===============================================================================
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 June 30, 2000
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-19690
BARRA, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2993326
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 Milvia Street
Berkeley, California 94704-1113
(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
June 30, 2000 was 13,859,020.
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of
June 30, 2000 and as of March 31, 2000
Unaudited Condensed Consolidated Statements of Income
for the Three Month Periods Ended June 30, 2000 and 1999
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Month Periods Ended June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
BARRA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except for share and per share amounts)
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $40,649 $53,320
Investments in marketable equity trading
securities..................................... 13,790 13,334
Investments in marketable debt securities
available-for-sale............................. 34,095 14,090
Accounts receivable:
Subscription and other (Less allowance for
doubtful accounts of $901 and $775)........... 19,886 18,411
Asset management............................... 10,744 8,984
Related parties................................ 6,480 7,392
Prepaid expenses................................. 2,770 2,116
------------- -------------
Total current assets........................... 128,414 117,647
------------- -------------
Investments in unconsolidated companies............ 4,782 1,775
Premises and equipment:
Computer and office equipment.................... 21,327 20,909
Furniture and fixtures........................... 6,073 6,029
Leasehold improvements........................... 8,880 8,747
------------- -------------
Total premises and equipment................... 36,280 35,685
Less accumulated depreciation and amortization..... (19,681) (18,366)
------------- -------------
16,599 17,319
Deferred tax assets................................ 4,355 4,355
Computer software (less accumulated amortization
of $1,615 and $1,455)............................ 1,863 1,994
Other assets....................................... 1,373 832
Goodwill and other intangibles (less accumulated
amortization of $7,921 and $7,304)............... 24,223 24,840
------------- -------------
Total.............................................. $181,609 $168,762
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $917 $975
Accrued expenses payable:
Accrued compensation........................... 6,311 14,084
Accrued corporate income taxes................. 17,663 13,437
Accrued restructuring charges.................. 575 2,654
Other accrued expenses......................... 9,299 9,966
Unearned revenues................................ 32,043 26,579
------------- -------------
Total current liabilities...................... 66,808 67,695
------------- -------------
Deferred tax liabilities........................... 2,040 1,994
Minority interest in equity of subsidiary.......... 3,713 2,287
STOCKHOLDERS' EQUITY:
Preferred stock, no par; 10,000,000 shares
authorized; none issued and outstanding......... -- --
Common stock, $.0001 par value; 75,000,000
shares authorized; 13,859,020 and 13,675,550
shares issued and outstanding................... 1 1
Additional paid-in capital....................... 18,148 16,208
Retained earnings................................ 90,571 80,321
Accumulated other comprehensive income 328 256
------------- -------------
Total stockholders' equity..................... 109,048 96,786
------------- -------------
Total.............................................. $181,609 $168,762
============= =============
</TABLE>
The accompanying notes are an integral part of the BARRA, Inc. Consolidated
Financial Statements
<PAGE>
BARRA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except for share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------
2000 1999
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Operating Revenues:
Portfolio and Enterprise Risk
Management................. $25,351 $22,419
Symphony Asset Management.... 9,854 4,820
POSIT........................ 5,818 4,447
Other Ventures............... 7,574 6,347
------------ ------------
Total operating revenues... 48,597 38,033
------------ ------------
Operating Expenses:
Communication, data, and
seminar costs.............. 1,717 2,299
Compensation and benefits.... 20,262 21,142
Occupancy ................... 1,822 1,900
Other operating expenses..... 6,481 5,603
Restructuring charges........ -- 5,561
------------ ------------
Total operating expenses... 30,282 36,505
------------ ------------
Interest Income & Other........ 883 353
------------ ------------
Income before Equity
in Net Income and Loss of
Investees, Minority Interest
and Income Taxes............. 19,198 1,881
Equity in Net Income and Loss
of Investees................. (25) (112)
Minority Interest.............. (3,413) (1,159)
------------ ------------
Income before Income
Taxes........................ 15,760 610
Income Taxes................... (5,510) (226)
------------ ------------
Net Income .................... $10,250 $384
============ ============
Net Income Per Share:
Basic........................ $0.75 $0.03
============ ============
Diluted...................... $0.70 $0.03
============ ============
Weighted Average Common and
Common Equivalent Shares:
Basic........................ 13,741,930 14,061,307
============ ============
Diluted...................... 14,675,892 14,707,963
============ ============
</TABLE>
The accompanying notes are an integral part of the BARRA, Inc. Consolidated
Financial Statements
<PAGE>
BARRA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------
2000 1999
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ....................................... $10,250 $384
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net income of investees............ 25 112
