UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
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 June 30, 1998
Commission File No. 0-21886
BARRETT BUSINESS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0812977
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4724 SW Macadam Avenue
Portland, Oregon 97201
(Address of principal executive offices) (Zip Code)
(503) 220-0988
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares of Common Stock, $.01 par value outstanding at July 31, 1998
was 7,675,456 shares.
<PAGE>
BARRETT BUSINESS SERVICES, INC.
INDEX
<TABLE>
Page
----
Part I - Financial Information
Item 1. Financial Statements
<S> <C>
Balance Sheets - June 30, 1998 and
December 31, 1997..................................................3
Statements of Operations - Three Months
Ended June 30, 1998 and 1997.......................................4
Statements of Operations - Six Months
Ended June 30, 1998 and 1997.......................................5
Statements of Cash Flows - Six Months
Ended June 30, 1998 and 1997.......................................6
Notes to Financial Statements......................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................................12
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds.........................19
Item 4. Submission of Matters to a Vote of Security
Holders...........................................................19
Item 6. Exhibits and Reports on Form 8-K..................................20
Signatures ..................................................................21
Exhibit Index ..................................................................22
</TABLE>
2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
BARRETT BUSINESS SERVICES, INC.
Balance Sheets
(Unaudited)
(In thousands)
<TABLE>
June 30, December 31,
1998 1997
---------- ------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,076 $ 3,439
Trade accounts receivable, net 23,946 21,051
Prepaid expenses and other 1,808 1,231
Deferred tax assets (Note 4) 2,281 2,086
------ ------
Total current assets 29,111 27,807
Intangibles, net 12,130 12,133
Property and equipment, net 4,968 4,574
Restricted marketable securities
and workers' compensation deposits 5,857 6,095
Other assets 386 206
------ ------
$52,452 $50,815
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 488 $ 731
Line of credit payable 252 887
Income taxes payable (Note 4) 48 -
Accounts payable 688 1,136
Accrued payroll, payroll taxes
and related benefits 11,613 10,034
Accrued workers' compensation claims
liabilities 3,260 3,140
Customer safety incentives payable 1,125 1,073
Other accrued liabilities 821 414
------ ------
Total current liabilities 18,295 17,415
Long-term debt, net of current portion 550 573
Customer deposits 898 934
Long-term workers' compensation liabilities 722 632
Other long-term liabilities 1,120 1,030
------ ------
21,585 20,584
------ ------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 20,500
shares authorized, 7,676 and 7,638
shares issued and outstanding, respectively 77 76
Additional paid-in capital 11,408 11,760
Retained earnings 19,382 18,395
------ ------
30,867 30,231
------ ------
$52,452 $50,815
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
Three Months Ended
June 30,
---------------------------
1998 1997
------ ------
Revenues:
<S> <C> <C>
Staffing services $42,786 $43,387
Professional employer services 33,865 32,273
------ ------
76,651 75,660
------ ------
Cost of revenues:
Direct payroll costs 59,348 58,349
Payroll taxes and benefits 6,629 6,781
Workers' compensation 2,211 2,175
Safety incentives 336 381
------ ------
68,524 67,686
------ ------
Gross margin 8,127 7,974
Selling, general and administrative expenses 6,035 5,641
Merger expenses (Note 3) 750 -
Amortization of intangibles 329 285
------ ------
Income from operations 1,013 2,048
Other income (expense):
Interest expense (60) (62)
Interest income 100 87
Other, net 1 -
------ ------
41 25
------ ------
Income before provision for income taxes 1,054 2,073
Provision for income taxes (Note 4) 454 819
------ ------
Net income $ 600 $ 1,254
====== ======
Basic earnings per share (Note 6) $ .08 $ .16
====== ======
Weighted average number of basic
shares outstanding 7,666 7,630
====== ======
Diluted earnings per share (Note 6) $ .08 $ .16
====== ======
Weighted average number of diluted
shares outstanding 7,722 7,727
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
Six Months Ended
June 30,
-------------------------
1998 1997
------- -------
Revenues:
<S> <C> <C>
Staffing services $ 83,090 $ 80,136
Professional employer services 62,802 62,535
------- -------
145,892 142,671
------- -------
Cost of revenues:
Direct payroll costs 113,015 109,787
Payroll taxes and benefits 13,069 13,265
Workers' compensation 4,207 4,226
Safety incentives 700 704
------- -------
130,991 127,982
------- -------
Gross margin 14,901 14,689
Selling, general and administrative expenses 11,851 10,750
Merger expenses (Note 3) 750 -
Amortization of intangibles 682 612
------- -------
Income from operations 1,618 3,327
Other income (expense):
Interest expense (117) (107)
Interest income 225 190
Other, net 2 -
------- -------
110 83
------- -------
Income before provision for income taxes 1,728 3,410
Provision for income taxes (Note 4) 741 1,333
------- -------
Net income $ 987 $ 2,077
======= =======
Basic earnings per share (Note 6) $ .13 $ .27
======= =======
Weighted average number of basic
shares outstanding 7,652 7,663
======= =======
Diluted earnings per share (Note 6) $ .13 $ .27
======= =======
Weighted average number of diluted
shares outstanding 7,707 7,809
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BARRETT BUSINESS SERVICES, INC.
Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
Six Months Ended
June 30,
-----------------------
1998 1997
------ ------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 987 $ 2,077
Reconciliation of net income to cash from operations:
Depreciation and amortization 905 815
Changes in certain assets and liabilities, net
of assets acquired and liabilities assumed:
Trade accounts receivable, net (2,895) (3,185)
Note receivable - 324
Prepaid expenses and other (577) (588)
Deferred tax asset (195) (194)
Accounts payable (448) (80)
Accrued payroll, payroll taxes and related
benefits 1,579 3,108
Accrued workers' compensation claims
liabilities 120 248
Customer safety incentives payable 52 (10)
Income taxes payable 48 222
Other accrued liabilities 227 (171)
Customer deposits and long-term workers'
compensation liabilities 54 44
Other long-term liabilities 90 14
------ ------
Net cash (used in) provided by operating activities (53) 2,624
------ ------
Cash flows from investing activities:
Cash paid for acquisitions, including other
direct costs (Note 2) (680) (2,246)
Purchases of fixed assets, net of amounts
purchased in acquisitions (616) (644)
Proceeds from maturities of marketable
securities 3,766 3,782
Purchases of marketable securities (3,528) (4,149)
------ ------
Net cash used in investing activities (1,058) (3,257)
------ ------
Cash flows from financing activities:
Payment of credit-line assumed in acquisition - (401)
Net (payments on) proceeds from credit-line borrowings (635) 1,907
Payments on long-term debt (266) (43)
Payment to dissenting shareholder (519) -
Repurchase of common stock - (2,825)
Proceeds from exercise of stock
options and warrants 168 757
------ ------
Net cash used in financing activities (1,252) (605)
------ ------
Net decrease in cash and cash equivalents (2,363) (1,238)
Cash and cash equivalents, beginning of period 3,439 1,623
------ ------
Cash and cash equivalents, end of period $ 1,076 $ 385
====== ======
Supplemental schedule of noncash activities:
Acquisition of other businesses:
Cost of acquisitions in excess of fair market
value of net assets acquired $ 670 $ 3,179
Tangible assets acquired 10 674
Liabilities assumed - 1,607
Common stock issued in connection with acquisitions - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BARRETT BUSINESS SERVICES, INC.
Notes to Financial Statements
NOTE 1 - BASIS OF PRESENTATION OF INTERIM PERIOD STATEMENTS:
On June 29, 1998, Barrett Business Services, Inc. (the "Company")
completed its merger with Western Industrial Management, Inc., and with a
related company, Catch 55, Inc., (together, "WIMI"). The transaction was
accounted for as a pooling-of-interests pursuant to Accounting Principles Board
Opinion No. 16, and accordingly, the Company's financial statements have been
restated for all prior periods to give effect to the merger, as more fully
described in Note 2. The accompanying financial statements are unaudited and
have been prepared by management 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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from such estimates and assumptions. The financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's 1997 Annual Report on Form 10-K at
pages F1-F21. As of the date of filing of the Company's 1998 second quarter
report on Form 10-Q, the Company's restated 1997 annual financial statements to
reflect the merger with WIMI had not been filed with the Securities and Exchange
Commission. The results of operations for an interim period are not necessarily
indicative of the results of operations for a full year.
Certain prior year amounts have been reclassified to conform with the
1998 presentation. Such reclassifications had no impact on gross margin, net
income or stockholders' equity.
NOTE 2 - ACQUISITIONS:
On April 13, 1998, the Company acquired certain assets of BOLT Staffing
Service, Inc., a provider of staffing services located in Pocatello, Idaho. BOLT
Staffing had revenues of approximately $2.4 million (unaudited) for the year
ended December
7
<PAGE>
31, 1997. The Company paid $675,000 in cash for the assets, assumed a $6,000
office lease liability and incurred approximately $5,000 in acquisition related
costs. The transaction was accounted for under the purchase method of
accounting, which resulted in $670,000 of intangible assets and $10,000 of fixed
assets.
On June 29, 1998, the Company consummated its acquisition of WIMI
pursuant to a stock-for-stock merger. The transaction qualified as a tax-free
merger and has been accounted for as a pooling-of-interests. As a result of the
merger, the former shareholders of WIMI received a total of 894,642 shares of
the Company's common stock, which included 10,497 shares issued in exchange for
real property consisting of an office condominium in which WIMI's main office is
located. A dissenting WIMI shareholder received cash in the amount of $519,095,
based on a value of $11.375 per share of Barrett's common stock. The Company
also paid certain professional fees owed by WIMI in connection with the
transaction totaling approximately $425,000. WIMI was a privately-held staffing
services company headquartered in San Bernardino, California, with 1997 revenues
of approximately $24.5 million (unaudited).
Operating results of Barrett and WIMI, individually, prior to giving
effect to the pooling and of the combined companies for the second quarter and
six-month periods ended June 30, 1998 were as follows:
<TABLE>
Second Quarter Ended Six Months Ended
($ in thousands) June 30, 1998 June 30, 1998
--------------- --------------
Barrett:
<S> <C> <C>
Revenues $ 68,570 $ 131,335
Gross margin 6,966 12,767
Gross margin percent 10.2% 9.7%
Net income 935 1,258
WIMI:
Revenues 8,081 14,557
Gross margin 1,161 2,134
Gross margin percent 14.4% 14.7%
Net income 115 179
Combined:
Revenues 76,651 145,892
Gross margin 8,127 14,901
Gross margin percent 10.6% 10.2%
Merger expenses, net of
income tax benefit of $300 450 450
Net income $ 600 $ 987
</TABLE>
NOTE 3 - MERGER EXPENSES:
In connection with the merger with WIMI, the Company recorded in the
second quarter ended June 30, 1998 a one-time charge for
8
<PAGE>
merger-related expenses of $750,000 ($450,000 after taxes, or $.06 per share on
a diluted basis).
Merger expenses consisted primarily of professional fees, such as legal,
accounting, business broker fees and other related charges. The primary
components of the charge were as follows (in thousands):
Second Quarter Ended
June 30,1998
Professional fees
WIMI $ 425
Barrett 285
Other fees and expenses 40
---
$ 750
===
NOTE 4 - PROVISION FOR INCOME TAXES:
Deferred tax assets (liabilities) are comprised of the following
components (in thousands):
<TABLE>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Accrued workers' compensation claims
liabilities $1,549 $1,469
Allowance for doubtful accounts 265 236
Tax depreciation in excess of book
depreciation (159) (165)
Safety incentives 315 276
Book amortization of intangibles in excess
of tax amortization 151 110
State unemployment tax accrual 160 160
----- -----
$2,281 $2,086
===== =====
</TABLE>
9
<PAGE>
The provision for income taxes for the six months ended June 30, 1998 and
1997, is as follows (in thousands):
<TABLE>
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
Current:
<S> <C> <C>
Federal $ 765 $ 1,236
State 171 291
---- -----
936 1,527
Deferred:`
Federal (172) (159)
State (23) (35)
---- -----
(195) (194)
---- -----
Provision for income taxes $ 741 $ 1,333
==== =====
</TABLE>
NOTE 5 - 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 1,300,000.
