10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 14, 1994
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 September 30, 1994
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 97201
(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 report), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of outstanding shares of Common Stock, $.01 par value, on October
21, 1994 was 6,347,875 shares.
BARRETT BUSINESS SERVICES, INC.
INDEX TO FORM 10-Q
Page
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . . . . . .
Statements of Operations - Three Months Ended
September 30, 1994 and September 30, 1993 . . . . . . . . .
Statements of Operations - Nine Months Ended
September 30, 1994 and September 30, 1993 . . . . . . . . .
Statements of Cash Flows - Nine Months Ended
September 30, 1994 and September 30, 1993 . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . . . .
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . .
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I - Financial Information
Item 1. Financial Statements
BARRETT BUSINESS SERVICES, INC.
Balance Sheets
September 30, 1994 and December 31, 1993
(Unaudited)
(In thousands)
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
Three Months Ended September 30, 1994 and September 30, 1993
(Unaudited)
(In thousands, except per share amounts)
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
Nine Months Ended September 30, 1994 and September 30, 1993
(Unaudited)
(In thousands, except per share amounts)
BARRETT BUSINESS SERVICES, INC.
Statements of Cash Flows
Nine Months Ended September 30, 1994 and September 30, 1993
(Unaudited)
(In thousands)
BARRETT BUSINESS SERVICES, INC.
Form 10-Q
For the Third Quarter Ended September 30, 1994
(Unaudited)
Notes to Financial Statements
Note 1 - Basis of Presentation of Interim Period Statements:
The accompanying financial statements are unaudited and have been prepared by
Barrett Business Services, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures typically included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion
of management, the financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
the results for the interim periods reported. The financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the 1993 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for an interim
period are not necessarily indicative of the results of operations for a full
year.
Note 2 - Acquisitions:
On February 27, 1994, the Company purchased substantially all of the assets
of Personnel Management Consulting, Inc., a company engaged in the temporary
services business in Maryland and Delaware. Of the $270,000 purchase price,
the Company paid $42,000 in cash and issued 12,000 shares of its common stock
with a fair market value of $228,000 at date of purchase. The acquisition
was accounted for under the purchase method of accounting resulting in
approximately $241,000 of intangible assets and $29,000 in fixed assets.
On March 7, 1994, the Company purchased certain assets of Golden West
Temporary Services ("Golden West"), a company in the temporary services
business with offices in Santa Clara, San Jose, Fremont, and Mountain View,
California. The purchase price of $4,514,000 was paid by liquidating a
portion of the Company's short-term marketable securities. The Company
accounted for the acquisition under the purchase method of accounting
resulting in approximately $4,425,000 of intangible assets and $89,000 of
fixed assets.
Intangible assets related to these acquisitions are being amortized over
their estimated useful lives of fifteen years.
Note 3 - Provision for Income Taxes and Pro Forma Provision for
Income Taxes:
Effective April 30, 1993, the Company terminated its S corporation status. A
1993 pro forma provision for income taxes that would have been recorded if
the Company had been a C corporation for all periods presented is provided
for comparative purposes.
Deferred tax assets (liabilities) are comprised of the following components
(in thousands):
Net income for the third quarter of 1994 amounted to approximately
$1.2 million, which represented an increase of approximately $533,000 or
75.9% over the same quarter last year. For the nine-month period ended
September 30, 1994, net income totaled approximately $2.6 million, an
increase of approximately $1.0 million or 65.6% over pro forma net income for
the same 1993 period. The increases in net income for the 1994 third quarter
and nine month periods were primarily due to higher gross margin dollars as a
result of increased sales, combined with an improved gross margin percentage,
offset in part by higher selling, general and administrative costs and
increased income tax expense.
Earnings per share for the third quarter of 1994 and nine month periods ended
September 30, 1994 were $.19 and $.40, respectively.
Revenues for the third quarter of 1994 were approximately $41.1 million, an
increase of approximately $13.1 million or 46.6% over the 1993 third quarter.
The increase was primarily due to the acquisition of two temporary services
businesses during the first quarter of 1994, coupled with the Company's
continuing business expansion from existing branch offices. Revenues for the
nine months ended September 30, 1994 were approximately $103.4 million, an
increase of approximately $29.4 million or 39.7% over the comparable 1993
period. The increase was also primarily attributable to the acquisition of
two temporary services businesses in early 1994 and growth from the Company's
sales efforts.