Minority interest............................ 3,413 1,159
Depreciation and amortization................ 2,106 2,006
Gains on marketable equity trading securities (339) --
Purchase of marketable equity trading
securities.................................. (117) (1,226)
Non-cash restructuring charges............... -- 3,475
Other........................................ 368 (19)
Changes in:
Accounts receivable - subscription and other. (1,475) 2,237
Accounts receivable - asset management....... (1,760) 4,105
Accounts receivable - related parties........ 912 (126)
Prepaid expenses............................. (654) (78)
Other assets................................. (541) 383
Accounts payable, due to related party
and accrued expenses........................ (6,351) (6,736)
Unearned revenues............................ 5,464 1,662
------------- -------------
Net cash provided by operating activities.. 11,301 7,338
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (888) (2,870)
Investment in marketable debt securities -
available for sale............................... (20,005) (36)
Acquisitions - cash paid.......................... -- (1,053)
Investments in unconsolidated companies........... (3,032) --
------------- -------------
Net cash used in investing activities (23,925) (3,959)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to minority shareholders................. (1,987) (1,543)
Proceeds from sale of common stock................ 2,164 771
Common stock repurchased.......................... (224) --
------------- -------------
Net cash used in financing activities............. (47) (772)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (12,671) 2,607
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.. 53,320 31,343
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $40,649 $33,950
============= =============
OTHER CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense............................. -- --
Income taxes................................. $1,914 $484
</TABLE>
The accompanying notes are an integral part of the BARRA, Inc. Consolidated
Financial Statements
<PAGE>
BARRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements
include the accounts of BARRA, Inc. (the Company, which may be
referred to as BARRA, we, us or our) and its wholly-owned
subsidiaries and Symphony Asset Management, LLC. All significant
intercompany transactions and balances have been eliminated.
Certain reclassifications have been made to prior period financial
statements to conform to the current period presentation.
In our opinion, the accompanying unaudited condensed consolidated
financial statements include all adjustments (consisting of normal
recurring entries) necessary to present fairly our financial
position as of June 30, 2000 and the results of our operations and
cash flows for the periods presented in conformity with generally
accepted accounting principles. The results of operations for the
interim periods are not necessarily indicative of results of
operations for a full year. The March 31, 2000 condensed
consolidated balance sheet is derived from the audited
consolidated financial statements included in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2000 (Form 10-K),
but does not include all disclosures required by generally
accepted accounting principles. We suggest that these condensed
consolidated financial statements be read in conjunction with the
audited consolidated financial statements and related notes
included in the Form 10-K and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in this
Form 10-Q.
2. RESTRUCTURING CHARGES
In March 2000, our management announced and implemented a
restructuring plan aimed at consolidating a global structure for
our sales and client support organization for the Core business.
At June 30, 2000, $575,000 in restructuring charges remained
accrued most of which related to excess facilities and other
miscellaneous costs. Activity in the restructuring accrual for the
period from March 31, 2000 to June 30, 2000 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Severance and Excess Other
Termination Facilities Restructuring Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at March 31, 2000.... $2,119 $210 $325 $2,654
------------ ------------ ------------ ------------
Cash payments................ (2,043) (36) (2,079)
------------ ------------ ------------ ------------
Balance at June 30, 2000 $76 $210 $289 $575
============ ============ ============ ============
</TABLE>
In April 1999, our management announced and implemented a
restructuring plan to reduce the cost of operating our U.S. fixed
income business and focus future development and sales efforts on
global and enterprise-wide fixed income products. All amounts
previously accrued related to these restructuring activities had
been paid.
3. COMPREHENSIVE INCOME
Comprehensive income includes foreign currency translation gains
gains and losses. A summary of comprehensive income follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net Income .................. $10,250 $384
Foreign currency translation
gain (loss)................ 72 (106)
------------ ------------
Comprehensive income ........ $10,322 $278
============ ============
</TABLE>
4. SEGMENT INFORMATION
BARRA's business segments are organized on the basis of differences in
their related products and services. The Core Business is the investment
analytics segment and consists of developing, marketing and supporting
portfolio and enterprise risk software. The BARRA Ventures Businesses
consists of investments, joint ventures or significant licensing
arrangements that leverage the ideas and intellectual property of the
Core Business. The POSIT joint venture licenses institutional trading
systems that allow institutional investors to trade portfolios of
securities directly with each other in a confidential environment. The
Symphony Asset Management venture is a jointly owned subsidiary that
provides asset management services. Other Ventures include Global
Estimates, Bond Express, BARRA RogersCasey, Strategic Consulting and
Investment Strategies.
