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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended March 31, 2001.
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. LOGO]
Barra, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2993326
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2100 MILVIA STREET, BERKELEY, CALIFORNIA 94704-1113
(Address of principal executive offices) (zip code)
(510) 548-5442
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
(Title of Class)
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, as
amended (Exchange Act), 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of the Common Stock on May 30, 2001, as
reported on The Nasdaq Stock Market (Nasdaq), was approximately $704,599,885.
Shares of common stock held by each executive officer and director have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status for this purpose is not necessarily a conclusive
determination for other purposes.
The number of shares of the registrant's Common Stock outstanding as of May 30,
2001 was 21,438,998.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS TO BE INCORPORATED BY REFERENCE SECTION OF FORM 10-K
Portions of the Proxy Statement for the 2001 Annual Meeting of Stockholders, Part III
filed with the Securities and Exchange Commission (SEC) along with this
Form 10-K (Proxy Statement).
Portions of the 2001 Annual Report to Shareholders, filed with the SEC as an Parts I, II and IV
exhibit to this Form 10-K (2001 Annual Report).
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TABLE OF CONTENTS
PART I PAGE
----
Item 1 Business 1
General 1
Business Units and Segments 1
Marketing, Sales, Clients and Client Support 6
POSIT and Symphony Revenue Contributions 8
Research and Product Development 8
Competition 8
Proprietary Rights and Licenses 10
Government Regulation 11
International Operations 12
Employees 13
Risk Factors 13
Item 2 Properties 19
Item 3 Legal Proceedings 20
Item 4 Submission of Matters to a Vote of Security Holders 21
Executive Officers of the Company 21
PART II
Item 5 Market for the Company's Common Equity and Related Stockholder Matters 23
Item 6 Selected Financial Data 23
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 23
Item 7A Quantitative and Qualitative Disclosures About Market Risk 29
Item 8 Financial Statements and Supplementary Data 30
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 48
PART III
Item 10 Directors and Executive Officers of the Company 49
Item 11 Executive Compensation 49
Item 12 Security Ownership of Certain Beneficial Owners and Management 49
Item 13 Certain Relationships and Related Transactions 49
Other Matters 49
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 50
SIGNATURES 53
POWER OF ATTORNEY 53
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PART I
ITEM 1. BUSINESS
This Business Section and other parts of this Form 10-K, as well as portions of
our 2001 Annual Report to Shareholders, contain forward looking statements that
involve risks and uncertainties. For further information regarding these forward
looking statements and the factors that could cause actual results to differ
please look at the Risk Factors section of this Part I and the section titled
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Part II of this Form 10-K.
Barra, Inc. (which may be referred to as Barra, the Company, we, us or our) is
an investment risk management company which provides innovative solutions to
financial professionals world-wide. We have two business units. Our Core
Business provides portfolio risk management and enterprise risk management
systems to investment professionals. Our Ventures Business develops new lines of
business by leveraging our core research and development, generally through
strategic partnerships.
Our fiscal year for financial reporting purposes is April 1 through March 31.
The fiscal years are referred to using the year in which the end of the fiscal
year falls. Unless otherwise noted, all references in this Form 10-K to 2001,
2000, 1999, 1998 or 1997 are to the fiscal year ending on March 31st in the year
named. This means that the fiscal year ending March 31, 2001 is referred to as
"2001."
Throughout this Form 10-K we "incorporate by reference" certain information from
parts of other documents that we have filed with the SEC. The SEC allows us to
avoid duplication and disclose important information by referring to it in that
manner. Please refer to this information.
All share and per share amounts in this Form 10-K have been restated to reflect
a three-for-two stock split effective December 18, 2000 and a three-for-two
stock split effective September 22, 1997.
BUSINESS UNITS AND SEGMENTS
Our activities are organized into two business units, our CORE BUSINESS and our
VENTURES BUSINESS. As further described below, our Core Business consists of one
business segment, portfolio and enterprise risk management systems. Our Ventures
Business consists of three business segments: Portfolio System for Institutional
Trading (POSIT(R)), Symphony Asset Management (Symphony) and Other Ventures.
On June 15, 2001, we signed a definitive agreement, along with the principals of
Symphony Asset Management LLC (Symphony LLC), to sell Symphony LLC to The John
Nuveen Company (Nuveen). (See Note 14 of the Notes to our Consolidated Financial
Statements.)
While our two business units serve some common clients and draw upon some
similar research, development and data resources, they each require different
marketing and distribution strategies.
- - CORE BUSINESS (www.barra.com) -- Our Core Business is composed of our
portfolio risk management and enterprise risk management systems.
In our Core Business, we apply modern portfolio theory to practical
investment problems. We entered the portfolio risk management business in
1975 when we introduced our first product for measuring the risk of U.S.
equity portfolios. Since then, we have developed additional products
covering new countries, asset classes and instruments. As part of that
process, we have accumulated an unrivaled database of proprietary risk
information on markets and securities worldwide. Our risk methodology is
acknowledged as the industry standard for institutional investing. We have
developed and offer a broad range of software applications to enable our
clients to integrate our risk information into their investment process.
Our risk management systems are designed to help investment professionals
identify, measure and control risk in the context of their own investment
disciplines. These systems consist of three components: data, models and
software applications. We help each client structure the combination of
these components that best addresses their needs.
- Databases - To develop our databases, we license data from more than 100
third party sources. Using our own proprietary algorithms, we create
proprietary data for equity, fixed income, currency and other financial
instruments for all major global markets and asset classes.
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- Models - We have used our proprietary databases and methodology to
develop risk, return and transaction cost prediction models for most of
the world's publicly traded securities. Our risk predictions are
frequently refreshed by updated feeds of our proprietary data.
- Software Applications - Our models and data are made available to
investment professionals through a broad range of software applications.
We deliver these applications to customers worldwide via a variety of
platforms. We primarily provide Microsoft(R) Windows(TM)-standard
software, which interfaces with each customer's own office productivity
system. We are presently engaged in the process of migrating our core
products to a web-based delivery system. Such products will form the
basis of our next generation of core products.
Our Core Business product suite is divided into portfolio risk management
and enterprise risk management systems, offering solutions to both portfolio
and business level decision-makers.
- Portfolio Risk Management Systems - Our portfolio risk management
products are designed to help investment professionals construct optimal
portfolios by measuring and managing risk. Our proprietary risk factors
help investment managers identify and confirm the sources of risk within
their portfolios, as well as make decisions about any sources of risk
they might want to eliminate, in order to achieve a desired level of
return.
Our portfolio risk management products are divided into two application
suites:
- The Barra Aegis System(TM) -- is a suite of equity risk management
software applications for managing equity securities and derivatives.
It provides a flexible, comprehensive framework for portfolio
managers to develop return forecasts, as well as control risk and
costs.
- The Barra Cosmos System(TM) -- allows global fixed income portfolio
managers to manage risk and optimize return in a multi-currency,
global bond portfolio. This adaptable system integrates specific
bond, derivative and currency strategies to reflect each user's
investment style, while monitoring the overall risk exposure of the
portfolio's positions.
The Aegis and Cosmos Systems are modular in design, and allow clients to
select data and models that meet their specific investment requirements.
- Enterprise Risk Management Systems - Our enterprise risk management
solution combines our various models and analytics to provide senior
business managers at large asset management firms with the tools they
need to manage their investment and investment risks firm-wide.
- The Barra TotalRisk System(TM) -- Barra's enterprise risk management
system integrates our models into a firm-wide risk platform that
addresses both the business and technology issues of delivering a
consolidated view of financial risk across a given enterprise. It
offers the benefits of a flexible software architecture that adapts
to evolving business and technology requirements, and is scalable
across multiple user sites. TotalRisk is used by asset managers,
pension fund managers and custody banks to monitor compliance against
benchmarks and fund guidelines.
We generally provide our Core Business products to clients on an annual
subscription basis. The annual subscription price for most of our individual
portfolio management products starts at around $50,000. Comprehensive
platform subscriptions (such as Aegis, Cosmos or TotalRisk) often consist of
a combination of our products and have significantly higher annual
subscription prices. Our standard fees generally include use of the relevant
models and applications, periodic database updates and basic client support.
Since the comprehensive global and enterprise wide solutions that we offer
often require system integration, support and management, many of our large
and complex projects (including most of our enterprise risk management
systems) involve additional consulting services. These consulting services
include on-site resources to assist with the migration of our products and
systems onto a client's existing infrastructure. Our consultants also help
with data gathering, integration and aggregation across a client's complete
enterprise. These consulting services are provided to our clients for an
additional fee.
As a result of our quarter century tenure at the forefront of applied
financial research, we have amassed a unique library of research models and
a large base of historical data. We also offer some of our proprietary data
and models on a stand alone basis. Customers can purchase annual
subscriptions to these components. A library of published research papers
and archived newsletter articles authored by Barra employees is also
available on line.
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- - VENTURES BUSINESS -- Our Ventures Business consists of several distinct,
generally autonomous companies. Each venture is established as an
entrepreneurial, independently operated business. Our Ventures Business
develops new lines of business by leveraging our core research and
development. We sometimes do this through a strategic partnership with other
industry experts who offer a unique distribution franchise -- as in the case
of POSIT and Symphony. We actively consider partnering with third party
investors in the segments of our Ventures Business, some of which are only
partially owned by Barra. Our Ventures Business is divided below into three
business segments: POSIT, Symphony and Other Ventures.
- POSIT (www.itginc.com) - For years, our research into transactions has
focused on cost control. We believed that technology could empower
institutional equity investors to increase investment performance by
reducing transaction costs. In 1987, this focus resulted in the launch
of POSIT, an electronic system for low-cost, confidential trade matching
during the market day. POSIT is a computerized trading system through
which clients enter buy and sell orders to trade single stocks and
portfolios of securities among themselves in a confidential environment.
The POSIT crossing network is designed to minimize market impact and
other trading costs. After 14 years of rapid growth, POSIT provides a
substantial pool of alternative liquidity; annual volume has exceeded
more than 7.8 billion shares. Now with eight daily matches, POSIT volume
and liquidity continue their pattern of sustained growth.
We own the POSIT technology through a general partnership with ITG, Inc
(ITG). We initially developed the POSIT technology and have since
jointly enhanced it with ITG. Orders may be placed in the POSIT system
directly via computer to computer links or the QuantEX system, ITG
Platform, or ITG Access offered by ITG. Orders may also be placed
indirectly through ITG's Electronic Trading Desk, which then enters the
orders in the central computer. In the U.S., ITG has also entered into
arrangements with vendors of other popular trading systems to allow
users the flexibility to route orders directly to POSIT from trading
products distributed by Bridge Information Systems, BRASS, Bloomberg and
others.
- U.S. POSIT - Through a license from the POSIT joint venture, ITG
operates the U.S. equity version of the POSIT system. All trades of
U.S. equities executed through U.S. POSIT are cleared by, and all
brokerage commissions are paid to, ITG. We receive a share of the
royalties paid to the POSIT partnership by ITG. Our share of these
royalties is equal to approximately 13% of the commissions received
by ITG for trades of securities on U.S. POSIT. Total U.S. POSIT
trading volumes for the past five calendar years are shown below:
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------
TRADING VOLUME 7.8 billion 6.5 billion 5.8 billion 3.6 billion 3.3 billion
shares shares shares shares shares
---------------------------------------------------------------------------------------------
U.S. POSIT currently accepts orders for approximately 18,000
different equity securities, but it can be modified, as the need
arises, to include additional equity securities. An algorithm is run
at scheduled times during each trading day to find the maximum
possible number of any buy and sell orders that match or "cross."
- EuroPOSIT(TM) - EuroPOSIT was developed using the original POSIT
technology. It was launched in November 1998. It is operated by
Investment Technology Group (Europe) Limited (ITGE), a Republic of
Ireland venture that is owned by ITG. EuroPOSIT runs six daily
matches and currently covers equities in the U.K., France, Germany,
Italy, Spain, Switzerland, Belgium and the Netherlands. ITGE expects
to cover equities from additional European nations over time. All
EuroPOSIT trades of equities are cleared by, and all brokerage
commissions are paid to, ITGE. A royalty is then paid to the POSIT
joint venture based upon the commissions received by ITGE for trades
of European securities on EuroPOSIT. We receive a share of that
royalty after expenses.
- Australia/New Zealand POSIT -- Using the original POSIT technology,
we developed an Australia/New Zealand equity version of POSIT in
1995. All trades of Australia and New Zealand equities executed
through Australia/New Zealand POSIT are cleared by, and all brokerage
commissions are paid to, ITG Australia Ltd (ITGA), an Australian
entity owned by ITG. A royalty is paid to the POSIT joint venture
based on commissions received by ITGA for trades of Australia and New
Zealand securities on Australia/New Zealand POSIT. We receive a share
of that royalty.
- Toronto Stock Exchange -- On November 21, 2000, the POSIT joint
venture announced that it was in discussions with the Toronto Stock
Exchange (TSE) to license and operate POSIT as a facility of the TSE
for TSE listed securities. An official launch date will be determined
once definitive documentation has been completed.
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- Symphony (www.symphonyasset.com) -- Our Symphony business segment offers
a host of asset management services through collective investment
vehicles and separate accounts. As of March 31, 2001, Symphony directly
managed approximately $4.4 billion ($3.6 billion net of leverage in
managed portfolios) in a variety of investment vehicles.
We formed this venture as a wholly-owned subsidiary, Symphony Asset
Management, Inc. (SAMI), in 1994 using the personnel and strategies of
our former Active Strategies Group and several professionals who were
formerly with Wells Fargo Nikko Investment Advisors, Inc. A
restructuring in 1996 led to the formation of Symphony LLC, which is
owned by Barra and Maestro LLC (Maestro). Maestro is owned by the
Symphony principals, each of whom has substantial experience in the
industry, spanning quantitative analysis, portfolio management,
operations and client service. Our interest in Symphony LLC is held by
SAMI. On June 15, 2001 SAMI and Maestro signed a definitive agreement to
sell Symphony LLC to Nuveen.
