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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 0-19690
BARRA, INC.
(Exact name of registrant as specified in its charter)
California 94-2993326
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1995 University Avenue, Suite 400
Berkeley, California 94704-1058
(Address, including zip code, of principal executive offices)
(510) 548-5442
(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 reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No
[ ]
The number of shares of the registrant's Common Stock
outstanding as of September 30, 1996 was 8,347,613.
Exhibit Index is located on page 21.
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INDEX
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PAGE
PART I FINANCIAL INFORMATION NUMBER
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Item 1 Financial Statements:
Unaudited Consolidated Balance Sheets as of September 30, 1996
and as of March 31, 1996 3
Unaudited Consolidated Statements of Income for the Three Months
and Six Months Ended September 30, 1996 and September 30, 1995 4
Unaudited Consolidated Statements of Cash Flows for the Six
Months Ended September 30, 1996 and September 30, 1995 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PAGE
PART II OTHER INFORMATION NUMBER
Item 1 Legal Proceedings 19
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit Index 21
</TABLE>
2
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PART I -- Financial Information
ITEM 1. FINANCIAL STATEMENTS.
BARRA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF SEPTEMBER 30, 1996 AND MARCH 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
30-Sep-96 31-Mar-96
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $17,589,862 $22,493,363
Accounts receivable:
Trade (Less allowance for doubtful accounts of $143,000 and $129,237) 14,451,445 12,303,850
Other 729,881 522,112
Related parties 85,599 45,899
Short-term investments 3,656,871 3,511,518
Investment in municipal debt securities -- available for sale 6,350,000 --
Prepaid expenses 659,939 822,450
----------- -----------
Total current assets 43,523,597 39,699,192
----------- -----------
NOTES RECEIVABLE 7,362,139 1,658,960
NON-MARKETABLE INVESTMENTS 251,251 7,300,347
FURNITURE AND EQUIPMENT:
Computer equipment 10,758,842 8,716,136
Office equipment 798,677 729,248
Furniture and fixtures 3,605,301 3,335,342
----------- -----------
Total furniture and equipment 15,162,820 12,780,726
Less accumulated depreciation and amortization (8,740,910) (7,742,149)
----------- -----------
6,421,910 5,038,577
DEFERRED TAX ASSETS 1,584,431 1,584,431
COMPUTER SOFTWARE
(Less accumulated amortization of $467,371 and $422,953) 617,334 971,077
INTANGIBLES AND OTHER ASSETS
(Less accumulated amortization of $875,887 and $492,482) 9,204,684 7,796,401
----------- -----------
TOTAL $68,965,346 $64,048,985
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $970,670 $1,368,466
Due to related party 631,098 567,201
Accrued expenses payable:
Accrued compensation 5,569,042 4,850,817
Accrued corporate income taxes 857,046 2,250,098
Other accrued expenses 5,103,039 4,035,904
Shareholder notes payable and line of credit 239,611 1,594,534
Unearned revenues 14,032,648 11,883,577
----------- -----------
Total current liabilities 27,403,154 26,550,597
=========== ===========
OTHER LONG-TERM LIABILITIES:
Deferred tax liabilities 1,424,472 1,217,817
Long-term debt 661,158 1,384,380
----------- -----------
Total other long-term liabilities 2,085,630 2,602,197
----------- -----------
MINORITY INTEREST 334,414 --
SHAREHOLDERS' EQUITY:
Preferred stock, no par; 10,000,000 shares authorized; non issued and
outstanding
Common stock, no par; 40,000,000 shares authorized; 8,347,613 shares and
8,300,484 shares issued and outstanding 12,148,737 12,487,184
Retained earnings 27,097,721 22,393,261
Foreign currency translation adjustment (104,310) 15,746
=========== ===========
Total shareholders' equity 39,142,148 34,896,191
=========== ===========
TOTAL $68,965,346 $64,048,985
=========== ===========
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
3
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BARRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
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<TABLE>
<CAPTION>
Fiscal Year-to-Date
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Subscription and consulting fees $18,327,292 $14,986,714 $36,333,031 $30,253,065
Electronic brokerage and information 2,572,007 1,689,679 4,706,487 2,954,278
Asset management 3,574,541 1,594,641 6,361,071 3,073,721
----------- ----------- ----------- -----------
Total operating revenues 24,473,840 18,271,034 47,400,589 36,281,064
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Cost of subscription products 1,669,055 1,273,892 3,559,844 2,779,548
Compensation and benefits 12,400,650 9,764,327 24,106,492 19,343,900
Rent expense 980,624 971,108 1,969,238 1,926,044
Other operating expenses 4,632,146 3,412,270 8,878,063 6,690,099
Merger costs and one-time charges 1,756,189 -- 1,756,189 --
----------- ----------- ----------- -----------
Total operating expenses 21,438,664 15,421,597 40,269,826 30,739,591
=========== =========== =========== ===========
INTEREST AND OTHER 324,021 506,114 965,365 907,554
----------- ----------- ----------- -----------
INCOME BEFORE EQUITY IN NET INCOME AND LOSS OF INVESTEES,
MINORITY INTEREST, AND INCOME TAXES 3,359,197 3,355,551 8,096,128 6,449,027
EQUITY IN NET INCOME AND LOSS OF INVESTEES (103,009) (208,918) (109,117) (598,761)