Segment income from operations is defined as segment revenues net of
segment expenses, restructuring charges, interest income and other,
equity in joint venture gains and losses and minority interests. Segment
expenses include costs for sales and client support activities, the cost
of delivering the product or service including data and data processing
costs, and allocated amounts of depreciation and amortization. Segment
expenses also include allocated portions of research and development,
general and administrative expenses and amortization of acquired
intangibles.
For all periods presented, segment expenses exclude income taxes.
There are no differences between the accounting policies used to measure
profit and loss for segments and those used on a consolidated basis.
Revenues are defined as revenues from external customers and there are
no inter-segment revenues or expenses.
Our management does not identify or allocate its assets, including
capital expenditures, by operating segment. Accordingly, assets are not
being reported by segment because the information is not available by
segment and is not reviewed by the Executive Committee to make decisions
about resources to be allocated to the segments, when assessing their
performance. Depreciation and amortization is allocated to segments in
order to determine segment profit or loss.
The following tables present information about reported segments for the
three month periods ended June 30, 2000 and 1999, respectively (in
thousands):
<TABLE>
<CAPTION>
For the three months ended June 30, 2000:
------------- -------------------------------------------------------
BARRA CORE BARRA VENTURES
------------- ------------------------------------------------------- -------------
POSIT Symphony Asset Total
Core Joint Venture Management Other Ventures Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio and Enterprise Risk
Management................ $25,351 $25,351
Symphony Asset Management.... $9,854 $9,854 9,854
POSIT........................ $5,818 5,818 5,818
Other Ventures............... $7,574 7,574 7,574
------------- ------------- ------------- ------------- ------------- -------------
Total revenues 25,351 5,818 9,854 7,574 23,246 48,597
Compensation and benefits... (12,812) (265) (2,170) (5,015) (7,450) (20,262)
Other segment expenses...... (6,611) (151) (1,043) (2,215) (3,409) (10,020)
Interest income and other... 477 406 406 883
Equity in joint venture
gains (losses) and minority
interest................... 13 (3,413) (38) (3,438) (3,438)
------------- ------------- ------------- ------------- ------------- -------------
Total segment expenses (18,946) (403) (6,220) (7,268) (13,891) (32,837)
------------- ------------- ------------- ------------- ------------- -------------
Segment income $6,405 $5,415 $3,634 $306 $9,355 $15,760
============= ============= ============= ============= ============= =============
Depreciation and
amortization $1,400 $40 $65 $601 $706 $2,106
For the three months ended June 30, 1999:
------------- -------------------------------------------------------
BARRA CORE BARRA VENTURES
------------- ------------------------------------------------------- -------------
POSIT Symphony Asset Total
Core Joint Venture Management Other Ventures Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio and Enterprise Risk
Management................ $22,419 $22,419
Symphony Asset Management.... $4,820 $4,820 4,820
POSIT........................ $4,447 4,447 4,447
Other Ventures............... $6,347 6,347 6,347
------------- ------------- ------------- ------------- ------------- -------------
Total revenues 22,419 4,447 4,820 6,347 15,614 38,033
Compensation and benefits... (14,456) (241) (1,246) (5,199) (6,686) (21,142)
Other segment expenses...... (6,214) (121) (1,253) (2,214) (3,588) (9,802)
Interest income and other... 315 38 38 353
Equity in joint venture
losses and minority
interest................... (1,159) (112) (1,271) (1,271)
Restructuring charges....... (5,561) (5,561)
------------- ------------- ------------- ------------- ------------- -------------
Total segment expenses (25,916) (362) (3,620) (7,525) (11,507) (37,423)
------------- ------------- ------------- ------------- ------------- -------------
Segment income (loss) ($3,497) $4,085 $1,200 ($1,178) $4,107 $610
============= ============= ============= ============= ============= =============
Depreciation and
amortization $1,375 $30 $30 $571 $631 $2,006
</TABLE>
Segment information presented above for the three months ended June 30,
1999 includes certain reclassifications from previously reported amounts
to conform with the fiscal year 2001 presentation.
