10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 13, 1995
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, 1995
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 [ ]
Number of shares of Common Stock, $.01 par value outstanding at
October 31, 1995 was 6,477,967 shares.
BARRETT BUSINESS SERVICES, INC.
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1995 and
December 31, 1994. . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations - Three Months
Ended September 30, 1995 and 1994. . . . . . . . . . . . . 4
Statements of Operations - Nine Months
Ended September 30, 1995 and 1994. . . . . . . . . . . . . 5
Statements of Cash Flows - Nine Months
Ended September 30, 1995 and 1994. . . . . . . . . . . . . 6
Notes to Financial Statements. . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . .10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . .16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
PART I - Financial Information
Item 1. Financial Statements
BARRETT BUSINESS SERVICES, INC.
Balance Sheets
(Unaudited)
(In thousands)
September 30, December 31,
1995 1994
------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 1,964 $ 2,214
Trade accounts receivable, net 15,339 9,631
Prepaid expenses and other 657 599
Deferred tax asset (Note 3) 1,090 914
--------- ---------
Total current assets 19,050 13,358
Intangibles, net 5,455 4,936
Property and equipment, net 2,259 2,110
Restricted marketable securities
and workers' compensation deposits 4,901 4,196
Other assets 109 65
--------- ---------
$ 31,774 $ 24,665
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 33 $ 31
Income taxes payable (Note 3) 296 -
Accounts payable 543 218
Accrued payroll, payroll taxes
and related benefits 7,588 5,057
Accrued workers' compensation claims
liabilities 2,734 2,358
Customer safety incentives payable 822 805
--------- ---------
Total current liabilities 12,016 8,469
Long-term debt, net of current portion 885 908
Customer deposits 701 669
Long-term workers' compensation liabilities 323 164
--------- ---------
13,925 10,210
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 20,500
shares authorized, 6,484 and 6,367
shares issued and outstanding, respectively 65 64
Additional paid-in capital 9,476 8,978
Retained earnings 8,308 5,413
--------- ---------
17,849 14,455
--------- ---------
$ 31,774 $ 24,665
========= =========
The accompanying notes are an integral part of these financial statements.
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
September 30,
-------------------
1995 1994
------ -----
Revenues:
Temporary staffing services $ 28,333 $ 21,561
Professional employer services 21,303 19,588
-------- --------
49,636 41,149
Cost of revenues:
Direct payroll costs 37,444 30,792
Payroll taxes and benefits 4,477 3,664
Workers' compensation 1,160 1,308
Safety incentives 297 343
-------- --------
43,378 36,107
Gross margin 6,258 5,042
Selling, general and administrative
expenses 3,748 2,980
Amortization of intangibles 140 114
-------- --------
Income from operations 2,370 1,948
Other income (expense):
Interest expense (22) (21)
Interest income 92 55
Other, net 0 5
-------- --------
70 39
-------- --------
Income before provision for income taxes 2,440 1,987
Provision for income taxes 927 752
-------- --------
Net income $ 1,513 $ 1,235
======== ========
Primary earnings per share (Note 5) $ 0.23 $ 0.19
======== ========
Primary weighted average number of common
stock equivalent shares outstanding 6,667 6,570
======= ========
The accompanying notes are an integral part of these financial statements.
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended
September 30,
-----------------
1995 1994
------- -------
Revenues:
Temporary staffing services $ 73,271 $ 51,982
Professional employer services 60,228 51,370
------- -------
133,499 103,352
Cost of revenues:
Direct payroll costs 100,847 77,401
Payroll taxes and benefits 12,101 9,476
Workers' compensation 5,174 3,703
Safety incentives 720 840
------- -------
118,842 91,420
------- -------
Gross margin 14,657 11,932
Selling, general and administrative
expenses 9,850 7,524
Amortization of intangibles 424 294
------- -------
Income from operations 4,383 4,114
Other income (expense):
Interest expense (56) (84)
Interest income 294 139
Other, net 31 37
------- -------
269 92
------- -------
Income before provision for income taxes 4,652 4,206
Provision for income taxes 1,757 1,599
------- -------
Net income $ 2,895 $ 2,607
======= =======
Primary earnings per share (Note 5) $ 0.44 $ 0.40
======= =======
Primary weighted average number of common
stock equivalent shares outstanding 6,657 6,578
======= =======
The accompanying notes are an integral part of these financial statements.
BARRETT BUSINESS SERVICES, INC.
Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
-----------------
1995 1994
------- -----
Cash flows from operating activities:
Net income $ 2,895 $ 2,607
Reconciliation of net income to cash
from operations:
Depreciation and amortization 602 444
Gain on sale of marketable securities (25) -
Changes in certain assets and liabilities:
Trade accounts receivable, net (5,708) (6,184)
Prepaid expenses and other (58) (230)
Deferred tax asset (176) (5)
Accounts payable 325 63
Accrued payroll, payroll taxes and related
benefits 2,531 2,594
Accrued workers' compensation claims
liabilities 535 22
Customer safety incentives payable 17 237
Income taxes payable 296 307
Customer deposits and other, net (12) 135
------ ------
Net cash provided by (used in) operating
activities 1,222 (10)
------ ------
Cash flows from investing activities:
Acquisition of other businesses (Note 2) (968) (4,616)
Purchases of fixed assets (302) (201)
Proceeds from sales of marketable
securities 1,445 6,416
Purchases of marketable securities (2,125) (619)
------ ------
Net cash (used in) provided by investing
activities (1,950) 980
------ ------
Cash flows from financing activities:
Payments on long-term debt (21) (123)
Proceeds from exercise of stock
options and warrants 499 31
------ ------
Net cash provided by (used in) financing
activities 478 (92)
------ ------
Net (decrease) increase in cash and cash equivalents (250) 878
Cash and cash equivalents, beginning of period 2,214 1,127
------ ------
Cash and cash equivalents, end of period $ 1,964 $ 2,005
====== ======
Issuance of common stock to acquire intangibles $ - $ 228
====== ======
The accompanying notes are an integral part of these financial statements.
BARRETT BUSINESS SERVICES, INC.
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 note 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 statement of the
results for the interim periods presented. The financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Company's 1994 Annual Report on Form 10-K at pages 21-38. 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 July 17, 1995, the Company purchased certain assets of Mid-Del
Employment Service, Inc., Sussex Employment Services, Inc., PPI (Prestige
Personnel) - Salisbury, Inc. and Del-Mar-Va Nurses-On-Call Inc. These
companies are engaged in the temporary staffing business in eastern Maryland
and Delaware. The Company paid $950,000 in cash for the assets and incurred
$18,000 in acquisition related costs. The acquisition was accounted for under
the purchase method of accounting which resulted in $943,000 of intangible
assets and $25,000 of fixed assets.
NOTE 3 - PROVISION FOR INCOME TAXES:
Deferred tax assets (liabilities) are comprised of the following
components (in thousands):
The provision for income taxes for the nine months ended September 30, 1995
and 1994, is as follows (in thousands):
NOTE 4 - STOCK INCENTIVE PLAN:
In 1993, the Company adopted a stock incentive plan (the "Plan")
which provides for stock-based awards to the Company's employees, directors
and outside consultants or advisers. The number of shares of common stock
reserved for issuance under the Plan is 800,000.
The following table summarizes option activity under the Plan in
1995:
Outstanding at December 31, 1994 306,575 $ 3.50 to $13.56
Options granted 130,500 $11.50 to $16.36
Options exercised (7,675) $ 3.50 to $ 9.50
Options canceled or expired (14,500) $ 3.50 to $ 9.50
-------
Outstanding at September 30, 1995 414,900 $ 3.50 to $16.36
=======
Exercisable at September 30, 1995 86,525
=======
Available for grant at
September 30, 1995 351,250
=======
The options listed in the table generally become exercisable in four equal
annual installments beginning one year after the date of grant.
NOTE 5 - NET INCOME PER SHARE:
Net income per share is computed based on the weighted average
number of common stock and common stock equivalent shares outstanding during
the period.
NOTE 6 - RELATED PARTY TRANSACTION:
At December 31, 1993, the chief executive officer of the Company,
pursuant to the approval of a majority of the disinterested outside directors,
agreed to personally guarantee at no cost to the Company, the repayment of a
$111,000 receivable from an unrelated, insolvent customer at such time as the
Company determined that further collection efforts would likely be
ineffective, but not later than December 31, 1995. Pursuant to this
agreement, the Company recently exercised its right to the personal guarantee
provided by the Company's chief executive officer. During October 1995, the
chief executive officer surrendered to the Company 7,400 shares of common
stock of Barrett Business Services, Inc. with a then-fair market value of
$111,000 or $15.00 per share in satisfaction of the guarantee.
The Company subsequently retired the shares and the par value of the shares
was reclassified to additional paid-in capital.
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 Statements of Operations for
the three and nine-month periods ended September 30, 1995 and 1994.