Symphony's products include a range of market-neutral and long-only
equity strategies, as well as market neutral fixed income and
convertible arbitrage strategies.
- Equity Strategies: These include long-only and market-neutral
strategies, invested in major markets around the world. Each strategy
incorporates elements of Symphony's proprietary approach to money
management combining quantitative screening and qualitative analysis.
Long-only strategies are benchmarked against indices such as the S&P
500, the S&P MidCap 400 and the Wilshire 4500. Market-neutral
strategies take long and short positions while maintaining dollar
neutrality and are benchmarked against U.S. Treasury Bills. Certain
clients add market exposure to market-neutral strategies by employing
a futures overlay.
- Fixed Income Strategies: These include convertible-arbitrage and
high-yield market-neutral investing. In evaluating bonds, Symphony's
investment process includes both equity and fixed-income analysis.
Equity analysis guides the selection process to opportunities arising
from changing default risk. Fixed-income analysis may uncover
mis-pricing opportunities in the structure of the bond relative to
other, similar instruments.
Symphony implements these strategies through its management of eight
co-mingled institutional funds (formed as limited partnerships), five
off-shore funds and a variety of separate accounts. Symphony also uses
these strategies in the three mutual funds for which it serves as a
sub-advisor. In addition, Symphony LLC owns a 51% interest in NetNet
LLC, a venture capital firm focused on making investments in technology
companies.
We realize both asset-based and performance based fees for accounts
managed by Symphony. (See Note 2 of the Notes to our Consolidated
Financial Statements.)
- Other Ventures -- Several wholly-owned businesses comprise Other
Ventures, including Bond Express, Barra RogersCasey and Strategic
Consulting. We also hold certain strategic minority interests in other
businesses.
- Bond Express(TM) (www.bondexpress.com) -- Our wholly-owned
subsidiary, Bond Express, Inc., (Bond Express) is a leading
aggregator of bond offerings in the United States. Over 400 distinct
dealers place their offerings on the system each day and thousands
of traders, registered representatives, and individuals use the
system to find bonds. Asset classes include Municipals, Corporates,
U.S. Treasuries, and CMOs. The Bond Express dealer product is used
by traders at broker/dealer firms to find bond offerings and show
those offerings to their representatives or clients. From the Bond
Express web site users can search over 15,000 current bond
offerings. Bond Express has recently launched technology that allows
a user to purchase bonds electronically. The Bond Express Web Site
Integration product is a private labeling service for brokers to
electronically offer bonds to individual investors and registered
representatives over the Internet and route transactions to their
own trading desks or directly to an offering dealer. Clients of the
Wed Site include Charles Schwab, Deutsche Bank and Dreyfus. In
addition, through the Web Site Integration product, Bond Express
serves as the host to numerous financial portals and data vendors
that provide fixed income information to their clientele. These
clients include Yahoo, CNNfn, Reuters, Yahoo and Thomson Financial.
Clients pay for Bond Express access on an annual subscription basis
in combination with transaction fees. Barra acquired 100% of the
Bond Express business in January 1999.
- Barra RogersCasey (www.barrarogerscasey.com) - Through our
wholly-owned subsidiary, Barra RogersCasey, Inc. (Barra
RogersCasey), we offer a full range of investment consulting
services, fund-of-funds and private equity investment products and
plans, and the InvestWorks(TM) system. Originally founded in 1976,
this business became one of the nation's first investment consulting
firms specializing in providing advisory services to institutional
investors. We acquired this business in 1996, and today Barra
RogersCasey serves more than 100
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clients representing a broad cross-section of both public and
private institutional investors with over $500 billion in assets.
- Investment Consulting -- Barra RogersCasey offers investment
consulting services to institutional investors, including
corporate and public retirement plans, endowments and
foundations, healthcare organizations, insurance companies and
financial intermediaries, as well as high net worth individuals.
As an advisor, the firm's primary objective is to partner with
its clients to design optimal investment programs. This
partnership role can vary depending on the client's needs. In
some instances, Barra RogersCasey can serve strictly in an
advisory capacity and, in others, as an extension of the
client's investment staff and committee. The firm can also
assume the responsibilities of a completely outsourced
investment program. The Investment Consulting services offered
by Barra RogersCasey include:
- analyzing plan-wide risk;
- assessing different asset mixes in comparison to projected
liability funding needs;
- testing current assets against desired asset mixes;
- reviewing current defined benefit plan objectives,
benchmarks and manager mixes;
- reviewing the key features of a defined contribution plan;
- developing retail investment products such as mutual funds
and annuities;
- selecting investment vehicles and managers in light of
overall plan needs; and
- analyzing and reporting on performance by external managers
and the risk taken by those managers.
Barra RogersCasey normally charges fixed fees for its Investment
Consulting services, payable either for a single project or on a
recurring retainer basis. Barra RogersCasey also provides these
services on a time and materials basis.
- Asset Management -- Barra RogersCasey also designs, implements
and provides ongoing management of various multi-manager and
private equity investment products and plans. As of the end of
2001, it managed almost $800 million through its various
products and services, including:
- Multi-Manager Funds - Barra RogersCasey designs and manages
its own multi-manager product, the Global Developing Markets
Fund (GDMF), as well as multi-manager investment programs
for pension plans.
- Private Equity -- Barra RogersCasey designs and manages
aggressive, risk-oriented programs for investing in private
ventures, either directly or through managers specializing
in private equity.
Revenues from these services are generated by asset based fees
for the accounts under management.
- InvestWorks -- InvestWorks provides a package of investment
products, benchmarks and peer groups for money managers,
investment consultants, financial advisors and plan
sponsors. InvestWorks is used to evaluate and contrast the
style and performance of separate accounts, mutual funds and
commingled funds. InvestWorks is offered to clients on an
annual subscription basis, and is offered over the web in
the form of investworks.com.
- Strategic Consulting (www.barrascg.com) -- Barra Strategic Consulting
Group (Strategic Consulting) is a division of our parent company that
provides consulting services to asset management firms. This venture
consists of approximately thirty professionals with expertise in
management consulting, investment management, investment consulting,
investment research and/or market research. Founded in 1987 as a unit of
Rogers Casey & Associates, Inc., this consulting team provides a wide
range of services covering strategy development, functional assessment
and implementation. Some of the services provided under these three
categories include:
- analyzing industry trends and the market position of a client with
regard to those trends;
- providing a detailed analysis of a client's business strategy along
with proposed enhancements to that strategy;
- evaluating the quality and consistency of a client's investment
process using our proprietary risk management technology;
- assessing the effectiveness of a client's sales and client service
activities; and
- advising on various merger, acquisition and integration activities.
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Strategic Consulting charges separate project fees for its services
on a fixed or time and materials basis.
- Global Estimates - Prior to its sale by Barra in December 2000,
Barra Global Estimates was a warehouse of broker forecast data
covering over 6,000 publicly traded companies in more than 60
countries. It pooled, integrated, and aggregated forecast data from
over 800 brokers worldwide to provide a comprehensive source of
sales, profits, earnings, cash-flow and dividend forecasts, as well
as brokers' recommendations. On December 7, 2000, we sold our
interest in the Global Estimates Venture to Multex.com Inc. for
approximately $13 million. (See Note 3 in the Notes to our
Consolidated Financial Statements.)
- Other Investments -- Other Ventures also includes our investment in
Alacra, Inc. (Alacra) and minor investments in certain other
businesses.
- Alacra - We own approximately 16% of Alacra (formerly known as
Data Downlink, Inc.) (www.alacra.com). Alacra's flagship service
historically has been .xls (www.xls.com). .xls aggregates,
cross-indexes and distributes over 70 different business
databases, delivering quantitative information directly to
Microsoft Excel and textual information in HTML and Microsoft
Word. In May 1998, we granted Alacra a non-exclusive worldwide
license to market certain of our proprietary databases. .xls
customers pay Alacra a monthly fee to access the service and
then purchase content on either a pay-per-view and/or
subscription basis. In May 2000, Alacra launched Portal B(TM), a
fully integrated business information portal. Customers will pay
Alacra an annual fee to access Portal B. Fees will be dependent
on the size of the organization.
MARKETING, SALES, CLIENTS AND CLIENT SUPPORT
Core Business - We currently serve portfolio risk management and enterprise risk
management clients at approximately 1,200 institutions in over 30 countries. Our
clients for these systems include active and passive equity managers, fixed
income managers, global managers, fund sponsors, pension and investment
consultants, banks, insurance companies, broker/dealers and corporate
treasurers. The marketing, sales and client support activities are integrated
across all of the products offered by this segment. The large and complex nature
of our enterprise risk management projects also require extra consulting and
support services to assist in the implementation, integration, support and
management of these systems.
We market our portfolio risk management and enterprise risk management systems
to a broad set of financial service providers and institutional investors
throughout the world. When marketing new Core Business products, we focus on
significant participants in the relevant market segments of the investment
community. Our marketing efforts are focused on defining new market segments and
geographies and educating them about portfolio and enterprise risk management.
This helps us extend Barra's market penetration across many markets and
geographies. In some instances, this brand extension involves new institutions.
In other instances, we focus on a different group inside of some of our existing
clients where our products are not yet being used.
This year Barra embarked on an aggressive branding and advertising campaign
centered around the theme of "Risk is Good.(TM)" This effort focused on
developing a set of brand and advertising messages and creative design efforts
to build a simple but strong association to the Barra brand and the Company's
leadership in the investment risk management marketplace.
In addition, we use a variety of marketing and communication channels to achieve
market education and broader market penetration on a global scale. Through our
targeted advertising campaign, we are extending our brand recognition into new
and existing markets. The advertising campaign focuses on business and trade
publications in our significant geographic markets. In addition to traditional
print advertising, we have also developed targeted on-line efforts that include
a defined web site, focused direct online marketing activities and online
product training. Our marketing efforts also include targeted direct mailings
and several public relations activities, including participation in more than 75
trade shows, seminars, and conferences each year.
We primarily use a direct sales force to distribute our portfolio risk
management and enterprise risk management systems throughout the world. In the
U.S., products are marketed directly by our parent company. Throughout the rest
of the world, they are primarily marketed by our wholly-owned subsidiaries:
Barra International (Japan), Ltd. (Barra Japan) in Japan, Barra Consult Ltda.
(Barra Brazil) in South America, and Barra International, Ltd. (Barra
International) elsewhere. For all of our Core Business products, we work closely
with clients to provide ongoing service and support. Our client support
professionals provide training in the theories underlying each product and in
the use of the product, telephone support, on-line support, and routine
consulting services needed in connection with the use of certain of our
products. Our sales and
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client support personnel are generally required to have strong academic and
financial backgrounds. We offer these services via a global structure, with most
of the relevant employees located outside our Berkeley, California headquarters.
Due to the complexity of our products, the sales cycle for new clients of most
of our portfolio risk management systems is typically several months. The sales
cycle for our enterprise risk management systems can be even longer. Most sales
require one or more face-to-face meetings with the prospective client. Each new
client is introduced to one or more of our client support specialists. Sales and
client support specialists help install the product. Due to the complex nature
of TotalRisk and the amount of client system integration involved, installations
of this system are often subject to an acceptance testing phase.
Ventures Business -- The marketing, sales and client support activities vary for
each Barra Venture. Each venture has its own independent marketing, sales and
client support function.
- - POSIT -- The institutional investors currently using POSIT include corporate
and government pension plans, insurance companies, bank trust departments,
investment advisors, broker dealers and mutual funds. All marketing, sales
and direct (first tier) client support for the various POSIT crossing
networks is conducted by the entity licensed to operate each network. Barra
generally provides second tier support to the various POSIT licensees on
behalf of the POSIT joint venture. ITG conducts the marketing and provides
the sales and first tier client support for U.S. POSIT primarily through the
sales, support and consulting activities of its research group. These
activities include introducing clients and prospects to the features,
pricing and technical/functional specifications of the system. ITGE conducts
the marketing and provides the sales and first tier client support for
EuroPOSIT. ITGA conducts the marketing and provides the sales and first tier
client support for Australia/New Zealand POSIT.
- Symphony - Symphony markets its products and services to nearly 200
clients, including pension funds, university endowments and foundations,
off-shore banks, fund-of-funds, mutual fund distributors and qualified
individuals in the U.S., Europe and Asia. Approximately 90% of the
assets under management by Symphony are represented by institutional
accounts. The remainder are qualified individuals. All marketing of
Symphony's asset management activities and products in the U.S. is
regulated by the SEC under the Investment Advisers Act of 1940, as
amended (Advisers Act). Symphony is also registered with the National
Futures Association (NFA) and the Commodity Futures Trading Corporation
(CFTC) and is, in certain instances, subject to the marketing
regulations administered by those agencies. Symphony's limited
partnership products are not registered under the Securities Act of
1933, as amended (Securities Act), and therefore may be marketed and
offered only through private communications with qualified investors.
Symphony also acts as a subadvisor for certain mutual funds that are
registered under the Securities Act. The sales and client support for
those mutual funds is not handled by Symphony, but by the primary
investment company offering the fund to the public.
- - Other Ventures --
- Bond Express -- There are approximately 350 entities using the Bond
Express Dealer product and over 50 Web Site Integration clients. Bond
Express markets its products to traders at broker/dealer firms and
business development people at financial portals. Bond Express uses a
variety of traditional and web-based marketing practices to target its
clients. Bond Express sells its products directly from its offices in
New York City and through its own website at http:\\www.bondexpress.com.
Technical support is conducted out of its San Diego, California office.
Bond Express also has over 40 redistribution arrangements, which
generally provide for the display of Bond Express data on third party
websites.