5. PER SHARE DATA
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" ("SFAS 128"), basic
earnings per share is based on the weighted-average number of
common shares outstanding for the period. Diluted earnings per
share data is based on the weighted-average number of common and
dilutive potential common shares outstanding. Dilutive potential
common shares result from the assumed exercise of outstanding
stock options that have a dilutive effect when applying the
treasury stock method. For all periods presented, the only
difference between basic and diluted earnings per share for the
Company is the inclusion of dilutive stock options in the
denominator for purposes of calculating diluted earnings per
share.
6. NEW ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements," which provides the SEC staff's views on
selected revenue recognition issues. The guidance in SAB 101 must
be adopted during our fourth quarter of fiscal year 2001 and the
effects, if any, are required to be recorded through a
retroactive, cumulative-effect adjustment as of the beginning of
the fiscal year, with a restatement of all prior interim quarters
in the year. We have not completed our evaluation of the effects,
if any, that SAB 101 will have on our income statement
presentation, operating results or financial position.
7. SUBSEQUENT EVENT - SALE OF DIRECTUS
On August 1, 2000 we sold substantially all the assets and
assigned the related liabilities of Directus Ltd. The Directus
product provides data on UK directors' trading and was initially
acquired by BARRA in October 1997 as part of its purchase of
certain assets from Edinburgh Financial Publishing, Ltd. The sale
of Directus is not expected to result in any material gain or loss
in the quarter ended September 30, 2000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
This discussion and analysis and other parts of this Form 10-Q
contain forward looking statements that involve risks and
uncertainties. These forward-looking statements are made in
reliance on the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. For further information regarding
how to identify forward looking
statements and the factors that could cause actual results to
differ, please refer to the information under the heading
"Cautionary Factors That May Affect Future Results" below. Any
or all of the forward-looking statements that we make in this Form
10-Q or any other public statements we issue may turn out to be
wrong. It is also important to remember that other factors
besides those we mention could also adversely affect us and our
business, operating results or financial condition.
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.
Foreign Currency
As an international corporation, we generate revenue from clients
throughout the world, maintain sales and representative offices
worldwide and hold certain deposits and accounts in foreign
currencies. Our revenue is generated from both United States and
non-U.S. currencies. Prior to January 1, 1999 our subscriptions
in the United Kingdom and the European Community were priced in
British pounds sterling (pounds) and European Currency Units
(ECUs), respectively. Subsequent to December 31, 1998, European
Community subscriptions are priced in EMUs (Euro's).
Additionally, our consolidated subsidiary, BARRA International
(Japan), Ltd. (BARRA Japan), generates revenues, has expenses and
has assets and liabilities in Japanese yen (yen).
The following table presents a summary of revenue by geographic
region for the three months ended June 30, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
2000 1999
----------------------------- -----------------------------
% of Total % of Total
Revenues Revenues Revenues Revenues
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
North America:
United States............ $33,906 70% $24,843 65%
Other.................... 944 2 792 2
-------------- -------------- -------------- --------------
Total North America...... 34,850 71 25,635 67
============== ============== ============== ==============
Europe:
United Kingdom........... 4,963 10 4,694 13
France................... 1,449 3 1,300 3
Germany.................. 1,617 3 1,300 3
Other.................... 267 1 239 1
-------------- -------------- -------------- --------------
Total Europe............. 8,296 17 7,533 20
============== ============== ============== ==============
Asia and Australia:
Japan.................... 4,046 8 3,517 9
Other.................... 1,405 3 1,348 4
-------------- -------------- -------------- --------------
Total Asia and Australia. 5,451 11 4,865 13
============== ============== ============== ==============
-------------- -------------- -------------- --------------
TOTAL $48,597 100% $38,033 100%
============== ============== ============== ==============
</TABLE>
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. Our management has considered its exposure
to foreign currency fluctuations and to this point had decided not
to engage in hedging or managing exposures to foreign currency
fluctuations through contracts for the purchase, sale or swapping
of currencies. Accordingly, a strengthening of the U.S. dollar
versus non-U.S. currencies could have a material adverse impact on
our results of operations and financial condition. We expect to
begin hedging certain currency exposures in the current fiscal
year.
For the three month period ended June 30, 2000, when compared to
the same period a year ago, the U.S. dollar strengthened against
the pound and Euro and significantly weakened against the yen -
all of which had the net effect of increasing net revenues and
decreasing net income by approximately $239,000 and ($382,000),
respectively, compared to exchange rates in effect for the three
month period ended June 30, 1999.