For the third quarter of 1994, temporary services revenues increased
approximately $9.5 million or 78.1% over the third quarter of 1993.
Approximately $6.4 million, or 67.7%, of the increase was due to the
acquisition of two temporary services businesses earlier in 1994. The
balance of the increase was due to the Company's sales development efforts.
For the first nine months of 1994, temporary services revenues increased
approximately $21.0 million, or 67.8% over the comparable 1993 period. The
1994 acquisitions generated additional revenues of $14.5 million, or 69.0% of
the increase. The balance of the increase was due to the Company's business
development efforts.
For the third quarter of 1994, staff leasing revenues increased approximately
$3.6 million, or 22.7%, over the third quarter of 1993. For the first nine
months of 1994, staff leasing revenues increased approximately $8.4 million
or 19.4% over the comparable period of 1993. The increases were primarily
attributable to the addition of new clients in Oregon. The Company currently
markets its staff leasing services through its Oregon, Maryland and
Washington branches using its branch office sales staff.
Gross margin for the third quarter of 1994 totaled approximately $5.0 million
or 12.2% of revenues, representing an increase of approximately $2.1 million,
or 72.1% over the comparable period of 1993. Gross margin for the first nine
months of 1994 totaled approximately $11.9 million, or 11.5% of revenues,
representing an increase of approximately $4.5 million, or 60.9%, over the
same period of 1993. These increases were primarily attributable to a
decrease in the Company's statutory payroll tax rates, as well as improved
workers' compensation experience during the third quarter and the first nine
months of 1994.
Direct payroll costs and payroll taxes and benefits increased approximately
$10.6 million, or 44.5%, for the third quarter of 1994 and approximately
$24.1 million, or 38.4%, for the first nine months of 1994 over the
comparable periods of 1993. These increases were primarily the result of
growth in the number of employees. Such costs, expressed as a percentage of
revenues, decreased from 85.0% for the third quarter of 1993 to 83.7% for the
third quarter of 1994. The improved percentage was primarily due to a
decrease in statutory payroll tax rates paid by the Company. For the nine
months ended September 30, 1994, these costs as a percentage of revenues
decreased to 84.1% from 84.9% for the comparable period of 1993. The
improved percentage was also primarily attributable to the decreased
statutory payroll tax rates.
The Company has been a self-insured employer for workers' compensation
coverage in Oregon since August 1987 and became self-insured in Maryland in
November 1993 and Washington in July 1994. Workers' compensation expense
currently includes the cost of self-insurance for the Company's employees in
Oregon, Maryland and Washington and third party insurance coverage for
employees in California and Delaware. As a percentage of revenues, workers'
compensation and safety incentives expense decreased from 4.6% during the
third quarter of 1993 to 4.1% in the comparable period of 1994. For the
first nine months of 1994, such percentage was 4.4% of revenues, a decrease
from 5.1% for the comparable period of 1993. These decreases were primarily
due to a reduction in the number and overall severity of claims reported,
plus the positive impact of the Company's workplace safety program and the
claims management approach taken by the Company and its third party
administrators.
Selling, general and administrative expenses totaled approximately
$3.0 million or 7.2% of revenues for the third quarter of 1994 compared to
approximately $1.8 million or 6.2% for the comparable period of the prior
year. Such expenses totaled approximately $7.5 million or 7.2% of revenues
for the first nine months of 1994, as compared to $4.7 million or 6.4% for
the comparable period of the prior year. The increases were due primarily to
the acquisition of two temporary services businesses in early 1994, which
have higher administrative overhead requirements as compared to staff leasing
services. The balance of the increases was primarily attributable to
additional management staff added to support sales growth and higher Company
profit sharing and bonuses based on Company performance.
The Company was exempt from taxation as an S corporation until its
S corporation election was terminated on April 30, 1993. The effective tax
rate for the third quarter of 1994 was 37.8% and for the nine months ended
September 30, 1994 was 38.0% as compared to 38.7% and a pro forma effective
tax rate of 39.1% for the comparable periods of 1993, respectively.
