restricted marketable securities 455 338
Purchase of restricted marketable securities (487) (417)
------- -------
Net cash used in investing activities (183) (7,128)
------- -------
Cash flows from financing activities:
Proceeds from credit-line borrowings 700 --
Payments on credit-line borrowings (700) --
Payments on long-term debt (237) (88)
Proceeds from the exercise of stock options 325 22
Tax benefit of stock option exercises 441 --
------- -------
Net cash provided by (used in) financing activities 529 (66)
------- -------
Net increase (decrease) in cash and cash equivalents 8,514 (1,723)
Cash and cash equivalents, beginning of period 12,153 7,785
------- -------
Cash and cash equivalents, end of period $20,667 $ 6,062
======= =======
Supplemental schedule of noncash investing activities:
Acquisition of other businesses:
Cost of acquisition in excess of fair market value of net assets acquired -- $ 3,807
Tangible assets acquired -- 15
Less stock issued in connection with acquisition -- (778)
------- -------
Net cash paid for acquisition $ -- $ 3,044
======= =======




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

-5-





BARRETT BUSINESS SERVICES, INC.
Notes to Consolidated Financial Statements


Note 1 - Basis of Presentation of Interim Period Statements

The accompanying consolidated financial statements are unaudited and have
been prepared by Barrett Business Services, Inc. ("Barrett" or the "Company"),
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures typically included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods presented. The preparation of financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from such estimates
and assumptions. The consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's 2004 Annual Report on Form 10-K at pages F1 - F25. The results of
operations for an interim period are not necessarily indicative of the results
of operations for a full year. Certain prior year amounts have been reclassified
to conform with the current year presentation. Such reclassifications had no
impact on gross margin, net income or stockholders' equity.

During May 2004, the Company formed a wholly-owned subsidiary which
acquired an aircraft. The subsidiary incurred debt of $1,475,000 to finance the
purchase of the aircraft. The consolidated financial statements include the
accounts of the subsidiary, after elimination of intercompany accounts and
transactions.

Barrett, a Maryland corporation, is engaged in providing both staffing and
professional employer services to a diversified group of customers through a
network of branch offices throughout California, Oregon, Washington, Idaho,
Arizona, Maryland, Delaware and North Carolina. Staffing services are engaged by
customers to meet short-term and long-term personnel needs. Professional
employer services ("PEO") are normally used by organizations to satisfy ongoing
human resource management needs and typically involve contracts with a minimum
term of one year, renewable annually, which cover all employees at a particular
work site.

Comprehensive income (loss) includes all changes in equity during a period
except those that resulted from investments by or distributions to a company's
stockholders. Other comprehensive income (loss) refers to revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income (loss), but excluded from net income as these
amounts are recorded directly as an adjustment to stockholders' equity.
Barrett's other comprehensive income (loss) is comprised of unrealized holding
gains and losses on its publicly traded marketable securities, net of realized
gains included in net income.


Note 2 - Recent Accounting Pronouncements

On December 16, 2004, the FASB issued SFAS 123(R), "Share-Based Payment,"
which is a revision of SFAS 123, "Accounting for Stock-Based Compensation." SFAS
123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and amends SFAS No. 95, "Statement of Cash Flows." Generally, the
approach in SFAS 123(R) is similar to the approach described in SFAS 123,
however, SFAS 123(R) requires all share-based

-6-



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


Note 2 - Recent Accounting Pronouncements (Continued)

payments to employees, including grants of employee stock options, to be
expensed in the income statement over the requisite service period based on
their grant-date fair values. Pro forma disclosure is no longer an alternative.
SFAS 123(R) allows for either prospective or retrospective adoption and requires
that the unvested portion of all outstanding awards upon adoption be recognized
using the same fair value and attribution methodologies previously determined
under SFAS 123. The Company is currently evaluating transition alternatives and
valuation methodologies for future grants. As a result, proforma compensation
expense, as described in Note 6, may not be indicative of future expense to be
recognized under SFAS 123(R). SFAS 123(R) must be adopted no later than January
1, 2006 and the Company expects to adopt SFAS 123(R) by such date. The effect of
adoption of SFAS 123(R) on the Company's financial position or results of
operations has not yet been determined.