On April 1, 2000, we changed the functional currency of our
Japanese subsidiary, BARRA Japan, from yen to our consolidated
reporting currency of U.S. dollars. This change reflects the fact
that the economic factors impacting our business and related cash
flows in Japan have become more influenced by our reporting
currency than the local currency due to consolidation of various
business and management activities within the U.S., the growth of
global accounts and pricing, and the significance of intercompany
transactions. As a result of this change, gains and losses on
translation of current assets and liabilities denominated in yen
to the U.S. reporting currency will be included in other operating
expenses in fiscal 2001.
Under current operating arrangements in the countries in which we
do business, there are no significant restrictions upon the flow
of funds from our foreign subsidiaries to the parent company,
except in Brazil, where we are required to register exchange
agreements with the Central Bank.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, marketable equity securities held for
trading and marketable debt securities available for sale totaled
$88.5 million at June 30, 2000. In addition, we have 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 at present
anticipated to be, drawn down on that line of credit.
We believe that our cash flow from operations (including prepaid
subscription fees), together with existing cash balances, will be
sufficient to meet cash requirements for capital expenditures and
other cash needs for ongoing business operations. Other than
commitments described in this discussion and analysis and in the
financial statements and notes, we have no present binding
understandings or commitments with respect to any significant
expenditures.
PRINCIPAL FINANCIAL COMMITMENTS
Our principal financial commitments consist of obligations under
operating leases and contracts for the use of computer and office
facilities, possible future royalties payable to RJM Ventures,
Inc. (as successor to Redpoint Software, Inc.), and severance and
other related compensation associated with the restructuring plan
announced in March 2000. Our Board of Directors has also
authorized the repurchase of up to 500,000 shares of our common
stock and has authorized up to $17 million in funds as "seed"
investments for new asset management products developed by
Symphony. Approximately $2.0 million of the latter amount has not
yet been disbursed.
RESULTS OF OPERATIONS
References to the dollar and percentage increases or decreases set
forth below in this discussion and analysis of our results of
operations are derived from comparisons of our condensed
consolidated statements of income for the three month periods
ended June 30, 2000 and June 30, 1999.
Net Income. Net income for the three month period ended June 30,
2000 was $10,250,000 or $0.70 per share (diluted) compared to net
income of $384,000 or $0.03 per share (diluted) for the same
quarter a year ago. Results for the three month period ended June
30, 1999 included restructuring charges of $5,561,000 ($.23 per
diluted share).
Operating Revenues. In 2000, we reorganized into two business
units, BARRA Core and BARRA Ventures. Our Core Business consists
of one business segment, portfolio risk management and enterprise
risk management systems. Our Ventures Business consists of three
business segments: Symphony, POSIT and Other Ventures. See Note 4
to the Notes to our Financial Statements for further information
about our segments.
Total operating revenues for the three month period ended June 30,
2000 increased $10,564,000 or 28% compared to the same period a
year ago.
Portfolio and Enterprise Risk Management. Portfolio and
Enterprise Risk Management revenues consist of annual subscription
fees and other related revenues for our Core Business portfolio
risk management and enterprise risk management systems. A summary
of the components of this revenue is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------
2000 1999 %Change
-------- -------- --------
<S> <C> <C> <C>
Core product subscriptions-
continuing products....... $23,966 $19,185 25
Core product subscriptions-
discontinued fixed
income products........... -- 595 --
Other Core product related.. 1,385 2,639 (48)
-------- -------- --------
TOTAL.................... $25,351 $22,419 13
======== ======== ========
</TABLE>
Core Product Subscriptions are revenues for our portfolio risk
management and enterprise risk management products, including
related updates. We generally bill and collect fees on an annual
basis, but recognize the income 1/12th per month over each year of
the subscription period. The growth in annual subscription fees
continues to be generated from a combination of obtaining new
clients (including subscriptions from enterprise risk management
systems) and increasing revenues from existing customers through
the introduction of new products, features and services and from
price increases for existing services.
Revenues from discontinued fixed income products for the three
months ended June 30, 1999 only represent amounts earned on these
products during April 1999. As part of the restructuring, we
agreed to provide license and support services without charge from
May 1, 1999 until the product termination dates. The termination
dates ranged from October to December 1999.