The following table summarizes options granted under the Plan in 1998:
Outstanding at December 31, 1997 595,119 $ 3.50 to $18.00
Options granted 253,493 $ 4.40 to $12.00
Options exercised (7,250) $ 3.50 to $11.50
Options canceled or expired (71,592) $11.44 to $17.94
-------
Outstanding at June 30, 1998 769,770 $ 3.50 to $18.00
=======
Exercisable at June 30, 1998 291,770
=======
Available for grant at
June 30, 1998 321,855
=======
The options listed in the table generally become exercisable in four
equal annual installments beginning one year after the date of grant.
10
<PAGE>
NOTE 6 - NET INCOME PER SHARE:
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share," for the year ended December 31, 1997. SFAS No.
128 requires disclosure of basic and diluted earnings per share. The 1997 period
has been restated to reflect the adoption of SFAS No. 128 and to give effect to
the WIMI merger (Note 2), which was accounted for as a pooling-of-interests
pursuant to Accounting Principles Board Opinion No. 16. Basic earnings per share
are computed based on the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflect the potential effects of
the exercise of outstanding stock options and warrants.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
As more fully described above in Notes 1 and 2 to the Company's financial
statements, the financial statements have been restated for all prior periods to
give effect to the merger with WIMI. The following table sets forth the
percentages of total revenues represented by selected items in the Company's
Statements of Operations for the three and six-month periods ended June 30, 1998
and 1997.
<TABLE>
Percentage of Total Revenues
------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Staffing services 55.8% 57.3% 57.0% 56.2%
Professional employer services 44.2 42.7 43.0 43.8
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
Direct payroll costs 77.4 77.1 77.4 77.0
Payroll taxes and benefits 8.7 9.0 9.0 9.3
Workers' compensation 2.9 2.9 2.9 3.0
Safety incentives 0.4 0.5 0.5 0.4
----- ----- ----- -----
Total cost of revenues 89.4 89.5 89.8 89.7
----- ----- ----- -----
Gross margin 10.6 10.5 10.2 10.3
Selling, general and administrative
expenses 7.9 7.4 8.1 7.6
Merger expenses 1.0 - 0.5 -
Amortization of intangibles 0.4 0.4 0.5 0.4
----- ----- ----- -----
Income from operations 1.3 2.7 1.1 2.3
Other income (expense) 0.1 - 0.1 0.1
----- ----- ----- -----
Pretax income 1.4 2.7 1.2 2.4
Provision for income taxes 0.6 1.1 0.5 0.9
----- ----- ----- -----
Net income 0.8 1.6 0.7 1.5
===== ===== ===== =====
</TABLE>
Three months ended June 30, 1998 and 1997
Net income for the 1998 second quarter, before a one-time charge for
merger-related expenses and the effect of the June 29, 1998 merger, was
$935,000, a decrease of $319,000 or 25.4% from the pre-merger operating results
for the comparable 1997 period. The decline in net income was attributable to a
10 basis point decline in gross margin percent and higher selling, general and
administrative expenses. Diluted earnings per share for the second quarter of
1998, before a one-time charge for merger-related
12
<PAGE>
expenses and the effect of the merger, were $.14, as compared to $.18 per
diluted share for 1997.
Net income for the 1998 second quarter, after a one-time charge for
merger-related expenses of $750,000 ($450,000 after tax or $.06 per diluted
share) and the effect of the merger, was $600,000 or $.08 per diluted share, as
compared to net income of $1,254,000 or $.16 per diluted share for the
comparable 1997 period. The decrease in 1998 net income from 1997 was due to the
one-time charge for merger-related expenses of $750,000, together with higher
selling, general and administrative expenses, offset in part by a slightly
higher gross margin, both in terms of a percentage of revenues and total
dollars.
Revenues for the second quarter of 1998 totaled approximately $76.7
million, an increase of approximately $1.0 million or 1.3% over the second
quarter of 1997. Without the effect of the merger, revenues for the 1998 second
quarter were $68.6 million, as compared to 69.6 million for the 1997 second
quarter, a decrease of $1.0 million or 1.4%.
Staffing services revenue decreased approximately $0.6 million or 1.4%,
while professional employer services revenue increased approximately $1.6
million or 4.9%, which resulted in a decrease in the mix of staffing services to
55.8% of total revenues for the second quarter of 1998, as compared to 57.3% for
the second quarter of 1997. The mix of professional employer services revenues
had a corresponding increase from 42.7% for the second quarter of 1997 to 44.2%
for the second quarter of 1998.
Gross margin for the second quarter of 1998 totaled approximately $8.1
million, which represented an increase of approximately $0.2 million or 1.9%
over the second quarter of 1997. The gross margin percent increased 10 basis
points to 10.6% of revenues for the second quarter of 1998, as compared to 10.5%
for the same period of 1997. The increase in the gross margin percentage was due
to slightly lower payroll taxes and benefits, offset in part by slightly higher
direct payroll costs, both in terms of total dollars and as a percentage of
revenues.
Workers' compensation expense for both the second quarter of 1998 and
1997 was comparable at $2.2 million and 2.9% of revenues. Management believes it
has continued to increase the Company's accruals for future adverse loss
development of open claims.
