10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 14, 1996
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
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 Identification No.)
incorporation or organization)
4724 SW Macadam Avenue
Portland, Oregon 97201
(Address of principal executive office) (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
April 30, 1996 was 6,740,204 shares.
BARRETT BUSINESS SERVICES, INC.
INDEX
Page
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Part I - Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations - Three Months
Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . 4
Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART I - Financial Information
Item 1. Financial Statements
BARRETT BUSINESS SERVICES, INC.
Balance Sheets
(Unaudited)
(In thousands)
March 31, December 31,
1996 1995
--------- -------------
Assets
Current assets:
Cash and cash equivalents $ 4,392 $ 3,218
Trade accounts receivable, net 12,877 13,151
Prepaid expenses and other 947 478
Deferred tax asset (Note 2) 640 937
------ ------
Total current assets 18,856 17,784
Intangibles, net 6,292 6,452
Property and equipment, net 2,247 2,261
Restricted marketable securities
and workers' compensation deposits 5,840 4,681
Other assets 100 95
------ ------
$ 33,335 $ 31,273
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Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 34 $ 33
Income taxes payable (Note 2) 184 -
Accounts payable 609 378
Accrued payroll, payroll taxes
and related benefits 7,175 5,797
Accrued workers' compensation claims
liabilities 1,637 2,383
Customer safety incentives payable 862 776
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Total current liabilities 10,501 9,367
Long-term debt, net of current portion 866 875
Customer deposits 716 675
Long-term workers' compensation
liabilities 321 322
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12,404 11,239
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Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 20,500
shares authorized, 6,560 and 6,551
shares issued and outstanding, respectively 66 66
Additional paid-in capital 10,507 10,437
Retained earnings 10,358 9,531
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20,931 20,034
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$ 33,335 $ 31,273
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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
March 31,
-------------------
1996 1995
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Revenues:
Staffing services $ 22,629 $ 20,604
Professional employer services 20,556 18,694
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43,185 39,298
Cost of revenues:
Direct payroll costs 32,718 29,744
Payroll taxes and benefits 4,334 3,581
Workers' compensation 770 2,307
Safety incentives 347 187
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38,169 35,819
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Gross margin 5,016 3,479
Selling, general and administrative
expenses 3,626 2,875
Amortization of intangibles 160 145
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Income from operations 1,230 459
Other income (expense):
Interest expense (21) (14)
Interest income 125 107
Other, net (1) 3
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103 96
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Income before provision for income taxes 1,333 555
Provision for income taxes 506 211
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Net income $ 827 $ 344
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Primary earnings per share (Note 4) $ .12 $ .05
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Primary weighted average number of common
stock equivalent shares outstanding 6,787 6,723
======= =======
The accompanying notes are an integral part of these financial statements.
BARRETT BUSINESS SERVICES, INC.
Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
-------------------
1996 1995
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Cash flows from operating activities:
Net income $ 827 $ 344
Reconciliation of net income to cash
from operations:
Depreciation and amortization 228 200
Changes in certain assets and liabilities:
Trade accounts receivable, net 274 (1,496)
Prepaid expenses and other (474) (231)
Deferred tax asset 297 (251)
Accounts payable 231 417
Accrued payroll, payroll taxes and related
benefits 1,378 808
Accrued workers' compensation claims
liabilities (746) 644
Customer safety incentives payable 86 9
Income taxes payable 184 435
Customer deposits and long-term workers'
compensation liabilities 40 76
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Net cash provided by operating activities 2,325 955
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Cash flows from investing activities:
Purchases of fixed assets (54) (77)
Proceeds from sales of marketable
securities 405 18
Purchases of marketable securities (1,564) -
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Net cash used in investing activities (1,213) (59)
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Cash flows from financing activities:
Payments on long-term debt (8) (5)
Proceeds from exercise of stock
options and warrants 70 473
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Net cash provided by financing activities 62 468
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Net increase in cash and cash equivalents 1,174 1,364
Cash and cash equivalents, beginning of period 3,218 2,214
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Cash and cash equivalents, end of period $ 4,392 $ 3,578
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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 1995 Annual Report on Form 10-K at pages 22-41. The
results of operations for an interim period are not necessarily indicative of
the results of operations for a full year.