MINORITY INTEREST 127,321 (72,817) 178,543 (179,503)
----------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,383,509 3,073,816 8,165,554 5,670,763
INCOME TAXES (1,447,251) (1,325,829) (3,461,094) (2,453,719)
=========== ========== =========== ===========
NET INCOME $1,936,258 $1,747,987 $4,704,460 $3,217,044
=========== ========== =========== ===========
NET INCOME PER SHARE:
PRIMARY NET INCOME PER SHARE $0.21 $0.20 $0.51 $0.37
=========== ========== =========== ===========
FULLY DILUTED NET INCOME PER SHARE $0.21 $0.20 $0.51 $0.37
=========== ========== =========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
PRIMARY 9,226,311 8,670,916 9,286,769 8,594,314
=========== ========== =========== ===========
FULLY DILUTED 9,325,915 8,685,832 9,312,843 8,704,524
=========== ========== =========== ===========
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
4
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BARRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
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<TABLE>
<CAPTION>
Six Months Ended
September 30,
-----------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $4,704,460 $3,217,044
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in net income and loss of investees 109,117 598,761
Minority interest (178,543) 179,503
Depreciation and amortization 1,555,477 734,663
Amortization of computer software and
intangibles 105,345 107,647
Dividends received from investee (226,583) (207,920)
Gains on marketable securities (86,000) (212,500)
One-time charges -- Capitalized software 448,426 --
Other 275,338 105,661
Changes in:
Trade accounts receivable (2,019,776) 656,838
Other accounts receivable (421,812) (15,777)
Related parties receivable (39,700) (66,665)
Prepaid expenses 194,913 (33,234)
Prepaid corporate income taxes -- 92,862
Other assets 178,394 (786,709)
Accounts payable, due to related party
and accrued expenses (98,053) (358,537)
Unearned revenues 2,054,486 1,359,190
---------- ----------
Net cash provided by operating activities 6,555,489 5,370,827
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,131,370) (950,356)
Short-term investments -- net (59,353) (551,733)
Investment in municipal debt securities - available for sale (6,350,000) --
Non-marketable investments:
Investments in affiliates (875,000) (231,484)
Dividends received from investee 226,583 207,920
Note receivable issued -- (1,600,000)
Consolidation of Bond Express L.P. - cash acquired 146,742 --
----------- ----------
Net cash used in investing activities (9,042,398) (3,125,653)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and lines of credit 445,140 503,319
Repayments on notes payable and lines of credit (2,523,285) (160,203)
Proceeds from sale of common stock 263,526 558,617
Common stock repurchased (601,973) (1,639,348)
----------- ----------
Net cash used in financing activities (2,416,592) (737,615)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,903,501) 1,507,559
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,493,363 16,083,444
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $17,589,862 $17,591,003
=========== ===========
OTHER CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $3,063 $2,922
Income taxes $2,938,615 $576,509
Non-cash investing transactions during the period for:
Exchange of equity interest in LBIC for
debt (Note 5) $7,219,458 --
Consolidation of Bond Express (Note 3):
Note receivable ($2,100,000) --
Net assets acquired $1,139,726 --
Minority Interest $512,877 --
Goodwill $1,473,151 --
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
5
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BARRA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include BARRA, Inc. (the
"Company" or "BARRA") and its subsidiaries, BARRA International, Ltd., BARRA
International (U.K.), Ltd., BARRA International (Japan), Ltd., Berkeley
Advisors Holding Company, BARRA (FSC), Inc., BARRA (U.S.A.), Inc., Symphony
Asset Management, Inc. ("Symphony"), and Rogers, Casey & Associates, Inc. and
Subsidiaries (collectively "RCA" - see Note 2). The financial position and
results of operations for Bond Express L.P. have also been consolidated
beginning June 1, 1996 (see Note 3). All significant intercompany
transactions and balances have been eliminated. Certain reclassifications
have been made to prior year financial statements to conform to current year
presentation.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting of normal recurring
entries) necessary to present fairly the financial position of BARRA as of
March 31 and September 30, 1996 and the results of its operations and cash
flows for the periods presented in conformity with generally accepted
accounting principles. The results of operations for such interim periods are
not necessarily indicative of results of operations for a full year. The
March 31, 1996 consolidated balance sheet included herein is derived from the
unaudited consolidated balance sheet of RCA (see Note 2) and the audited
consolidated financial statements included in BARRA's Annual Report which was
incorporated by reference in its Form 10-K for the fiscal year ended March
31, 1996, filed with the Securities and Exchange Commission on June 20, 1996
(the "Form 10-K"), but does not include all disclosures required by generally
accepted accounting principles. It is suggested that these consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and notes thereto incorporated by reference in the Form
10-K and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Form 10-Q.
