Annual Report (Form 10-K), fiscal year 1993

Item 1. BUSINESS
General
Barrett Business Services, Inc. ("Barrett" or the "Company"), was incorporated in the state of Maryland in 1965. Barrett provides light industrial, clerical and technical employees to a wide range of businesses on both a temporary basis and a longer-term leased basis. The Company believes it is the largest provider of temporary staffing and staff leasing services in Oregon, measured by revenue. Services are provided through a branch network of 14 offices, nine located throughout the western half of Oregon, two in northern California, two in Maryland, and one in Seattle, Washington. The Company provides employees to a diverse set of customers, including forest products and agriculture- based companies, electronics manufacturers, transportation and shipping enterprises, professional firms and general contractors.
Recent Acquisitions
In March 1993, the Company acquired a branch office of CDI Corporation-West in Sacramento, California, with annual revenues of approximately $300,000. The acquired temporary services operations were combined with the Company's existing Sacramento office.
The Company completed the purchase of the assets of Personnel Management & Consulting, Inc. ("PMC"), with unaudited revenues of $800,000 for the year ended December 31, 1993, in February 1994. PMC, which had been operating since mid-1992, had offices located in each of Easton and Salisbury, Maryland, and Seaford, Delaware.
On March 7, 1994, the acquisition of the assets of Golden West Temporary Services, operating through four offices in the San Francisco Bay Area of California, was consummated by the Company. The acquired assets included office equipment and leases, customer and employee lists, and trade names, logos and goodwill. The acquired operations had total revenues of $24,533,000 for the year ended December 31, 1993. The purchase price of $4,514,000 was paid in cash from working capital and was determined by arm's-length negotiation between the parties.
Barrett's growth strategy includes expanding operations at existing offices, primarily through its ongoing marketing and sales program, as well as acquiring additional personnel-related businesses, both in its existing markets and in other geographic areas. The Company reviews acquisition opportunities on an ongoing basis, but there is no assurance that any additional acquisitions will be completed in the foreseeable future.
Temporary Services
General. Temporary employees permit businesses to meet peak or extraordinary demands caused by such factors as seasonal increases, vacations, illnesses, special projects and marketing promotions without incurring the ongoing expense and administrative responsibilities associated with recruiting, hiring and retaining additional permanent employees. The use of temporary services permits businesses to apply to their personnel requirements the "just-in-time" approach adopted by many manufacturers in recent years to manage raw materials inventories. By maintaining a core of permanent employees to meet minimum requirements and managing increased demand through greater use of temporary employees, companies are able to convert a portion of their fixed personnel expense to variable expense and to lower the amounts they are required to spend overall on recruiting and training efforts, severance compensation, recordkeeping, payroll and other personnel management functions.
The Company's Temporary Services. The Company provides light industrial, clerical and technical workers on a temporary basis to a broad range of businesses, including forest products and agriculture- based companies, electronics manufacturers, transportation and shipping companies, professional firms, and construction contractors. Light industrial workers perform such tasks as operation of machinery, loading and shipping, site preparation for conventions and other special events, construction site cleanup and janitorial services, and generated approximately 73% of the Company's 1993 temporary services revenues. Clerical workers, who accounted for approximately 19% of 1993 temporary services revenues, include secretaries, receptionists, typists and clerks. Technical personnel include electronic parts assembly workers, engineers in a variety of fields, including aerospace, chemicals, electronics and general industry, and designers and drafters of electronic parts; these workers represented approximately 8% of the Company's 1993 temporary services revenues.
Temporary assignments may last a day, a week or months, depending upon the client's requirements. The client pays only for actual hours worked by temporary personnel and may terminate their services at any time. A significant portion of the temporary services provided by the Company is project-oriented, requiring one or more employees for a period of time to accomplish a nonrecurring or periodic task, such as converting to a new data processing system or taking a physical inventory.
The Company's temporary services customers range in size from small local firms to large national companies using the Company's services on a local basis. The Company provided temporary services to more than 3,600 clients during 1993, up from approximately 2,800 clients in 1992. None of the Company's temporary services clients individually accounted for more than 5% of its total annual revenues during 1993.
Business Strategy. The Company emphasizes prompt, personalized service in assigning quality, trained personnel at competitive rates to users of its temporary services. Since 1980, the Company has relied on internally developed computer databases of employee skills and availability to match customer needs with available qualified employees. As a local company operating in selected market areas, Barrett has an understanding of the unique factors affecting its clientele that enables it to personalize its response to its customers' needs.
Barrett provides extensive training to its branch office managers and other sales personnel to develop and maintain a high level of service and professionalism. Its ongoing training program includes in- house presentations, outside seminars, video instruction and role playing. Both the successful solicitation of new customers and the retention of existing accounts are rewarded through a commission structure. Sales commissions represent between one-third and two-thirds of a salesperson's compensation. In addition, branch office staff participate in the Company's profit-sharing program. See "Employees and Employee Benefits," below.
Recruiting. The Company employs a variety of methods to recruit its workforce of temporary employees, including newspaper advertising and flyers distributed at colleges and vocational schools. In addition, a substantial number of new employees are hired through referrals by Barrett's existing employees. The Company has generally found it easier to recruit and retain qualified personnel during periods of higher unemployment and must devote more resources to locating new employees during upturns in the economies in its market areas. The Company may be unable to pass on the full amount of such increased recruiting and personnel costs in the form of higher prices for temporary services, resulting in lower gross profit margins.
Each employee applicant undergoes an interview, skills assessment and reference verification process to determine level of ability and past job performance. Following hire and placement, performance is reviewed with clients to assure customer satisfaction and quality control. Barrett provides its customers with an unconditional guarantee of performance; if a client is dissatisfied for any reason, no payment is required.
The Company believes that its wage and benefit package, customer base, and opportunities for part-time and flexible scheduling have contributed significantly to its success in recruiting and retaining quality personnel in numbers sufficient to meet customer demand. See "Employees and Employee Benefits," below.
Sales and Marketing. The Company markets its temporary services primarily through personal sales presentations by its branch office managers and trained sales force and, to a lesser extent, through advertising in various publications, including local newspapers and the Yellow Pages. The Company also benefits from referrals by existing clients; staff leasing clients frequently use Barrett's temporary services as well.
Following development of a preliminary profile of a prospective client's needs, the Company schedules a meeting with the client's personnel manager to explain the Company's services. Based on this information, Barrett develops an hourly charge for its temporary services which is designed to be competitive in relation to the marketplace. The actual cost to the client of an employee typically ranges from 135% to 150% of salary, including employment taxes, employee benefits and insurance and administrative costs. The Company believes it has been able to maintain a price advantage due to the lower costs associated with its self-insured workers' compensation program when compared to the cost of workers' compensation insurance coverage.