Note 3 - Acquisition

Effective January 1, 2004, the Company acquired certain assets of Skills
Resource Training Center ("SRTC"), a staffing services company with offices in
Central Washington, Eastern Oregon and Southern Idaho. The acquisition provided
the Company with the opportunity to geographically expand and diversify its
business, particularly in the agricultural, food packing and processing
industries. The Company paid $3,000,000 in cash for the assets of SRTC and the
selling shareholders' noncompete agreements and agreed to issue up to 135,731
shares of its common stock ("Earnout Shares"), with the actual number of Earnout
Shares to be issued based upon the level of financial performance achieved by
the SRTC offices during calendar 2004. Certain contingencies remain unresolved,
precluding a final calculation of the Earnout Shares. The Company has, however,
recorded estimated total Earnout Shares of 52,800 with a value of $778,000 on
its consolidated balance sheet as of December 31, 2004. The transaction resulted
in $3,767,000 of goodwill, $40,000 of intangible assets and $15,000 of fixed
assets. The Company's consolidated income statements includes SRTC's results of
operations since January 1, 2004.


Note 4 - Basic and Diluted Earnings Per Share

Basic earnings per share are computed based on the weighted average number
of common shares outstanding during the period. Diluted earnings per share
reflect the potential effects of the exercise of outstanding stock options.
Basic and diluted shares outstanding are summarized as follows:


-7-


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

Note 4 - Basic and Diluted Earnings Per Share (Continued)




Three Months Ended
March 31,
---------------------
2005 2004
--------- ---------


Weighted average number of basic shares outstanding 5,763,580 5,703,654

Acquisition earnout shares 52,800 52,800

Stock option plan shares to be issued at prices ranging from $1.45 to $17.75
per share 553,779 594,385

Less: Assumed purchase at average market price during the period using
proceeds received upon exercise of options and purchase of stock,
and using tax benefits of compensation due to premature dispositions (135,782) (155,328)
--------- ---------

Weighted average number of diluted shares outstanding 6,234,377 6,195,511
========= =========



Note 5 - Stock Incentive Plans

The Company's 2003 Stock Incentive Plan (the "2003 Plan"), which provides
for stock-based awards to Company employees, non-employee directors and outside
consultants or advisors, was approved by shareholders on May 14, 2003. No
options have been issued to outside consultants or advisors. The number of
shares of common stock reserved for issuance under the 2003 Plan is 400,000. No
new grants of stock options may be made under the Company's 1993 Stock Incentive
Plan (the "1993 Plan"). At March 31, 2005, there were option awards covering
313,386 shares outstanding under the 1993 Plan, which, to the extent they are
terminated unexercised, will be carried over to the 2003 Plan as shares
authorized to be issued under the 2003 Plan. Outstanding options under both
plans generally become exercisable in four equal annual installments beginning
one year after the date of grant and expire ten years after the date of grant.
The exercise price of incentive stock options must not be less than the fair
market value of the Company's stock on the date of grant.

The following table summarizes options activity in 2005:

Number
of Options Grant Prices
------- ----------------
Outstanding at December 31, 2004 578,069 $1.45 to $ 17.75

Options granted --
Options exercised (69,562) $2.10 to $ 14.74
Options cancelled or expired --
-------

Outstanding at March 31, 2005 508,507 $1.45 to $ 17.75
=======

Exercisable at March 31, 2005 171,933
=======

Available for grant at March 31, 2005 218,070
=======


-8-


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

Note 6 - Stock Option Compensation

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock incentive plan. Accordingly, no compensation expense
has been recognized for its stock option grants issued at market price because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of the grant.

