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Basis Of Presentation Of Interim Period Statements
9 Months Ended
Sep. 30, 2011
Basis Of Presentation Of Interim Period Statements [Abstract] 
Basis Of Presentation Of Interim Period Statements

Note 1- Basis of Presentation of Interim Period Statements

The accompanying consolidated financial statements are unaudited and have been prepared by Barrett Business Services, Inc. ("Barrett", "BBSI" or the "Company"), pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures typically included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the consolidated 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 ("GAAP") 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 consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's 2010 Annual Report on Form 10-K at pages F1 – F32. The results of operations for an interim period are not necessarily indicative of the results of operations for a full year.

Effective January 5, 2010, the Company formed a wholly owned insurance company, Ecole Insurance Company ("Ecole"). Ecole is a fully licensed insurance company holding a certificate of authority from the Arizona Department of Insurance. Ecole provides workers' compensation coverage to the Company's employees working in Arizona for claims occurring on or after March 1, 2010. The cost to capitalize the insurance company was approximately $6.1 million and is included in restricted marketable securities and workers' compensation deposits in the consolidated balance sheet.

Restatement of prior period

As described in Note 2 of the Consolidated Financial Statements in Item 15 in the Company's 2010 Annual Report on Form 10-K, the Company restated its consolidated financial statements to correct an error related to legal expenses incurred for the administration of workers' compensation claims by Associated Insurance Company for Excess ("AICE"), the Company's captive insurance subsidiary formed January 1, 2007. The Company's historical accounting method for legal expenses incurred for claims administration had been to recognize the expenses in the period incurred. The Company's captive insurance subsidiary is subject to industry specific authoritative accounting guidance that requires the insurance subsidiary to include an estimate for such legal fees in its workers' compensation claims liabilities. Therefore, the Company's method of recording legal fees in the period incurred for claims administration was determined to be an error. As a result, the Company has presented its consolidated financial statements for the three and nine months ended September 30, 2010, as restated to reflect the correction of this error. The Company also determined to make a conforming change to its accounting method for legal expenses incurred for the administration of workers' compensation claims that arose prior to the formation of AICE. The impact of the correction of the error and change in accounting method for the three and nine months ended September 30, 2010, which has been reflected throughout the consolidated financial statements and accompanying notes, is as follows:

 

(in thousands, except per share amounts)    Consolidated Statement of Operations for the
Three Months Ended September 30, 2010		  
     As Previously
Reported		      Correction of
an Error		     Change in
Accounting
Policy		     Net
Adjustment		     Restated  

Cost of revenues

    $ 59,820       $ 198      $ (186 )    $ 12      $ 59,832   

Provision from income taxes

      1,461         91        (86 )      5        1,466   

Net income

      3,686         (289 )      272        (17 )      3,669   

Basic income per share

      0.36         (0.03 )      0.03        0        0.36   

Diluted income per share

      0.36         (0.03 )      0.03        0        0.36   

 

(in thousands, except per share amounts)    Consolidated Statement of Operations for the
Nine Months Ended September 30, 2010		  
     As  Previously
Reported		      Correction of
an Error		     Change in
Accounting
Policy		     Net
Adjustment		     Restated  
             
             

Cost of revenues

    $ 168,390       $ 594      $ (557 )    $ 37      $ 168,427   

Benefit from income taxes

      1,315         273        (257 )      16        1,331   

Net income

      4,278         (867 )      814        (53 )      4,225   

Basic income per share

      0.41         (0.08 )      0.08        0        0.41   

Diluted income per share

      0.41         (0.08 )      0.08        0        0.41   

 

     Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 2010		  
     As  Previously
Reported		     Correction of
an Error		     Change in
Accounting
Policy		     Net
Adjustment		     Restated  
            
(in thousands)           

Net income

    $ 4,278      $ (867 )    $ 814      $ (53 )    $ 4,225   

Reconciliations of net income to cash provided by operating activities:

           

Deferred income taxes

      (148 )      91        93        184        36   

Income taxes receivable

      376        (279 )      111        (168 )      208   

Workers' compensation claims liabilities

      2,491        594        (557 )      37        2,528   

Net cash provided by operating activities

      5,539        0        0        0        5,539   

Revenue recognition

We recognize revenue as services are rendered by our workforce. Staffing services are engaged by customers to meet short-term and long-term personnel needs. Professional employer organization ("PEO") services are normally used by organizations to satisfy ongoing human resource management needs and typically involve contracts with a minimum term of one year, which cover all employees at a particular work site. Our PEO contracts are renewable on an annual basis and typically require 30 days' written notice to cancel or terminate the contract by either party. Our PEO contracts provide for immediate termination upon any default of the client regardless of when notice is given. We report PEO revenues on a net basis because we are not the primary obligor for the services provided by our PEO clients to their customers pursuant to our PEO contracts. Consequently, our PEO service fee revenues represent the gross margin generated from our PEO services after deducting the amounts invoiced to PEO customers for direct payroll expenses such as salaries, wages, health insurance and employee out-of-pocket expenses incurred incidental to employment and safety incentives. These amounts are also excluded from cost of revenues. PEO service fees also include amounts invoiced to our clients for employer payroll-related taxes and workers' compensation coverage.