The Company's sales and marketing efforts have generally increased during periods of economic decline, when demand for temporary services decreases. As a result of this reduced demand, the higher costs associated with sales and marketing typically cannot be recovered through price increases, with the result that gross margins decline.
Billing. The Company prepares weekly customer invoices immediately following each payroll period through the centralized payroll and billing operations at its corporate headquarters. Barrett has not experienced significant problems in collecting accounts to date, which it attributes to client satisfaction with its services, its analysis of potential clients' credit history prior to agreeing to provide services, and regular monitoring of accounts.
Staff Leasing Services
General. Many businesses, particularly those with a limited number of employees, find personnel administration requirements to be unduly complex and time-consuming. These businesses often cannot justify the expense of a full-time human resources staff. In addition, the escalating costs of health and workers' compensation insurance in recent years, coupled with the increased complexity of laws and regulations affecting the workplace, have encouraged these small to mid-sized businesses to consider staff leasing.
The Company's Staff Leasing Services. In a staff leasing arrangement, the Company hires, as its own employees, workers who were previously employed directly by the client and then leases these employees to the client. The Company assumes responsibility for handling some or all personnel-related matters, including payroll and payroll taxes, employee benefits, health and workers' compensation insurance coverage and related administrative paperwork. The Company also hires and fires leased employees, although the client remains responsible for day-to-day assignments, supervision and training and, in most cases, recruiting.
The Company began offering staff leasing services to Oregon customers in 1990, and expanded its worker leasing program to Maryland in the first quarter of 1994. The number of Barrett's staff leasing clients increased from approximately 300 at December 31, 1992, to approximately 425 at year-end 1993. The Company has entered into staff leasing arrangements with a wide variety of clients, including reforestation companies, moving and shipping companies and professional firms. Staff leasing clients are typically small to mid-sized businesses with up to 50 employees. None of the Company's staff leasing clients individually accounted for more than 5% of its total annual revenues during 1993.
Business Strategy. The Company believes that it has attracted significant numbers of new staff leasing clients since 1990 by demonstrating the potential for cost reductions offered by the Company's self-insured workers' compensation program. Barrett also offers a variety of employee benefits, which it can generally provide on a cost- effective basis due to its large size relative to its clients. The Company believes these benefits reduce employee turnover and increase the appeal of staff leasing arrangements to most clients. The overall cost to the client for its leased employees is typically at or below the cost per employee that the client would incur if it employed its workforce directly.
The Company's standard lease agreement provides for a minimum one- year term, with successive one-year renewals unless notice of termination is given by either party. The agreement permits cancellation by either party upon 60 days' prior written notice. In addition, the Company may terminate the agreement at any time for specified reasons, including nonpayment or failure to follow Barrett's workplace safety program. The agreement also provides for indemnification of the Company by the client against losses arising out of any default by the client under the agreement, including failure to comply with any employment-related, health and safety or immigration laws or regulations.
Sales and Marketing. The Company markets its staff leasing services through its Oregon and Maryland branches using its branch office sales staff. The Company also obtains referrals from existing clients and other third parties, and places advertisements in the Yellow Pages.
Prior to entering into a staff leasing arrangement, the Company performs an analysis of the potential client's actual personnel and workers' compensation costs based on information provided by the customer. Barrett also introduces its workplace safety program and makes recommendations as to improvements in procedures and equipment following a safety inspection of the customer's facilities. Once the client has agreed to implement the Company's safety program, the Company proposes a leasing arrangement at a price which is typically at or below the client's prior overall personnel costs per employee. Barrett also offers significant financial incentives to clients to maintain a safer work environment, thus enabling clients to achieve additional savings. Typically, clients share these incentives with their leased employees.
Billing. Through centralized operations at the Company's headquarters in Portland, Oregon, weekly payroll checks are prepared for each staff leasing client and delivered by courier. The Company invoices its clients following the end of each payroll period. Such invoices are due upon receipt and are generally paid within five business days. The costs of health insurance coverage and Barrett's cafeteria plan are passed through to its staff leasing clients based on the number of participating employees. The Company often requires a deposit from its staff leasing clients to cover a portion of the anticipated billing for one payroll period. The Company has had generally favorable results with collecting accounts to date, which it attributes to the prompt turnover of receivables, its analysis of potential clients' credit history, and regular monitoring of accounts.
Self-Insured Workers' Compensation Program
The Company believes that its self-insured workers' compensation program has been key to its growth in revenue and profitability in Oregon. Significant elements contributing to the success of the workers' compensation program include the regulatory climate surrounding workers' compensation, the Company's workplace safety program and the aggressive claims management approach taken by the Company and its third-party administrators, all of which are described in detail below.
Elements of Workers' Compensation System. State law generally mandates that an employer reimburse its employees for the costs of medical care and other specified benefits for injuries or illnesses incurred in the course and scope of employment. The benefits payable for various categories of claims are determined by state regulation and vary with the severity and nature of the injury or illness and other specified factors. In return for this guaranteed protection, workers' compensation is an exclusive remedy and employees are generally barred from seeking other damages from their employer for workplace injuries.
Most states require employers to maintain workers' compensation insurance coverage or otherwise demonstrate financial responsibility to meet workers' compensation obligations to employees. In many states, employers who meet certain financial and other requirements are permitted to self-insure.
Self-Insurance for Workers' Compensation. In August 1987 and November 1993, the Company became a self-insured employer for workers' compensation coverage in Oregon and Maryland, respectively. The regulations governing self-insured employers in each state require the Company to maintain deposits of cash, government securities or other financial instruments to cover potential claims losses.
Barrett also maintains excess workers' compensation insurance coverage for claims exceeding $350,000 ($300,000 prior to January 1, 1994) in an unlimited amount (up to $10,000,000 per occurrence for claims through December 31, 1993) pursuant to an annual policy. The excess insurance policy contains standard exclusions from coverage, including punitive damages, fines or penalties in connection with violation of any statute or regulation and losses covered by other insurance or indemnity provisions. The Company maintains workers' compensation insurance coverage through state programs in California and Washington and, to a limited extent, through independent insurance carriers in Washington. The Company is presently pursuing applications to become a self-insured employer in California and Washington.
Workplace Safety Program. In the late 1980's, the Company saw an opportunity to package and market to small and mid-sized Oregon employers its safety program designed to assist clients in managing workplace injuries and reducing workers' compensation claims. The Company's program, which was expanded to Maryland in 1993, begins with an on-site safety inspection by one of its risk managers. Barrett then designs a safety program for the client, including employee and supervisor safety training and regular meetings between management and employees to discuss safety precautions. Among other safety measures, the Company encourages clients to provide on-site first aid care and to make improvements in workplace procedures and equipment to reduce the risk of injury. The Company's third-party administrators for workers' compensation claims also assist the Company in performing safety inspections of client worksites and provide technical advice regarding workplace safety measures.