Other Core Product Related revenues include consulting and
implementation fees associated with enterprise risk management
system installations, timesharing revenues, seminar revenues and
other recurring fees. The decrease in revenue in the current
quarter as compared to the same quarter a year ago reflects a) the
decline in timeshare revenues as the result of discontinuing the
timesharing product platform at the end of calendar 1999; b) a
decrease in seminar revenue resulting from fewer events in the
current quarter as compared to the same quarter last year; and c)
a decrease in implementation fees related to the enterprise risk
management business. The timing of the recording of enterprise
risk management implementation fees is governed by the terms of
the implementation contracts and other factors that can cause
significant variations from quarter to quarter.
Symphony. Symphony revenues increased $5.0 million or 104%
compared to the same quarter a year ago. Symphony's revenues
consist primarily of asset management fees, which are a fixed
percentage of asset value, and performance fees, which are based
on the performance over a benchmark for each client account.
Performance fees included in total revenues were $3,441,000 in the
current quarter and $657,000 for the same period a year ago.
Performance fees are recognized only at the measurement date for
determining performance of an account. The measurement date
typically is at the end of the first year of a client's contract
and on each subsequent annual anniversary date for the years after
the first year. The performance fees in the current quarter
represent fees on approximately 10% of the accounts. It is
estimated that approximately 37% and 39% of the current total of
performance-based funds under Symphony's management will have
performance fee determination dates in the quarters ended
September 30, 2000, and December 31, 2000, respectively.
As of June 30, 2000, Symphony had approximately $5.0 billion of
assets under direct management. Of these funds, approximately
$3.2 billion are now managed under agreements that provide for
performance fees in addition to a base management fee. These
amounts include approximately $775 million of leverage associated
with performance fee accounts in addition to the capital invested
by Symphony clients.
Symphony's future revenues will depend to a great extent on the
performance of the funds it manages and the timing of anniversary
fee determination dates for performance based funds.
POSIT. POSIT revenues increased $1.4 million or 31% compared to
the same quarter a year ago. Our revenues from POSIT come from
royalties based on commissions generated by the trading volume in
the various POSIT systems.
Other Ventures. Other Ventures include Global Estimates, Bond
Express, BARRA RogersCasey, Strategic Consulting and Investment
Strategies. Revenues from Global Estimates and Bond Express
primarily consist of subscription fees to earnings estimates
products and bond offering databases. The Investment Consulting
division of BARRA RogersCasey provides services to pension plan
sponsors usually under recurring, retainer-based fee arrangements.
The Strategic Consulting venture provides consulting services to
asset managers, which are generally nonrecurring, project-type
engagements that are completed in phases. As a group, in the
current quarter Other Ventures revenues increased $1,227,000, or
19%, compared to the same quarter a year ago, with increased
revenue in each of these ventures.
Operating Expenses. For the quarter ended June 30, 2000 compared
to the same quarter a year ago, total operating expenses,
including restructuring charges, decreased $6,223,000 or 17%.
Excluding restructuring charges, operating expenses decreased
$662,000 or 2%.
Communication, data and seminar costs consists of computer access
and communication charges, data and software acquisition expenses,
BARRA's computer leasing expenses, and seminar expenses. This
component of expense decreased $582,000 or 25% compared to the
same quarter a year ago. The decrease for the current quarter is
primarily the result of lower seminar and computer access charges.
Seminar expenses decreased as a result of fewer events in the
current quarter as compared to the same quarter a year ago.
Computer access was lower due to the termination of our VAX-based
platform and related computer leasing expenses for fixed income
and equity models in fiscal 2000.
Compensation and Benefits decreased $880,000 or 4% compared to the
same quarter a year ago. The decreases from the same period a year
ago are primarily the result of lower Year 2000 related costs
offset by higher incentive compensation costs in our asset
management business. External and other special additional
internal costs associated with our Year 2000 project included in
compensation and benefits were $1.3 million for the three months
ended June 30, 1999. No Y2K related costs were incurred in the
current quarter and none are expected in the future. Incentive
compensation at Symphony varies with pre-tax earnings, which were
up significantly from the same quarter last year.
Occupancy Expense decreased $78,000 or 4% compared to the same
quarter a year ago. This decrease reflects additional sublease
income from leasing some of our excess facilities.
Other Operating Expenses increased $878,000 or 16% compared to the
same quarter a year ago. Other operating expenses include travel,
office, maintenance, depreciation, amortization, data and other
expenses related to asset management operations, marketing,
advertising, outside legal and accounting services, foreign
currency translation gains and losses, and other corporate
expenses. Other operating expenses increased from the same period
a year ago as a result of: (a) higher foreign currency translation
losses, primarily due to the weakening of the Euro against the
dollar; offset by (b)significantly lower data costs associated
with our asset management division; and (c) lower professional
service and other general office expenses.