2. BUSINESS COMBINATION
On July 24, 1996, BARRA merged with RCA, a firm specializing in investment
consulting to money managers and pension plan sponsors. All of the common
stock and outstanding options of RCA were exchanged for 481,364 shares of
BARRA's common stock and 30,257 options on BARRA common stock. This merger
was
6
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accounted for as a pooling-of-interests. The pooling-of-interests method of
accounting is intended to present as a single interest two or more common
shareholders' interests which were previously independent; accordingly, the
unaudited financial information presented here reflects the combined results
of BARRA and RCA for all periods presented.
All fees and expenses related to the merger have been expensed as required
under the pooling-of-interests method of accounting. These expenses have
been reflected in the consolidated statement of income for the three and six
months ended September 30, 1996. These fees and expenses were $1,307,763 for
both the three and six months ended September 30, 1996 and consisted
primarily of fees for legal and accounting services, investment banking fees
and costs associated with integrating the operations of the combined
companies. The Company also recorded a one-time charge of $448,426 related to
the write-off of capitalized software related to a product under development
in which the costs were not recoverable based on present revenue estimates
and whose value was therefor impaired.
The operating results of the separate companies prior to the merger were as
follows:
Three months ended September 30, 1995:
Revenues Net Income
-------- ----------
BARRA $14,652,171 $1,743,070
RCA 3,618,863 4,917
---------- ----------
Combined $18,271,034 $1,747,987
Six months ended September 30, 1995:
Revenues Net Income
-------- ----------
BARRA $28,666,276 $3,162,853
RCA 7,614,788 54,191
----------- ----------
Combined $36,281,064 $3,217,044
3. CONSOLIDATION OF BOND EXPRESS L.P.
In August, 1995 the Company committed to make a long-term loan of $2,100,000
to Bond Express L.P. ("Bond Express"). Bond Express is a distributor, on a
subscription basis, of software and databases of fixed income security
offering information from bond dealers. During the quarter ended June 30,
1996, the Company fully disbursed its remaining commitment on the loan which
activated the Company's option to convert its interest in Bond Express from
debt to a 55% controlling equity interest. While this option has not been
exercised, the
7
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Company believes that it has operational and financial control over Bond
Express. Accordingly, beginning June 1, 1996, the Company has consolidated
the financial position and results of operations of Bond Express. The
difference between the Company's investment (principally its note receivable)
and the net assets of Bond Express at June 1, 1996 of approximately $1.5
million has been recorded as goodwill and will be amortized over a period of
10 years. Bond Express had operating revenues of $284,510 and $377,507 and
operating expenses of $567,123 and $774,270 for the three and six month
periods ended September 30, 1996, respectively, which have been combined with
BARRA's consolidated results of operations for the same periods. The Company
disbursed an additional $75,000 to Bond Express on terms similar to the
existing note receivable during the quarter. The minority interest's share
(45%) of net assets and net losses has been shown separately in the
consolidated financial statements.
4. INVESTMENT IN MUNICIPAL DEBT SECURITIES
Commencing in May, 1996, the Company, through an unaffiliated professional
portfolio manager, began investing a portion of its available cash resources
in debt securities issued by various state and county municipalities.
Interest on the securities is tax exempt and adjusts to market rates during
designated interest reset periods which occur at least every month. While the
securities have contractual maturity dates ranging from years 2004 to 2030,
each security grants the investor the option to put the security back to the
issuer at par during exercise periods which coincide with interest reset
dates. The Company has classified such securities as available for sale
pursuant to the criteria established by SFAS 115 "Accounting for Certain
Investments in Marketable Equity and Debt Securities". Accordingly, the
securities are reported at their fair value in the consolidated statement of
financial position with any unrealized net gains or losses reported as a
separate component of stockholders' equity. At September 30, 1996, the
Company had $6,350,000 in municipal debt securities -available for sale and
no unrealized gains or losses.