A key factor to the success of the Company's safety program is its system of financial incentives to reward reductions in the number and severity of work-related injuries. If the cost of claims is less than agreed upon amounts, the Company pays an annual amount based on a percentage of the staff leasing client's payroll. Clients typically share these incentives with their leased employees. Staff leasing clients and leased employees are thus given an economic incentive to cooperate in maintaining a safer work environment and reducing the frequency of fraudulent claims.
During 1993, Barrett implemented a corporate-wide mandatory pre- employment drug testing program. Results of the program are believed to include a reduction in the frequency of fraudulent claims and in accidents in which the use of illegal drugs appears to have been a factor.
Claims Management. The Company also seeks to contain its workers' compensation costs through an aggressive approach to claims management. Barrett uses managed care systems to reduce medical costs and keeps time-loss costs to a minimum by assigning injured workers, whenever possible, to temporary assignments which accommodate the worker's physical limitations. The Company believes that these temporary assignments minimize both time actually lost from work and covered time- loss costs. Barrett has also engaged third-party administrators to provide additional claims management expertise. Typical management procedures include performing thorough and prompt on-site investigations of claims filed by employees, working with doctors to encourage efficient medical management of cases, denying questionable claims, and negotiating early settlements to cut off future case development and costs.
In July 1993, the Company acted to decentralize responsibility for safety and claims management to its branch offices in Oregon and Maryland. This operational change effectively tripled the total personnel resources dedicated to injury prevention and claims expense control, enabling the Company to conduct more effective on-site safety training and more thorough and timely investigation of claims.
Elements of Self-Insurance Costs. The costs associated with the Company's self-insured workers' compensation program include loss and loss adjustment expense payments with respect to claims made by employees, fees payable to the Company's third-party administrators, assessments payable to state workers' compensation regulatory agencies, premiums for excess workers' compensation insurance coverage, and safety incentive payments. Although not directly tied to the size of the Company's payroll, the number of claims and related loss payments may be expected to increase with growth in the total number of employees. Third-party administration fees also vary with the number of claims administered. The state assessments are based on payroll amounts and increase proportionately with increases in the Company's employee base. Excess insurance premiums are also based in part on the amount of the Company's payroll. Safety incentives expense may increase as the number of the Company's staff leasing employees rises, although increases will only occur for any given client if such client's claims costs are below agreed upon amounts.
Workers' Compensation Claims Experience and Reserves
In connection with its workers' compensation self-insurance program, the Company is liable for loss and loss adjustment expense payments under the workers' compensation laws of Oregon and Maryland. Several months may elapse between the occurrence of a workers' compensation loss, the reporting of the claim to the Company and the Company's payment of that claim. The Company reflects its liability for the ultimate payment of all incurred claims and claims adjustment expenses by establishing loss and allocated loss adjustment expense reserves, which are balance sheet liabilities representing estimates of future amounts needed to pay claims and related expenses with respect to covered events that have occurred.
When a claim involving a probable loss is reported, the Company establishes a case reserve for the estimated amount of its ultimate loss and allocated loss adjustment expense payments. The estimate reflects an informed judgment based on established reserving practices and the experience and knowledge of Barrett's third-party administrators regarding the nature and value of the claim, as well as the estimated expense of settling the claim, including legal and other fees and expenses of administering claims ("allocated loss adjustment expenses"). The reserves also provide for losses incurred but not reported ("IBNR"), as well as future development in excess of case reserves on losses reported to the Company (together, "IBNR reserves").
As part of the reserving process, historical data are reviewed, and consideration is given to the anticipated effect of various factors, including known and anticipated legal developments, changes in social attitudes, inflation and economic conditions. Reserve amounts are necessarily based on management's estimates, and as other data become available and are reviewed these estimates and judgments are revised, resulting in increases or decreases to existing reserves. As of December 31, 1993, the Company's loss reserves totaled $2,434,000, compared to $1,337,000 at year-end 1992. The total number of self- insured claims reported in 1993 was 1,085, compared to 979 for 1992. Barrett has engaged a nationally-recognized, independent actuarial firm to review the Company's reserves periodically. Based in part on such review, the Company believes its total loss reserves at December 31, 1993, make adequate provision for its workers' compensation loss and allocated loss adjustment expense obligations at such date. There can, however, be no assurance that the Company's actual future workers' compensation obligations will not exceed the amount of its reserves, with a corresponding negative impact on future earnings, due to such factors as unanticipated loss development of known claims, an increase in the number and severity of new claims, and a lack of historical claims experience with new staff leasing clients.
Employees and Employee Benefits
At December 31, 1993, the Company had approximately 7,615 employees, including approximately 3,900 temporary services employees, 3,600 leased employees and 115 managerial, sales and administrative employees. The number of employees at any given time can vary significantly due to special project requests, seasonality and other factors. None of the Company's employees are covered by a collective bargaining agreement. Each of Barrett's managerial, sales and administrative employees has entered into a standard form of employment agreement which, among other things, contains covenants not to engage in certain activities in competition with the Company for 18 months following termination of employment and to keep the Company's customer lists and other proprietary information confidential. Barrett believes its employee relations are good.
Benefits offered to Barrett's temporary employees include group health insurance, a cafeteria plan permitting employees to use pre-tax dollars to obtain various services, including medical, dental and child care, and a 401(k) savings plan pursuant to which employees may begin making contributions upon reaching 21 years of age and completing 1,000 hours of service in any consecutive 12-month period. The Company may also make contributions to the savings plan, which vest over seven years and are subject to certain legal limits, at the sole discretion of the Company's board of directors. Leased employees may participate in the Company's benefit plans, provided that the group health insurance premiums may, at the client's option, be paid by payroll deduction. Barrett also maintains profit-sharing bonus plans for its managerial and administrative personnel.
Regulatory and Legislative Issues
The Company is subject to the laws and regulations governing self- insurers under the workers' compensation systems in Oregon and Maryland. In addition, legislation was adopted in Oregon in 1993 which requires a worker leasing company, such as Barrett, to be licensed by the Workers' Compensation Division of the Oregon Department of Consumer and Business Services. Temporary services companies are expressly exempt from the legislation. Worker leasing companies are required to notify the Workers' Compensation Division if they provide workers' compensation coverage for their leased employees, and an insurer providing such coverage is required to use the experience of the client for the purpose of assigning an experience rating to the worker leasing company. Worker leasing companies are also required to assure that each leasing client provides adequate training and supervision for its workers in compliance with statutory requirements for workplace safety and to give 30 days' written notice of termination of its obligation to provide workers' compensation coverage for leased employees and other subject employees of a leasing client. Although compliance with the legislation has caused Barrett to make certain changes in its staff leasing operations and client contracts and has subjected it to additional financial risk with respect to workers' compensation expense, particularly with respect to leasing clients who breach their payment obligations to the Company, Barrett does not anticipate that compliance with the legislation will have a material impact on its business operations, financial condition, or operating results.