Percentage of Total Revenues
-----------------------------------
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Temporary staffing services . . . . . . 57.1% 52.4% 54.9% 50.3%
Professional employer services. . . . . 42.9 47.6 45.1 49.7
----- ----- ----- -----
Total revenues . . . . . . . . . . . 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
Direct payroll costs. . . . . . . . . . 75.5 74.8 75.5 74.9
Payroll taxes and benefits. . . . . . . 9.0 8.9 9.1 9.2
Workers' compensation . . . . . . . . . 2.3 3.2 3.9 3.6
Safety incentives . . . . . . . . . . . .6 .9 .5 .8
----- ----- ----- -----
Total cost of revenues . . . . . . . 87.4 87.8 89.0 88.5
----- ----- ----- -----
Gross margin . . . . . . . . . . . . . . . 12.6 12.2 11.0 11.5
Selling, general and administrative
expenses . . . . . . . . . . . . . . . 7.8 7.5 7.7 7.5
----- ----- ----- -----
Income from operations . . . . . . . . . . 4.8 4.7 3.3 4.0
Other income (expense) . . . . . . . . . . .1 .1 .2 .1
----- ----- ----- -----
Pretax income. . . . . . . . . . . . . . . 4.9 4.8 3.5 4.1
Provision for income taxes . . . . . . . . 1.9 1.8 1.3 1.6
----- ----- ----- -----
Net income . . . . . . . . . . . . . . . . 3.0 3.0 2.2 2.5
===== ===== ===== =====
Three Months Ended September 30, 1995 and 1994
Net income for the third quarter of 1995 was $1,513,000, an
increase of $278,000 or 22.5% over the same period in 1994. The increase in
net income was attributable to higher revenues, combined with an increased
gross margin percent offset in part by slightly higher selling, general and
administrative expenses, expressed as a percentage of revenues. Earnings per
share for the third quarter of 1995 were $.23 as compared to $.19 for the
third quarter of 1994.
Revenues for the third quarter of 1995 totaled approximately $49.6
million, an increase of approximately $8.5 million or 20.7% over the third
quarter of 1994. The quarter-over-quarter internal growth rate of revenues
was 15.0%. The percentage increase in total revenues exceeded the internal
growth rate of revenues primarily due to the acquisition of four temporary
staffing businesses in eastern Maryland and Delaware in July 1995. The mix of
temporary staffing services as a percent of total revenues increased to 57.1%,
up from 52.4% of total revenues for the comparable 1994 period primarily due
to the continued robust growth of temporary staffing services in Northern
California and the July 1995 acquisitions. Professional employer (staff
leasing) services had a correlative decline in sales mix for the third quarter
of 1995 to 42.9% of total revenues as compared to 47.6% of total revenues for
the same period in 1994.
Gross margin for the third quarter of 1995 totaled approximately
$6.3 million, which represented an increase of $1.2 million or 24.1% over the
same period of 1994. The gross margin percent increased to 12.6% of revenues
for the third quarter of 1995 from 12.2% for the third quarter of 1994 as a
result of lower workers' compensation expense both in terms of total dollars
and as a percentage of revenues. The decrease in workers' compensation
expense, as a percentage of revenues, was offset in part by a slight increase
in direct payroll costs as a percentage of revenues. The Company's workers'
compensation expense for the third quarter of 1995 declined to 2.3% of
revenues as compared to 3.2% of revenues for the comparable quarter in 1994.
The following table summarizes certain indicators of performance
regarding the Company's self-insured workers' compensation program for each of
the first three quarters of 1995 and 1994.
Self-Insured Workers' Compensation Profile
- ----------------------------------------
(1) "Reserve" in this context is defined as an additional expense provision
for the unexpected future adverse development of claims expense (commonly
referred to as "IBNR").
(2) "At Risk Claims" are defined as all injury claims submitted under self-
insured payroll less amounts covered by excess reinsurance.
The preceding table illustrates the improvement since the 1995
first quarter in the Company's total workers' compensation expense both in
terms of total dollars and, more importantly, as a percent of total payroll
dollars. Concurrent with the improved expense level and percentage, the
Company has increased its reserves for future adverse claim development to
40.9% of "at risk claims" as of September 30, 1995.
Selling, general and administrative expenses (including the
amortization of intangibles) amounted to approximately $3.9 million, an
increase of $.8 million or 25.7% over the comparable period in 1994. Selling,
general and administrative expenses, expressed as a percentage of revenues,
increased from 7.5% for the third quarter of 1994 to 7.8% of revenues for the
third quarter of 1995. The increase was primarily attributable to additional
branch office staffing to support increased business activity.
Nine Months Ended September 30, 1995 and 1994
Net income for the nine months ended September 30, 1995 was
$2,895,000, an increase of $288,000 or 11.0% over the same period in 1994.
The increase in net income was due to increased revenue growth which was
substantially offset by a lower gross margin percentage attributable to
increased workers' compensation expense in the first quarter of 1995, coupled
with higher selling, general and administrative expenses. Earnings per share
for the nine months ended September 30, 1995 were $.44, compared to $.40 for
the nine months ended September 30, 1994.