Selling, general and administrative ("SG&A") expenses for the 1998 second
quarter amounted to approximately $6.0 million, an
13
<PAGE>
increase of $0.4 million or 7.0% over the comparable period in 1997. The
increase in total dollars was due primarily to higher management payroll, profit
sharing, bad debt expense and maintenance expenses. SG&A expenses also increased
from 7.4% of revenues for the second quarter of 1997 to 7.9% of revenues for the
second quarter of 1998. During the first quarter of 1998, management implemented
specific performance criteria for all branch offices to align operating expenses
more closely with growth in gross margin dollars rather than growth in revenues.
For the second quarter of 1998, excluding the effect of the merger, improvement
in SG&A expense management was achieved by (1) reducing SG&A expenses to 7.5% of
revenues, as compared to 8.0% of revenues for the first quarter of 1998, (2)
reducing SG&A expenses as a percent of gross margin dollars from 86.6% in the
1998 first quarter to 74.2% in the 1998 second quarter and (3) reducing the
quarter-over-comparable quarter growth rate of SG&A expenses from 11.2% (1Q98
vs. 1Q97) to 6.4% (2Q98 vs. 2Q97).
Amortization of intangibles totaled $329,000, or 0.4% of revenues for the
second quarter of 1998, which compares to $285,000 or 0.4% of revenues for the
same period in 1997. The increased amortization expense was primarily
attributable to the Company's April 13, 1998 acquisition of BOLT Staffing
Service.
The Company offers various qualified employee benefit plans to its
employees, including its worksite employees. These qualified employee benefit
plans include a savings plan (the "401(k) plan") under Section 401(k) of the
Internal Revenue Code (the "Code"), a cafeteria plan under Code Section 125, a
group health plan, a group life insurance plan, a group disability insurance
plan and an employee assistance plan. Generally, qualified employee benefit
plans are subject to provisions of both the Code and the Employee Retirement
Income Security Act ("ERISA"). In order to qualify for favorable tax treatment
under the Code, qualified plans must be established and maintained by an
employer for the exclusive benefit of its employees. In the event the tax exempt
status of the Company's benefit plans were to be discontinued and the benefit
plans were to be disqualified, such actions could have a material adverse effect
on the Company's business, financial condition and results of operations.
Reference is made to pages 19-20 of the Company's 1997 Annual Report on Form
10-K for a more detailed discussion of this issue.
Six Months Ended June 30, 1998 and 1997
Net income for the six months ended June 30, 1998 was $987,000, a
decrease of $1,090,000 or 52.5% from the same period in
14
<PAGE>
1997. The decrease in net income was primarily due to a one-time charge for
merger-related expenses of $750,000 ($450,000 after tax or $.06 per diluted
share) and a $1.1 million increase in SG&A expenses, which also increased as a
percent of revenues from 7.6% for the 1997 six-month period to 8.1% for the
comparable 1998 period. Basic and diluted earnings per share for the 1998
six-month period were $.13, as compared to $.27 for both basic and diluted
earnings per share for the same 1997 period.
Revenues for the six months ended June 30, 1998 totaled approximately
$145.9 million, an increase of approximately $3.2 million or 2.3% over the
comparable period of 1997.
Gross margin for the six months ended June 30, 1998 totaled approximately
$14.9 million, which represented an increase of $0.2 million or 1.4% over the
same period of 1997. The gross margin percent decreased to 10.2% of revenues for
the first six months of 1998, as compared to 10.3% for the same period of 1997.
The decline in the gross margin percentage was due to higher direct payroll
costs both in terms of total dollars and as a percentage of revenues, offset in
part by slightly lower payroll taxes and benefits and workers' compensation
expenses, both in terms of total dollars and as a percentage of revenues.
SG&A expenses for the six months ended June 30, 1998 amounted to
approximately $11.9 million, an increase of $1.1 million or 10.2% over the
comparable period in 1997. These expenses also increased from 7.6% of revenues
for the 1997 period to 8.1% of revenues for the comparable 1998 period. The
increase in total dollars was primarily attributable to increased expenses for
management payroll, profit sharing, bad debt expense and maintenance expenses.
Amortization of intangibles totaled $682,000 or .5% of revenues for the
six-month period ended June 30, 1998, which compares to $612,000 for the same
period in 1997. The increased amortization expense was attributable to the April
1998 acquisition of BOLT Staffing Service.
Fluctuations in Quarterly Operating Results
The Company has historically experienced significant fluctuations in its
quarterly operating results and expects such fluctuations to continue in the
future. The Company's operating results may fluctuate due to a number of factors
such as seasonality, wage limits on payroll taxes, claims expense for workers'
compensation, demand and competition for the Company's
15
<PAGE>
services, and the effect of acquisitions. The Company's revenue levels fluctuate
from quarter to quarter primarily due to the impact of seasonality in its
staffing services business and on certain of its PEO clients in the agriculture
and forest products related industries. As a result, the Company may have
greater revenues and net income in the third and fourth quarters of its fiscal
year. Payroll taxes and benefits fluctuate with the level of direct payroll
costs but may tend to represent a smaller percentage of revenues later in the
Company's fiscal year as federal and state statutory wage limits for
unemployment and social security taxes are exceeded by some employees. Workers'
compensation expense varies with both the frequency and severity of workplace
injury claims reported during a quarter or subsequent quarters.
Liquidity and Capital Resources
- -------------------------------
The Company's cash position of $1,076,000 at June 30, 1998 decreased by
$2,363,000 from December 31, 1997. The decrease was primarily due to cash used
in financing activities for repayment of bank credit-line borrowings and payment
to a dissenting shareholder of WIMI in the merger, as well as cash used in
investing activities related to the BOLT Staffing acquisition and fixed asset
additions.
Net cash used in operating activities for the six months ended June 30,
1998 amounted to $53,000, as compared to cash provided by operating activities
of $2,624,000 for the comparable 1997 period. For the 1998 period, cash flow
generated by net income, depreciation and amortization expenses, together with
an increase of $1,579,000 in accrued payroll and benefits, was offset by a
$2,895,000 increase in trade accounts receivable, a $577,000 increase in prepaid
expenses and a $448,000 decrease in accounts payable.