Federal legislative proposals for national health care reform include provisions extending mandatory health insurance benefits to virtually all classes of employees. In addition, workers' compensation coverage may be included in the reform package ultimately adopted. While it is impossible to predict if, when and in what form health care reform will be enacted, elements of such reform may have a material adverse effect on the Company's operations and its self-insured workers' compensation program.
Competition
The staff leasing and temporary services businesses are characterized by rapid growth and intense competition. The temporary services market includes competitors of all sizes, including several, such as Manpower, Inc., Kelly Services, Inc., The Olsten Corporation, Interim Services, Inc., and Adia Services, Inc., which are national in scope and have substantially greater financial and marketing resources than the Company. In addition to national companies, Barrett competes with numerous local and regional firms for both customers and personnel. The Company estimates that approximately 50 firms provide temporary services in Oregon. There are relatively limited barriers to entry into the temporary services business. The principal competitive factors in the temporary services industry are price, the ability to provide qualified workers in a timely manner and the monitoring of job performance. The Company attributes its growth in temporary services revenues to the cost-efficiency of its operations, which permits it to price its services competitively, and to its ability through its branch office network to understand the needs of its customers and fill those needs with competent personnel.
Although there are believed to be more than 1,300 staff leasing companies currently operating in the United States, many of these potential competitors are located in states in which the Company presently does not operate. Barrett believes that approximately 13 staff leasing firms are operating in Oregon, but that the Company has the largest presence in the state. The Company may face additional competition in the future from new entrants to the field, including other temporary services companies, payroll processing companies and insurance companies. Certain staff leasing companies operating in areas in which the Company does not now, but may in the future, offer its services have greater financial and marketing resources than the Company. Competition in the staff leasing industry is based largely on price, although service and quality are also important. Barrett believes that its growth in staff leasing revenues is attributable to its ability to provide small and mid-sized companies with the opportunity to provide enhanced benefits to their employees while typically reducing the clients' overall personnel administration and workers' compensation costs. The Company's competitive advantage may be adversely affected by a substantial increase in the costs of maintaining its self-insured workers' compensation program or by a general decrease in workers' compensation premiums due to reform efforts or workplace safety improvements.
Item 2.



Item 2. PROPERTIES
The Company provides temporary services through all 14 of its branch offices. Staff leasing services are currently offered through each of Barrett's Oregon and Maryland locations. The following table shows the locations of the Company's branch offices and the year in which each branch was opened or acquired. The Company's Oregon branches accounted for approximately 90% of its total revenues in 1993. The Company also leases space in nine other locations in its market areas which it uses to recruit employees.
In May 1993, Barrett purchased an office building in Portland, Oregon, with approximately 9,200 square feet of office space, for a total purchase price of $925,000. The Company's corporate headquarters were relocated to the new building in June 1993. The building is subject to a mortgage loan with a principal balance of approximately $683,000 at December 31, 1993.
The Company also owns another office building in Portland, Oregon, in which its headquarters were previously located. The building is subject to a mortgage loan with a principal balance at December 31, 1993, of approximately $283,000 due in full in November 1998 and has approximately 7,000 square feet of office space. Barrett moved its Portland (Bridgeport) branch office to this building in September 1993.
Barrett leases the office space housing its other branch offices. At December 31, 1993, such leases had expiration dates ranging from less than one year to six years, with total minimum payments through 1998 of approximately $578,000.
Item 3.

Item 3. LEGAL PROCEEDINGS
There were no legal proceedings requiring disclosure pursuant to this item pending at December 31, 1993, or at the date of this report.
Item 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
Officers of the Company are elected annually and serve at the discretion of the Company's board of directors. There are no family relationships among the Company's executive officers and directors. At February 25, 1994, the executive officers of Barrett were as follows:
William W. Sherertz, age 48, has acted as chief executive officer of the Company since 1980. He has also been a director of the Company since 1980, and was elected President of the Company in March 1993.
Jack D. Williamson, Jr., age 39, was elected Vice President-- Finance, Treasurer, Secretary and a director of the Company in March 1993. He had previously been controller of the Company since 1986.
Peter J. Schenk, age 35, joined the Company as director of operations and marketing in December 1991. He was elected Vice President--Operations and Marketing in March 1993. From 1986 to 1991, Mr. Schenk was Vice President--Marketing for American Consulting Services, a provider of marketing consulting services to media companies.
PART II
Item 5.

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded over-the-counter in the National Market System under the (NASDAQ) symbol BBSI. At February 25, 1994, there were 38 stockholders of record of the Company's common stock. The Company has not declared or paid any cash dividends since the closing of its initial public offering of its common stock on June 18, 1993, and has no present plan to do so in the foreseeable future. The following table presents the high and low sales prices of the Company's common stock for each quarterly period since June 18, 1993, as reported by NASDAQ:
Item 6.

Item 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the Company's financial statements and the accompanying notes presented in Item 8 of this report.
Item 7.

Item 7. 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 Statement of Operations for the years ended December 31, 1993, 1992 and 1991, included in Item 8


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following audited financial statements of Barrett Business Services, Inc., and related documents are set forth herein on the pages indicated:
Page Report of Independent Accountants 20 Balance Sheet at December 31, 1992 and 1993 21 Statement of Operations for the years ended December 31, 1991, 1992, and 1993 22 Statement of Stockholders' Equity for the years ended December 31, 1991, 1992, and 1993 23 Statement of Cash Flows for the years ended December 31, 1991, 1992, and 1993 24 Notes to Financial Statements 25
(b) The following financial statement schedule and report thereon are set forth herein on the pages indicated:
Report of Independent Accountants on Financial Statement Schedule
Schedule I - Marketable Securities - Other Investments 39 Other financial statement schedules are omitted because they are not applicable or not required.
(c) The following pro forma financial information as of December 31, 1993, is set forth herein on the pages indicated:
Barrett Business Services, Inc.: Pro Forma Balance Sheet at December 31, 1993 40 Pro Forma Statement of Operations for the year ended December 31, 1993 41 Notes to Pro Forma Financial Statements 42
(d) The following audited financial statements of Golden West Temporary Services and related documents are set forth herein on the pages indicated:
Independent Accountants' Report 43 Balance Sheets at December 31, 1993 and 1992 44 Statements of Income for the years ended December 31, 1993 and 1992 46 Statements of Changes in Stockholders' Equity for the years ended December 31, 1993 and 1992 47 Statements of Cash Flows for the years ended December 31, 1993 and 1992 48 Notes to Financial Statements 50 Report of Independent Accountants
February 7, 1994
To the Stockholders and Board of Directors, Barrett Business Services, Inc.