- Barra RogersCasey -- Barra RogersCasey uses a variety of methods to
market its Investment Consulting and Asset Services:
- Investment Consulting - This venture primarily serves pension funds,
endowments, foundations and other financial intermediaries. Barra
RogersCasey employs a variety of methods to obtain new Investment
Consulting relationships. The venture primarily engages in a focused
and deliberate sales effort aimed at new prospects and expanding
relationships with existing clients. It often receives referrals from
clients and others in its clients' industries. In addition, Barra
RogersCasey sometimes engages in Requests for Proposal (RFP)
processes. During the RFP process, the Investment Consulting team
responds to a series of questions and requests for information from a
potential client which are designed to determine costs and staff for
and performance of a potential project. Generally, several RFPs are
submitted simultaneously by competing consultants. The final rounds
of the RFP process often involve intensive interviews and
presentations to the prospective client. Even if a formal RFP process
is not implemented by a prospective client, a similar proposal and
competitive interview process is usually followed. The sales process
is often managed by a member of the relevant sales group. Consultants
are often introduced during the sales cycle and, if the client is
obtained, they later manage the relationship.
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- Asset Management - The sales and client support for the GDMF are
conducted by professionals associated with the fund. This fund also
sends quarterly performance reports to its investors. All marketing
of asset management activities and products is regulated by the SEC
pursuant to the Advisers Act. The GDMF is not registered under the
Securities Act and therefore may be marketed and offered only through
private communications with qualified investors. All investors in the
GDMF are pension plans.
- Strategic Consulting - The Strategic Consulting venture primarily
serves money management firms. This venture engages in a focused
sales effort aimed at prospects and existing clients. The venture
also receives referrals from clients. The sales process is managed by
a senior relationship manager at BSC and is highly customized and
tailor made towards each potential client. Strategic Consulting's
business is very dependent on relationships and, hence, continuous
contact with potential clients and knowledge of their business is
critical to originating new business opportunities.
POSIT AND SYMPHONY REVENUE CONTRIBUTIONS
Other than revenue from Symphony, no entity not entirely owned by us and no
customer of any of our business segments accounted for more than 10% of our
total operating revenues in 2001. The chart below outlines the contributions to
our total operating revenues made by POSIT and Symphony over the last three
fiscal years:
---------------------------------------------------------------------------------------
FYE 2001 FYE 2000 FYE 1999
---------------------------------------------------------------------------------------
% OF TOTAL % OF TOTAL % OF TOTAL
OPERATING OPERATING OPERATING OPERATING OPERATING OPERATING
REVENUE REVENUE REVENUE REVENUE REVENUE REVENUE
- --------------------------------------------------------------------------------------------------------
POSIT 21,070,000 9% $19,064,000 10% $16,235,000 10%
- --------------------------------------------------------------------------------------------------------
SYMPHONY 61,835,000 28% $46,901,000 25% $25,800,000 16%
- --------------------------------------------------------------------------------------------------------
We do not believe that the loss of revenue from any single customer or any
single entity not wholly-owned by us (other than Symphony or POSIT) would have a
material adverse effect on our business, operating results or financial
condition. (See Notes 4 and 14 of the Notes to our Consolidated Financial
Statements.)
RESEARCH AND PRODUCT DEVELOPMENT
Innovations by our research and development operations are critical to the
success of our Core Business and to the efforts of several of our Ventures
Business. In research and development activities, we approach investment
problems from various angles, starting with their theoretical underpinnings and
continuing through the practical implementation of solutions. Our goal is to
develop and bring to market innovative products and solutions to help our
clients make superior investment and trading decisions. This goal has been
supported by our substantial research and development investments. We spent
approximately $21 million in 2001, $19 million in 2000 and $21 million in 1999
on Barra-sponsored research and development. These figures include our
allocation of research and development costs for POSIT, Symphony and Other
Ventures activities. (These amounts represented 9%, 10%, and 13% respectively,
of our total operating revenues for those years.) In 2002, we anticipate
investing more than $26 million on research and development, including our
allocated expenses for Symphony, POSIT and Other Ventures activities.
We work closely with ITG on the research and development of POSIT enhancements.
We believe that this effort is necessary to remain competitive in a securities
industry with increasing demand for technology-based services. We expect to
continue this level of investment to improve existing services and continue the
development of new services.
COMPETITION
Core Business - The markets for our portfolio risk management and enterprise
risk management systems are competitive but fragmented into many areas of
specialization. We presently compete in many geographic areas and across many
areas of specialization. There are competitive product sets for all Barra
products. In some cases, we only experience this competition in a specific
region and in other cases these competitors are on a global scale. No single
competitor, however, currently competes across our entire range of products,
services and geographic markets for this business segment.
- - Portfolio Risk Management Systems - We compete with several other companies
that have developed financial models, applications and databases. Few of
these competitors, however, target clients in our major portfolio risk
management market, which primarily consists of portfolio managers with an
excess of $500 million under management. In addition, no single competitor
offers a suite of products that competes with our entire Aegis System or
Cosmos System of
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products. For example, Vestek (a Thomson company) and Wilshire Associates
each offer products that compete with some components of our Aegis System.
These products and other competitive products, however, often offer levels
of functionality different from those offered by our products, and may be
based on a different form of risk modeling.
- - Enterprise Risk Management Systems - Algorithmics Incorporated, Sungard Risk
and Trading, and Askari (a business unit of State Street Corporation) offer
products and services that compete with our enterprise risk management
business. These competing products are mostly sold to banks, brokerage firms
and insurance companies. To date we have focused our TotalRisk sales,
support and marketing efforts on the buy side, specifically targeting asset
managers, custody banks, plan sponsors and pension funds.
We believe that the principal competitive factors facing our Core Business are:
- research and technical capabilities;
- product breadth and architecture;
- product features and functions;
- quality of customer support and service;
- professional and product reputation;
- asset coverage;
- ease of use; and
- price.
We believe that we have certain competitive advantages in each of these areas,
including extensive proprietary databases, skilled professional staff, a
reputation for excellence developed over years of operation, and an established
series of seminars and other training programs. The effort and cost required to
develop and maintain our risk models and related databases may present a
significant barrier to entry into the marketplaces for certain of our Core
Business products. We believe that our extensive experience in product
maintenance, together with the economies of scale available to us because of our
large client base, give us a competitive advantage in the markets for our Core
Business products.
Ventures Businesses -- Due to the wide variety of our Ventures Businesses, their
markets are very diverse and often highly specialized.
- - POSIT - POSIT competes with services offered by leading brokerage firms and
transaction processing firms, with providers of electronic trading and trade
order management systems and with financial information services. POSIT also
competes with various national and regional and securities exchanges and
exchange facilities, such as Nasdaq, electronic communications networks
(ECNs), such as Instinet and Archipelago, and alternative trading systems
(ATSs) for trade execution services. Many of POSIT's competitors have
substantially greater financial, research and development and other
resources. We believe that POSIT competes on the basis of:
- access to liquidity;
- transaction costs;
- market impact cost reduction;
- timeliness of execution; and
- probability of trade execution.
Although we believe that POSIT competes favorably with respect to these
factors and has established certain competitive advantages, its ability to
maintain these advantages will require continued investment in the
development of POSIT.
- - Symphony -- Symphony competes in the highly fragmented asset management
industry. Symphony's assets under management represent less than 1% of total
assets in the U.S.-based asset management industry. No one firm dominates
the asset management industry, however, Symphony has developed a reputation
for expertise in the market neutral strategy niche. Barriers to entry are
comparatively low in the industry because a few skilled individuals could
set-up an asset management business in a relatively short period of time. We
believe that competitive factors at work in the asset management industry
include product design and implementation, investment performance, client
service and retention of key employees.
- - Other Ventures -- The various Barra ventures compete in different market
places.
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- Bond Express -- The availability of fixed income information and
transaction capability over the Internet is evolving rapidly. While no
single competitor competes with Bond Express in all of its business
lines, there are competitors in each of its target markets. Many of Bond
Express's competitors have substantially greater financial resources.
- Barra RogersCasey -- The Investment Consulting and Asset Services units
of Barra RogersCasey compete in different marketplaces.
- Investment Consulting -- Investment Consulting competes in a
fragmented industry offering various consulting services to a variety
of institutional investors, including corporate and public retirement
plans, endowments and foundations, healthcare organizations,
insurance companies and financial intermediaries, as well as high net
worth individuals. We believe that competitive factors at work in the
consulting industry include:
- client service;
- industry reputation and experience;
- price;
- research innovation; and
- retention of key employees.
Competitors for our Investment Consulting venture include Wilshire
Associates, Callan Associates, Mercer, Evaluation Associates and
Frank Russell.
- Asset Services - Our Asset Services venture competes in the highly
fragmented asset management industry. No one firm dominates the asset
management industry. Barriers to entry are comparatively low in the
industry because a few skilled individuals could set-up an asset
management business in a relatively short period of time. We believe
that competitive factors at work in the asset management industry
include product design and implementation, investment performance,
client service and retention of key employees.
Strategic Consulting - While the Strategic Consulting Venture has a
differentiated value proposition, several niche and larger consulting
firms offer similar services. These firms include general consulting
firms such as McKinsey & Co., PriceWaterhouseCoopers and Booz-Allen &
Hamilton. We believe that competitive factors at work in the Strategic
Consulting industry include:
- client service;
- industry reputation;
- research innovation; and
- retention of key employees.
PROPRIETARY RIGHTS AND LICENSES
Core Business - We rely on a combination of trade secret, copyright, trademark
and other intellectual property laws, license agreements and technical measures
to protect our rights in our intellectual property. We currently hold no utility
patents, but are considering applying for utility patents on certain of our
proprietary technologies.
We seek to protect our proprietary assets through non-disclosure undertakings
with our employees, clients and partners. In addition, we rely on the following
factors to protect the intellectual property of our Core Business products:
- - Access to the knowledge, ability and experience of our employees is
necessary for many of our clients to obtain the support necessary to operate
our products.
- - A quarter century of data collection and derivation have created an
unrivaled historical database, which is used to fuel and update our models.
- - To achieve full functionality, our products are dependent on timely product
enhancements and database updates.
- - Initial and continuing access to our proprietary databases is often required
for our Core Business products to function.
Ventures Businesses -
- - POSIT -- The technology used to operate each of the POSIT systems is owned
by the POSIT joint venture. The joint venture in turn licenses the
technology to ITG, ITGE and ITGA. Under the terms of our joint venture
agreement, we and ITG are prohibited from competing, directly or indirectly,
with POSIT. The licensee operators of POSIT are also subject to restrictions
on competition with POSIT. Related agreements also require that we provide
certain support services to
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the POSIT partnership, including the availability of experienced personnel
and support for the development and maintenance of the POSIT system. The
POSIT joint venture may also earn a royalty from licensing POSIT to other
businesses in other markets. Under the terms of the joint venture agreement,
ITG generally has the right to approve any sale, transfer, assignment or
encumbrance of our interest in the POSIT joint venture.
The intellectual property issues for end users of POSIT mirror those
discussed above for the Core Business. Since we do not actively operate any
of the POSIT systems, these issues are primarily addressed by the
licensee-operators of each crossing system. We do, however, seek to protect
our rights through confidentiality and non-disclosure undertakings,
non-competition provisions and limitations on use in each POSIT license
agreement.
- - Symphony - Symphony relies heavily on the knowledge, abilities and
experiences of certain employees. It seeks to protect these knowledge bases
through non-disclosure undertakings by its employees. In addition, Symphony
uses data from proprietary sources (including Barra) in some of its
strategies.
- - Other Ventures - Our Other Ventures are subject to the same intellectual
property factors as described for the Core Business above.
For a further discussion of Proprietary Rights and Licenses, see the subsection
of the same name under Risk Factors below. Also, see Legal Proceedings in Item 3
of this Part 1 for a discussion of certain patent issues.
GOVERNMENT REGULATION
The financial services industry is subject to extensive regulation at the
federal and state levels, as well as by foreign governments. In the U.S., the
main governmental authority regulating us is the SEC. The SEC has oversight over
our activities due to our status as a publicly traded company and due to the
investment advisory nature of several of our businesses. It also regulates the
businesses of many of our clients and joint venture partners.
Advisers Act
Our parent company, Barra, Inc., is currently registered as an investment
adviser solely in the state of California but is seeking an exemption from the
SEC to permit federal registration under the Advisers Act. Three of our
subsidiaries, SAMI, Symphony LLC and Barra RogersCasey, are registered under the
Advisers Act but not under any parallel state statute. As registered investment
advisers these entities are required to meet certain financial criteria,
including the maintenance of minimum net capital levels. They are also are
subject to certain obligations, fiduciary duties and prohibitions with respect
to their operations, including their dealings with clients. These include
certain required disclosures to clients and potential clients, limitations on
receipt of performance-based compensation and restrictions with respect to
transactions involving potential conflicts of interest.
The development of specialized investment strategy services for institutions and
certain other one-off consulting arrangements performed by our Core Businesses
may constitute providing investment advice under the Advisers Act. We believe
and have adopted the position that the products of our Core Business do not
otherwise provide investment advice for purposes of the Advisers Act.
DOL, ERISA, CFTC and NFA
Barra RogersCasey provides Investment Consulting services to a large number of
pension plans that are regulated by the U.S. Department of Labor (DOL) under the
Employee Retirement Income Security Act of 1974 (ERISA). It is possible that
Barra RogersCasey may, as a consultant, be deemed a fiduciary of some of those
plans. In such a case, Barra RogersCasey would be subject to ERISA, which
imposes strict obligations on fiduciaries, especially regarding conflicts of
interest.
Symphony and the GDMF both manage funds owned by pension plans. In addition to
their normal Advisers Act fiduciary obligations for these pension funds, they
are also deemed to be fiduciaries under ERISA. Symphony is also registered with
and subject to the regulations administered by the NFA and the CFTC. As Symphony
and Barra RogersCasey expand their operations, it may become subject to certain
additional government regulatory requirements.