If compensation expense for the Company's stock-based compensation plan
had been determined based on the fair market value at the grant date for awards
under the 2003 Plan consistent with the method of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net loss and loss per share would have
been adjusted to the pro forma amounts indicated below:


Three Months Ended
March 31,
-----------------
(in thousands, except per share amounts) 2005 2004
------ ------
Net income, as reported $ 931 $ 606
Add back compensation expense recognized
under APB No. 25 -- --
Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax
effects (50) (45)
------ ------
Net income, pro forma $ 881 $ 561
====== ======
Basic income per share, as reported $ .16 $ .11
Basic income per share, pro forma .15 .10
Diluted income per share, as reported .15 .10
Diluted income per share, pro forma .14 .09


The effects of applying SFAS No. 123 for providing pro forma disclosures
for the periods presented above are not likely to be representative of the
effects on reported net income for future periods because options vest over
several years and additional awards generally are made each year.


Note 7 - Subsequent Event - Stock Split

On April 15, 2005, the board of directors of the Company approved a
3-for-2 stock split, which will be effected by a stock dividend. The additional
shares to be issued will be distributed on May 19, 2005 to stockholders of
record at the close of business on April 29, 2005. On a split adjusted basis,
diluted earnings per share for the 2005 first quarter would have been $.10, as
compared to $.07 for the 2004 first quarter.



-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 Consolidated Statements of
Operations for the three months ended March 31, 2005 and 2004.

Percentage of Total Revenues
----------------------------
Three Months Ended
March 31,
------------------
2005 2004
----- -----
Revenues:
Staffing services 58.0 % 61.7 %
Professional employer service fees 42.0 38.3
----- -----

100.0 100.0
----- -----

Cost of revenues:
Direct payroll costs 42.7 45.1
Payroll taxes and benefits 31.9 28.4
Workers' compensation 10.0 9.9
----- -----

Total cost of revenues 84.6 83.4
----- -----

Gross margin 15.4 16.6

Selling, general and administrative expenses 12.0 13.6
Depreciation and amortization 0.5 0.6
----- -----

Income from operations 2.9 2.4

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

Pretax income 3.1 2.4

Provision for income taxes 1.2 0.9
----- -----

Net income 1.9 % 1.5 %
===== =====


The Company changed its reporting of PEO revenues from a gross basis to a
net basis in 2002 because it was determined that the Company was not the primary
obligor for the services provided by employees pursuant to its PEO contracts
with its customers. Gross revenue information, although not in accordance with
GAAP, is presented below because management believes such information is more
informative as to the level of the Company's business activity and more useful
in managing its operations.

-10-


BARRETT BUSINESS SERVICES, INC.

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

Results of Operations (Continued)

Unaudited
Three Months Ended
(in thousands) March 31,
-------------------
2005 2004
-------- --------
Revenues:
Staffing services $ 28,542 $ 25,054
Professional employer services 128,551 91,720
-------- --------

Total revenues 157,093 116,774
-------- --------

Cost of revenues:
Direct payroll costs 127,397 93,367
Payroll taxes and benefits 15,697 11,531
Workers' compensation 6,399 5,153
-------- --------

Total cost of revenues 149,493 110,051
-------- --------

Gross margin $ 7,600 $ 6,723
======== ========



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



Unaudited
Three Months Ended March 31,
-------------------------------------------------------------
Gross Revenue Net Revenue
(in thousands) Reporting Method Reclassification Reporting Method
------------------ -------------------- -----------------
2005 2004 2005 2004 2005 2004
-------- -------- --------- -------- ------- -------

Revenues:
Staffing services $ 28,542 $ 25,054 $ -- $ -- $28,542 $25,054
Professional employer
services 128,551 91,720 (107,849) (76,164) 20,702 15,556
-------- -------- --------- -------- ------- -------
Total revenues $157,093 $116,774 $(107,849) $(76,164) $49,244 $40,610
======== ======== ========= ======== ======= =======

Cost of revenues: $149,493 $110,051 $(107,849) $(76,164) $41,644 $33,887
======== ======== ========= ======== ======= =======




-11-


BARRETT BUSINESS SERVICES, INC.