In our opinion, the accompanying balance sheet and the related statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Barrett Business Services, Inc. at December 31, 1992 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE Portland, Oregon
Barrett Business Services, Inc. Balance Sheet (In thousands, except per share amounts)
The accompanying notes are an integral part of this financial statement.
Barrett Business Services, Inc. Statement of Operations (In thousands, except per share amounts)
The accompanying notes are an integral part of this financial statement.
Barrett Business Services, Inc. Statement of Stockholders' Equity (In thousands)
The accompanying notes are an integral part of this financial statement.
Barrett Business Services, Inc. Statement of Cash Flows (In thousands)
The accompanying notes are an integral part of this financial statement.
Barrett Business Services, Inc. Notes to Financial Statements
1. Summary of Operations and Significant Accounting Policies
Nature of Operations Barrett Business Services, Inc. (Barrett or the Company), a Maryland corporation, is engaged in providing temporary staffing and staff leasing services to a diversified group of customers through a network of branch offices throughout western Oregon and in Seattle, Washington; Sacramento; California; and Baltimore, Maryland. Approximately 92% of the Company's revenue during 1992 and 1993 was attributable to its Oregon operations.
Revenue Recognition The Company recognizes revenue as the services are rendered by its work force. Temporary services are engaged by customers to meet short-term fluctuations in personnel needs. Staff leasing services are normally used by organizations to satisfy ongoing personnel needs and generally involve contracts, with a minimum term of one year renewable annually, covering all employees at a particular work site.
Allowance for Doubtful Accounts The Company had an allowance for doubtful accounts of $30,000 and $25,000 at December 31, 1992 and 1993, respectively.
Marketable Securities Marketable securities are stated at cost, which approximates fair market value. At December 31, 1992 and 1993, marketable securities consisted primarily of municipal tax anticipation notes and certificates of deposit.
Intangibles Intangible assets are recorded at cost and are being amortized using the straight-line method over their estimated useful lives ranging from three to 15 years.
Property and Equipment Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to operating expense as incurred, and expenditures for additions and betterment are capitalized. The cost of assets sold or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in the Statement of Operations.
Depreciation of property and equipment is calculated using either straight-line or accelerated methods over estimated useful lives ranging from three to 31.5 years.
Customer Safety Incentives Payable Safety incentives are paid annually to staff leasing clients if the cost of workers' compensation claims is less than agreed upon amounts; amounts paid are based on a percentage of payroll. The Company accrues the amounts payable under this program on a monthly basis. Barrett Business Services, Inc.
Notes to Financial Statements
1. Summary of Operations and Significant Accounting Policies (Continued)
Income Taxes Effective July 1, 1987, the Company elected to be treated as an S Corporation under provisions of the Internal Revenue Code. As such, federal and state income tax regulations provide that the income or losses of the Company were attributable to its stockholders in their individual tax returns. Accordingly, no accrual or provision for income taxes is made in the Company's financial statements for the years ended December 31, 1991 and 1992. Effective April 30, 1993, the Company terminated its S Corporation status. A 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 in the Statement of Operations.
Customer Deposits The Company requires deposits from certain staff leasing customers to cover a portion of its accounts receivable due from such customers in case of default.
Cash and Cash Equivalents The Company considers nonrestricted short-term investments which are highly liquid, are readily convertible into cash and have original maturities less than three months to be cash equivalents for purposes of the Statement of Cash Flows.
Statement of Cash Flows The Company has recorded the following non-cash transactions:
In September 1992, the Company, for financial reporting purposes, is deemed to have distributed to its stockholders certain non-cash assets and liabilities which aggregated a net liability of $23,000. See Note 2.
During 1992, notes receivable from a stockholder were extinguished. See Note 11.
Interest paid during 1991, 1992 and 1993 did not differ materially from interest expense.
Income taxes paid by the Company since termination of its S Corporation status totalled $1,239,600.
Common Stock Split and Change in Authorized Shares The Company's stockholders approved a 7,968-for-1 split of its common stock, an increase in authorized common shares and the authorization of preferred stock which became effective March 25, 1993. All share and earnings per share amounts have been adjusted to reflect this transaction for all periods presented. Additionally, the par value of common stock was changed to $.01 from $10 per share. Common stock and additional paid-in capital have been adjusted to reflect this change.
Pro Forma Net Income Per Share Net income per share is computed based on the weighted average number of common shares outstanding during the period without giving effect to securities that would otherwise be considered to be common stock equivalents, because such securities aggregate less than 3% of shares outstanding and thus are not considered dilutive.
Barrett Business Services, Inc.
Notes to Financial Statements
1. Summary of Operations and Significant Accounting Policies (Continued)
Reclassifications Certain prior year amounts have been reclassified to conform with 1993 presentation. Such reclassifications had no impact on net income or stockholders' equity.
2. Acquisitions
Oregon Temporary Services In January 1991, a company owned by the chief executive officer of the Company purchased Oregon Temporary Services, Inc. (OTS), a company engaged in the temporary services business. Of the $300,000 purchase price, $150,000 was financed through a distribution from the Company to the then sole stockholder, who is the chief executive officer's spouse, and the remaining $150,000 was payable under a note. Following the acquisition, OTS purchased employee services from Barrett and sold these services to third-party customers.
In November 1991, Barrett began directly servicing certain customers of OTS. By September 1992, all of the OTS customers were serviced by Barrett and, therefore, OTS has recognized no further revenues related to the temporary services business since that time. In September 1992, the Company, for financial reporting purposes, is deemed to have distributed to its stockholders cash of $438,800 and other assets and liabilities which aggregated a net liability of $23,000. Additionally, the Company incurred a note payable to the stockholders of $98,500 for the purchase of certain fixed assets related to OTS which had a net book value of $71,400. The difference between the note payable and the net book value of such assets of $27,100 was recorded as a distribution to the stockholders. Subsequent to relinquishing the OTS customers to Barrett, the stockholders invested the remaining net assets of OTS in another business not in the temporary services industry. See Note 1-- Statement of Cash Flows.
Because of the relationship between Barrett and OTS and because Barrett assumed the OTS customers gradually over the period from November 1991 through September 1992 at no cost, the accompanying financial statements as of and for the years ended December 31, 1991 and 1992 present the accounts of Barrett and the temporary services business of OTS as if the Company had purchased OTS in January 1991. As legal entities, OTS and Barrett were not combined; however, due to the common ownership and commingled operations of the two entities, combination for financial statement purposes properly presents the results of operations, cash flows and financial position of the Company. Transactions between Barrett and OTS from February 1991 through September 1992 have been eliminated.