Data Privacy Legislation
More than 40 countries have adopted some form of data privacy legislation. In
the U.S., much privacy legislation has been introduced in Congress and in most
of the 50 states. Currently, with the exception of certain types of data (such
as financial and medical data), most personal data on the Internet is protected
only by voluntary self-regulation in the form of the privacy policies
implemented by each website. The Federal Trade Commission does, however, have
the authority to force companies
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to live up to their stated privacy policies. In addition, during the past fiscal
year the SEC adopted the Regulation S-P (Reg. S-P) privacy rules promulgated
under the Gramm-Leach-Bliley Act (GLB Act). Under Reg. S-P and the GLB Act a
financial institution must provide its customers with notice of its privacy
policies and practices, and must not disclose nonpublic personal information
about a consumer to nonaffiliated third parties unless the institution provides
certain information to the consumer and the consumer has not elected to opt out
of the disclosure. The GLB Act also requires the SEC to establish appropriate
standards for the protection of customer information by financial institutions.
In the European Union, the Data Protection Act of 1998 (DPA) governs the
collection and distribution of personal data. The London branch of Barra
International is registered under the DPA. We are in the process of conforming
our privacy policy to the requirements of Reg. S-P, the GLB Act, the DPA and
other relevant data privacy legislation.
Soft Dollars
We estimate that approximately 11% of our total operating revenues are received
from U.S. brokers who direct us to provide Core Business products and Investment
Consulting services to designated clients in the United States of America. These
clients are money managers, fund sponsors and consultants using commissions
generated by their advised accounts with the broker to obtain investment
research and brokerage services. The funds used by these U.S. brokers to pay for
the services are referred to in the securities industry as "soft dollars." We
also have a data contract with Standard & Poor's Securities, Inc. (SPSI). Under
that contract, SPSI and its affiliates provide us with certain U.S. equity data.
In return, the contract requires that only SPSI accounts be used for soft dollar
payment for the portions of our products that use SPSI data.
Dealers and Alternative Trading Systems (ATS)
Upon POSIT's inception, the POSIT joint venture obtained a "no-action" letter
from the SEC. In that letter, the SEC advised POSIT that it would not recommend
enforcement action to require registration as a stock exchange. Pursuant to the
conditions of the "no-action" letter and under Rule 17a-23 of the Securities
Exchange Act of 1934, as amended (Rule17a-23), the operators of POSIT in the
U.S. were required to maintain certain records and to provide the SEC with
certain reports and data. On April 21, 1999, SEC Regulation ATS became
effective. Regulation ATS repealed Rule 17a-23 and established a new regulatory
framework for ATSs such as POSIT. Regulation ATS allows ATSs to choose to
register as exchanges or as broker/dealers and requires compliance and reporting
requirements that are similar to those in Rule 17a-23. Since the effectiveness
of SEC Regulation ATS, ITG has operated U.S. POSIT as part of its own
broker/dealer operations. Accordingly, POSIT is no longer subject to the
restrictions of the "no-action" letter and has not been registered with the SEC
as an exchange.
In March 2001, Bond Express registered as a broker/dealer with the National
Association of Securities Dealers, Inc. (NASD) and as an ATS with the SEC.
Our wholly owned subsidiary Barra International (AUS) Pty Ltd. is registered as
a dealer under Section 784 of the Companies Act in Australia, and as such, is
subject to regulations administered by the Australian Securities and Investment
Commission (ASIC).
Brazilian Central Bank Registration
Barra Brazil is required to register its exchange agreements with the Brazilian
Central Bank (BCB).
INTERNATIONAL OPERATIONS
In 2001, 2000 and 1999, we derived approximately 29%, 30% and 33% of our total
revenues, respectively, from customers outside the U.S. We also have significant
operations for our Core Business outside the U.S. They are conducted primarily
through our subsidiaries. During 1999 and 2000, we used an independent
contractor to conduct our Core Business in Canada. Please refer to the
Geographic Data table in Note 11 of the Notes to our Consolidated Financial
Statements for a breakdown of revenues by major geographic areas and business
segments.
In 2001, no single country, outside the U.S. and the U.K., had revenues
approaching 10% of our total revenues. In addition, our aggregate sales to
European Community countries were about 17% of our revenues.
Certain of our activities outside the U.S. are also subject to government
imposed constraints that affect our businesses. See Government Regulation above.
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EMPLOYEES
As of May 30, 2001, our Core Business and Ventures Businesses employed 688
persons through our parent company and its subsidiaries. Geographically, this
total breaks down approximately as follows:
- - North America -- 550;
- - Europe and Africa -- 79;
- - Asia and Australia -- 53; and
- - South America -- 6.
Except for certain of our employees in France and Australia, who were members of
state-sponsored labor unions in 2001, none of our employees was represented by a
labor union during the fiscal year. (As part of a restructuring at the end of
2000, we terminated all our employees in France in early 2001 and relocated the
operations of that office.) We have experienced no work stoppages and generally
believe that our employee relations are good. See Note 13 in the Notes to our
Consolidated Financial Statements.
RISK FACTORS
This Form 10-K and our 2001 Annual Report contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements give our current expectations or forecasts of
future actions, events or results. 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, targeted, 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. Our forward-looking statements include statements concerning our
future financial results, market activities, product development and business
model. From time to time we may also provide oral or written forward-looking
statements in other materials that become publicly available.
Any or all of the forward-looking statements that we make in this Form 10-K, our
2001 Annual Report 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 described in this Risk
Factors section and elsewhere in this Form 10-K and in our 2001 Annual Report
may cause our actual results to vary materially from our historical or expected
results. Other factors, besides those outlined herein or in our 2001 Annual
Report could also adversely affect us or our business. Consequently, no
forward-looking statement can be guaranteed.
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 future disclosures we make on related subjects in
our subsequent Form 10-Q, 8-K and 10-K filings with the SEC.
This section should be read in conjunction with the general description of our
business in this Part I and in our 2001 Annual Report and the audited
consolidated financial statements and related notes, the selected financial data
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere in this Form 10-K.
Fluctuations in Quarterly Operating Results
Our revenues and results of operations are difficult to predict and may
fluctuate substantially from quarter to quarter, as they have in the past.
Factors specifically relating to our business segments are outlined below:
- - Core Business -- Our Core Business revenues in any quarter depend
substantially upon our total contracting activity (including renewals of
existing contracts) and our ability to recognize revenue in that quarter in
accordance with our revenue recognition policies. We derive revenue from our
Core Business primarily through annual subscriptions that automatically
renew unless canceled. Annual subscription fees are recorded as revenues
over each subscription period at the rate of 1/12th per month. Consequently,
sales of subscriptions in any one month impact reported revenues evenly over
the next twelve months. For this reason, our Core Business subscription
revenues are not normally subject to significant variability during a year.
Clients have historically renewed their contracts at a high rate, but there
is no assurance that these renewals will continue.
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We also include enterprise risk management system implementation consulting
fees in our Core Business revenues. These fees reflect non-recurring,
project driven revenues that are implemented in phases as contractual
milestones are met. Accordingly, they can be susceptible to a large degree
of variability depending on our ability to source new projects and the
unpredictable nature and significance of fees associated with specific
transactions.
Our earnings can be affected in our second fiscal quarter because of annual
salary adjustments for our employees in July. Our compensation policy
historically has involved significant reliance on discretionary bonuses.
Because compensation expense is a significant percentage of our operating
expenses, the amount of, timing of and accrual for discretionary bonuses
could have a material effect on the net income of our Core Business.
- - Ventures Businesses - Diverse factors cause variability of operating results
in our various Ventures Businesses:
- POSIT -- The several POSIT systems can experience and have experienced
significant fluctuations in trading volume. Since approximately 9% of
our operating revenue and a significant portion of our income by segment
came from this venture in 2001, these fluctuations can have a
significant impact on our revenue and operating income.
- Symphony -- Depending on the performance of the funds under management
by Symphony, the portion of its revenues that are derived from
performance-based fees could vary substantially. Performance based fees
are recognized only at the performance measurement dates contained in
the individual account management agreements. These dates can be subject
to re-negotiation from time to time. The amount of recognized revenues
can, therefore, fluctuate significantly based not only on the
performance of the funds, but on the timing of their respective account
anniversaries. Since more than 10% of our operating revenue and a
significant portion of our income by segment came from Symphony in 2001,
these factors often result in significant variability in revenues and
operating income for us. Symphony's revenues will continue to depend on
its performance and the timing of its performance fee determination
dates for the funds it has under management. We expect that this
significant variability will continue in the future. (See Notes 4 and 14
to the Notes to our Consolidated Financial Statements.)
- Other Ventures -
- Bond Express - The Bond Express venture primarily produces
subscription revenues, which are subject to the same factors
described above for the Core Business. In addition, Bond Express has
transaction-based revenues that depend on trading volume and are
subject to the same factors described above for POSIT.
- Barra RogersCasey- Investment Consulting - Revenues for Investment
Consulting come primarily from retainer fee relationships. These
retainer revenues are recognized ratably over each month and are
subject to many of the factors described above for the Core Business.
Investment Consulting project revenues in any quarter depend
substantially upon total contracting activity and the ability to
recognize revenue in that quarter in accordance with our revenue
recognition policies. These revenues can be 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
specific transactions. Like the Core Business, Investment Consulting
earnings can be affected in our second fiscal quarter due to annual
salary adjustments for our employees in July and significant reliance
on discretionary bonuses.
Our operating expenses are based in part on our expectations regarding future
revenue. Our consolidated operating results may be adversely affected if revenue
does not develop in a quarter as anticipated. Since expenses are usually
incurred before revenues are generated, and because only a small amount of
expenses vary with revenue, our consolidated operating results may be impacted
significantly by lower revenues. Various factors could cause these lower
revenues and could affect quarter to quarter comparisons. Also, much of our
revenues are earned under fixed price software subscriptions. Changes in our
costs of those subscriptions could have a material adverse effect on our
business, financial condition and results of operations.
Accounting standards and practices may require us to defer recognition of
license revenue for a significant period after entering into a license
agreement. Generally, the subscription fees for our Core Business products are
initially deferred as unearned revenues when payment has been received, after
which revenue is recognized ratably over the term of the subscription.
Negotiated terms for some of our Core Business sales and consulting services,
particularly enterprise risk management solutions, sometimes do not permit
revenue recognition at the time of delivery or even as work on the project is
completed.
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Dependence on Availability of Data
We currently obtain data from over 100 third-party vendors that is used in our
products and services. Any interruption of our supply of data from a principal
data vendor or vendors, or an interruption of our own data operations or data
update processes, could have a material adverse effect on our business,
financial condition or results of operations. These adverse effects include, for
example, our products or services becoming inoperable or their performance being
materially reduced.
If any of the third-party data vendors change their product offerings, we may
need to incur additional costs to ensure continued performance of our products
and services. In addition, if the cost of licensing any of these third-party
data products materially increases, our gross margin levels could materially
decrease.
International Operations
In 2001, over 29% of our revenues came from customers outside the United States.
We anticipate that revenues from customers outside the U.S. will continue to be
a significant part of our total revenues for the foreseeable future. Sales and
operations outside the U.S. are subject to unique risks, including:
- - unexpected changes in regulatory requirements;
- - unexpected changes in exchange rates, tariffs and other trade barriers;
- - political or economic instability;
- - seasonal factors, particularly in Europe;
- - difficulties in staffing, managing and integrating foreign operations;
- - longer payment cycles;
- - difficulties or delays in translating products and related documentation
into foreign languages;
- - currency fluctuations and conversion risks; and
- - potentially adverse tax consequences.
Risks Associated with Business Combinations and Divestitures
As part of our overall strategy, we may continue to divest ourselves of certain
businesses and assets, to acquire or invest in complementary companies,
products, and technologies and to enter into joint ventures and strategic
alliances with other businesses. We may not be successful in overcoming these
risks or any other problems encountered in these transactions.
Some common risks associated with acquisitions and joint ventures include:
- - the difficulty of assimilating the operations and personnel of the combined
companies;
- - the risk that we may not be able to integrate the acquired technologies or
products with our own;
- - the substantial management time devoted to such activities;
- - undisclosed liabilities;
- - the inability of management to maximize our financial and strategic position
through the successful integration of acquired businesses;
- - the risk that the acquired business will not achieve anticipated earnings
and revenues;
- - the failure to realize anticipated benefits (such as cost savings and
synergies); and
- - customer dissatisfaction with, or problems caused by, the performance of any
acquired technologies.
Some common risks associated with divestitures include:
- - the inability to fulfill representations and warranties made to a buyer;
- - the risk that the divested business will not meet the revenues or earnings
requirements necessary to achieve subsequent earn-out goals;
- - the failure to remain within the scope of the non-competition undertakings
requested by a buyer; and
- - the transitioning of the divested business to a stand-alone operation that
is separate from the research, development and support services previously
offered by Barra.
Limited Protection of Intellectual Property and Proprietary Rights and Potential
Infringement of Third Party Intellectual Property Rights
We consider certain aspects of our products, related internal data update
processes and services to be proprietary. We currently hold no utility patents.
We rely primarily on a combination of trade secret, copyright, trademark and
other
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intellectual property laws, license agreements and technical measures to protect
our rights in our intellectual property. Despite our efforts, a third party may
still try to challenge, invalidate or circumvent the protective mechanisms that
we select. We cannot assure that any of the rights granted under any copyright
or trademark that we may obtain will protect our competitive advantages. Our
competitors may also independently develop and patent technology that is the
same or similar to ours or may obtain access to our proprietary technology. In
addition, the laws of certain foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States. Also, some
elements of our products and services are not subject to intellectual property
protection.