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

Results of Operations (Continued)

Three months ended March 31, 2005 and 2004

Net income for the first quarter of 2005 amounted to $931,000, an
improvement of 53.6% or $325,000 over net income of $606,000 for the first
quarter of 2004. The improvement for the first quarter of 2005 was primarily due
to higher gross margin dollars as a result of significant growth in professional
employer ("PEO") services business, partially offset by higher selling, general
and administrative expenses. Diluted earnings per share for the first quarter of
2005 was $.15 compared to $.10 for the comparable 2004 period. The Company's
improved operating results continue to reflect, in part, the competitive
advantage of offering a broad array of human resource management services
through its PEO arrangements. This competitive advantage has enabled the Company
to significantly increase its business opportunities in California. The Company
expects this favorable trend to continue into the foreseeable future,
particularly in California.

Revenues for the first quarter of 2005 totaled $49.2 million, an increase
of approximately $8.6 million or 21.2%, which reflects significant growth in the
Company's PEO service fee revenue, combined with an increase in staffing
services revenue.

PEO service fee revenue increased approximately $5.1 million or 32.7%
primarily due to increased demand for the Company's broad array of competitively
priced human resource management services that satisfy customers' needs.
Management believes that the favorable trend in PEO revenues will continue for
the foreseeable future.

Staffing services revenue increased approximately $3.5 million or 13.9%
over the comparable 2004 quarter primarily due to improved economic conditions
for such services in the majority of areas in which the Company operates.
Management expects demand for the Company's staffing services will continue to
reflect overall economic conditions in its market areas.

Gross margin for the first quarter of 2005 totaled approximately $7.6
million, which represented an increase of $0.9 million or 13.4% over the first
quarter of 2004, primarily due to the 21.2% increase in revenues. The gross
margin percent decreased from 16.6% of revenues for the first quarter of 2004 to
15.4% for the first quarter of 2005. The decrease in the gross margin percentage
was due to higher payroll taxes and benefits and slightly higher workers'
compensation expense, offset in part by lower direct payroll costs, all
expressed as a percent of revenues. The increase in payroll taxes and benefits,
as a percentage of revenues, from 28.4% for the first quarter of 2004 to 31.9%
for the first quarter of 2005, was due to the effect of significant growth in
PEO services and to slightly higher statutory state unemployment tax rates in
various states in which the Company operates as compared to the first quarter of
2004. Workers' compensation expense for the first quarter of 2005 totaled $4.9
million, which compares to $4.0 million for the first quarter of 2004. The
increase in workers' compensation expense was generally due to an increased
provision for the future estimated costs of existing claims, as well as to the
effect from increased business activity in California, where injury claims


-12-


BARRETT BUSINESS SERVICES, INC.

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

Results of Operations (Continued)

Three months ended March 31, 2005 and 2004 (Continued)

are more costly as compared to other states in which the Company operates. The
decline in direct payroll costs, as a percentage of revenues, from 45.1% for the
first quarter of 2004 to 42.7% for the first quarter of 2005 reflects the shift
in the relative mix of services to the Company's customer base and the effect of
each customer's unique mark-up percent.

Selling, general and administrative ("SG&A") expenses for the first
quarter of 2005 amounted to approximately $5.9 million, an increase of $0.4
million or 7.3% over the first quarter of 2004. The increase over the first
quarter of 2004 was primarily attributable to increases in branch management
personnel and related expenses as a result of growth in the Company's PEO
business. SG&A expenses, as a percent of revenues, declined from 13.6% in the
first quarter of 2004 to 12.0% in the first quarter of 2005.

Factors Affecting Quarterly Results

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

Liquidity and Capital Resources

The Company's cash position of $20,667,000 at March 31, 2005, increased by
$8,514,000 over December 31, 2004, which compares to a decrease of $1,723,000
for the comparable period in 2004. The increase in cash at March 31, 2005, as
compared to December 31, 2004, was primarily due to net cash provided by
operating activities.