5. INVESTMENT IN LIBERTY BROKERAGE INVESTMENT CORPORATION
As previously reported in the Company's Annual Report for the fiscal year
ending March 31, 1996, the Company exchanged its investment in preferred
stock of Liberty Brokerage Investment Corp. (LBIC) for a $7,219,474
convertible secured 7.84% promissory note on April 16, 1996. The principal
amount of the note receivable issued by LBIC was equal to the Company's
investment balance on the date of the exchange. Prior to the
8
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exchange, the Company accounted for its investment in LBIC using the cost
method. Accordingly, the transaction resulted in a reclassification of the
Company's investment from non-marketable investments to note receivable in
the accompanying consolidated balance sheet. Principal payments on the note
receivable are due in installments of $1,804,869 on March 31, 1997, and
September 30, 1997, respectively, and the remaining balance is due on March
31, 1998.
6. REORGANIZATION OF SYMPHONY ASSET MANAGEMENT
As previously reported in the Company's June 30, 1996 10-Q, effective July 1,
1996, the Company's wholly owned subsidiary, Symphony, contributed its
assets, liabilities and business to Symphony Asset Management LLC ("SAMLLC"),
a newly formed entity, in exchange for interests in SAMLLC pursuant to an
Operating Agreement of Symphony Asset Management LLC (the "Agreement"). The
capitalization of SAMLLC consists of four defined Interest Classes (Class 1,
Class 2, Class 3 and Class 4). Class 1, Class 2 and Class 4 interests
belong to Symphony (which continues to be wholly owned by the Company) while
Class 3 interests belong to a newly formed limited liability company, Maestro
LLC ("Maestro"), whose owners are principals of SAMLLC.
The Agreement provides for the continuation of a bonus to be paid to the
principals of SAMLLC equal to 25% of SAMLLC profits (as defined). This bonus
is included in compensation and benefits expense in the accompanying
financial statements. This bonus is only in effect until the Class 2
interests are redeemed at which time it converts to a profits interest.
The Company had previously consolidated Symphony and will consolidate the
financial position and results of operations of SAMLLC and separately record
the Class 3 interest share of net assets and net income as a minority
interest.
7. NET INCOME PER SHARE
Net income per share is computed using the primary and fully diluted weighted
average number of common shares outstanding during the period as adjusted for
the shares issued in the merger described in Note 2 and after including the
effect on dilution, if any, of the exercise of common stock options using the
treasury stock method. There was no material difference between the fully
diluted and primary net income per share amounts for the three month and six
month periods ended September 30, 1996 or September 30, 1995.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
BARRA unaudited financial statements and related notes presented in this Form
10-Q. The discussion of results, causes or trends should not be construed to
imply that such results, causes or trends will necessarily continue in the
future. Each statement made in this discussion and analysis and elsewhere in
this report and related financial statements and notes thereto, containing
any form of the words "anticipate", "expect," "believe," "future" or
"forward" is a forward-looking statement that may involve a number of risk
factors and uncertainties. Among other factors that could cause actual
results to differ materially are the following: business conditions and
other changes in the Company's industry; competitive factors such as rival
products and price pressures both domestically and internationally;
availability of adequate third-party data on reasonable terms and at
reasonable prices; significant delays or excessive costs associated with
product research, development and/or introduction; the loss of a large single
revenue source; the investment performance of the Company's asset management
subsidiary; significant changes in trading volumes on the POSIT trading
system; and fluctuations in U.S. dollar exchange rates for non-U.S.
currencies. Further information and potential risk factors that could affect
the Company's financial results are included in the Company's Form 10-K for
the fiscal year ended March 31, 1996.
A. GENERAL
Certain of the information required by this item has been previously reported
under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Form 10-K.
On July 24, 1996, BARRA merged with RCA, a firm specializing in investment
consulting to money managers and pension plan sponsors. All of the common
stock and outstanding options of RCA were exchanged for 481,364 shares of
BARRA's common stock and 30,257 options on BARRA common stock. This merger
was accounted for as a pooling-of-interests. The pooling-of-interests method
of accounting is intended to present as a single interest two or more common
shareholders' interests which were previously independent; accordingly, the
unaudited financial information presented here reflects the combined results
of BARRA and RCA for all periods presented.