We believe that our products, processes and trademarks, including those obtained
in recent acquisitions, do not infringe the intellectual property rights of
third parties. There can be no assurance, however, that the intellectual
property which we have acquired will meet the warranties negotiated in these
transactions or that third parties will not otherwise assert infringement claims
in the future. These assertions could require us to enter into royalty
arrangements or could result in costly litigation.
- - Trademarks -- We have registered "Barra" as a trademark in the U.S. and in
certain foreign countries. We have also registered other product trademarks
and certain service marks in the U.S. and in certain foreign countries. When
we enter a new geographic market or introduce a new product brand, there can
be no assurance that our existing trademark or mark of choice will be
available.
- - Patents - We currently hold no utility patents. We are, however, considering
applying for patents on certain of our proprietary technologies. Patent
applications can be extremely costly to process and defend and we cannot
assure that any of the rights granted under any patent that we may obtain
will protect our competitive advantages. Under current law, we do not
believe it is feasible to determine in advance whether any of our existing
products or any of their components or a service or method infringes on the
patent rights of others. From time to time we will receive notices from
others containing claims or potential claims of intellectual property
infringement. We may also be called upon to defend a joint venture partner,
customer, vendor or licensee against such third party claims. Responding to
these types of claims, regardless of merit, could consume valuable time,
result in costly litigation or cause delays, all of which could have a
material adverse effect on our business, operating results or financial
condition. Responding to these claims could also require us to enter into
royalty or licensing agreements with third parties claiming infringement.
There can be no assurance that these licenses will be made on terms that are
commercially acceptable to us, if at all. (See Legal Proceedings in Item 3
of this Part I for a discussion of certain patent issues.)
- - License Agreements -- The software and data products of our Core Business
and Ventures Businesses are generally licensed to end users on a periodic
subscription basis in a nontransferable license signed by the client. We
also permit access to some products through the Internet under on-line
licenses that are acknowledged by the licensee. The enforceability of these
on-line licenses has not been conclusively determined by the courts. We are
frequently required to obtain licenses to the proprietary rights of data
vendors or others. There can be no assurance that these licenses will be
made available on terms acceptable to us, if at all.
- - Trade Secret and Copyright -- Existing trade secret and copyright laws only
offer us limited protection for our proprietary assets. We believe that the
rapid pace of technological change in the software and investment solution
industries and the recent explosion of business method patents in these
industries will only make trade secret and copyright protection less
significant over time. Consequently, our competitors may independently
develop and patent technologies that are substantially equivalent to or
superior to our technology. To protect the proprietary assets of our Core
Business, we are exploring patents for certain of our products and we rely
on the following unique aspects of our business:
- The development, maintenance, support and use of our products is
dependent upon the knowledge, experience and ability of our highly
skilled, educated and trained employees; and
- Most of the software in our products is dependent upon (and of little
utility without) continuing access to the historical and current data in
our proprietary databases.
- - Confidentiality Undertakings - Our license agreements restrict clients'
disclosure of proprietary information contained in our products. Our joint
venture and development agreements contain similar restrictions. It may be
possible, however, for unauthorized parties to copy aspects of our products
or to obtain and use information that we regard as proprietary. We also seek
to protect our knowledge bases through non-disclosure agreements with our
employees. However, the enforceability of these agreements varies due to the
many different jurisdictions in which our employees, joint venture or
development partners and clients are located.
Competition
Each of the markets in which our Core Business and Ventures Business operate has
become increasingly competitive in recent years. These markets may become more
competitive in the future as a result of the activities of existing competitors
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and the entrance of new competitors into our markets. In some of these markets,
our competitors have substantially greater name recognition, installed bases, or
financial, research, development and other resources. There can be no assurance
that:
- - we and/or our business partners will continue to have sufficient resources
to succeed in our efforts and be successful in maintaining our competitive
advantages;
- - our competitors will not devote significantly more resources to competing
activities;
- - our competitors will not develop products or services that are perceived as
being superior to ours, or
- - increased competition will not lead to loss of market share or increased
pricing pressure.
Web-Based Product Model
It is intended that future Barra products will make use of a web browser as the
user interface in place of traditional desktop access through networked personal
computers. Web browser access via the internet or an intranet involves numerous
risks inherent in using the internet, including security, availability and
reliability. In addition, there is a risk that customers will not be willing or
able to implement internet-based applications. Barra may wish to offer its
applications on future or existing user interfaces that achieve popularity
within the financial application marketplace. These future or existing user
interfaces may or may not be architecturally compatible with Barra's current
software product design. Barra may not be able to support new user interfaces
and achieve market acceptance of new user interfaces that it does support.
Volatility of Stock Price; Risk of Litigation
The trading price of Barra common stock has in past and may in the future be
subject to significant fluctuations in response to factors such as:
- - revenue or results of operations in any quarter failing to meet the
expectations (published or otherwise) of the investment community, and the
timing of the announcements of such shortfalls;
- - changes in recommendations or financial estimates by securities analysts;
- - acquisitions or sales of significant businesses;
- - new product announcements;
- - conditions and trends generally in the industries in which we operate;
- - adoption of new accounting standards affecting the software or financial
services industries; and
- - general market conditions.
Further, the stock market has experienced in recent months and may continue in
the future to experience extreme price and volume fluctuations that particularly
affect the market prices of equity securities of high technology and financial
services companies. These fluctuations often are not related, or are
disproportionate, to the operating performance of those companies. These broad
market fluctuations, as well as general economic, political and market
conditions have and may continue to have a material adverse effect on the
trading price of Barra common stock. Fluctuations in the price of our common
stock may expose us to the risk of securities class action lawsuits or claims.
Any such suit or claim, even if the outcome were to be ultimately favorable to
us, would involve a significant commitment of our management, personnel,
financial and other resources. In addition, these sorts of claims and lawsuits
could have a material adverse effect on our business, financial condition, or
results of operations.
Product Development and Technological Change
The markets in which we compete are characterized by rapidly changing
technologies, extensive research, and new product introductions. Our future
growth and financial performance will depend on our ability to continue to
quickly develop and introduce new products and enhance our existing products in
response to advances in finance theory and computer technology, changing market
conditions and increasingly sophisticated customer requirements. We may not be
able to enhance existing products or develop and introduce new products that
receive market acceptance in a timely manner. Our failure to anticipate or
respond adequately to changing market conditions could have a material adverse
effect on our business, financial condition, or results of operations. Because
we offer products across many geographic areas and many areas of specialization,
we often must restrict our product development efforts to a limited number of
products and operating platforms. There can be no assurance, however, that
efforts we select will be successful or will achieve market acceptance. In
addition, the cost of research and development efforts required to keep pace
with technological changes may, at times, have a significant effect on our
business, operating results or financial condition.
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Dependence on Key Personnel
Our future success will depend in large part on our ability to attract, train
and retain highly skilled managerial, research, development, sales, marketing,
support, technical and services personnel. Competition for people in the
software and financial services industries is intense. At times, we have
experienced difficulty in locating candidates with appropriate qualifications
and expertise. None of our executive officers has entered into a long-term
employment agreement with Barra.
Management of Growth and Changes in Staffing
We have experienced an extended period of
- - revenue growth;
- - growth into new foreign markets;
- - expansion of our Core Business and our Ventures Businesses and related
services; and
- - substantial fluctuations in the number of our employees.
These changes have resulted in new and increased responsibilities for our
management and have placed a significant strain on our operating and financial
controls and other resources. To accommodate recent growth, compete effectively,
and manage potential future growth, we must continue to implement and improve
the speed and quality of our products and services, management decisions,
reporting systems, procedures, and controls. Our personnel, procedures, systems,
and controls may not be adequate to support our future operations.
Potential Liability Based on Use of Products and Services
Our license and consulting agreements have provisions designed to limit our
exposure to potential liability claims brought by our clients or other third
parties. However, these provisions could be invalidated by unfavorable judicial
decisions or by federal, state, foreign or local laws. Use of our Core Business
and Ventures Businesses products and services for investment decision-making
creates the risk that clients, or the parties whose funds are managed by our
clients, may pursue a claim against us. Any such claim, even if the outcome were
to be ultimately favorable to us, would involve a significant commitment of our
management, personnel, financial and other resources.
Government Regulation
The financial services industry is subject to extensive regulation at the
federal and state levels, as well as by foreign governments. It is very
difficult to predict the future impact of the broad and expanding legislative
and regulatory requirements affecting our businesses. If we fail to comply with
any applicable laws, rules or regulations, we could be subject to fines,
penalties, suspensions or revocations of licenses or permits. We believe that
our existing products and services comply with all applicable laws, rules and
regulations. However, there can be no assurance that these laws, rules or
regulations will not change in the future, or that such changes will not
materially adversely affect our business, financial condition or results of
operations.
- - Advisers Act - We believe and have adopted the position that our Core
Business products and Global Estimates products do not provide investment
advice for purposes of the Advisers Act. Future developments in our product
line or in the regulatory environment could cause this status to change. If
that happens, we may have to broaden our disclosures to the SEC and to adopt
the strict compliance procedures mandated by the Advisers Act for a much
broader segment of our business. These changes could also trigger
obligations to comply with investment advisory regulations in foreign
jurisdictions where we market our products. These heightened obligations
would entail significant additional costs to us.
- - Data Privacy Legislation - Changes in legislative, regulatory or consumer
environments relating to consumer privacy or information collection and use
may affect our ability to collect and use data. There could be a material
adverse impact on our direct marketing, data sales and business due to the
enactment of legislation or industry regulations, or simply a change in
customs, arising from public concern over consumer privacy issues.
Restrictions could be placed upon the collection, management, aggregation
and use of information that is currently legally available, in which case
our cost of collecting some kinds of data might be materially increased. It
is also possible that we could be prohibited from collecting or
disseminating certain types of data, which could in turn materially affect
our ability to meet our clients' requirements.
- - ATS -- Certain of the securities exchanges have actively sought to have more
stringent regulatory requirements imposed on ATSs. There can be no assurance
that the SEC or Congress will not in the future seek to impose more
stringent regulatory requirements on the operation of ATSs such as POSIT and
Bond Express. If POSIT or Bond Express were to become subject to regulation
as a stock exchange, it is possible that they could not operate effectively.
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- - Soft Dollars - For several years the investment community has debated the
purchase of goods and services with soft dollars, and the practice is
regulated in the U.S. by the SEC and the DOL. Legal or regulatory changes
may restrict or prohibit us from providing services to money managers in
exchange for soft dollars. Such changes could have a material adverse effect
on our business, financial condition, or results of operations.
Catastrophic Events
Our operations depend on our ability to protect our equipment and the
information stored in our databases against fires, earthquakes and other natural
disasters, as well as planned and unplanned power losses, telecommunications
failures, unauthorized intrusions and other catastrophic events. There is no
assurance that the measures we've taken to reduce the risk of interruption in
our operations caused by these events is sufficient. Barra has significant
operations in the state of California and is dependent on a continuous power
supply. California has recently implemented, and may in the future continue to
implement, rolling blackouts throughout the state. Although state lawmakers are
working to minimize the impact, if blackouts interrupt Barra's power supply,
Barra may be temporarily unable to continue operations at its California
facilities. Any such interruption in Barra's ability to continue operations at
its California facilities could delay the development of Barra's products and
disrupt communications with its customers or other third parties on whom Barra
relies, such as data providers. Future interruptions could damage Barra's
reputation and could result in lost revenue. Furthermore, shortages in wholesale
electricity supplies have caused power prices to increase. If energy prices
continue to increase, Barra's operating expenses will likely increase.
Changes in General Economic Conditions
The U.S. and certain other economies may be experiencing slower growth after an
extended period of growth in recent years. As a result, assets under management
may decrease, thereby decreasing the revenues to asset managers. Such reduced
asset management revenues could place pressure on our clients to cut their cost
of services, which in turn could adversely impact our sales and renewal rates.
Possible Adverse Effects of Option Exercises
If holders of options to purchase our common stock exercise any significant
number of these options and resell the underlying shares, the market price of
Barra common stock could decline. At March 31, 2001, there were outstanding
exercisable options to purchase approximately 1.5 million shares of Barra common
stock issued under various Barra stock option plans. As of that date, options to
purchase about 4.0 million shares of Barra Common Stock had exercise prices
below our closing common stock price on March 31, 2001 ($54.00).
Effect of Certain Charter and Bylaw Provisions and Anti-Takeover Provisions;
Possible Issuance of Preferred Stock
Our Certificate of Incorporation, Bylaws, and certain Delaware laws contain
provisions that may discourage a third party from acquiring Barra. This may
deprive stockholders of certain opportunities to receive a premium for their
shares as part of an acquisition of Barra. Among other things, our board of
directors has the ability to adopt a stockholders rights plan, commonly referred
to as a "poison pill," without the approval of the stockholders. Such a poison
pill would significantly dilute a stockholder's equity stake in the company if
it attempted to acquire the company without the approval of the board of
directors. In addition, certain provisions of Delaware corporate law limit
business combinations with 15% or greater stockholders that have not been
approved by the board of directors. These and other provisions could make it
more difficult for a third party to buy, or could discourage a third party from
buying, a majority of our outstanding stock.
Impact of Legal and Regulatory Proceedings
Throughout this Form 10-K we have made various disclosures regarding the
possibility of certain legal and regulatory proceedings. Many factors may effect
the outcome of such proceedings. Accordingly, until such proceedings are finally
resolved, it is difficult to determine the likelihood of a favorable outcome,
the direct and indirect costs associated with the proceeding, or, in the event
of an unfavorable outcome, the amount of any loss. Any proceeding, even if the
outcome were to be ultimately favorable to us, would likely involve a
significant commitment of our management, personnel, financial and other
resources. This alone could have a material adverse effect on our business,
financial condition, or results of operations.