Net cash provided by operating activities for the three months ended March
31, 2005 amounted to $8,168,000, as compared to net cash provided by operating
activities of $5,471,000 for the comparable 2004 period. For the three months
ended March 31, 2005, cash flow was provided by net income of $931,000, together
with increases in accrued payroll and related benefits of $13,819,000 and other
accrued liabilities of $1,599,000 and increases in


-13-


BARRETT BUSINESS SERVICES, INC.


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

Liquidity and Capital Resources (Continued)

workers' compensation claims liabilities and safety incentives liabilities
totaling 1,511,000, offset in part by increases of $7,424,000 in trade accounts
receivable and $1,885,000 in prepaid expenses and other.

Net cash used in investing activities totaled $183,000 for the three
months ended March 31, 2005, compared to net cash used in investing activities
of $7,128,000 for the similar 2004 period. For the 2005 period, the principal
uses of cash for investing activities were net purchases of restricted
marketable securities of $455,000, purchases of equipment of $151,000, offset in
part by net proceeds totaling $487,000 from maturities of restricted marketable
securities. The transactions related to restricted marketable securities were
scheduled maturities and the related replacement of such securities held for
workers' compensation surety deposit purposes. The Company presently has no
material long-term capital commitments.

Net cash provided by financing activities for the three-month period ended
March 31, 2005 was $529,000 compared to net cash used in financing activities of
$66,000 for the similar 2004 period. For the 2005 period, the principal source
of cash from financing activities was $766,000 in proceeds from exercise of
stock options and the related tax benefit of stock option exercises, partially
offset by payments on long-term debt of $237,000.

The Company's business strategy continues to focus on growth through the
expansion of operations at existing offices, together with the selective
acquisition of additional personnel-related businesses, both in its existing
markets and other strategic geographic markets. The Company periodically
evaluates proposals for various acquisition opportunities, but there can be no
assurance that any additional transactions will be consummated. As disclosed in
Note 4 to the consolidated financial statements included in this report, the
Company acquired certain assets of Skills Resource Training Center ("SRTC"), a
staffing services company headquartered in Central Washington state, effective
January 1, 2004. As consideration for the acquisition, the Company paid
$3,000,000 in cash and agreed to issue up to 135,731 shares of its common stock,
with the actual number of shares to be issued based upon the level of financial
performance achieved by the SRTC offices during calendar year 2004. Certain
contingencies remain unresolved, precluding a final calculation of shares to be
issued. The Company has, however, recorded estimated total Earnout Shares of
52,800 with a value of $778,000 on its consolidated balance sheet as of December
31, 2004.

The Company entered into a new Credit Agreement (the "Credit Agreement")
with its principal bank effective March 31, 2004. The Credit Agreement provides
for a revolving credit facility of up to $6.0 million, which includes a
subfeature under the line of credit for standby letters of credit for not more
than $4.0 million. The interest rate on advances, if any, will be, at the
Company's discretion, either (i) equal to the prime rate or (ii) LIBOR plus
1.50%. The Credit Agreement expires July 1, 2005.

The revolving credit facility is collateralized by the Company's assets,
including, without limitation, its accounts receivable, equipment, intellectual
property and bank deposits, and may be prepaid at any time without penalty.
Pursuant to the Credit Agreement, the Company is required to maintain compliance
with the following financial covenants: (1) a Current Ratio not

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BARRETT BUSINESS SERVICES, INC.


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

Liquidity and Capital Resources (Continued)

less than 1.10 to 1.0 with "Current Ratio" defined as total current assets
divided by total current liabilities; (2) Tangible Net Worth not less than $8
million, determined at each fiscal quarter end, with "Tangible Net Worth"
defined as the aggregate of total stockholders' equity plus subordinated debt
less any intangible assets; (3) Total Liabilities divided by Tangible Net Worth
not greater than 5.00 to 1.0, determined at each fiscal quarter end, with "Total
Liabilities" defined as the aggregate of current liabilities and non-current
liabilities, less subordinated debt and the deferred gain on the Company's sale
and leaseback transaction, and with "Tangible Net Worth" as defined above; and
(4) net income after taxes not less than $1.00 on an annual basis, determined as
of each fiscal year end, and pre-tax profit not less than $1.00 on a quarterly
basis, determined as of each fiscal quarter end. The Company was in compliance
with all covenants at March 31, 2005.