The Company's revenues historically have been subject to some seasonal
fluctuation, particularly in its temporary services businesses. Demand for
the Company's temporary employees and certain staff leasing clients declines
during the year-end holiday season and periods of inclement weather.
Correspondingly, demand for temporary services and the operations of some
staff leasing clients, particularly agricultural and forest products-related
companies, increase during the second and third quarters.
Liquidity and Capital Resources
The Company's net cash position of $2,005,000 at September 30, 1994 increased
$878,000 from December 31, 1993. The Company has financed its operations and
met its liquidity needs primarily from the sales of short-term marketable
securities, which were previously held for investment purposes, and by cash
generated from operations. The principal uses of funds during the nine-month
period ended September 30, 1994 were to acquire two temporary services
businesses for aggregate cash payments of $4,556,000 and finance the
subsequent increased working capital requirements as a result of higher
accounts receivable.
In February 1994, the Company acquired the assets of Personnel Management and
Consulting, Inc. ("PMC"), a Maryland corporation, for $270,000, of which
$42,000 was paid in cash and $228,000 was paid in the form of 12,000 shares
of common stock of the Company. PMC had unaudited revenues of approximately
$800,000 for the year ended December 31, 1993, primarily from sales of
temporary services provided through three branch offices, one in each of
Salisbury and Easton, Maryland, and Seaford, Delaware.
In March of 1994, the Company acquired the assets of Golden West Temporary
Services ("Golden West"), a California corporation, for $4,514,000 in cash
paid from working capital. Golden West had total revenues of approximately
$24,533,000 for the year ended December 31, 1993, from the sales of temporary
services provided through four branch offices, one in each of San Jose,
Santa Clara, Mountain View and Fremont, California.
Net cash used in operating activities for the nine months ended September 30,
1994 amounted to $10,000, which compares to cash provided by operations of
approximately $3.5 million for the comparable 1993 period. The principal
elements of cash used in operations for the 1994 nine-month period included
net income of approximately $2.6 million, combined with depreciation and
amortization of approximately $0.4 million and increased accrued payroll and
benefit liabilities, offset in full by an approximate $6.3 million increase
in accounts receivable. As noted above, the increase in accounts receivable
was primarily attributable to the two acquisitions in early 1994.
Net cash provided by investing activities for the 1994 nine month period
totaled $980,000, which compares to a use of cash in investing activities of
approximately $1.0 million during the comparable period in 1993. For the
1994 period, proceeds of approximately $6.4 million from sales of marketable
securities were offset in part by the use of approximately $4.6 million in
cash related to two acquisitions and additional purchases of marketable
securities for approximately $0.6 million. There are no material long-term
capital commitments.
Net cash used in financing activities of $92,000 for the 1994 nine-month
period was primarily related to scheduled amortization on long-term mortgage
obligations. For the 1993 nine-month period, net proceeds of $6.8 million
from the Company's initial public offering of common stock was the principal
component of the $6.5 million net cash provided by financing activities.
The Company's business strategy continues to be focused on growth through the
expansion of operations at existing offices and the acquisition of additional
personnel-related businesses, both in its existing markets and other
geographic areas. The Company actively explores proposals for various
acquisition opportunities on an ongoing basis, but there can be no assurance
that any additional transactions will be consummated. Management believes
that the available credit lines and other sources of financing, together with
anticipated funds generated from operations, will be sufficient in the
aggregate to fund the Company's working capital needs for the foreseeable
future.
Management is continuing its efforts to obtain self-insured status for
workers' compensation purposes in California. If such status is obtained, it
is anticipated that the surety deposit required by the State of California
will be funded from a combination of cash reserves, letters of credit from
the Company's principal bank, surety bonds from a third-party surety or from
other financing sources or arrangements.
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 in
Oregon, Maryland and Washington.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed herewith are listed in the Exhibit Index on
page 17 of this report.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Registrant during
the quarter ended September 30, 1994.
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: November 14, 1994 By:/s/ MICHAEL D. MULHOLLAND
Michael D. Mulholland
Vice President - Finance
(Principal Financial Officer)
Exhibit Index
Exhibit
- - -------
11 Statement of Calculation of Average
Common Shares Outstanding
27 Financial Data Schedule