Net cash used in investing activities totaled $1,058,000 for the six
months ended June 30, 1998, as compared to $3,257,000 for the similar 1997
period. For the 1998 period, the principal use of cash for investing activities
was the acquisition of BOLT Staffing Service, capitalized
software-implementation costs and computer equipment. The Company presently has
no material long-term capital commitments.
Net cash used in financing activities for the six-month period ended June
30, 1998 was $1,252,000, which compares to net cash used in financing activities
of $605,000 for the comparable 1997 period. For the 1998 period, the principal
use of cash for financing activities was for repayments of credit-line
borrowings and for
16
<PAGE>
payment to a dissenting WIMI shareholder in connection with the WIMI merger.
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 2 to the financial
statements included herein, during April 1998, the Company purchased a staffing
services company located in Pocatello, Idaho, for $675,000 in cash. As also
disclosed in Note 2, the Company completed a stock-for-stock merger with WIMI in
June 1998. The Company actively explores proposals for various acquisition
opportunities on an ongoing basis, but there can be no assurance that any
additional transactions will be consummated.
Management recently renewed the Company's credit arrangement with its
principal bank on terms and conditions which were generally more favorable than
the prior agreement. The amount of the credit facility, which remained
unchanged, primarily includes an unsecured $4.0 million revolving credit
facility and $1.6 million for previously existing standby letters of credit in
connection with certain workers' compensation surety arrangements. Management
expects that the funds anticipated to be generated from operations, together
with the 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.
Forward-Looking Information
- ---------------------------
Statements in this report which are not historical in nature, including
discussion of economic conditions in the Company's market areas, the potential
for and effect of future acquisitions, the effect of changes in the Company's
mix of services on gross margin, the adequacy of the Company's workers'
compensation reserves and allowance for doubtful accounts, the tax-qualified
status of the Company's 401(k) savings plan, and the availability of financing
and working capital to meet the Company's funding requirements, are
forward-looking statements within the meaning of the Private
17
<PAGE>
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company or industry
results to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors with respect to the Company include difficulties associated with
integrating acquired businesses and clients into the Company's operations,
economic trends in the Company's service areas, uncertainties regarding
government regulation of Professional Employer Organizations ("PEOs"), including
the possible adoption by the IRS of an unfavorable position as to the
tax-qualified status of employee benefit plans maintained by PEOs, future
workers' compensation claims experience, and the availability of and costs
associated with potential sources of financing. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
18
<PAGE>
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
On June 29, 1998, the Company issued 894,642 shares of common stock in
connection with the acquisition of Western Industrial Management, Inc., and a
related entity, Catch 55, Inc., in a stock-for-stock merger. The shares issued
included 10,497 shares issued in exchange for real property consisting of an
office condominium. The shares were issued to two of the shareholders of the
acquired entities; a third shareholder dissented from the transaction and
received cash. The transaction was valued by the parties at approximately $10.7
million, including the $519,095 cash payment to the dissenting shareholder. The
Company relied on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933 with respect to the issuance and sale of such shares.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1998 annual meeting of stockholders on May 13, 1998.
The following directors were elected at the annual meeting:
<TABLE>
ABSTENTIONS AND
FOR WITHHELD BROKER NON-VOTES
--- -------- ----------------
<S> <C> <C>
Robert R. Ames 6,497,405 29,922
Herbert L. Hochberg 6,477,905 49,422
Anthony Meeker 6,490,605 36,722
Stanley G. Renecker 6,490,705 36,622
Nancy B. Sherertz 6,347,741 179,586
William W. Sherertz 6,490,291 37,036
</TABLE>
The other matter presented for action at the annual meeting was approved
by the following vote:
<TABLE>
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
--- ------- ----------------
<S> <C> <C> <C>
Approval of the 6,518,499 789 8,039
appointment of Price
Waterhouse LLP as
independent accountants
</TABLE>
19
<PAGE>
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) Reports on Form 8-K
Subsequent to quarter end, on July 13, 1998, the Company filed a
Current Report on Form 8-K dated June 29, 1998, to report that the
Company had completed its acquisition of Western Industrial
Management, Inc., and of a related company, Catch 55, Inc.
(together, "WIMI"), pursuant to a stock-for-stock merger. The
transaction qualified as a tax-free merger and was accounted for
as a pooling-of-interests. As a result of the merger, the former
shareholders of WIMI received a total of 894,642 shares of the
Company's common stock, which included 10,497 shares issued in
exchange for real property consisting of an office condominium in
which WIMI's main office is located. A dissenting WIMI shareholder
received cash in the amount of $519,095, based on a value of
$11.375 per share of Barrett's common stock. The Company also paid
certain professional fees owed by WIMI in connection with the
transaction totaling approximately $425,000. WIMI, a
privately-held staffing services company headquartered in San
Bernardino, California, had 1997 revenues of approximately $24.5
million (unaudited).
20
<PAGE>
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: August 13, 1998 By:/s/ Michael D. Mulholland
Michael D. Mulholland
Vice President-Finance
(Principal Financial Officer)
21
<PAGE>
EXHIBIT INDEX
EXHIBIT
4.1 Loan agreement between the Registrant and Wells Fargo Bank, N.A.
dated May 31, 1998.
11 Statement of Calculation of Average
Common Shares Outstanding
27 Financial Data Schedule
Portland RCBO
1300 S.W. Fifth Ave. T-13
Portland, OR 97201
May 31, 1998
Barrett Business Services, Inc.
4724 SW Macadam Avenue
Portland, OR 97201
Dear Sir:
This letter is to confirm that Wells Fargo Bank, National Association
("Bank"), subject to all terms and conditions contained herein, has agreed to
make available to Barrett Business Services, Inc. ("Borrower") the following
described credit accommodations (each, a "Credit" and collectively, the
"Credits"):
1. A revolving line of credit under which Bank will make advances to
Borrower from time to time up to and including May 31, 1999, not to exceed at
any time the maximum principal amount of Five Million Six Hundred Fifty Thousand
Dollars ($5,650,000.00) ("Line of Credit"), the proceeds of which shall be used
for working capital requirements.