ITEM 2. PROPERTIES
Our world headquarters are located in two buildings in Berkeley, California.
These buildings house our principal administrative, marketing and product
development facilities. The largest building is occupied under a lease that
expires in
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June 2007, subject to eight consecutive five-year renewal options. The smaller
building is occupied under a lease that expires in June 2003, subject to one
five year renewal option. All together our headquarters occupy over 64,000
square feet of leased space in downtown Berkeley, California.
Directly and through our subsidiaries, we leased office space in 17 cities
around the world during 2001. At the end of 2000, we announced a restructuring
plan aimed at consolidating our Core Business's sales and client support
functions worldwide. As part of that restructuring, we shut down certain offices
around the world in 2001, including our offices in Mexico City, Mexico, Paris,
France and Westborough, Massachusetts.
(See Note 13 of the Notes to our Consolidated Financial Statements.)
Core Business -- During 2001, this business unit had employees and operations in
the following locations:
- - Berkeley, California, U.S.A:
- - Cape Town, South Africa;
- - Edison, New Jersey, U.S.A;
- - Frankfurt, Germany;
- - Hong Kong, SAR;
- - London, England;
- - New York, New York, U.S.A;
- - Rio de Janeiro, Brazil;
- - Singapore;
- - Sydney, Australia;
- - Tokyo, Japan.
Ventures Businesses -
- - POSIT -- Our employees for this venture are located in Barra's New York, New
York office and in the offices of ITG. The licensees of the various POSIT
systems maintain local offices to support each of those systems.
- - Symphony -- This venture has employees and operations in San Francisco,
California.
- - Bond Express -- Our employees for this venture are located in New York, New
York and San Diego, California.
- - Barra RogersCasey -- Barra RogersCasey has employees in Darien, Connecticut.
- - Strategic Consulting - Strategic Consulting has employees in Darien,
Connecticut.
ITEM 3. LEGAL PROCEEDINGS
- - POSIT PATENT ISSUE - In June 1999, we received notice from ITG of patents
purportedly owned by Belzberg Financial Markets & News International Inc.
and Sydney Belzberg, an officer of that company (the Belzberg Patents). At
that time, ITG informed us that one or more of the Belzberg Patents may
relate to the devices, means or methods used by the POSIT electronic system,
the POSIT joint venture, ITG and/or their customers, licensees or joint
venture partners in the operation of the POSIT business. ITG has also
informed us that on March 5, 1999, a Canadian licensee of ITG technology
received a letter asserting that the ITG licensee was infringing one of the
Belzberg Patents. We understand that the ITG licensee has denied the claims
of infringement and has asserted that the Belzberg Patent at issue is
invalid or unenforceable. Under certain conditions, ITG may have a duty to
defend or indemnify the licensee for any costs or damages arising out of an
infringing use of the technology licensed by ITG. In turn, under certain
conditions, the POSIT joint venture and we, as one of its general partners,
may have a duty to defend or indemnify ITG. We are monitoring the matter
with ITG and intend to take all appropriate action. We are unaware of any
actual claims of patent infringement leveled against the POSIT system, the
POSIT joint venture or any of POSIT's customers or joint venture partners by
any of the title owners of the Belzberg Patents. Based upon our review of
the matter as disclosed to us by ITG, we believe that any such claims
arising out of the Belzberg Patents would be without merit and we would
vigorously defend any such claim, including, if warranted, participating in
legal proceedings. Intellectual property disputes are, however, subject to
inherent uncertainties. There can be no assurance that any potential claim
could be resolved favorably to us or that the claims or their resolution
would not have a material adverse effect on our business, operating results
or financial condition.
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- - COLUMBIA PATENT ISSUE - On May 31, 2000, we received a letter from Columbia
Innovations Enterprises (CIE) a division of Columbia University in the City
of New York (Columbia). The letter noted CIE's understanding that Barra's
"Cosmos-US Valuation products utilize quasi-random numbers," suggested that
we review two patents held by Columbia (U.S. Patent Nos. 5,940,810 and
6,058,377 (Columbia Patents)), and noted that Columbia would be prepared to
license the Columbia Patents to Barra at reasonable terms and conditions. We
are presently reviewing the Columbia Patents with counsel. Our preliminary
review indicates that our products do not infringe either Columbia Patent
and that a license from Columbia would be unnecessary. Based upon that
preliminary review, we also believe that any claims arising out of the
Columbia Patents would be without merit and we intend to vigorously defend
any such claim, including, if warranted, participating in the initiation of
legal proceedings. Intellectual property disputes are, however, subject to
inherent uncertainties and often can be very costly to defend. There can be
no assurance that any potential claim could be resolved favorably to us or
that the claims or their resolution would not have a material adverse effect
on our business, operating results or financial condition.
In addition, we are often subject to various legal proceedings and claims,
either asserted or unasserted, arising in the ordinary course of business. While
the outcome of these proceedings and claims cannot be predicted with certainty,
we do not believe that the results of any of these matters will materially and
adversely affect our business, financial condition or results of operations.
(See also Note 12 of the Notes to our Consolidated Financial Statements.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
As of June 12, 2001, the following executive officers hold the offices indicated
until their successors are chosen and qualified at the next annual meeting of
our stockholders:
NAME AGE POSITION
Andrew Rudd 51 Chairman
Kamal Duggirala 42 President and Chief Executive Officer
Greg Stockett 35 Chief Financial Officer
Maria Louisa Hekker 39 General Counsel, Chief Legal Officer and Secretary
Andrew Huddart 40 Executive Vice President
Claes Lekander 39 Executive Vice President
Aamir Sheikh 41 Executive Vice President
Bruce Ledesma 33 Vice President -- Barra Ventures
Executive officers of the Company are elected annually by the Board of Directors
and serve at the Board's discretion. There are no family relationships among any
directors or executive officers of the Company.
KAMAL DUGGIRALA - Mr. Duggirala has served as our Chief Executive Officer since
1999 and President since 1994. He was elected to the Board of Directors of Barra
in August 2000. Mr. Duggirala has been associated with Barra and its
predecessors since 1984. He served in various roles of increasing responsibility
in Barra's Electronic Brokerage and Trader products and Advanced Technology
divisions from 1984 to October 1994. Mr. Duggirala also serves on business
boards for affiliates of Barra.
MARIA LOUISA HEKKER -- Ms. Hekker has been our General Counsel since 1992. Prior
to joining Barra, she worked in the San Francisco and Milan offices of the law
firm of Graham & James from 1988 to 1992.
ANDREW HUDDART -- Mr. Huddart joined Barra in 1997 and has announced that he
will resign from the Company effective July 31, 2001. He served as Executive
Vice President and ran the Distribution division of our Core Business from 2000
until June 15, 2001. He also served as our Chief Operating Officer from 1999 to
2000 and as President of our Investment Data
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Products division and a Senior Vice President of the Company from 1997 to 1999.
Before joining Barra, Mr. Huddart worked with Reuters in the U.S. and Europe
from 1983 to 1997.
BRUCE LEDESMA -- Mr. Ledesma was appointed the head of Barra Ventures in May
2001. He joined Barra as Assistant General Counsel in 1998, serving in that
capacity until April 1999, when he became Vice President- Barra Ventures. Prior
to joining Barra, Mr. Ledesma worked at the law firm of Latham & Watkins from
1993 to 1998.
CLAES LEKANDER -- Mr. Lekander joined Barra in 1985 as a Consultant. He served
in various roles of increasing responsibility in our Equity Services and Product
Management divisions from 1985 to 2000. Mr. Lekander became an Executive Vice
President in 2000 and currently manages our Core Business's Applications
division.
ANDREW RUDD -- Dr. Rudd joined our predecessor in 1975. He served as our
President from 1984 to 1992, our Chief Executive Officer from 1984 to 1999, as a
member of our Board of Directors since 1986 and as Chairman since 1992. Between
1977 and 1982, Dr. Rudd was a professor of finance and operations research at
Cornell University in Ithaca, New York.
AAMIR SHEIKH -- Dr. Sheikh joined Barra in 1994 as a Senior Consultant. He
served in various positions (each with increasing responsibility) in our
Research Department and with our Enterprise Risk Management business from 1994
to 2000. In 2000, Dr. Sheikh became an Executive Vice President and assumed
management responsibility for our Core Business's Content division. From 1987 to
1994, Dr. Sheikh was an assistant professor of finance at Indiana University
School of Business in Bloomington, Indiana.
GREG STOCKETT -- Mr. Stockett joined Barra in 1996 as Finance Manager. He became
Director of Finance in 1998 and Vice President of Finance in 2000. He was
appointed Chief Financial Officer in 2001. Prior to joining Barra, Mr. Stockett
was with Deloitte & Touche LLP from 1989 to 1996.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on Nasdaq under the trading symbol "BARZ." This table
displays the range of high and low trade prices for our common stock as reported
on Nasdaq.
2000 HIGH LOW 2001 HIGH LOW 2002 HIGH LOW
1st Quarter 17.583 11.917 1st Quarter 40.000 18.667 1st Quarter 58.99 40.50
2nd Quarter 16.917 13.000 2nd Quarter 43.333 32.208 (through May 30, 2001)
3rd Quarter 22.000 12.750 3rd Quarter 50.125 29.917
4th Quarter 26.000 17.833 4th Quarter 61.500 40.375
At May 30, 2001 there were approximately 7,400 holders of our common stock. To
date, we have paid no cash dividends on our common stock. The payment of
dividends, if any, in the future is within the discretion of the Board of
Directors and will depend upon our capital requirements and financial condition
and other relevant factors. Our Board of Directors does not intend to declare
any dividends in the foreseeable future. On May 30, 2001 the closing price for
our common stock as reported by Nasdaq was $43.11.
ITEM 6. SELECTED FINANCIAL DATA
The information on the inside cover of the 2001 Annual Report under the heading
"Financial Highlights" regarding our selected financial data required by this
Item 6 is incorporated by reference. (See also Item 7 below in Part II of this
Report.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis contains descriptions of our current
expectations and forecasts regarding future trends affecting our business. These
forward-looking statements and other forward-looking statements made elsewhere
in this Form 10-K and in our 2001 Annual Report to Shareholders are made in
reliance on safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. For further information regarding these forward looking statements
and the factors that could cause actual results to differ, please look at the
Risk Factors section in Part I of this Form 10-K. Any or all of the
forward-looking statements that we make in this Form 10-K, our 2001 Annual
Report to Shareholders or any other public statements we issue may turn out to
be wrong. It is also important to remember that other factors besides those
listed in the Risk Factors section could also adversely affect us and our
business, operating results or financial condition.
This section should be read in conjunction with the Risk Factors section of Part
I of this Form 10-K, our audited consolidated financial statements and related
notes in this Part II and the selected financial data contained in our 2001
Annual Report.
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RESULTS OF OPERATIONS
The following table shows the percentage of total operating revenues represented
by items in our consolidated statements of income for the years ended March 31:
2001 2000 1999
----------------------------------
Operating Revenues:
Portfolio and Enterprise Risk Management 49.6% 49.6% 56.5%
Symphony 27.6 25.1 16.3
POSIT 9.4 10.2 10.3
Other Ventures 13.4 15.1 16.9
- --------------------------------------------------------------------------------------------------------
Total operating revenues 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------------------------------
Operating Expenses:
Communications, data and seminar 3.5% 4.3% 6.0%
Compensation and benefits 42.6 47.1 49.4
Occupancy 3.3 3.9 4.8
Other operating expenses 12.7 13.7 17.6
- --------------------------------------------------------------------------------------------------------
Total operating expenses before acquisition and other charges 62.1 69.0 77.8
Loss of Sale of Estimates business 0.5 -- --
Restructuring charges -- 4.8 --
Non-recurring acquisition charges and write-off of goodwill
And capitalized software costs -- -- 2.5
- --------------------------------------------------------------------------------------------------------
Total operating expenses 62.6% 73.8% 80.3%
- --------------------------------------------------------------------------------------------------------
Interest Income and Other 2.1% 2.1% 0.9%
- --------------------------------------------------------------------------------------------------------
Income Before Equity in Net Income and Loss of
Investees, Minority Interest, and Income Taxes 39.5% 28.3% 20.6%
Equity in Net Income and Loss of Investees -- -- (0.4)
Minority Interest (8.4) (8.5) (5.1)
- --------------------------------------------------------------------------------------------------------
Income Before Income Taxes 31.1% 19.8% 15.1%
Income Taxes (10.9) (7.2) (6.9)
- --------------------------------------------------------------------------------------------------------
Net Income 20.2% 12.6% 8.2%
========================================================================================================
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 11 to the
Consolidated Financial Statements for further information about our segments.)
OPERATING REVENUES
Portfolio and Enterprise Risk Management. Portfolio and Enterprise Risk
Management fees 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 these revenues is as follows (amounts in
thousands):
2001 2000 1999
-------------------------------------------------------------------
% CHANGE FROM % CHANGE FROM
$ PRIOR YEAR $ PRIOR YEAR $
-------- ------------- -------- ------------- --------
Core product subscriptions --
continuing products 102,556 23 83,213 13 73,604
Core product subscriptions --
discontinued fixed income
products -- (100) 595 (92) 7,885
Other Core product related 8,704 2 8,554 10 7,811
-------------------------------------------------------------------
Total 111,260 20 92,362 3 89,300
===================================================================
Core product subscriptions are revenues for our portfolio risk management and
enterprise risk management products, including related data updates. We
generally bill and collect these 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
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combination of obtaining new clients and increasing revenues from existing
customers through the introduction of new products, features, users and other
services.
For 2001 compared to 2000, annual subscription fee revenue for continuing
products increased approximately 23%. For 2000 compared to 1999, annual
subscription fee revenue for continuing products increased approximately 13%.
Revenue growth was primarily driven by sales of our new enterprise risk
management software, which had a 189% increase in revenues in 2001, and sales of
our equity models and related data reflecting the continued success of our Aegis
suite of products.