Management expects that current liquid assets, the funds anticipated to be
generated from operations, and credit available under the Credit Agreement and
other potential sources of financing, will be sufficient in the aggregate to
fund the Company's working capital needs for the foreseeable future. Management
anticipates that the Company will renew its credit arrange-ments with its
principal Bank on or before July 1, 2005 on terms and conditions which will be
not less favorable than those of the current Credit Agreement.

Stock Repurchase Program

During 1999, the Company's board of directors authorized a stock
repurchase program to repurchase common shares from time to time in open market
purchases. From time to time, since inception, the board of directors has
approved increases in the total number of shares or dollars authorized to be
repurchased under the program. As of May 11, 2005, the repurchase program had
remaining authorized availability of $443,800 for the repurchase of additional
shares. The Company made no share repurchases during the first three months of
2005. Since the inception of the repurchase program through May 11, 2005, the
Company has repurchased 2,053,555 shares for an aggregate price of $9,187,200
and an average price of $4.47 per share. Management anticipates that the capital
necessary to continue this program will be provided by existing cash balances,
cash generated from operations and other available resources.

Inflation

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

Forward-Looking Information

Statements in this report which are not historical in nature, including
discussion of economic conditions in the Company's market areas and effect on
revenue growth, the potential for and effect of recent and future acquisitions,
the effect of changes in the Company's mix of services on gross margin, the
adequacy of the Company's workers' compensation reserves and

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BARRETT BUSINESS SERVICES, INC.

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

Forward-Looking Information (Continued)

allowance for doubtful accounts, the effectiveness of the Company's management
information systems, 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 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, material deviations
from expected future workers' compensation claims experience, collectibility of
accounts receivable, the carrying values of deferred income tax assets and
goodwill, which may be affected by the Company's future operating results, the
availability of capital or letters of credit necessary to meet state-mandated
surety deposit requirements for maintaining the Company's status as a qualified
self-insured employer for workers' compensation coverage, and the availability
of and costs associated with potential sources of financing. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's exposure to market risk for changes in interest rates
primarily relates to the Company's short-term and long-term debt obligations. As
of March 31, 2005, the Company had interest-bearing debt obligations of
approximately $1.6 million, of which approximately $1.4 million bears interest
at a variable rate and approximately $0.2 million at a fixed rate of interest.
The variable rate debt is comprised of a $1.475 million note payable with a
10-year term, which bears interest at the three-month LIBOR rate plus 240 basis
points. Based on the Company's overall interest exposure at March 31, 2005, a
100 basis point increase in market interest rates would not have a material
effect on the fair value of the Company's long-term debt or its results of
operations. As of March 31, 2005, the Company had not entered into any interest
rate instruments to reduce its exposure to interest rate risk.


Item 4. Controls and Procedures

The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures as of March 31, 2005 were effective
in providing a reasonable level of assurance that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms.

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BARRETT BUSINESS SERVICES, INC.

Item 4. Controls and Procedures (Continued)

There were no changes in the Registrant's internal control over financial
reporting that occurred during the quarter ended March 31, 2005 that have
materially affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.


Part II - Other Information

Item 6. Exhibits

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













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SIGNATURES

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

BARRETT BUSINESS SERVICES, INC.
(Registrant)






Date: May 13, 2005 /s/ Michael D. Mulholland
---------------------------------
Michael D. Mulholland
Vice President - Finance
(Principal Financial Officer)



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EXHIBIT INDEX

Exhibit


31.1 Certification of the Chief Executive Officer under Rule 13a-14(a).

31.2 Certification of the Chief Financial Officer under Rule 13a-14(a).

32 Certification pursuant to 18 U.S.C. Section 1350.






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