NOTE 2 - PROVISION FOR INCOME TAXES:
Deferred tax assets (liabilities) are comprised of the following
components (in thousands):
March 31, 1996 December 31, 1995
-------------- -----------------
Accrued workers' compensation claims
liabilities $ 748 $ 1,053
Allowance for doubtful accounts 10 10
Tax depreciation in excess of book
depreciation (136) (126)
Book amortization of intangibles in excess
of tax amortization 18 -
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$ 640 $ 937
====== ======
The provision for income taxes for the three months ended March 31, 1996 and
1995, is as follows (in thousands):
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
Current:
Federal $ 159 $ 380
State 50 82
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209 462
Deferred:
Federal 247 (209)
State 50 (42)
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297 (251)
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Provision for income taxes $ 506 $ 211
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NOTE 3 - 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 options granted under the Plan in
1996:
Outstanding at December 31, 1995 496,625 $3.50 to $16.36
Options granted 37,000 $15.06
Options exercised (8,875) $3.50 to $ 9.50
Options canceled or expired (7,750) $3.50 to $ 9.50
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Outstanding at March 31, 1996 517,000 $3.50 to $16.36
=======
Exercisable at March 31, 1996 115,125
=======
Available for grant at March 31, 1996 234,000
=======
The options listed in the table generally become exercisable in four equal
annual installments beginning one year after the date of grant.
NOTE 4 - 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 5 - SUBSEQUENT EVENTS:
On April 1, 1996, the Company acquired certain assets and the
business of StaffAmerica, Inc., pursuant to a Plan and Agreement of
Reorganization for total consideration of $2,880,000. StaffAmerica provides
both temporary staffing and staff leasing services through its two offices
located in Santa Barbara and Oxnard, California. In 1995, StaffAmerica had
revenues of approximately $6.7 million. In exchange for the StaffAmerica
assets and business operations, the Company issued 159,154 shares of its
common stock valued at $2,825,000, and assumed a StaffAmerica liability of
$55,000 for customer deposits. The acquisition was accounted for under the
purchase method of accounting which resulted in $2,500,000 of intangible
assets, a secured promissory note receivable from seller of $324,000 and
$56,000 in fixed assets. The $324,000 promissory note is due and payable not
later than March 31, 1997.
The Plan and Agreement of Reorganization between StaffAmerica and
the Company gives StaffAmerica and its former owners the right to require the
Company to repurchase the shares issued in the transaction pursuant to certain
conditions and restrictions. The Company's obligation to repurchase such
shares commenced on May 1, 1996 and will expire on March 31, 1997.
On April 8, 1996, the Company acquired certain assets and the
business of JobWorks Agency, Inc., pursuant to a Plan and Agreement of
Reorganization for total consideration of $402,000. JobWorks provides both
temporary staffing and staff leasing services through its two offices located
in Hood River and The Dalles, Oregon. JobWorks had revenues of approximately
$1.2 million in 1995. The Company issued 20,446 shares of its common stock
with the then-fair value of $380,000, assumed a customer deposit liability of
$2,000 and paid $20,000 in cash. The acquisition was accounted for under the
purchase method of accounting which resulted in $305,000 of intangible assets,
$77,000 in accounts receivable and $20,000 in fixed assets.
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 months ended March 31, 1996 and 1995.