Restructuring Charge - Refer to Note 2 in the accompanying notes
to the condensed consolidated financial statements for more
information on the restructuring charges.
Interest income and Other. Interest income and other increased
$530,000, or 150% compared to the same quarter a year ago. The
increase is due primarily to higher gains on marketable equity
securities held for trading. These investments consist of funds
managed by Symphony.
Equity in net income (loss) of investees represents net gains and
(losses) from our equity investments in Data Downlink Corporation,
Risk Reporting Limited and Australian POSIT. The decrease in
losses for the current quarter reflects the dilution of our
investment in Data Downlink during fiscal 2000 below 20% ownership
so that we no longer exercise significant influence in their
operations and accordingly no longer include their losses in our
results.
Minority Interest represents the share of profits from Symphony
Asset Management LLC that is due to other shareholders.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Our disclosure and analysis in this Form 10-Q contain several
forward-looking statements. Forward-looking statements give our
current expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate
strictly to historical or current facts. They use words such as
anticipate, estimate, expect, project, intend, plan, believe,
designed, future, forecast, perceive, possible, potential, target,
will, may, scheduled, would, could, should, forward, assure and
other words and terms of similar meaning in connection with any
discussion of future operating or financial performance. In
particular, these include statements relating to future actions,
events or results. From time to time we may also provide oral or
written forward-looking statements in other materials that we
release to the public.
Any or all of the forward-looking statements that we make in this
Form 10-Q or any other public statements we issue may turn out to
be wrong. They can be affected by inaccurate assumptions that we
might make or by known or unknown risks and uncertainties. Many
factors mentioned in this Form 10-Q will be important in
determining future results. Consequently, no forward looking
statement can be guaranteed. Actual future results may vary
materially.
We are under no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events
or otherwise. We suggest, however, that you consult any further
disclosures we make on related subjects in our Form 10-Q, 8-K and
10-K filings with the SEC. Our Form 10-K filing for the 2000
fiscal year listed various important factors that could cause
actual results to differ materially from expected and historic
results. We note these factors for investors as permitted by the
Private Securities Litigation Reform Act of 1995. Readers can
find them in Part I of that filing under the heading "Risk
Factors." We incorporate that section of that Form 10-K in this
filing and investors should refer to it. Those are factors that
we think could cause our actual results to differ materially from
expected and historical results. Other factors besides those
listed in our Form 10-K or elsewhere in this Form 10-Q could also
adversely affect us or our business. You should understand that
it is not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates
primarily to the interest bearing portions of our direct
investment portfolio. We place our direct investments with high
quality credit issuers and, by policy, limit the amount of credit
exposure to any one issuer. Our first priority is to reduce the
risk of principal loss. Consequently, we seek to preserve our
invested funds by limiting default risk, market risk, and re-
investment risk. We attempt to mitigate default risk by investing
only in high quality credit securities that we believe to be low
risk and by positioning our portfolio to respond appropriately to
a significant reduction in credit rating of any investment issuer
or guarantor. The direct investment portfolio includes only
marketable securities with active secondary or resale markets to
ensure portfolio liquidity. We do not use derivative financial
instruments in our investment portfolio.
Our direct interest bearing investment portfolio primarily
consists of investments in short-term, high-credit quality money
market funds and U.S. Treasury Securities. These investments
totaled approximately $48.6 million at June 30, 2000 with an
average interest rate of 5.0%. At June 30, 2000, the portfolio
also had approximately $26.1 million of short-term, high credit
quality municipal debt securities with an average taxable
equivalent interest rate of 7.8%. The short-term money market
funds and the municipal debt securities are not insured and
because of the short-term nature of the investments are subject to
credit risk, but are not likely to fluctuate significantly in
market value.
From time to time, we provide the initial invested funds for the
startup of new investment products offered by Symphony and our
Asset Services Group. In these cases the primary considerations
are related to supporting a new business rather than making
investments that fall under the guidelines of our investment
policy.
Our investments in market-neutral programs, which amounted to
approximately $13.8 million at June 30, 2000, are non-interest
bearing and consist principally of long and short positions placed
directly through other fund managers in U.S and non-U.S. equity
securities of both public and private issuers. Although the intent
of the managers of these funds is to structure portfolios that are
hedged against general market movements, these investments can be
subject to significant changes in market value and are not
insured. All investment decisions with respect to these market
neutral programs are made by professional investment advisers and
the performance of the funds is reviewed periodically by our
management.