10
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As discussed in Note 3 to the financial statements provided in Part I, the
Company consolidated Bond Express L.P. beginning June 1, 1996. Accordingly,
the following discussion of changes in financial position and results of
operations for the three month and six month periods ending September 30,
1996 includes related amounts from Bond Express for the period beginning June
1, 1996. Where changes in such amounts are significant and primarily
reflective of the consolidation, separate disclosure of Bond Express amounts
has been provided.
FOREIGN CURRENCY
BARRA, as an international corporation, generates revenues from clients
throughout the world, maintains sales and representative offices world-wide
and holds certain deposits and accounts in foreign currencies. BARRA's
revenues are generated from both United States and foreign currencies.
BARRA's subscriptions in the United Kingdom and the European Community are
priced in British pounds sterling ("pounds") and European Currency Units
("ECUs"), respectively. Additionally, BARRA's consolidated subsidiary, BARRA
International (Japan), Ltd. ("BARRA Japan", formerly N.B. Investment
Technology Co., Ltd.), generates revenues, has expenses and has assets and
liabilities in non-U.S. currencies. All other things being equal, weakening
of the U.S. dollar has a positive impact on profits, and strengthening of the
U.S. dollar has a negative impact. The Company has considered its exposures
to foreign currency fluctuations and to this point has decided not to engage
in hedging or managing exposures to foreign currency fluctuations through
contracts for the purchase, sale or swapping of currencies.
For the quarter ended September 30, 1996, when compared to the same quarter a
year ago, the U.S. dollar strengthened significantly against the yen, and
less significantly against the pound and the ECU - all of which had the
effect of decreasing the dollar value of net revenues denominated in these
non-U.S. currencies. The Company estimates that the strengthening of the
U.S. dollar accounted for approximately $300,000 in decreased consolidated
operating revenues and approximately $35,000 in decreased consolidated net
income for the quarter ended September 30, 1996 when compared to the same
quarter a year ago.
Because the functional currency of BARRA Japan is the yen, the translation
gains and losses associated with the consolidation of its balance sheets at
points in time are reported as part of shareholders' equity.
11
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Under current operating arrangements in the countries in which BARRA does
business, there are no restrictions upon the flow of funds from its foreign
subsidiary to the parent company. There are currently no known commitments
or requirements for material capital expenditures outside of the United
States.
B. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The dollar and percentage increases or decreases set forth below in this
discussion and analysis of BARRA's consolidated financial condition result
from a comparison of BARRA's balance sheet at September 30, 1996 to the
balance sheet at March 31, 1996.
FINANCIAL CONDITION
Total assets increased $4,916,361 or 7.7%.
Total current assets increased $3,824,405 or 9.63%. This net increase consisted
primarily of increased cash and trade receivables resulting from business
growth.
Notes receivable increased $5,703,179 and Non-Marketable investments
decreased $7,049,096 primarily as a result of the Company's exchange of its
investment in preferred stock of LBIC into a note receivable of $7,219,458
(see Note 5 to the financial statements provided in Part I) offset by the
consolidation of Bond Express which resulted in a $1,600,000 reduction.
Intangibles and other assets increased by $1,408,283. This increase was
almost entirely due to the Company's consolidation of Bond Express resulting
in additional goodwill of approximately $2,100,000; $600,000 of which related
to a prior transaction recorded on the financial statements of Bond Express
that was unrelated to the consolidation. This increase was partially offset
by the amortization of intangibles during the period totaling approximately
$600,000.
Total current liabilities increased by $852,557 or 3.2% primarily due to
increases in accruals and unearned revenues associated with the general
growth of BARRA's business and the timing of advanced payments received on
subscription contracts.
Minority interest in equity of subsidiary represents the 45% interest in the
net assets of Bond Express not owned by the Company.
Shareholders' equity in common stock decreased by $338,447 reflecting the net
result of RCA contractually required share repurchases prior to the merger
and the issuance of BARRA
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common stock during the quarter in connection with exercises of stock options
under the Company's Employee Stock Option Plan and shares purchased under the
Employee Stock Purchase Plan.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, short-term investments and investment in municipal
debt securities available-for-sale totaled $27,596,733 at September 30, 1996.
In addition, the Company has a commitment from a bank for an unsecured
short-term line of credit of up to $5 million - of which, no amounts have
been, or are presently anticipated to be, drawn down.
BARRA believes that its cash flow from operations (including prepaid
subscription fees), together with existing cash balances, will be sufficient
to meet its cash requirements for capital expenditures and other cash needs
for ongoing business operations. Other than what has been described herein,
the Company has no present binding understandings or commitments with
respect to any significant acquisitions.
PRINCIPAL FINANCIAL COMMITMENTS. The Company's principal financial
commitments consist of obligations under operating leases and contracts for
the use of computer and office facilities.