Revenues for the nine months ended September 30, 1995 totaled
approximately $133.5 million, an increase of approximately $30.1 million or
29.1% over the comparable period in 1994. The internal growth rate of
revenues for the 1995 nine-month period was 20.8%. The growth rate of total
revenues exceeded the internal growth rate due to the acquisition of four
temporary staffing businesses during the third quarter of 1995. These four
acquisitions and continued growth of temporary staffing services in Northern
California account for the principal factors which contributed to the
increased mix of temporary staffing services for the nine-month period of 1995
to 54.9% of total revenues, up from 50.3% of total revenues for the comparable
1994 period. Revenues from professional employer services declined for the
nine-month period of 1995 to 45.1% of total revenues as compared to 49.7% of
total revenues for the same period of 1994, in spite of a 17.2% growth rate
over the comparable 1994 period.
Gross margin for the nine-month period ended September 30, 1995
totaled approximately $14.7 million or 11.0% of revenues. Although gross
margin dollars for the nine-month period of 1995 increased approximately $2.7
million or 22.8% over the same period in 1994, the 1995 gross margin rate of
11.0% of revenues declined from the comparable 1994 rate of 11.5% of revenues.
This decline was attributable to the higher workers' compensation expense
incurred in the 1995 first quarter and to a slight increase in direct payroll
costs.
Selling, general and administrative expenses (including the
amortization of intangibles) amounted to approximately $10.3 million or 7.7%
of revenues for the nine months ended September 30, 1995 as compared to
approximately $7.8 million or 7.5% of revenues for the comparable period of
1994. The increase in dollars was primarily due to increased branch office
staff added to support the increased business activity.
Seasonal Fluctuations
The Company's revenues historically have been subject to some
seasonal fluctuation, particularly in its temporary staffing business. Demand
for the Company's temporary employees and certain staff leasing clients
decline during the year-end holiday season and periods of inclement weather.
Correspondingly, demand for temporary staffing 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 cash position of $1,964,000 at September 30, 1995
decreased by $250,000 from December 31, 1994. The small decrease was
primarily due to the use of cash for net purchases of restricted marketable
securities, an increase in intangibles from acquisitions and purchases of
fixed assets, offset in large part by cash provided by operating activities
and proceeds from the exercise of warrants to purchase common stock.
Net cash provided by operating activities for the nine months
ended September 30, 1995 amounted to $1,222,000 as compared to cash used in
operating activities of $10,000 for the comparable 1994 period. For the 1995
period, cash flow generated by increases in accounts payable, accrued payroll
and benefits and workers' compensation claims accruals was offset in part by a
$5.7 million increase in accounts receivable. The higher September 30, 1995
accounts receivable balance as compared to the balance at September 30, 1994
was primarily due to higher revenues for the first nine months of 1995 over
the comparable 1994 period, coupled with an increase in the number of days'
sales in receivables owing to a shift in the sales mix toward temporary
staffing services which have longer credit terms than professional employer
services.
Net cash used in investing activities totaled $1,950,000 for the
nine months ended September 30, 1995 as compared to net cash provided by
investing activities of $980,000 for the similar 1994 period. For the 1995
period, the principal use of cash for investing activities was the purchase of
restricted marketable securities to satisfy various state and federal self-
insured workers' compensation surety deposit requirements and an increase in
intangibles arising from certain acquisitions. During the comparable 1994
period, the $4.6 million of cash was used to acquire certain businesses which
were funded substantially from the $6.4 million of proceeds from the sale of
marketable securities. The Company presently has no material long-term
capital commitments.
Net cash provided by financing activities for the nine-month
period ended September 30, 1995 was $478,000, which compares to $92,000 used
in financing activities for the comparable 1994 period. The principal source
of cash provided by financing activities arose from the exercise of warrants
by underwriters to purchase 110,000 shares of the Company's common stock at
$4.20 per share. Such warrants were received by the Company's underwriters in
connection with its June 1993 initial public offering of common stock. As of
the date of this filing, an underwriter continues to hold warrants to purchase
90,000 shares of common stock at $4.20 per share.
The Company's business strategy continues to include growth
through the expansion of operations at existing offices and through the
acquisition of additional personnel-related businesses, both in its existing
markets and other strategic geographic areas. As disclosed in Note 2 to the
financial statements included herein, the Company purchased, as of July 17,
1995, certain assets of four temporary staffing companies located in Delaware
and Maryland for $950,000 cash. The Company actively explores proposals for
various acquisition opportunities on an ongoing basis, but there can be no
assurance that any additional transactions will consummated.
During May 1995, the Company renewed its unsecured $4.0 million
revolving credit facility through May 30, 1996. There was no outstanding
balance at September 30, 1995. Management believes that the current credit
facility 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.
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'
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed herewith are listed in the Exhibit Index
following the signature page of this report.
(b) No Current Reports on Form 8-K were filed by the Registrant
during the quarter ended September 30, 1995.
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 9, 1995 By: /s/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