Employee Leasing of Oregon In November and December 1991, the Company acquired substantially all of the staff leasing customers of Employee Leasing of Oregon, Inc. (ELO). The Company recorded $95,000 as intangible assets and expensed approximately
Barrett Business Services, Inc.
Notes to Financial Statements
$155,000 paid to the five ELO stockholders for services rendered in transition and delivery of the staff leasing customers to Barrett.
Nancy Horn Personnel Agency On January 1, 1992, the Company purchased substantially all of the assets of Nancy Horn Personnel Agency (NHPA), a business engaged in the temporary services business. The Company paid cash for NHPA and accounted for the acquisition using the purchase method of accounting. The purchase price of $65,000 was recorded as intangible assets at the date of acquisition.
American Staff Management In March 1992, the Company paid the stockholder of American Staff Management, Inc. (ASM) $25,000 for ASM's customer list. The Company recorded the purchase price as intangible assets.
CDI Corporation-West In March 1993, the Company acquired a branch office of CDI Corporation-West in Sacramento, California for $10,000. The purchase was recorded as intangible assets under the purchase method of accounting.
Pro Forma Results of Operations (Unaudited) The operating results of each of the above acquisitions are included in the Company's results of operations from the respective date of its acquisition. The following unaudited pro forma summary presents the combined results of operations as if the ELO, NHPA and ASM acquisitions had occurred at the beginning of 1991, after giving effect to certain adjustments for the amortization of intangible assets, taxation and cost of capital.
Barrett Business Services, Inc.
Notes to Financial Statements
The pro forma results above have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of that date or of results which may occur in the future.
3. Intangibles
Intangibles consist of the following (in thousands):
Barrett Business Services, Inc.
Notes to Financial Statements
4. Property and Equipment
Property and equipment consists of the following (in thousands):
Substantially all of the Company's fixed assets serve as security for long-term debt (see Note 7).
5. Accrued Workers' Compensation Claim Liabilities
During August 1987 and November 1993, the Company became self-insured with respect to workers' compensation claims for all its employees working or living in Oregon and Maryland, respectively. The Company has provided $1,337,000 and $2,434,000 at December 31, 1992 and December 31, 1993, respectively, as an estimated liability for unsettled workers' compensation claims. This estimated liability represents management's best estimate which includes, in part, an evaluation of information provided by the Company's third-party administrator and its independent actuary. Included in the claims liabilities are case reserve estimates for reported losses, plus additional amounts based on projections for incurred but not reported claims, allocated loss adjustment expenses and anticipated increases in case reserve estimates. These estimates are continually reviewed and adjustments to liabilities are reflected in current operations as they become known. The Company believes that the difference between amounts recorded at December 31, 1993 for its estimated liability and the possible range of costs of settling related claims is not material to results of operations; nevertheless, it is reasonably possible that adjustments required in future periods would be material to results of operations. The Company has obtained excess workers' compensation insurance to limit its self-insurance liability to $300,000 per occurrence ($350,000 for claims after December 31, 1993). The excess insurance provides coverage up to $10 million per occurrence for claims through December 31, 1993 and unlimited excess coverage for claims after that date.
Barrett Business Services, Inc.
Notes to Financial Statements
The States of Oregon and Maryland require the Company to maintain specified investment balances or other financial instruments, which aggregated $1,300,000 at December 31, 1992 and $2,761,000 at December 31, 1993 to cover potential claims losses. To partially meet this requirement at December 31, 1993, the Company holds a $300,000 surety bond guaranteed by an irrevocable standby letter of credit. The investments are included in restricted marketable securities and workers' compensation deposits in the accompanying Balance Sheet.
5. Accrued Workers' Compensation Claim Liabilities (Continued)
The workers' compensation expense in the accompanying Statement of Operations consists of $1,652,000, $2,780,000 and $4,071,000 for self-insurance expense in Oregon in 1991, 1992 and 1993, respectively, and $4,000 for Maryland in 1993. Premiums in the insured states were $306,000, $453,000 and $516,000 for 1991, 1992 and 1993, respectively.
6. Bank Line of Credit
On August 12, 1993, the Company entered into a new bank line of credit which expires on May 31, 1994. Pursuant to the amended loan agreement, the line of credit permits total borrowings of up to $2,000,000. The interest rate on outstanding balances is at the prime rate. The new line of credit is unsecured. Under the amended loan agreement, the Company is required to maintain (i) a ratio of total liabilities to tangible net worth of not more than 1.25 to 1.0, (ii) positive quarterly income before taxes, (iii) tangible net worth of at least $7,120,000, and (iv) a zero outstanding balance against the line for a minimum of 60 consecutive days during each year. The Company is also prohibited from pledging any of its assets other than existing mortgages on its real property. There were no borrowings outstanding under the line of credit at December 31, 1992 or 1993.
During the years ended December 31, 1991, 1992 and 1993, the maximum balances outstanding under the line of credit were $1,248,362, $321,617 and $1,189,000, respectively, the average balance outstanding was $768,000, $142,000 and $59,000, respectively, and the weighted average interest rate during the period was 9.8%, 7.0% and 6.6%, respectively. The weighted average interest rate during the period is calculated using daily weighted averages.
Barrett Business Services, Inc.
Notes to Financial Statements
7. Long-Term Debt
Long-term debt consists of the following (in thousands):
Maturities on long-term debt are summarized as follows at December 31, 1993 (in thousands):
Rent expense for the years ended December 31, 1991, 1992 and 1993 was approximately $271,000, $313,000 and $295,000, respectively.
10. Litigation Settlement
During 1991, the Company became a defendant in a lawsuit. The plaintiffs claimed that the termination of their employment by the Company was unlawful. On May 15, 1992, the Company settled the lawsuit for $600,000. Accordingly, a provision for the settlement of $600,000 was made in the accompanying financial statements for the year ended December 31, 1991.
Barrett Business Services, Inc.
Notes to Financial Statements
11. Related Party Transactions
During 1991, 1992 and 1993, the Company recorded revenues of $1,940,000, $2,249,000 and $2,404,000, respectively, and cost of revenues of $1,724,000, $2,116,000 and $2,316,000, respectively, for providing services to a company of which a director of the Company is president and majority stockholder. At December 31, 1992 and 1993, Barrett had receivables from this company of $84,000 and $117,000, respectively.
During 1992 and 1993, the Company recorded revenues of $47,000 and $480,000, respectively, and cost of revenues of $45,000 and $475,000, respectively, for providing staff leasing services to a company owned by the chief executive officer, a stockholder. At December 31, 1992 and 1993, Barrett had recorded a receivable from this company of $114,000 and $35,000, respectively.