C. RESULTS OF OPERATIONS
References to the dollar and percentage increases or decreases set forth
below in this discussion and analysis of BARRA's results of operations are
derived from comparisons of BARRA's consolidated statements of income for the
three months and six months ended September 30, 1996 and September 30, 1995.
NET INCOME
NET INCOME for the current quarter was $1,936,258 or $0.21 per share,
compared to $1,747,987 or $0.20 per share for the same quarter a year ago,
and $4,704,460 or $0.51 per share for the six months ended September 30, 1996
compared to $3,217,044 or $0.37 per share for the same period a year ago.
Net income for the current quarter and six months ended September 30, 1996 is
after expenses for merger costs related to the acquisition of RCA and
one-time charges of $1,756,189 or $0.11 per share.
OPERATING REVENUES. Total operating revenues increased $6,202,806 or 34% over
the same quarter a year ago and $11,119,525 or 31% over the same six month
period a year ago.
SUBSCRIPTION AND CONSULTING FEES consist of annual subscription fees for
BARRA's software products and revenues
13
<PAGE>
from other sources related to the core institutional analytics business
(which include timesharing revenues, seminar revenues and other recurring and
one-time fees) and consulting services to pension plan sponsors and
investment managers. Total subscription and consulting fees increased
$3,340,578 or 22% over the same quarter a year ago and $6,079,966 or 20% over
the same six month period a year ago.
SUBSCRIPTION AND RELATED FEES increased $2,185,468 or 18% over the same
quarter a year ago and $3,910,913 or 16% over the same six month period a
year ago. The following discusses changes in the primary sources of
subscription and related fees for the three month and six month periods
ending September 30, 1996 compared to the same periods a year ago:
ANNUAL SUBSCRIPTION FEES FOR BARRA'S SOFTWARE PRODUCTS increased
approximately $2,326,000 or 22% compared to the same quarter a year ago and
$4,026,000 or 19% compared to the same six month period a year ago. The
growth in annual subscription fees continues to be generated from a
combination of both obtaining new clients through entry into new markets as
well as increasing revenues from existing customers through the introduction
of new products and services and an overall increased emphasis on marketing
and sales. For the three months ended September 30, 1996 compared to the
same quarter a year ago, annual subscription fees revenue for the U.S and
non-U.S. markets increased approximately 26% and 19%, respectively. For the
six months ended September 30, 1996 compared to the same period a year ago,
annual subscription fees revenue for the U.S and non-U.S. markets increased
approximately 26% and 16%, respectively. For both markets, revenue growth
primarily came from equity models and related data reflecting the continued
success of the BARRA Aegis System-TM-. Fixed Income product sales also
contributed to the overall increase as a result of sales of the BARRA COSMOS
System-TM-, which was introduced in April, 1996. Increases in subscription
revenues continue to come most significantly from net increases in the number
of subscriptions and less significantly from changes in the prices of
subscriptions. With respect to the non-U.S. markets, the U.S. dollar
strengthened significantly against the yen and less significantly against
both the pound and the ECU - all of which had the effect of decreasing the
dollar value of these revenues which are denominated in non-U.S. currencies.
Disallowing for the affect of foreign currency fluctuations, revenue growth
for the non-U.S. markets when comparing the current quarter to the same
quarter a year ago would have been approximately 24%.
REVENUES FROM OTHER SOURCES RELATED TO THE CORE INSTITUTIONAL ANALYTICS
BUSINESS - which include timesharing revenues,
14
<PAGE>
seminar revenues and other recurring and one-time fees - represent
approximately 10% and 12% of total subscription and related fees for the
three and six month periods ended September 30, 1996 compared to 14% and 15%
for the same periods a year ago. The decline in the relative amounts and
significance of this component of revenue continues to be from the conversion
of clients from timesharing to in-house computers for running BARRA's
products and declines in one-time fees associated with completion of various
projects and the current lack of emphasis on such projects.
CONSULTING FEES
Consulting fee revenues from RCA increased $1,155,000 or 44% from the same
quarter a year ago and $2,169,000 or 38% from the same six month period a
year ago. Consulting fees consist primarily of services to pension plan
sponsors ("Sponsor Services") which are usually recurring retainer-based fee
arrangements, and consulting to money managers ("Strategic Services"), which
are usually non-recurring, project type engagements that are completed in
phases. Also included in Strategic Services revenues are fees related to
consulting work done in connection with strategic transactions involving
clients. Accordingly, Strategic Services revenues are susceptible to a large
degree of variability depending on the ability to source new projects and the
unpredictable nature and significance of fees associated with strategic
transactions.