2. A term loan in the original principal amount of Six Hundred
Ninety-three Thousand Seven Hundred Fifty Dollars ($693,750.00) ("Term Loan"),
on which the outstanding principal balance as of the date hereof is $550,985.16.
Subject to the terms and conditions of this letter, Bank hereby confirms that
the Term Loan remains in full force and effect.
I. CREDIT TERMS:
1. LINE OF CREDIT:
(a) Line of Credit Note. Borrower's obligation to repay advances under
the Line of Credit shall be evidenced by a promissory note substantially in the
form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which
are incorporated herein by this reference.
(b) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue standby
letters of credit for the account of Borrower (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided however, that the form and
substance of each Letter of Credit shall be subject to approval by Bank, in its
sole discretion; and provided further, that the aggregate undrawn amount of all
outstanding Letters of Credit shall not at any time exceed Five Million Six
Hundred Fifty Thousand Dollars ($5,650,000.00). Each Letter of Credit shall be
issued for a term not to exceed 365 days, as designated by Borrower; provided
however, that no Letter of Credit shall have an expiration date more than ninety
(90) days beyond the maturity date of the Line of Credit. The undrawn amount of
all Letters of Credit shall be reserved under the Line of Credit and shall not
be available for borrowings thereunder. Each Letter of Credit shall be subject
to the additional terms and conditions of the Letter of Credit Agreement and
related documents, if any, required by Bank in connection with the issuance
thereof. Each draft paid by Bank under a Letter of Credit shall be deemed an
advance under the Line of Credit and shall be repaid by Borrower in accordance
with the terms and conditions of this letter applicable to such advances;
provided however, that if advances under the Line of Credit are not available,
for any reason, at the time any draft is paid by Bank, then Borrower shall
immediately pay to Bank the full amount of such draft, together with interest
thereon from the date such amount is paid by Bank to the date such amount is
fully repaid by Borrower, at the rate of interest applicable to advances under
the Line of Credit. In such event Borrower agrees that Bank, in its sole
discretion, may debit any demand deposit account maintained by Borrower with
Bank for the amount of any such draft.
(c) Borrowing and Repayment. Borrower may from time to time during
the term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above. Notwithstanding the foregoing, Borrower shall maintain a zero balance on
advances under the Line of Credit for a period of at least 30 consecutive days
during each fiscal year.
2. TERM LOAN:
(a) Term Note. Borrower's obligation to repay the Term Loan is
evidenced by a promissory note substantially in the form of Exhibit B attached
hereto ("Term Note"), all terms of which are incorporated herein by this
reference. Any reference in the Term Note to any prior loan agreement between
Bank and Borrower shall be deemed a reference to this letter.
(b) Repayment. The principal and interest on the Term Loan shall
continue to be repaid in accordance with the provisions of the Term Note.
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<PAGE>
(c) Prepayment. Borrower may prepay principal on the Term Loan solely
in accordance with the provisions of the Term Note.
3. COLLATERAL:
As security for all indebtedness of Borrower to Bank under the Term
Loan, Borrower hereby grants to Bank a lien of not less than first priority on
that certain real property located at 4724 SW Macadam Avenue, Portland, OR.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all costs and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.
II. INTEREST/FEES:
1. Interest. The outstanding principal balance of the Line of Credit
and the Term Loan shall bear interest at the rates of interest set forth in the
Line of Credit Note and the Term Note.
a. Computation and Payment. Interest on the Line of Credit shall be
computed on the basis of a 360-day year, actual days elapsed. Interest on the
Term Loan shall be computed on the basis of a 366-day year, actual days elapsed.
Interest shall be payable at the times and place set forth in the Line of Credit
Note and the Term Note.
2. Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
one-eighth percent (0.125%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on a quarterly basis by Bank and shall be due and
payable by Borrower in arrears on the last day of each March, June, September
and December.
3. Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation by Bank of
each draft under any Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity, but at any event not more than 90 basis points.
4. Collection of Payments. Borrower authorizes Bank to collect all
principal, interest and fees due under each Credit by charging Borrower's demand
deposit account number 4159-583848 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
III. REPRESENTATIONS AND WARRANTIES:
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this letter
and shall continue in full force and effect until the full and final payment,
and satisfaction and discharge, of all obligations of Borrower to Bank subject
to this letter.
1. Legal Status. Borrower is a corporation, duly organized and existing
and in good standing under the laws of the state of Maryland, and is qualified
or licensed to do business in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
2. Authorization and Validity. This letter, the Line of Credit Note,
the Term Note, and each other document, contract or instrument deemed necessary
by Bank to evidence any extension of credit to Borrower pursuant to the terms
and conditions hereof, or now or at any time hereafter required by or delivered
to Bank in connection with this letter (collectively, the "Loan Documents") have
been duly authorized, and upon their execution and delivery in accordance with
the provisions hereof will constitute legal, valid and binding agreements and
obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
3. No Violation. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in a breach of or constitute a default under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.
4. Litigation. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
5. Correctness of Financial Statement. The financial statement of
Borrower dated March 31, 1998, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
condition or operation of
- 2 -
<PAGE>
Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or
otherwise encumbered any of its assets or properties except in favor of Bank or
as otherwise permitted by Bank in writing.
6. Income Tax Returns. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.
7. No Subordination. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this letter to any other obligation of Borrower.