As further described in Note 7, the Company has a note payable to the estate of the former majority stockholder, who was the late mother of a current stockholder. The Company was obligated to make annual payments to the former director and majority stockholder until her death in 1993 in recognition of her past services and in return for non-competition covenants. The payments were adjusted annually for increases in the Consumer Price Index for All Items--U.S. National Average. The Company accounted for this arrangement as a defined benefit plan. Under the plan, net pension costs were approximately $40,000 for each of 1991 and 1992.
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. The Company will exercise this guarantee at such time as the Company determines that further collection efforts are likely to be ineffective, but not later than December 31, 1995.
A director of the Company is Vice Chairman of the board of directors of the bank that provides the Company's unsecured working capital line of credit and certain mortgage financing. In addition to other banking business, the bank is the Transfer Agent for the Company's common stock. See Notes 6 and 7.
12. Public Stock Offering
In June 1993, the Company completed an initial public offering of 1,000,000 shares of common stock at $7.00 per share. In July 1993, the underwriters exercised an option to purchase 150,000 additional shares at $7.00 per share to cover over-allotments. Total net proceeds to the Company were $6,828,000 after deducting the underwriting discount and offering expenses.
Barrett Business Services, Inc.
Notes to Financial Statements
13. Income Taxes In conjunction with the Company's public offering, the Company terminated its S Corporation status effective April 30, 1993. Accordingly, unaudited pro forma income tax information is presented below which would have been recorded if the Company had been a C Corporation during all periods presented, based on tax laws in effect during those periods, as calculated under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
The unaudited pro forma provisions for income taxes are as follows (in thousands):
The actual provision for income taxes for the first eight months of operation as a C Corporation (May 1, 1993 to December 31, 1993) is as follows (in thousands):
The provision for income taxes for the year ended December 31, 1993 is offset by recognition of a cumulative net deferred tax asset of $505,000 associated with the termination of the Company's S Corporation status on April 30, 1993, in accordance with SFAS 109. Barrett Business Services, Inc.
Notes to Financial Statements
13. Income Taxes (Continued)
Deferred tax assets (liabilities) are comprised of the following components (in thousands):
The pro forma effective tax rate would differ from the U.S. statutory federal tax rate due to the following:
Upon termination of the Company's S Corporation status, cash distributions totaling $330,000, representing the estimated tax liabilities of stockholders on S Corporation earnings from January 1, 1993 through April 30, 1993, were paid to the stockholders from the undistributed S Corporation retained earnings. In total, since December 31, 1992, the Company has paid stockholder distributions of $869,000. The remaining undistributed S Corporation retained earnings have been reclassified as additional paid-in capital.
Barrett Business Services, Inc.
Notes to Financial Statements
14. Stock Incentive Plan
As of March 1, 1993, the Company adopted a stock incentive plan (the Plan) which provides for stock-based awards to the Company's employees, non-employee directors and outside consultants or advisers. The Company has reserved 250,000 shares of common stock for issuance under the Plan. An award of 2,000 restricted shares was granted under the Plan in June 1993. The following table summarizes options granted under the Plan during 1993:
The options listed in the table will become exercisable in four equal annual installments beginning one year after the date of grant.
15. Quarterly Financial Information (Unaudited)
Barrett Business Services, Inc.
Notes to Financial Statements
16. Market Information (Unaudited)
The Company's common stock is traded on the National Market System (NASDAQ) under the symbol BBSI. The following table sets forth the high and low sale prices of the stock for each quarter from the Company's June 18, 1993 initial public offering:
Report of Independent Accountants on Financial Statement Schedule
February 7, 1994
To the Board of Directors and Stockholders of Barrett Business Services, Inc.
Our audits of the financial statements referred to in our report dated February 7, 1994 appearing on page 20 of this Annual Report on Form 10-K also included an audit of the Financial Statement Schedule included in Part II, Item 8b of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.
PRICE WATERHOUSE Portland, Oregon
Schedule I - Marketable Securities-Other Investments
BARRETT BUSINESS SERVICES, INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
Year Ended December 31, 1993
BARRETT BUSINESS SERVICES, INC.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
Year Ended December 31, 1993
* The accompanying notes are an integral part of this financial statement.
Notes to Pro Forma Financial Statements
Acquisition
In March 1994, the Company acquired the assets of Golden West Temporary Services ("Golden West"), a California corporation, for $4,514,000 in cash from working capital. Golden West had total revenues of $24,533,000 for the year ended December 31, 1993, from the sales of temporary services provided through four branch offices. The accompanying pro forma balance sheet and statement of operations assume the acquisition took effect January 1, 1993.
Pro Forma Adjustments
The combined pro forma financial statements reflect the following adjustments: (i) the purchase price of $4,514,000, paid in cash from working capital, and the resulting increase in intangibles and equipment of $4,425,000 and $89,000, respectively, (ii) additional amortization and depreciation expense attributable to the acquired assets, (iii) elimination of interest expense and other nonrecurring operating costs, and (iv) the anticipated tax effect of the additional earnings.
Board of Directors Golden West Temporary Services Santa Clara, California
INDEPENDENT ACCOUNTANTS' REPORT
We have audited the accompanying balance sheets of Golden West Temporary Services as of December 31, 1993 and 1992, and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Golden West Temporary Services as of December 31, 1993 and 1992, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
FRANK, RIMERMAN & CO.
San Jose, California February 14, 1994 GOLDEN WEST TEMPORARY SERVICES BALANCE SHEETS
December 31, 1993 and 1992
See Notes to Financial Statements
GOLDEN WEST TEMPORARY SERVICES STATEMENTS OF INCOME December 31, 199 and 1992
LIABILITIES AND STOCKHOLDERS' EQUITY $3,318,720 $3,199,615
See Notes to Financial Statements
GOLDEN WEST TEMPORARY SERVICES STATEMENTS OF INCOME Years Ended December 31, 1993 and 1992
See Notes to Financial Statements
GOLDEN WEST TEMPORARY SERVICES STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31, 1993 and 1992
See Notes to Financial Statements
GOLDEN WEST TEMPORARY SERVICES STATEMENTS OF CASH FLOWS Years Ended December 31, 1993 and 1992
(continued)
GOLDEN WEST TEMPORARY SERVICES STATEMENTS OF CASH FLOWS Years Ended December 31, 1993 and 1992
(continued)
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
During 1992, the Company awarded a bonus of 400 shares of common stock with a fair market value of $8,000 to an employee. The fair market value of the stock was included in the employee's compensation.