Sponsor Services consulting revenues increased $341,000 or 18% compared to
the same quarter a year ago and $699,000 or 19% compared to the same six
month period a year ago. These increases reflect growth in the number of plan
sponsor clients. Strategic Services revenues increased $814,000 or 118%
compared to the same quarter a year ago and $1,470,000 or 71% compared to the
same six month period a year ago. These increases include the impact of
$900,000 in strategic transaction fees earned in the quarter ended June 30,
1996.
ELECTRONIC BROKERAGE AND INFORMATION
ELECTRONIC BROKERAGE AND INFORMATION revenues increased $882,328 or 52%
compared to the same quarter a year ago and $1,752,209 or 59% compared to
same six month period a year ago. This component of revenue consists almost
entirely of license fees from Portfolio System for Institutional Trading
("POSIT"), which in itself increased $617,818 or 37% compared to the same
quarter a year ago and $1,374,702 or 47% compared to the same six month
period a year ago. BARRA's revenues from POSIT derive from commissions
generated by the trading volume in the system. POSIT's trading volumes and
related revenues on 902 million shares traded for the current fiscal quarter
marked the highest quarter in POSIT's history. While
15
<PAGE>
some of the increase in trading volume can be attributed to overall higher
market trading activity during the quarter, much of the increase is a result
of greater usage of the system by its major participants. The consolidation
of Bond Express accounted for approximately $288,000 and $378,000 of the
revenue increases from the three and six month periods ended September 30,
1995, respectively.
ASSET MANAGEMENT
ASSET MANAGEMENT revenues increased $1,979,900 or 124% compared to the same
quarter a year ago and $3,287,350 or 107% compared to the same six month
period a year ago. Asset management revenues consist of business from both
Symphony and RCA asset management services, which include management of
customized multi-manager programs and advisory services on private market
investment programs.
Symphony's revenues consist primarily of asset management fees which are a
fixed percentage of asset value and performance fees that are based on the
performance over a benchmark for each account. Symphony's total revenues
were $2,352,000 for the current quarter and $4,058,000 for the six month
period ended September 30, 1996 compared to $599,000 and $1,178,000 for the
same periods a year ago. Performance fees included in total revenues were
$1,366,000 and $2,147,000, for the current fiscal quarter and six month
period compared to $200,000 for each of the same periods in the prior fiscal
year. Performance fees are recognized only at the measurement date for
determining performance of an account, which typically is at the end of the
first year of the contract and at the end of each subsequent measurement
period thereafter. Accordingly, and by comparison, there were only a small
number of investor accounts which had reached their initial measurement dates
in the comparison periods from a year ago. As of September 30, 1996,
Symphony had approximately $670 million under direct management in a
combination of private accounts, institutional and mutual funds management
arrangements and another $205 million managed under sub-advisory
arrangements. Symphony's future revenues will depend, in some cases to a
great extent, on the performance of the funds it manages. The timing of
Symphony's future revenues will also depend on the timing of dates that
trigger performance fees.
RCA's asset management revenues consist primarily of asset management fees
which are a fixed percentage of asset value and advisory fees. RCA receives
no performance fees on its managed accounts. RCA asset management fees were
$1,223,000 and $2,302,000 for the current quarter and six month period ended
September 30, 1996 compared to $995,000 and $1,895,000 for the same periods a
year ago. The increase in both periods is primarily reflective of base fee
increases as a result of
16
<PAGE>
growth in assets under management. At September 30, 1996, RCA had
approximately $133 million in assets under direct management and
approximately $2 billion in assets it was managing under various
multi-manager programs.
OPERATING EXPENSES. Total operating expenses increased $6,017,067 or 39%
compared to the same quarter a year ago and $9,530,235 or 31% from the same
six month period a year ago.
COST OF SUBSCRIPTION PRODUCTS
COST OF SUBSCRIPTION PRODUCTS consists of computer access charges, data and
software acquisition expenses, BARRA's computer leasing expenses, and seminar
expenses. This component of expense increased $395,163 or 31% compared to
the same quarter a year ago and $780,296 or 28% from the same six month
period a year ago primarily due to increased data and computer access costs
associated with new and existing BARRA services. The Company anticipates
that data costs will continue to increase into the future as BARRA's demands
for new and expanded data sources increase in order to meet product
development and enhancement and market needs.