8. Permits, Franchises. Borrower possesses, and will hereafter possess,
all permits, consents, approvals, franchises and licenses required and all
rights to trademarks, trade names, patents and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
9. ERISA. To the best of Borrower's knowledge, Borrower is in
compliance in all material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended or recodified from
time to time ("ERISA"); Borrower has not violated any provision of any defined
employee pension benefit plan (as defined in ERISA) maintained or contributed to
by Borrower (each, a "Plan"); no Reportable Event, as defined in ERISA, has
occurred and is continuing with respect to any Plan initiated by Borrower;
Borrower has met its minimum funding requirements under ERISA with respect to
each Plan; and each Plan will be able to fulfill its benefit obligations as they
come due in accordance with the Plan documents and under generally accepted
accounting principles.
10. Other Obligations. Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
11. Environmental Matters. Except as disclosed by Borrower to Bank in
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
12. Real Property Collateral. Except as disclosed by Borrower to Bank
in writing prior to the date hereof, with respect to any real property
collateral required hereby:
(a) All taxes, governmental assessments, insurance premiums, and water,
sewer and municipal charges, and rents (if any) which previously became due and
owing in respect thereof have been paid as of the date hereof.
(b) There are no construction or similar liens or claims which have
been filed for work, labor or material (and no rights are outstanding that under
law could give rise to any such lien) which affect all or any interest in any
such real property and which are or may be prior to or equal to the lien thereon
in favor of Bank.
(c) None of the improvements which were included for purpose of
determining the appraised value of any such real property lies outside of the
boundaries and/or building restriction lines thereof, and no improvements on
adjoining properties materially encroach upon any such real property.
(d) There is no pending, or to the best of Borrower's knowledge
threatened, proceeding for the total or partial condemnation of all or any
portion of any such real property, and all such real property is in good repair
and free and clear of any damage that would materially and adversely affect the
value thereof as security and/or the intended use thereof.
IV. CONDITIONS:
1. Conditions of Initial Extension of Credit. The obligation of Bank to
grant any of the Credits is subject to fulfillment to Bank's satisfaction of all
of the following conditions:
(a) Documentation. Bank shall have received each of the Loan Documents,
duly executed and in form and substance satisfactory to Bank.
(b) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
(c) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank, including without
limitation, policies of fire and extended coverage insurance covering all real
property collateral required hereby, with replacement cost and mortgagee loss
payable endorsements, and such policies of insurance against specific hazards
affecting any such real property as may be required by governmental regulation
or Bank.
- 3 -
<PAGE>
(d) Appraisals. Bank shall have obtained, at Borrower's cost, an
appraisal of all real property collateral required hereby, and all improvements
thereon, issued by an appraiser acceptable to Bank and in form, substance and
reflecting values satisfactory to Bank, in its discretion.
(e) Title Insurance. Bank shall have received an ALTA Policy of Title
Insurance, with such endorsements as Bank may require, issued by a company and
in form and substance satisfactory to Bank, in such amount as Bank shall
require, insuring Bank's lien on the real property collateral required hereby to
be of first priority, subject only to such exceptions as Bank shall approve in
its discretion, with all costs thereof to be paid by Borrower.
2. Conditions of Each Extension of Credit. The obligation of Bank to
make each extension of credit requested by Borrower hereunder shall be subject
to the fulfillment to Bank's satisfaction of each of the following conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this letter and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
default hereunder, and no condition, event or act which with the giving of
notice or the passage of time or both would constitute such a default, shall
have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
V. COVENANTS:
Borrower covenants that so long Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
1. Punctual Payment. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein.
2. Accounting Records. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same and inspect the
properties of Borrower.
3. Financial Statements. Provide to Bank all of the following, in form
and detail satisfactory to Bank:
(a) not later than 95 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by an independent certified
public accountant acceptable to Bank, to include balance sheet, income
statement, statement of cash flow, and source and application of funds
statement, and a copy of Borrower's Form 10-K report filed with the Securities
and Exchange Commission;
(b) not later than 50 days after and as of the end of each fiscal
quarter, a copy of Borrower's Form 10-Q report filed with the Securities and
Exchange Commission;
(c) from time to time such other information as Bank may reasonably
request, including without limitation, copies of rent rolls and other
information with respect to any real property collateral required hereby.
4. Compliance. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of a governmental agency applicable to Borrower and/or its business.
5. Insurance. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance carried with
companies and in amounts satisfactory to Bank, and deliver to Bank from time to
time at Bank's request schedules setting forth all insurance then in effect.
6. Facilities. Keep all properties useful or necessary to Borrower's
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.
7. Taxes and Other Liabilities. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
8. Financial Condition. Maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently applied and
used consistently with prior practices (except to the extent modified by the
definitions herein):
- 4 -
<PAGE>
Total Liabilities divided by Net Worth not at any time greater than 1.5
to 1.0, with "Total Liabilities" defined as the aggregate of current liabilities
and non-current liabilities, and with "Net Worth" defined as the aggregate of
assets minus liabilities.
9. Merger, Consolidation, Transfer of Assets. Not merge into or
consolidate with any other entity; nor make any substantial change in the nature
of Borrower's business as conducted as of the date hereof; nor acquire all or
substantially all of the assets of any other entity in any transaction involving
$20,000,000.00 or more without the prior written approval of Bank, which
approval shall not be unreasonably withheld; nor sell, lease, transfer or
otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
10. Guaranties. Not guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.
11. Loans, Advances, Investments. Not make any loans or advances to or
investments in any person or entity, except any of the foregoing existing as of,
and disclosed to Bank prior to, the date hereof, or any loans or advances or
investments made in the normal course, such as short term advances to employees
or investments of excess cash.
12. Pledge of Accounts. Borrower shall give Bank at least fifteen (15)
days prior notice of any intent by Borrower to pledge, grant or permit to exist
a security interest in, or lien upon, any of its accounts, general intangibles
that constitute payment of rights, and other rights to payment, (the foregoing,
together with the proceeds thereof being, collectively, "Receivables
Collateral") in favor of any party other than Bank (an "Other Lender"). Borrower
agrees that in such event, Borrower shall grant to Bank a security interest and
lien in the Receivables Collateral to secure all of Borrower's obligations to
Bank under the Line of Credit, and Bank and any such Other Lender's rights and
interests in and to the Receivables Collateral shall be of equal priority, with
each of Bank and such Other Lender to share the Receivables Collateral on a
pro-rata basis, based on the maximum principal amount of, respectively the loan
from the Other Lender and the maximum principal amount of the Line of Credit.