Percentage of
Total Revenues
Three Months Ended
March 31,
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1996 1995
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Revenues:
Staffing services . . . . . . . . . . . . . . . . . . . 52.4% 52.4%
Professional employer services . . . . . . . . . . . . 47.6 47.6
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Total revenues . . . . . . . . . . . . . . . . . . . 100.0 100.0
----- -----
Cost of revenues:
Direct payroll costs . . . . . . . . . . . . . . . . . 75.8 75.7
Payroll taxes and benefits . . . . . . . . . . . . . . 10.0 9.1
Workers' compensation . . . . . . . . . . . . . . . . . 1.8 5.8
Safety incentives . . . . . . . . . . . . . . . . . . . .8 .5
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Total cost of revenues . . . . . . . . . . . . . . . 88.4 91.1
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Gross margin . . . . . . . . . . . . . . . . . . . . . . . 11.6 8.9
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . 8.7 7.7
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Income from operations . . . . . . . . . . . . . . . . . . 2.9 1.2
Other income (expense) . . . . . . . . . . . . . . . . . . .2 .2
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Pretax income . . . . . . . . . . . . . . . . . . . . . . 3.1 1.4
Provision for income taxes . . . . . . . . . . . . . . . . 1.2 .5
----- -----
Net income . . . . . . . . . . . . . . . . . . . . . . . . 1.9 .9
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THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net income for the first quarter of 1996 was $827,000, an increase
of $483,000 or 140.4% over the same period in 1995. The increase in net
income was attributable to higher revenues, combined with an increased gross
margin percent, offset in part by higher selling, general and administrative
expenses, expressed as a percentage of revenues. Earnings per share for the
first quarter of 1996 were $.12 as compared to $.05 for the first quarter of
1995.
Revenues for the first quarter of 1996 totaled approximately $43.2
million, an increase of approximately $3.9 million or 9.9% over the first
quarter of 1995. The quarter-over-quarter internal growth rate of revenues
was 5.3%. The percentage increase in total revenues exceeded the internal
growth rate of revenues primarily due to the acquisition of four temporary
staffing businesses in July 1995 and one such business in December 1995. The
lower internal growth rate of revenues of 5.3% for the 1996 first quarter
compared to the 1995 first quarter internal growth rate of 19.1% is believed
to be attributable to inclement weather conditions in Oregon, Maryland and
Delaware, as well as to an ongoing slowdown in the high-tech industry which
continues to have a negative effect on the growth rate of the Company's Santa
Clara, California operations. The overall rate of revenue growth for the
first four weeks of the 1996 second quarter remained consistent with the 1996
first quarter. The mix of staffing services and professional employer
services remained at 52.4% and 47.6%, respectively, for the 1996 first quarter
compared to the same period of 1995.
Gross margin for the first quarter of 1996 totaled approximately
$5.0 million, which represented an increase of $1.5 million or 44.2% over the
same period in 1995. The gross margin percent increased to 11.6% of revenues
for the first quarter of 1996 from 8.9% for the first quarter of 1995 as a
result of significantly lower workers' compensation expense both in terms of
total dollars and as a percentage of revenues. The Company's workers'
compensation expense for the first quarter of 1996 declined to 1.8% of
revenues as compared to 5.8% of revenues for the first quarter of 1995. The
decrease in workers' compensation expense, as a percentage of revenues, was
offset in part by an increase in payroll taxes and benefits as a percentage of
revenues resulting from higher state unemployment tax rates in various states.
The following table summarizes certain indicators of performance
regarding the Company's self-insured workers' compensation program for the
first quarter of 1996 and 1995.
Self-Insured Workers' Compensation Profile
Total Workers' "Reserve"(1)
Total Workers' Comp Expense as a % of
No. of Injury Comp Expense as a % of "At Risk
Claims (in thousands) Total Payroll Claims"(2)
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1996 1995 1996 1995 1996 1995 1996 1995
----- ------ ------ ------ ------ ------ ------ -----
Q1 193 266 $770 $2,307 2.4% 7.8% 41.0% 33.0%
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(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 the dollar amount of all injury claims
submitted under self-insured payroll less amounts covered by excess
reinsurance.
The preceding table illustrates the 1996 improvement over 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 as a
percentage of "at risk claims" to 41.0% as of March 31, 1996, as compared to
33.0% at March 31, 1995.