COMPENSATION AND BENEFITS
COMPENSATION AND BENEFITS increased $2,636,323 or 27% compared to the same
quarter a year ago and $4,762,592 or 25% from the same six month period a
year ago. Approximately 55% of the quarterly increase and 58% of the six
month increase comes from growth in the Company's full-time personnel and the
Company's annual salary administration and performance evaluation process
which results in annual reviews and salary adjustments that are effective on
July 1 of each year. The total number of non-U.S. full-time employees grew
by 25% and the number of employees in the U.S. grew by 14%, when comparing
the current quarter to the same quarter a year ago. The growth
internationally was partially offset by decreases associated with the
strengthening of the U.S. dollar overseas. The remainder of this increase -
approximately 45% of the quarterly increase and 42% of the six month increase
- - came from increases in incentive-related expenses associated with increased
profitability of the Company, the growth in the operations of Symphony, the
use of contractors for special projects to speed product development, and the
consolidation of Bond Express.
OTHER OPERATING EXPENSES
OTHER OPERATING EXPENSES increased $1,219,876 or 36% compared to the same
quarter a year ago and $2,187,964 or 33% from the same six month period a
year ago. Other operating expenses include travel, office, maintenance,
depreciation, amortization, data costs related to non-subscription services,
marketing, advertising, outside legal and accounting services
17
<PAGE>
and other corporate expenses. The increase was predominantly the result of
higher external development costs associated with information systems
upgrades and higher data costs at Symphony related to their increase in
revenues. Other increases in travel, computer and office equipment and
insurance related expenses were reflective of, and consistent with, the
general growth of BARRA's business and the costs of supporting a larger
client base. The consolidation of Bond Express also contributed
approximately $206,000 and $304,000 to the increases from the quarter and six
month period ended September 30, 1995, respectively.
MERGER COSTS AND ONE-TIME CHARGES
In the quarter ended September 30, 1996, in connection with the RCA merger,
the Company recorded related costs of approximately $1,308,000 consisting
primarily of professional services and other costs associated with
integrating the combined operations of the two firms. The Company also
recorded a one-time charge of approximately $448,000 for the write-off of
capitalized software related to a product under development in which the
costs were not recoverable based on present revenue estimates and whose value
was therefor impaired.
INTEREST AND OTHER
INTEREST AND OTHER decreased $182,093 or 36% compared to the same quarter a
year ago and increased $57,811 or 6% from the same six month period a year
ago. Decrease from the same quarter a year ago reflects lower recorded gains
on the Company's short-term investments. Increase from the same six month
period a year ago reflects the recognition and receipt of dividends from LBIC
totaling $226,583 in the previous quarter ended June 30, 1996 and increases
in funds generated from operations that are available for investment.
EQUITY IN NET INCOME AND LOSS OF INVESTEES
Net losses from BARRA's joint ventures and other strategic relationships
decreased $105,909 or 51% compared to the same quarter a year ago and
decreased $489,644 or 82% from the same six month period a year ago. The
decreases in both periods were primarily the result of non-recurring losses
incurred by the Company in prior year periods in connection with interests
in Metaxis S.A. and Metaxis Placements S.A.
Minority interest represents the 45% share of Bond Express L.P.'s net loss.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
All information required by this item has been previously reported under the
heading "Business-Litigation" in the Form 10-K. There have been no other
material developments in the legal proceedings of BARRA since the date of the
Form 10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are required by Item 601 of Regulation
S-K: None.
(b) Reports on Form 8-K: None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
BARRA has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BARRA, Inc.
(Registrant)
Date: November __, 1996 Andrew Rudd
----------------------------
Andrew Rudd, Chairman of the
Board of Directors and Chief
Executive Officer
Date: November __, 1996 James D. Kirsner
----------------------------
James D. Kirsner, Chief
20
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Exhibit Description Page Number
- ------ ------------------- -----------
None.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,589,862
<SECURITIES> 6,350,000
<RECEIVABLES> 15,409,925
<ALLOWANCES> 143,000
<INVENTORY> 0
<CURRENT-ASSETS> 43,523,597
<PP&E> 15,162,820
<DEPRECIATION> 8,740,910
<TOTAL-ASSETS> 68,965,346
<CURRENT-LIABILITIES> 27,403,154
<BONDS> 0
0
0
<COMMON> 12,148,737
<OTHER-SE> 26,993,411
<TOTAL-LIABILITY-AND-EQUITY> 68,965,346
<SALES> 47,400,589
<TOTAL-REVENUES> 47,400,589
<CGS> 4,170,103
<TOTAL-COSTS> 4,170,103
<OTHER-EXPENSES> 36,099,723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,063
<INCOME-PRETAX> 8,165,554
<INCOME-TAX> 3,461,094
<INCOME-CONTINUING> 4,704,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,704,460
<EPS-PRIMARY> $0.51
<EPS-DILUTED> $0.51
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