Paragraph

Analysis

ASC 280-10-50-1 As defined in that paragraph, an operating segment is a component of a public entity that has all of the following characteristics:

ASC 280-10-50-1(a) It engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity).

The question of whether or not the branch operations are engaged in the generation of revenue or incur expenses requires further analysis. While it is clear we incur expenses related to branch personnel, it is not clear that the branches generate revenue. While branch personnel facilitate payroll processing and customer service, the ultimate delivery of the services occurs through a centralized information system and the revenues are collected through our corporate office. The funds for payroll costs, operating costs and servicing workers’ compensation claims are distributed out of our corporate accounts. Aside from the customer contact element, there are no limitations on our ability to service any of our customers from any branch. This indicates our customers are customers of BBSI and not of a specific branch. Our view of the business model and approach to managing significant risks and expenses are at the entity level. Similar to certain concepts described in ASC 350-20-35 related t0 consideration of components and reporting units, there simply is not enough economic diversity in our branch operations to justify managing the business at the branch level.

ASC 280-10-50-1(b) Its operating results are regularly reviewed by the public entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

Operating results are regularly reviewed by our CODM. As noted above, the CODM has access to financial information for the Company as a whole, geographic zones and our branches. The information received routinely relates only to revenue and the related direct costs of payroll and workers’ compensation. Branch administrative costs are a significant component of our business but are not regularly reviewed by our CODM. Our branch managers have primary responsibility for these costs and the regular monitoring at the branch level. There is no active management or decisions made by geographic zone. In summary, we have concluded that our CODM is not regularly reviewing sufficient information to make branch level resource allocation decisions, nor do we intend that meaningful resource allocation decisions will be made at the branch level.

ASC 280-10-50-1(c) Its discrete financial information is available.

The documents listed above show that we produce information at the entity level, by geographic zone and by branch. From an operational perspective, we have no organizational structure by zone. This information is produced only to provide market information at a more summarized level. We do not maintain complete financial statements for our branches and there is no additional information for the geographic zones beyond the high level revenue and payroll data included in the reports above.

350-20-35-34  A component of an operating segment is a reporting unit if the component constitutes a business or a nonprofit activity for which discrete financial information is available and segment management, as that term is defined in paragraph 280-10-50-7, regularly reviews the operating results of that component. Subtopic 805-10 includes guidance on determining whether an asset group constitutes a business.

350-20-35-35    Two or more components of an operating segment shall be aggregated and deemed a single reporting unit if the components have similar economic characteristics. Paragraph 280-10-50-11 shall be considered in determining if the components of an operating segment have similar economic characteristics.

350-20-35-36  An operating segment shall be deemed to be a reporting unit if all of its components are similar, if none of its components is a reporting unit, or if it comprises only a single component.

As noted in paragraph 34, a component of an operating segment is a reporting unit if discrete financial information is available and the CODM regularly reviews the operating results of that component. Paragraph 35 further clarifies that two or more components should be deemed a single reporting unit if all of the components have similar economic characteristics.

In our business, our branches are our components. In applying the requirements of the ASC we have concluded that there is discrete (albeit limited) financial information available for our branch operations. However, as noted above, these results are not regularly reviewed by our CODM. Further, our branch operations provide the same services at all locations and share very similar economic characteristics. Based on our evaluation, we have concluded that our entity as a whole, in addition to being our only operating segment, is our only reporting unit.