Foreign Currency Risk
We invoice customers in Europe in both pounds and Euros. In
Japan, we bill our customers in yen. Excluding customers in these
locations, we generally bill for our services in U.S. dollars. We
have not engaged in foreign currency hedging activities. To the
extent we invoice our customers in local currency (Yen, Pound and
Euro), our international revenues are subject to currency exchange
fluctuation risk. To the extent that international revenues that
are invoiced in local currencies increase in the future, our
exposure to fluctuations in currency exchange rates will
correspondingly increase. Currency fluctuations may also
effectively increase the cost of our products and services in
countries in which customers are invoiced in U.S. dollars.
We have no foreign debt and non-U.S. dollar cash balances held
overseas are generally kept at levels necessary to meet current
operating and capitalization needs. The capitalization of BARRA
Japan includes approximately $2.4 million invested in a yen-
denominated mutual fund.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
All information that is required by this item was reported under
the heading "Legal Proceedings" in our March 31, 2000 Form 10-K.
There have been no other material developments in our legal
proceedings since the date of our Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of BARRA was held on Thursday,
August 3, 2000.
The meeting was held to consider and vote upon (i) electing
directors to serve for the ensuing year and until their successors
are duly elected and qualified; (ii) approving the amendment to
the Company's Bylaws to increase the range of the size of the
Board of Directors from four (4) to seven (7) to five (5) to nine
(9); (iii) ratifying the adoption of the BARRA, Inc. 2000 Equity
Participation Plan and the authorization of 1,100,000 shares for
issuance thereunder; (iv) amending the BARRA Directors Option
Plan to increase the number of shares of common stock for issuance
thereunder by 100,000 for a total of 250,000 shares; and (v)
ratifying the selection of Deloitte & Touche LLP as the
independent auditors of BARRA for the fiscal year ending March 31,
2001. The votes cast with respect to each director are summarized
as follows: A. George Battle, for 12,489,619 withheld 481,208;
John F. Casey, for 12,455,530 withheld 515,297; Kamal Duggirala,
for 12,457,009 withheld 513,818; M. Blair Hull, for 12,200,901
withheld 769,926; Norman J. Laboe, for 12,200,708 withheld
770,119; Clyde W. Ostler, for 12,450,686 withheld 520,141; and
Andrew Rudd, for 12,471,899 withheld 498,928.
The votes cast to approve the amendment to the Bylaws to increase
the range of the size of the Board of Directors are summarized as
follows: for 12,928,018, against 21,491, abstain 21,318, and
broker non-vote 0. The votes cast to ratify the adoption of the
2000 Equity Participation Plan are summarized as follows: for
6,622,263, against 3,448,968, abstain 40,955, and broker non-vote
2,858,641. The votes cast to approve of the amendment to the
Directors Option Plan are summarized as follows: for 8,356,467,
against 1,731,358, abstain 24,361, and broker non-vote 2,858,641.
The votes cast to ratify the selection of Deloitte & Touche LLP as
independent auditors are summarized as follows: for 12,944,823,
against 1,479, abstain 24,525, and broker non-vote 0.
ITEM 5. OTHER INFORMATION.
On August 1, 2000, we sold the assets and assigned certain
liabilities associated with the Directus business to Datastream
International, Ltd., a subsidiary of Primark Corporation located
in the United Kingdom. For further details of this transaction
see Note 7 to the Consolidated Financial Statements and Item 2 of
this form.
On July 25, 2000, we repurchased in a private transaction from the
Rudd Family Trust 50,000 shares of our Common Stock for an
aggregate price of $2,875,000. Andrew Rudd, the Chairman of our
Board of Directors and a principal stockholder of BARRA, is (along
with his wife, Virginia Rudd) a beneficiary and trustee of the
Rudd Family Trust.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) the following exhibits are required by Item 601 of the Regulation
S-K:
Exhibit
Number Exhibit Description
------ -------------------
27.1 Financial Data Schedule
(electronic filing only)
(b) Reports on Form 8-K: None.
<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: August 14, 2000 /s/ Kamal Duggirala
Kamal Duggirala, Chief
Executive Officer
Date: August 14, 2000 /s/ James D. Kirsner
James D. Kirsner, Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Description
27.1 Financial Data Schedule
(electronic filing only)