Selling, general and administrative expenses (including the
amortization of intangibles) amounted to approximately $3.8 million, an
increase of $767,000 or 25.4% over the comparable period in 1995. Selling,
general and administrative expenses, expressed as a percentage of revenues,
increased from 7.7% for the first quarter of 1995 to 8.7% of revenues for the
first quarter of 1996. The increase was primarily attributable to additional
branch office staffing to support increased business activity and additional
workers' compensation loss control branch personnel to enhance the
administration of the Company's self-insured workers' compensation programs.
The Company offers various employee benefit plans, including a
savings plan pursuant to Internal Revenue Code Section 401(k) and a cafeteria
plan pursuant to Code Section 125, to its employees, including its worksite
employees. In order to qualify for favorable tax treatment under the Code,
such plans must be established and maintained by an employer for the exclusive
benefit of its employees. The Internal Revenue Service (the "IRS") has
reportedly adopted or is considering the adoption of a position that
Professional Employer Organizations ("PEOs"), such as the Company, are not
employers for ERISA purposes, at least in certain factual situations. The
universal application of this position to all PEO situations could potentially
disqualify from favorable tax treatment all the employee benefit plans of all
PEOs. However, the precise nature, scope, and effect of the IRS'
determinations on this issue, which to the best of the Company's knowledge
have not yet been published, are not known at this time. Accordingly, the
Company has not recorded any provision in connection with the potential
disqualification of its benefit plans, as neither the likelihood of
disqualification nor the resulting range of loss, if any, is currently
estimable. Reference is made to pages 17-18 of the Company's 1995 Annual
Report on Form 10-K for a more detailed discussion of this issue.
Seasonal Fluctuations
The Company's revenues historically have been subject to some
seasonal fluctuation, particularly in its staffing services business. Demand
for the Company's staffing services and the operations of certain staff
leasing clients decline during the year-end holiday season and periods of
inclement weather. Correspondingly, demand for 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 $4,392,000 at March 31, 1996
increased by $1,174,000 from December 31, 1995. The increase was primarily
due to cash provided by operating activities, offset in part by the use of
cash for net purchases of restricted marketable securities.
Net cash provided by operating activities for the three months ended
March 31, 1996 amounted to $2,325,000 as compared to $955,000 for the
comparable 1995 period. For the 1996 period, cash flow generated by net
income and an increase of $1,378,000 in accrued payroll and benefits was
offset in part by a $746,000 decrease in accrued workers' compensation claims
liabilities.
Net cash used in investing activities totaled $1,213,000 for the
three months ended March 31, 1996 as compared to $59,000 for the similar 1995
period. For the 1996 period, the principal use of cash for investing
activities was the purchase of restricted marketable securities to satisfy
various state self-insured workers' compensation surety deposit requirements.
The Company presently has no material long-term capital commitments.
Net cash provided by financing activities for the three-month period
ended March 31, 1996 was $62,000, which compares to $468,000 for the
comparable 1995 period. For the 1995 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 focus on growth through
the acquisition of additional personnel-related businesses, both in its
existing markets and other strategic geographic areas, together with the
expansion of operations at existing offices. As disclosed in Note 5 to the
financial statements included herein, the Company purchased, during April
1996, certain assets of two temporary staffing and staff leasing companies
located in California and Oregon for a combination of cash and shares of the
Company's common stock. 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.
The Company presently has an unsecured $4.0 million revolving credit
facility which expires May 30, 1996. There was no outstanding balance at
March 31, 1996. Management expects that the renewal of such credit facility
will be in an amount and on such terms and conditions as will be not less
favorable than the current credit arrangement. Management also believes the
funds anticipated to be generated from operations, together with the renewed
credit facility and other potential sources of financing, 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'
compensation claims.
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 March 31, 1996.
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 10, 1996 By: /s/ Michael D. Mulholland
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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