Marketable securities

As of September 30, 2011, the Company's marketable securities consisted of tax-exempt municipal securities, corporate bonds and U.S. treasuries. The Company classifies municipal securities, U.S. treasuries, and certain of its corporate bonds as available for sale; they are reported at fair value with unrealized gains and losses, net of taxes, shown as a component of accumulated other comprehensive income (loss) in stockholders' equity. In the event a loss is determined to be other-than-temporary, the loss will be recognized in the statement of operations. Certain of the Company's corporate bonds are classified as held-to-maturity and are reported at amortized cost.

Allowance for doubtful accounts

The Company had an allowance for doubtful accounts of $452,000 and $374,000 at September 30, 2011 and December 31, 2010, respectively. The Company must make estimates of the collectibility of accounts receivable. Management analyzes historical bad debts, customer concentrations, customer creditworthiness, current economic conditions and changes in customers' payment trends when evaluating the adequacy of the allowance for doubtful accounts. The Company deems an account balance uncollectible only after it has pursued all available assets of the customer and, where applicable, the assets of the personal guarantor.

Workers' compensation claims

The Company is a self-insured employer with respect to workers' compensation coverage for all of its employees (including employees subject to PEO contracts) working in California, Oregon, Maryland, Delaware and Colorado. In the state of Washington, state law allows only the Company's staffing services and internal management employees to be covered under the Company's self-insured workers' compensation program. Additionally, effective January 5, 2010, we formed a wholly-owned fully licensed insurance company in Arizona to provide workers' compensation coverage to our employees in Arizona.

To manage our financial exposure, in the event of catastrophic injuries or fatalities, we maintain excess workers' compensation insurance through our wholly owned captive insurance company, AICE, with a per occurrence retention of $5.0 million, except in Maryland and Colorado, where our per occurrence retention is $1.0 million and $500,000, respectively. AICE maintains excess workers' compensation insurance coverage with American Insurance Group, Inc. ("AIG") between $5.0 million and $15.0 million per occurrence, except in Maryland, where coverage with AIG is between $1.0 million and $25.0 million per occurrence, and in Colorado, where the coverage with AIG is between $500,000 and statutory limits per occurrence. We continue to evaluate the financial capacity of our insurers to assess the recoverability of the related insurer receivables.

The Company has provided a total of $43.3 million and $39.3 million at September 30, 2011 and December 31, 2010, respectively, as an estimated future liability for unsettled workers' compensation claims liabilities. Included in the foregoing liabilities are insured claims that will be paid by the Company's former excess workers' compensation insurer and for which the Company has reported a receivable from the insurer for the insured claims liability. Insured claims totaled $2.6 million at September 30, 2011 and $2.7 million at December 31, 2010, respectively. The estimated liability for unsettled workers' compensation claims represents management's best estimate based upon an actuarial valuation provided by a third party 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 and anticipated increases in case reserve estimates. Also included in these estimates are amounts for unallocated loss adjustment expenses, including legal costs. These estimates are continually reviewed and adjustments to liabilities are reflected in current operating results as they become known.

Safety incentives liability

Safety incentives represent cash incentives paid to certain PEO client companies for maintaining safe-work practices in order to minimize workplace injuries, thereby meeting agreed-upon loss objectives. The Company has provided $5.9 million at September 30, 2011 and $5.0 million at December 31, 2010 as an estimate of the liability for unpaid safety incentives. The incentive is based on a percentage of annual payroll and is paid annually to customers who meet predetermined workers' compensation claims cost objectives. Safety incentive payments are made only after closure of all workers' compensation claims incurred during the customer's contract period. The liability is estimated and accrued each month based upon the incentive earned less the then-current amount of the customer's estimated workers' compensation claims reserves as established by the Company's internal and third-party claims administrators, and the expected payout as determined by historical incentive payment trends. Safety incentive expense is netted against PEO services revenue in our consolidated statements of operations.

Comprehensive income

Comprehensive income includes all changes in equity during a period except those that resulted from investments by or distributions to a company's stockholders. Comprehensive income totaled $5.3 million and $3.7 million for the three months ended September 30, 2011 and 2010 and $14.3 million and $4.2 million for the nine months ended September 30, 2011 and 2010, respectively. Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under GAAP are included in comprehensive income, but are excluded from net income as these amounts are recorded directly as an adjustment to stockholders' equity. The Company's other comprehensive income (loss) is comprised of unrealized holding gains and losses on its publicly traded marketable securities designated as "available-for-sale", net of realized gains or losses included in net income.