Revenues from discontinued fixed income products represent annual subscription
fees and related revenues associated with our U.S. single country fixed income
model which we discontinued as part of a restructuring plan in April 1999.
Revenues for 2000 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 one-time fees. The increase in these revenues
from 2000 to 2001 reflects increases in implementation and consulting fees from
enterprise risk management system installations and other recurring and one-time
fees, offset by declines in timeshare and other one-time fees. The increase in
implementation and consulting fees reflects growth in the installed base for our
enterprise risk software. The decline in timeshare revenues is the result of
discontinuing our timesharing product platform at the end of calendar 1999. Our
timesharing revenues have decreased over the past few years as we have converted
our timesharing platform products to operate on our clients' in-house computers.
The increase in these revenues from 1999 to 2000 was primarily due to
implementation and consulting fees on enterprise risk management systems, which
coincided with the launch of that product line in June 1999.
Symphony. Our asset management revenues increased $14.9 million or 32% in 2001
over 2000 and increased $21.1 million or 82% in 2000 compared to 1999.
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 $35.7 million, $28.2 million and $10.6 million for 2001,
2000 and 1999, respectively. 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 fee increases in 2001 and 2000 were principally the result of
investment performance exceeding benchmarks as well as the fact that assets
under management that were subject to performance fees grew significantly in
both of those years.
As of the beginning of fiscal 2002, Symphony had approximately $4.4 billion of
assets under direct management (a decrease of 12% over the beginning of fiscal
2001). $3.4 billion of these assets are managed under agreements that provide
for performance fees in addition to a base management fee. These amounts include
approximately $850 million of leverage associated with performance fee accounts
in addition to the capital invested by Symphony clients. Average assets under
management for 2001 were $4.8 billion compared to $3.7 million for 2000.
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. It is estimated that approximately 9% and 40% of the
current total of performance-based funds under Symphony's management will have
performance determination dates in the quarters ended June 2001 and September
2001, respectively. The pattern of these anniversaries can change from quarter
to quarter because of the addition, termination and re-negotiation of account
agreements.
On June 15, 2001, Barra and Maestro signed an agreement to sell Symphony LLC to
Nuveen. (See Note 14 of the Notes to our Consolidated Financial Statements.)
POSIT. Our electronic trading revenues increased $2.0 million or 11% in 2001
compared to 2000 and increased $2.8 million or 17% in 2000 over 1999. Our
revenues from POSIT come from royalties based on commissions generated by the
trading volume in the various POSIT systems. Shares traded in the U.S. POSIT
system were 7.8 billion, 6.5 billion and 5.8 billion, for calendar years ended
December 31, 2000, 1999 and 1998, respectively. Our POSIT revenue increases
reflect higher trading volumes on U.S. POSIT offset in part by a decline in
royalties from Euro POSIT in 2001 (see Note 7 in the Consolidated Financial
Statements).
Other Ventures. Revenues from other ventures include our Global Estimates, Bond
Express, Barra RogersCasey and Strategic Consulting businesses. We sold our
Global Estimates business in December 2000. (See Note 3 to the Consolidated
Financial Statements for further information about this sale.) 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
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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 non-recurring,
project-type engagements that are completed in phases. As a group, revenues from
these ventures increased $2.0 million or 7.2% in 2001 compared to 2000 and
increased $1.5 million or 5.6% in 2000 over 1999.
Revenues from non-U.S. Customers. The percentage of our total operating revenues
that come from our non-U.S. customers represented 29%, 30% and 33% in 2001, 2000
and 1999, respectively. The percentage of revenues derived from our non- U.S.
customers declined both from 2000 to 2001 and 1999 to 2000 as a result of
significant increases in asset management revenues, which are all U.S. based.
The percentage of our Portfolio and Enterprise Risk Management and Other
Ventures revenues that come from non-U.S. customers has remained unchanged at
approximately 46% for the last three fiscal years.
OPERATING EXPENSES
Communications, data and seminar. Communications, data and seminar consists of
our computer access charges, software and data costs, computer leasing and
seminar expenses. This component of operating expenses remained almost unchanged
from 2000 to 2001 and decreased $1.5 million or 16% in 2000 over 1999. The
decrease in 2000 was the result of lower computer leasing and access charges due
to the termination of our VAX-based platform for fixed income and equity models
in 2000. Also contributing to the decrease were lower software and seminar
expenses. Software expenses declined due to lower amortization on previously
capitalized amounts as a result of writing-off capitalized software costs in
1999 associated with discontinued fixed income products. Seminar expenses
decreased as a result of fewer events in 2000.
Compensation and Benefits. Our compensation and benefits increased $7.6 million
or 9% in 2001 over 2000 and increased $9.7 million or 12% in 2000 over 1999.
Increases in our compensation and benefits costs for 2001 compared to 2000 were
primarily the result of increases in incentive compensation at Symphony.
Symphony's incentive compensation costs are computed as a percentage of their
operating profits and therefore are adjusted based on profitability. The
increase from 1999 to 2000 was primarily due to higher incentive compensation to
Symphony, along with higher Year 2000 (Y2K) project-related costs and increases
in employee-related benefit costs. This increase was offset partially by a
reduction in our average full-time employee headcount of approximately 5%. Y2K
related costs for outside consultants and special Y2K bonuses amounted to $3.7
million in 2000 and $2.0 million in 1999. This increase was due to greater use
of outside consultants combined with special additional incentive compensation
for employees involved with the Y2K Project.
Our annual salary administration and performance evaluation process results in
annual reviews and salary adjustments that are effective as of July 1 of each
year.
Occupancy. Our occupancy costs increased $.3 million or 4% in 2001 over 2000 and
decreased $.3 million or 4% in 2000 over 1999. The increase in costs in 2001
over 2000 resulted primarily from new office space being leased in Tokyo along
with scheduled rent increases in existing office space. The decrease in
occupancy costs for 2000 reflects additional sublease income from leasing some
of our excess facilities as well as charging a portion of some facility costs
related to supporting discontinued fixed income products to the restructuring
charge during 2000.
Other Operating Expenses. Our other operating expenses increased $2.9 million or
11% in 2001 compared to 2000 and decreased $2.3 million or 8% in 2000 compared
to 1999. Our other operating expenses include: travel; office; maintenance;
depreciation; amortization; marketing; advertising; outside legal and accounting
services; business insurance; data, foreign currency translation gain/loss and
other expenses related to the asset management operations; and other corporate
expenses.
Increases in other operating expenses in 2001 compared to 2000 consisted
primarily of increases in marketing and related expenses associated with our
branding campaign and higher foreign currency translation losses, primarily due
to the weakening of the euro and the pound against the dollar. Decreases in
other operating expenses from 1999 to 2000 consisted primarily of lower costs
for printing and postage, data costs related to asset management activities,
professional services, and amortization of intangibles. The decreases in
printing and postage reflect lower costs for product distribution due to greater
use of electronic delivery systems. Data costs associated with asset management
activities declined due to lower negotiated rates in 2000. The decrease in
amortization of intangibles reflects our April 1999 restructuring and the
write-off of goodwill associated with discontinued fixed income products.
Decreases in professional services reflect the absence of any significant
expenses relating to legal or other corporate activities in 2000. Growth rates
in various other operating expenses were also lower as a result of the
restructuring plans implemented during 2000.
Loss on sale of Global Estimates Business. Refer to Note 3 in the Consolidated
Financial Statements for information on this loss.
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Non-recurring acquisition charges, write-off of goodwill and capitalized
software costs and restructuring costs. 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. The restructuring plan discontinued
certain U.S. fixed income products and eliminated various sales, client and
product support positions and related facilities within the U.S. Revenues from
discontinued products ceased on April 30, 1999. Customers who had prepaid
subscriptions for periods after April 30, 1999 received refunds by August 31,
1999. Although the decision to discontinue these products was made in April
1999, certain support activities continued through December 31, 1999.
We recorded two significant charges in connection with the April 1999
restructuring plan. The first charge of $3,990,000 was recorded in the quarter
ending March 31, 1999. It consisted of a write-off of goodwill and capitalized
software development costs related to discontinued products and is included in
non-recurring acquisition charges and write-off of goodwill in the accompanying
consolidated statements of income. The second charge, recorded in the quarter
ended June 30, 1999, was for restructuring costs of $5,563,000 and related to
severance and termination benefits for approximately 50 employees, discontinued
product support costs between May 1, 1999 and December 31, 1999, and excess
facilities costs.
In March 2000, our management announced and implemented a restructuring plan
aimed at consolidating a global structure for our Core Business's sales and
client support organization. This restructuring plan consisted principally of
closing four offices, canceling one of our most significant outside computing
services contracts, and terminating approximately 20 employees. All termination
notices and benefits were communicated to the affected employees prior to March
31, 2000. We recorded a charge of $3,463,000 in connection with this
restructuring plan.
OTHER INCOME AND EXPENSES
Interest Income and Other. Our interest income and other increased $.4 million
or 10% in 2001 compared to 2000 and increased $2.5 million or 173% in 2000
compared to 1999. The increase in 2001 reflects higher interest earnings due to
substantially higher average invested cash balances in the current year. The
increase in 2000 was primarily the result of a $1.7 million gain on the sale of
Lycos, Inc. stock. We received the Lycos stock in exchange for our shares of
Quote.com Inc., which was acquired by Lycos in December 1999. Also contributing
to the increase in 2000 were higher gains on marketable equity securities held
for trading.
Equity in Net Income and Loss of Investees. Net losses from our joint ventures
and other strategic relationships represent primarily our share of losses from
our equity investments in Alacra (formerly Data Downlink Corporation), Risk
Reporting Limited, Global POSIT and Australian POSIT. The decrease in losses in
the current year reflects a lower loss for Risk Reporting Limited combined with
increased income from Australian POSIT. The decrease in losses for 2000 reflects
the liquidation of our investment in Global POSIT during 1999 and the dilution
of our investment in Alacra in 2000 below 20% ownership. We no longer exercise
significant influence in those operations and accordingly no longer include
their losses in our results.
Minority Interest. Minority interest represents the undistributed profits
interest of Maestro. Increases or decreases in minority interest reflect
corresponding changes in the level of profits from the Symphony venture.
Foreign Currency - As an international corporation, our business generates
revenues from clients throughout the world. We maintain sales and representative
offices worldwide and hold certain deposits and accounts in foreign currencies.
Our revenues are generated in both United States and non-U.S. currencies.
Subscriptions in the United Kingdom and the European Community are priced in
pounds sterling (pounds) and euros, respectively. Additionally, our consolidated
subsidiary, Barra Japan, generates revenues, has expenses and has assets and
liabilities denominated in Japanese yen. 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. In September 2000, we implemented a hedging
program to help reduce our exposure to fluctuations in certain foreign currency
translation rates from holding net assets denominated in foreign currencies. The
program utilizes forward contracts for the sale of foreign currencies to hedge
our net asset exposure, consisting principally of cash and receivables
denominated in pounds, euros and yen. At March 31, 2001, we had one contract to
sell 500 million yen at 121.90, maturing on May 2, 2001, with an unrealized gain
of $140,000. Also at March 31, 2001, we had one contract to sell 5 million euro
at 0.885, maturing on May 2, 2001, with an unrealized gain of $35,000.
Additionally, at March 31, 2001, we had one contract to sell 5 million pounds at
1.4353, maturing on May 2, 2001, with an unrealized gain of $97,000. We enter
into forward currency contracts only with approved counterparties and all
hedging activities are reviewed by our Foreign Exchange Committee. Our hedging
program is currently designed only to reduce our exposure to gains and losses
that result from translating our foreign assets and liabilities into U.S
dollars. It does not currently limit or reduce the exposure we have from
fluctuations in currency exchange rates on our reported revenues that are billed
in non-U.S. currencies.
For 2001 compared to 2000, the U.S. dollar strengthened against the pound, euro
and the yen. The resulting net effect of these movements in average exchange
rates on operating revenues and net income was an decrease of approximately
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$1,232,000 and $1,670,000, respectively. For 2000 compared to 1999, the U.S.
dollar strengthened against the yen and euro and weakened against the pound. The
resulting net effect of these movements in average exchange rates on operating
revenues and net income was a decrease of approximately $1,500,000 and $400,000,
respectively.
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 Barra Brazil's exchange agreements with the Central Bank.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" (Statement
133). Statement 133 establishes methods of accounting for derivative financial
statements and hedging activities related to those instruments as well as other
hedging activities. In June 1999, the FASB issued Statement No. 137, "Accounting
for Derivative Statement No. 133," which amended Statement No. 133 by deferring
the effective date to the fiscal year beginning after June 30, 2000. The Company
will adopt SFAS 133 effective April 1, 2001. Management does not expect the
adoption of SFAS 133 to have a significant impact on the financial position,
results of operations, or cash flows of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents, marketable equity securities held for trading,
and marketable debt securities available-for-sale totaled $154 million at March
31, 2001, representing an increase of $73 million from March 31, 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 presently
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 our cash
requirements for capital expenditures and other cash needs for ongoing business
operations.
PRINCIPAL FINANCIAL COMMITMENTS
As of June 12, 2001, our principal financial commitments consisted of
obligations under operating leases and contracts for office facilities. Our
Board of Directors has also authorized the repurchase of up to 750,000 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 $4.0 million of that amount has yet to be disbursed. (See Note 6
in the Consolidated Financial Statements.)
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ITEM 7A. 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.
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 $70 million at
March 31, 2001 with an average interest rate of approximately 5.3%. At March 31,
2001, the portfolio also had approximately $68 million of short-term, high
credit quality municipal debt securities with an average taxable equivalent
interest rate of 6.4%. The short-term money market funds, U.S Treasury
securities 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. 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 $16
million at March 31, 2001, 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 and our Board of Directors. (See Note 2 to our Consolidated
Financial Statements.)
