February 6, 2009

 

Submitted on EDGAR under "CORRESP"

 

Ms. Sharon Virga

Senior Staff Accountant

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549-4561

Form 10-K for the fiscal year ended December 31, 2007

And Documents Incorporated by Reference

Filed March 17, 2008

File No. 033-61804

Dear Ms. Virga:

We are in receipt of Larry Spirgel's letter dated January 22, 2009, regarding the subject filing. Our responses and headings correspond to the numbered comments and headings in the letter; we have included each comment in full, followed by our response. Our responses in part incorporate results of a telephone discussion of the comments with both you and Mr. Dean Suehiro, Senior Staff Accountant. Additionally, Attachment 2 to this letter was previously provided via email for review.

 

 

Form 10-K for the Year Ended December 31, 2007

 

Consolidated Financial Statements

Notes to Consolidated Financial Statements

1. Nature of operations, page F-6

Response:

We have reviewed and analyzed the disclosure guidance provided in SOPs 97-3 and 98-7, FAS 113 and Guide 4 and have concluded that the Company is in compliance with the required disclosures with the primary exception of disclosing the IBNR portion of our workers’ compensation reserve and including a detailed discussion of estimates used in valuing the reserve in our Significant Accounting Policies.

We believe Note 6 Workers’ Compensation Claims in the Notes to Consolidated Financial Statements excerpted from our 2007 Annual Report on Form 10-K (see Attachment 1), as modified, now contains the appropriate disclosures. We have added lines for breaking apart the claims expense accrual between current and prior years and also added a line for IBNR to the table at the bottom of the disclosure.

We plan to include, subject to minor edits and modifications, the following disclosure in our future Form 10-K filings under Note 1 Summary of Operations and Significant Accounting Policies:

Workers’ Compensation Claims Liabilities

The Company is a self-insured employer for workers’ compensation coverage for its employees working in California, Oregon, Maryland, Delaware and Colorado. In the state of Washington, state law allows only our staffing services and management employees to be covered under the Company’s self-insured program.

The estimated liability for unsettled workers’ compensation claims represents our best estimate, which includes an evaluation of information provided by our internal claims adjusters and our third-party

 

 

administrators for workers’ compensation claims, coupled with management’s evaluations of historical claims development and conversion factors and other trends. Included in the claims liabilities are case reserve estimates for reported losses, plus additional amounts for estimated future development of reported claims and incurred but not reported claims (together IBNR). These estimates are continually reviewed and adjustments to liabilities are reflected in current operating results as they become known.

2. Acquisitions, page F-12

Response:

The valuation specialist engaged by the Company to assist management in assessing the purchase price allocation of our acquisitions applied a qualitative approach to valuing the customer related intangible components. Management did not believe a quantitative approach was necessary given the identifiable intangible amounts were deemed to be insignificant to the overall purchase price of the acquisitions. Additionally, a review was performed of other public staffing companies to determine whether there was common practice in the industry for separately identifying and valuing customer related intangible assets. The results of the review indicated that some filers were capitalizing amounts to customer related intangible assets while other filers were not; in other words, there was no clear common practice.

 

With the benefit of hindsight we have put together the attached calculations (Attachment 2) of the five acquisitions made after the effective date of FAS 141 in an attempt to quantify an estimated value of customer related intangible assets.

 

 

In connection with these calculations, we have reviewed the requirements of SAB 99, “Materiality” and SAB 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements for purposes of evaluating the materiality of the estimated value of customer related intangible assets. We have determined that the impact on our balance sheet is not material and the tax effected impact of the potential amortization is not significant in any of the impacted reporting periods. As such we have concluded that no adjustments will be made to our consolidated financial statements.

 

You have inquired about the acquired temporary staffing pool and our conclusion that they, coupled with the acquired management team constitute an assembled workforce. We have put forth the argument that in a staffing business, the employees are critical to delivery of service. In a staffing business, we cannot consistently earn revenue unless we have a reliable staffing pool. To demonstrate this value, we can reference the cost to identify, screen and hire staffing employees in our existing branches. In our normal course of business, the average cost of recruiting a temporary employee can range between $500 and $1,000. The number of temporary employees acquired in our recent staffing acquisitions has ranged from approximately 100 to as many as 2,500. While these costs are not representative of the fair value of the staffing pool, they are indicative of the time and cost associated with developing the staffing pool. We believe this is consistent with the attributes of an assembled workforce.

 

In connection with our accounting policies related to acquisitions, we will modify our disclosure in Note 1 Summary of Operations and Significant Accounting Policies to acknowledge the existence of customer related intangibles and our amortization methods should these assets be material and that such costs are amortized over their estimated useful life of three years on a straight-line basis.

 

Closing Comments

On behalf of Barrett Business Services, Inc., the undersigned hereby acknowledges that:

 

 

Please feel free to call me at 360-828-0700 if you have any questions regarding the information contained in this letter.