Further, in such event, borrower agrees to execute, and any such pledge of
receivables collateral to an Other Lender would be made subject to the execution
by such other lender of, appropriate documents to effectuate the foregoing.
13. Year 2000 Compliance. Perform all acts reasonably necessary to
ensure that (a) Borrower and any business in which Borrower holds a substantial
interest, and (b) all customers, suppliers and vendors that are material to
Borrower's business, become Year 2000 Compliant in a timely manner. Such acts
shall include, without limitation, performing a comprehensive review and
assessment of all of Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems. As
used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that all
software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000. Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with the terms hereof
as Bank may from time to time require.
VI. DEFAULT, REMEDIES:
1. Default, Remedies. Upon the violation of any term or condition of
any of the Loan Documents, or upon the occurrence of any default or defined
event of default under any of the Loan Documents: (a) all indebtedness of
Borrower under each of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Bank's option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are expressly waived by Borrower; (b) the obligation, if any, of Bank
to extend any further credit under any of the Loan Documents shall immediately
cease and terminate; and (c) Bank shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law, including
without limitation the right to resort to any or all security for any of the
Credits and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law. All rights, powers and remedies of Bank may be
exercised at any time by Bank and from time to time after the occurrence of any
such breach or default, are cumulative and not exclusive, and shall be in
addition to any other rights, powers or remedies provided by law or equity.
2. No Waiver. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.
VII. MISCELLANEOUS:
1. Notices. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
letter must be in writing delivered to each party at its address first set forth
above, or to such other address as any party may designate by written notice to
all other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
2. Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the
- 5 -
<PAGE>
negotiation and preparation of this letter and the other Loan Documents, Bank's
continued administration hereof and thereof, and the preparation of amendments
and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the
collection of any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.
3. Successors, Assignment. This letter shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without Bank's prior written consent.
Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or hereafter may
acquire relating to any of the Credits, Borrower or its business, or any
collateral required hereunder.
4. Entire Agreement; Amendment. This letter and the other Loan
Documents constitute the entire agreement between Borrower and Bank with respect
to the Credits and supersede all prior negotiations, communications, discussions
and correspondence concerning the subject matter hereof. This letter may be
amended or modified only in writing signed by each party hereto.
5. No Third Party Beneficiaries. This letter is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this letter or any other of the Loan Documents to which it is
not a party.
6. Severability of Provisions. If any provision of this letter shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
letter.
7. Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of Oregon.
8. Arbitration.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this letter. A "Dispute" shall mean any action, dispute, claim
or controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in Oregon selected
by the AAA or other administrator. If there is any inconsistency between the
terms hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. ss.91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the Oregon State Bar or retired judges of the state or federal
judiciary of Oregon, with expertise in the substantive law applicable to the
subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by
summary rulings in response to motions filed prior to the final arbitration
hearing. Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of Oregon, (ii) may grant any remedy or relief that
a court of the state of Oregon could order or grant within the scope hereof and
such ancillary relief as is necessary to make effective any award, and (iii)
shall have the power to award recovery of all costs and fees, to impose
sanctions and to take such other actions as they deem necessary to the same
extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Oregon Rules of Civil Procedure or other applicable law. Any Dispute in which
the amount in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000 (including
damages, costs, fees
- 6 -
<PAGE>
and expenses). By submission to a single arbitrator, each party expressly waives
any right or claim to recover more than $5,000,000. Any Dispute in which the
amount in controversy exceeds $5,000,000 shall be decided by majority vote of a
panel of three arbitrators; provided however, that all three arbitrators must
actively participate in all hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
Oregon, and (iii) the parties shall have in addition to the grounds referred to
in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
Oregon. Judgment confirming an award in such a proceeding may be entered only if
a court determines the award is supported by substantial evidence and not based
on legal error under the substantive law of the state of Oregon.
(f) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
Your acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions. Bank's commitment to extend any credit to
Borrower pursuant to the terms of this letter shall terminate on June 19, 1998,
unless this letter is acknowledged by Borrower and returned to Bank on or before
that date.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Marlene Roberts
Marlene Roberts
Vice President
Acknowledged and accepted as of 6-1-98:
BARRETT BUSINESS SERVICES, INC.
By: /s/ Michael D. Mulholland
Title: VP-Finance
- 7 -
BARRETT BUSINESS SERVICES, INC.
STATEMENT OF CALCULATION OF BASIC
AND DILUTED COMMON SHARES OUTSTANDING
<TABLE>
Three Months
Ended
June 30, 1998
-------------
<S> <C>
Weighted average number of basic shares outstanding 7,666,230
Stock option plan shares to be issued at prices
ranging from $3.50 to $18.00 per share 709,000
Warrants issued at a price of $4.20 per share 8,571
Less: Assumed purchase at average market price
during the period using proceeds received upon
exercise of options and purchase of stock, and
using tax benefits of compensation due to premature
dispositions (661,654)
---------
Weighted average number of diluted shares outstanding 7,722,147
=========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's balance sheets and related statements of operations for the period
ended June 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,076
<SECURITIES> 0
<RECEIVABLES> 23,946
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,111
<PP&E> 4,968
<DEPRECIATION> 0
<TOTAL-ASSETS> 52,452
<CURRENT-LIABILITIES> 18,295
<BONDS> 550
0
0
<COMMON> 77
<OTHER-SE> 30,790
<TOTAL-LIABILITY-AND-EQUITY> 52,452
<SALES> 0
<TOTAL-REVENUES> 145,892
<CGS> 0
<TOTAL-COSTS> 130,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> 1,728
<INCOME-TAX> 741
<INCOME-CONTINUING> 987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 987
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