See Notes to Financial Statements GOLDEN WEST TEMPORARY SERVICES NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies
Nature of Business
Golden West Temporary Services (Company) provides temporary and permanent placement contract labor services to various industries in the San Francisco Bay Area. The majority of the Company's accounts receivable are from high technology companies.
Significant Accounting Policies
Depreciation and amortization:
Office equipment and the automobile are depreciated using the double declining balance method over estimated useful lives of three to seven years. Leasehold improvements are amortized over the lesser of the original term of the facility leases or estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred.
Goodwill is amortized using the straight-line method over 20 years.
Income taxes:
Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109). SFAS 109 calls for measuring the provisions for income taxes and recognizing deferred tax assets and liabilities on the balance sheet using the liability method.
Concentration of credit risk:
The Company maintains approximately $40,000 and $108,000, respectively, in two commercial banks located in California. These cash deposits are secured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank.
Statements of cash flows:
For purposes of this statement, cash represents bank demand and money market accounts.
2. Major Customer
During 1993, the Company recognized revenues of approximately $6,900,000 from one customer, of which $808,000 was outstanding at December 31, 1993. No major customers existed at December 31, 1992.
GOLDEN WEST TEMPORARY SERVICES NOTES TO FINANCIAL STATEMENTS
3. Bank Borrowings
The Company has a bank revolving credit agreement which provides for borrowings of up to $1,500,000 for general working capital purposes. Borrowings under this agreement bear interest at the bank's reference rate (6% at December 31, 1993) and are secured by the Company's accounts receivable and equipment. The agreement is renewable on April 30, 1994 and requires the Company to maintain certain financial covenants.
4. Income Taxes
The Company operates for Federal income and California franchise tax purposes as an S-Corporation. As a result, the Company does not provide for Federal income taxes, and California franchise taxes are provided for at a 2-1/2% tax rate (1.5% for 1994 and future years). The stockholders are responsible to report, at the individual level, their pro rata share of taxable income and other items affecting taxable income.
The deferred income taxes reflect the differences in the timing of reporting results of operations for California franchise tax and financial accounting purposes. Deferred taxes arise principally from differences between the cash basis California franchise taxable income and the accrual basis pre-tax accounting income.
The effective rate of 3.1% for 1993 differs from the statutory rate of 2.5% as a result of the implementation of SFAS 109.
The provision for income taxes consists of the following:
5. Lease Commitments
The Company leases office space located in Santa Clara, Mountain View, San Jose, and Fremont, California. These leases are noncancellable operating leases expiring from December 1994 to December 1997. The Santa Clara lease contains an option to renew up through December 1998. Rent expense was approximately $113,000 in 1993 ($123,000 in 1992).
GOLDEN WEST TEMPORARY SERVICES NOTES TO FINANCIAL STATEMENTS
5. Lease Commitments (continued)
The following is a schedule of future minimum lease payments as of December 31, 1993:
6. Incentive Stock Option Agreements
The Company has granted nonqualified incentive stock options to officers and key employees. Each option allows the holder to purchase one share of the Company's common stock at the fair market value on the date of grant. Fair market value is determined by the Board of Directors.
Activity related to incentive stock option agreements is summarized as follows:
Options expire five years from the date of grant and vest over a five year period. At December 31, 1993, 1,400 options are exercisable (800 options at December 31, 1992). Item 9.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information required by Item 10, Directors and Executive Officers of the Registrant, is incorporated herein by reference to the Company's definitive Proxy Statement dated March 18, 1994 ("Proxy Statement"), pages 1-2, under the heading "Election of Directors" or appears under the heading "Executive Officers of the Registrant" on page 12 of this report. The information required by Item 11, Executive Compensation, is incorporated herein by reference to the Proxy Statement, pages 4-5, under the headings "Compensation Committee Interlocks and Insider Participation" and "Executive Compensation." The information required by Item 12, Security Ownership of Certain Beneficial Owners and Management, is incorporated herein by reference to the Proxy Statement, pages 2-3, under the heading "Stock Ownership by Principal Stockholders and Management." The information required by Item 13, Certain Relationships and Related Transactions, is incorporated herein by reference to the Proxy Statement, pages 7-8, under the heading "Transactions with Management and Principal Stockholders."
PART IV
Item 14.







Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. The financial statements, financial statement schedules and supplementary data listed in the index set forth in Item 8 of this report are filed as part of this report.
(a) 3. Exhibits are listed in the Exhibit Index beginning on page 55 of this report. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report is listed under Item 10, "Executive Compensation Plans and Arrangements and Other Management Contracts," in the Exhibit Index.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 22, 1994 By:/s/ William W. Sherertz William W. Sherertz President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 22nd day of March, 1994.
Signature Title
Principal Executive Officer and Director:
/s/ William W. Sherertz President and Chief Executive William W. Sherertz Officer and Director
Principal Financial and Accounting Officer and Director:
/s/ Jack D. Williamson, Jr. Vice President-Finance and Jack D. Williamson, Jr. Treasurer and Director
Other Directors:
ROBERT R. AMES* Director Robert R. Ames
JEFFREY L. BEAUDOIN* Director Jeffrey L. Beaudoin
ANTHONY MEEKER* Director Anthony Meeker
STANLEY G. RENECKER* Director Stanley G. Renecker
*By: /s/ Jack D. Williamson, Jr. Jack D. Williamson, Jr., Attorney-in-Fact EXHIBIT INDEX
Exhibits
2 Asset Purchase Agreement between Golden West Temporary Services and the registrant dated March 7, 1994.
3.1 Articles of Amendment and Restatement of the registrant. Incorporated by reference to Exhibit 3.1 to the registrant's Registration Statement on Form S-1 (No. 33-61804) (the "Form S-1").
3.2 Bylaws of the registrant. Incorporated by reference to Exhibit 3.2 to the registrant's Form S-1.
4.1 Loan Agreement between the registrant and First Interstate Bank of Oregon, N.A., dated August 12, 1993. Incorporated by reference to Exhibit 10 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.
The registrant has incurred other long-term indebtedness as to which the amount involved is less than 10 percent of the registrant's total assets. The registrant agrees to furnish cop- ies of the instruments relating to such indebtedness to the Commission upon request.
10 Executive Compensation Plans and Arrangements and Other Management Contracts.
10.1 1993 Stock Incentive Plan of the registrant as amended March 8, 1994.
10.2 Form of Indemnification Agreement with each director of the registrant. Incorporated by reference to Exhibit 10.8 to the registrant's Form S-1.
23.1 Consent of Price Waterhouse, independent accountants.
23.2 Consent of Frank, Rimerman & Co., independent accountants.
24 Power of Attorney of certain officers and directors.
_____________
Other exhibits listed in Item 601 of Regulation S-K are not applicable.