 

Very truly yours,

 

/s/ James D. Miller

 

James D. Miller

Vice President—Finance

 

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Attachment 1

 

6. Workers' Compensation Claims

 

We are a self-insured employer with respect to workers' compensation coverage for all our employees (including employees subject to PEO contracts) working in California, Oregon, Maryland and Delaware. In the state of Washington, state law allows only our staffing services and management employees to be covered under the Company's self-insured workers' compensation program.

 

We have provided a total of $12.7 million and $12.4 million at December 31, 2007 and 2006, respectively, as an estimated liability for unsettled workers’ compensation claims liabilities. The estimated liability for unsettled workers' compensation claims represents our best estimate, which includes an evaluation of information provided by our internal claims adjusters and our third-party administrators for workers' compensation claims, coupled with management's evaluations of historical claims development and conversion factors and other trends. Included in the claims liabilities are case reserve estimates for reported losses, plus additional amounts based on projections for additional claims administration expenses. These estimates are continually reviewed and adjustments to liabilities are reflected in current operating results as they become known.

 

Liabilities incurred for work-related employee fatalities and for severely injured workers, as determined by the state in which the accident occurred, are recorded either at an agreed lump-sum settlement amount or the net present value of future fixed and determinable payments over the actuarially determined remaining life expectancy of the beneficiary, discounted at a rate that approximates a long-term, high-quality corporate bond rate.

 

Effective January 1, 2007, we incorporated a wholly owned fully licensed captive insurance company ("AICE") to provide opportunities to participate in more competitive and cost effective insurance markets and provide additional flexibility in risk management. Concurrent with the formation of AICE, we increased our excess workers' compensation insurance retention from $1.0 million per occurrence to $5.0 million per occurrence in all our self-insured states, except for Maryland where our retention remains at $1.0 million per occurrence. During 2006, we maintained excess workers' compensation insurance to limit our self-insurance exposure to $1.0 million per occurrence in all states. We present our accrued liabilities for workers' compensation claims on a gross basis along with a corresponding receivable from our insurers, as we are the primary obligor for payment of the related insured claims. We will continue our past practice of evaluating the financial capacity of our insurers to assess the recoverability of the related insurer receivables.

 

At December 31, 2007, our long-term workers' compensation claims liabilities in the accompanying balance sheet included $597,000 for work-related fatalities. The aggregate undiscounted pay-out amount related to the catastrophic injuries and fatalities is $874,000. The discount rates applied to the discounted liabilities range from 4.88% to 9.00%. These rates represented the then-current rates for high quality long-term debt securities available at the date of loss with maturities equal to the length of the pay-out period to the beneficiaries. The actuarially determined pay-out periods to the beneficiaries range from 8 to 32 years.

 

 

The states of Oregon, Maryland, Washington and Delaware require us to maintain specified investment balances or other financial instruments, totaling $7.7 million at December 31, 2007 and $4.9 million at December 31, 2006, to cover potential claims losses. In partial satisfaction of these requirements, at December 31, 2007, we have provided standby letters of credit and a surety bond totaling $5.9 million. The investments are included in restricted marketable securities and workers' compensation deposits in the accompanying balance sheets. We participate in California's alternative security program requiring us to pay the State an annual fee, which is determined by several factors, including the amount of a calculated future security deposit and our overall credit rating. The annual fee paid to the State of California for 2007, 2006 and 2005 was $217,000, $283,000 and $374,000, respectively.

 

The following table summarizes the aggregate workers' compensation reserve activity (in thousands):

 

 

 

 

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Total Purchase Price		$3,989				$5,500		$14,100		$1,600		$3,800
Acquisition Date		1/1/2004				1/1/2006		7/2/2007		12/3/2007		2/4/2008
Acquisition Name		SRTC				Pro HR		Strategic Staffing		Phillips Temps		First Employment				Totals
Net Income (1)				239		800		1,805		134		367				3,345
Add back – other								172		—		(101	)			71
Income taxes if not in NI		36	%	(86	)	(288	)	(712	)	(48	)	(96	)			(1,230	)
Adjusted Income from full customer base				153		512		1,265		86		170				2,186
Weighted average retention\estimated NI from acquired customers (2):
Year 1		66	%	101		338		835		57		112				1,443
Year 2		33	%	50		169		417		28		56				721
Year 3		5	%	8		26		63		4		9				109
Year 4		4	%	6		20		51		3		7				87
Thereafter		0	%	—		—		—		—		—				—
Cumulative potential earnings				165		553		1,366		93		184				2,361
Discount for lack of guarantee (33%) (3)		33	%	(55	)	(182	)	(451	)	(31	)	(61	)			(779	)
Amount allocated to customer relationships (4)				111		370		915		62		123				1,582
2004				111												111
2005																—
2006						370										370
2007								915		62						978
2008												123				123
				111		370		915		62		123				1,582
Amortization expense (5)
2004				44												44
2005				44												44
2006				22		148										170
2007						148		183		2						333
2008						74		366		25		45				510
2009								366		25		49				440
2010										10		29				39
				111		370		915		62		123				1,582
Amortization expense (after tax)
2004				28												28
2005				28												28
2006				14		95										109
2007						95		117		1						213
2008						47		234		16		29				327
2009								234		16		31				282
2010										7		18				25
				71		237		586		40		79				1,012

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