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. 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. See the discussion
in Item 7, Other Income and Expenses -- Foreign Currency, for further
information on foreign currency and hedging practices.
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 $1.9 million
invested in a yen-denominated mutual fund. (See Note 2 to our Consolidated
Financial Statements.)
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Barra, Inc.
Berkeley, California
We have audited the accompanying consolidated balance sheets of Barra, Inc. and
subsidiaries as of March 31, 2001 and 2000, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended March 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Barra, Inc. and subsidiaries as of
March 31, 2001 and 2000 and the results of their operations and their cash flows
for each of the three years in the period ended March 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
April 20, 2001
(June 15, 2001 as to Note 14)
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CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND 2000
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
2001 2000
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 61,837 $ 53,320
Investments in marketable equity trading securities 15,848 13,334
Investments in marketable debt securities available-for-sale 76,523 14,090
Accounts receivable:
Subscription and other (Less allowance for doubtful accounts of $518 and $755) 11,916 18,411
Asset management 11,175 8,984
Related parties 6,221 7,392
Prepaid expenses 2,675 2,116
- --------------------------------------------------------------------------------------------------------------------
Total current assets 186,195 117,647
- --------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN UNCONSOLIDATED COMPANIES 4,849 1,775
PREMISES AND EQUIPMENT:
Computer and office equipment 15,491 20,909
Furniture and fixtures 6,263 6,029
Leasehold improvements 8,764 8,747
- --------------------------------------------------------------------------------------------------------------------
Total premises and equipment 30,518 35,685
Less accumulated depreciation and amortization (16,052) (18,366)
- --------------------------------------------------------------------------------------------------------------------
14,466 17,319
DEFERRED TAX ASSETS 8,153 4,355
COMPUTER SOFTWARE
(Less accumulated amortization of $2,082 and $1,455) 1,615 1,994
OTHER ASSETS 1,139 832
GOODWILL AND OTHER INTANGIBLES
(Less accumulated amortization of $7,174 and $7,304) 9,995 24,840
- --------------------------------------------------------------------------------------------------------------------
TOTAL $ 226,412 $ 168,762
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 850 $ 975
Accrued expenses payable:
Accrued compensation 17,018 14,084
Accrued corporate income taxes 11,816 13,437
Accrued restructuring charges 2,654
Other accrued expenses 8,602 9,966
Unearned revenues 29,682 26,579
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 67,968 67,695
- --------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES 2,468 1,994
MINORITY INTEREST IN EQUITY OF SUBSIDIARY 1,249 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; 21,370,677 and 20,513,325
shares issued and outstanding 2 2
Additional paid-in capital 29,340 16,207
Retained earnings 125,623 80,321
Accumulated other comprehensive income (loss) (238) 256
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 154,727 96,786
- --------------------------------------------------------------------------------------------------------------------
TOTAL $ 226,412 $ 168,762
====================================================================================================================
The accompanying notes are an integral part of the Barra, Inc.
Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
2001 2000 1999
------------ ------------ ------------
OPERATING REVENUES:
Portfolio and Enterprise Risk Management $ 111,260 $ 92,362 $ 89,300
Symphony 61,835 46,901 25,800
POSIT 21,070 19,064 16,235
Other Ventures 30,253 28,222 26,724
- --------------------------------------------------------------------------------------------------------------
Total operating revenues 224,418 186,549 158,059
- --------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Communications, data and seminar 7,900 7,953 9,471
Compensation and benefits 95,468 87,825 78,080
Occupancy 7,450 7,195 7,512
Other operating expenses 28,575 25,680 27,931
Loss on sale of Estimates business 1,064
Restructuring charges 9,024
Non-recurring acquisition charges and write-off of
goodwill and capitalized software costs 3,990
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 140,457 137,677 126,984
- --------------------------------------------------------------------------------------------------------------
INTEREST INCOME AND OTHER 4,383 3,980 1,460
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN NET INCOME AND LOSS OF INVESTEES,
MINORITY INTEREST, AND INCOME TAXES 88,344 52,852 32,535
EQUITY IN INCOME AND LOSS OF INVESTEES 159 (113) (582)
MINORITY INTEREST (18,816) (15,824) (8,073)
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 69,687 36,915 23,880
INCOME TAXES (24,385) (13,479) (10,871)
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 45,302 $ 23,436 $ 13,009
==============================================================================================================
Net Income Per Share:
Basic $ 2.17 $ 1.12 $ .63
Diluted $ 2.01 $ 1.07 $ .59
Shares used in Net Income Per Share Calculation:
Basic 20,921,413 20,979,645 20,803,482
Diluted 22,510,364 21,952,379 21,904,804
The accompanying notes are an integral part of the Barra, Inc.
Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(IN THOUSANDS)
2001 2000 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,302 $ 23,436 $ 13,009
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in income and loss of investees (159) 113 582
Minority interest 18,816 15,824 8,073
Depreciation and amortization 7,430 7,682 6,683
Amortization of computer software 734 495 807
Unrealized gains on marketable equity securities held for trading (891) (2,420) (509)
Purchase of marketable equity securities held for trading (1,623) (958) (5,190)
Loss on sale of Global Estimates business 1,064
Non-cash restructuring charges 2,654
Write-off of goodwill and capitalized software development costs 3,990
Other (121) (279) (764)
Changes In:
Accounts receivable -- Subscription and other 6,224 2,363 (2,622)
Accounts receivable -- Asset management (2,191) 75 (6,609)
Accounts receivable -- Related parties 1,171 (2,957) (471)
Prepaid expenses (806) 245 (396)
Other assets (307) 356 276
Accounts payable, due to related party and accrued expenses 4,000 13,007 4,357
Unearned revenues 4,218 2,789 1,564
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 82,861 62,425 22,780
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,364) (5,769) (8,734)
Sale (purchase) of marketable debt securities -- available for sale, net (62,433) 430 (3,469)
Proceeds of sales from Venture businesses 13,086
Acquisitions -- cash paid (1,631) (5,517)
Investments in unconsolidated companies (3,098) (144) (886)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (56,809) (7,114) (18,606)
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash payments to minority shareholders (19,854) (15,405) (8,205)
Proceeds from sales of common stock 8,526 4,325 3,349
Common stock repurchased (6,207) (22,254) (1,648)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (17,535) (33,334) (6,504)
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,517 21,977 (2,330)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 53,320 31,343 33,673
- ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 61,837 $ 53,320 $ 31,343
==================================================================================================================
OTHER CASH FLOW INFORMATION>
Cash paid during the year for:
Interest $ -- $ -- $ 2
Income taxes 17,555 3,668 8,119
Non-cash investing transactions - See Note 3
The accompanying notes are an integral part of the Barra, Inc.
Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(IN THOUSANDS EXCEPT FOR SHARE AMOUNTS)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
---------------------- PAID-IN COMPREHENSIVE RETAINED
SHARES AMOUNT CAPITAL INCOME (LOSS) EARNINGS EQUITY
------------------------------------------------------------------------------------
BALANCE, APRIL 1, 1998 20,513,082 $ 2 $ 27,829 $ (956) $ 43,876 $ 70,751
------------------------------------------------------------------------------------
Repurchase of Stock (127,243) (1,648) (1,648)
Stock issued 633,439 3,349 3,349
Tax benefit from Option Exercises 2,233 2,233
------------------------------------------------------------------------------------
Subtotal 21,019,278 2 31,763 (956) 43,876 74,685
------------------------------------------------------------------------------------
Foreign Currency Translation
Adjustment 511 511
Net Income 13,009 13,009
-----------
Comprehensive Income -- subtotal 13,520
------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999 21,019,278 2 31,763 (445) 56,885 88,205
------------------------------------------------------------------------------------
Repurchase of Stock (1,202,400) (22,254) (22,254)
Stock issued 696,447 4,325 4,325
Tax benefit from Option Exercises 2,373 2,373
------------------------------------------------------------------------------------
Subtotal 20,513,325 2 16,207 (445) 56,885 72,649
------------------------------------------------------------------------------------
Foreign Currency Translation
Adjustment 701 701
Net Income 23,436 23,436
-----------
Comprehensive Income -- subtotal 24,137
------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000 20,513,325 2 16,207 256 80,321 96,786
------------------------------------------------------------------------------------
Repurchase of Stock (156,691) (6,207) (6,207)
Stock issued 1,014,043 8,526 8,526
Tax benefit from Option Exercises 10,814 10,814
------------------------------------------------------------------------------------
Subtotal 21,370,677 2 29,340 256 80,321 109,919
------------------------------------------------------------------------------------
Foreign Currency Translation
Adjustment (494) (494)
Net Income 45,302 45,302
-----------
Comprehensive Income -- subtotal 44,808
------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2001 21,370,677 $ 2 $ 29,340 $ (238) $ 125,623 $ 154,727
=========================================================================================================================
The accompanying notes are an integral part of the Barra, Inc.
Consolidated Financial Statements.
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BARRA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2001,
2000 AND 1999:
NOTE 1 - THE COMPANY
Barra, Inc. (which may be referred to as Barra, the Company, we, us or our) is
an investment risk management company which provides innovative solutions to
financial professionals world-wide. We have two business units. Our Core
Business provides portfolio risk management and enterprise risk management
systems to investment professionals. Our Ventures Business develops new lines of
business by leveraging our core research and development, generally through
strategic partnerships.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial statements
include the accounts of Barra, its wholly-owned subsidiaries and Symphony Asset
Management, LLC (Symphony LLC). (See Notes 4 and 14.) All significant
intercompany transactions and balances have been eliminated. Certain amounts
previously reported have been reclassified to conform to the 2001 presentation.
Accounting Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Stock Split -- In November 2000, the Company's Board of Directors declared a
three-for-two stock split effective December 18, 2000 and payable in the form of
a dividend of one share of the Company's common stock for every two shares owned
by the stockholders. The stock split resulted in the issuance of approximately 7
million additional shares of common stock from authorized but unissued shares.
All share and per share data in these financial statements and related notes
have been adjusted to retroactively reflect the stock split.
Cash and Cash Equivalents include money market funds and certificates of deposit
with original maturities of three months or less.
Investments in Marketable Equity Trading Securities include $15,848,000 at March
31, 2001 and $13,334,000 at March 31, 2000 invested in funds managed by Symphony
LLC. The funds hold both long and short positions in equity securities and at
times buy and sell short-term market index instruments, which the managers use
to hedge general market risk. These investments are considered to be trading
securities and accordingly are recorded at their fair value and any unrealized
gains or losses are included in interest income and other.
Investments in Marketable Debt Securities Available-for-Sale - At March 31,
2001, we had $6.3 million invested in short-term U.S. Treasury obligations
maturing in June 2002. Also included in available-for-sale securities is a U.S.
dollar equivalent of $1,989,000 at March 31, 2001, and $1,876,000 at March 31,
2000, invested in a Japanese yen-denominated mutual fund which is invested
primarily in government and other bonds and certificates of deposit in Japan. We
also had investments in municipal debt securities of $68,246,000 at March 31,
2001 and $6,714,000 at March 31, 2000. Interest on these municipal securities is
tax exempt and adjusts to market rates during designated interest reset periods
which occur at least every month. The municipal securities have stated maturity
dates ranging from May 2001 to November 2039, but each security grants the
investor the option to put the security back to the issuer during exercise
periods which generally coincide with interest reset dates. All marketable debt
securities are considered to be available-for-sale and are recorded at fair
value which approximate their cost.
Investments in Unconsolidated Companies are accounted for on the cost or equity
method depending on the Company's ownership interest in the voting stock and
upon its ability to exert significant influence over the investee's operations.
(See Note 8.)
Premises and Equipment are stated at cost. Computer and office equipment and
furniture and fixtures have economic useful lives of five years and are
depreciated using straight-line methods. Leasehold improvements are amortized
using the straight-line method over the periods of the corresponding leases
which range from five to ten years.
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Goodwill and other Intangibles includes purchased goodwill and purchased model
rights which are amortized on a straight-line basis over the remaining
estimated economic life of the underlying products and technologies (original
lives assigned are ten to forty years). It is reasonably possible that the
estimates of anticipated future gross revenue, the remaining estimated economic
life of the products and technologies, or both, could differ from those used to
assess the recoverability of these costs in which case there would be a
write-down of the carrying amount or a shortened life of the intangibles in the
near term.
Long-lived Assets - The Company reviews long-lived assets, certain identifiable
intangibles and goodwill related to these assets for impairment in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and For Long-lived Assets to be Disposed of."
For assets to be held and used, including acquired intangibles, Barra initiates
its review whenever events or circumstances indicate that the carrying amount of
a long-lived asset may not be recoverable. Recoverability of an asset is
measured by comparison of its carrying amount to the future undiscounted cash
flows that the asset is expected to generate. Any impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds its
fair market value.
Assets to be disposed of and for which management has committed to a plan to
dispose of the assets, whether through sale or abandonment, are reported at the
lower of carrying amount or fair market value less cost to sell.
Computer Software that has been purchased is stated at cost less accumulated
amortization. Amortization is calculated using the straight-line method over
three years. Under the criteria set forth in Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," capitalization of software development costs
begins upon the establishment of technological feasibility of a product. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of costs require considerable judgment by management with respect
to certain external factors, including, but not limited to, anticipated future
gross product revenues, estimated economic life and changes in software and
hardware technology. Amounts that could have been capitalized under this
statement after consideration of the above factors were immaterial and,
therefore, no internal software development costs have been capitalized by the
Company to date.
Revenue Recognition:
Portfolio and Enterprise Risk Management - Subscription fees are initially
deferred as unearned revenues when payment has been received and revenue is
recognized ratably over the subscription term. Implementation fees for
consulting services are recognized as the services are performed.
Symphony -Symphony revenues are derived from two sources: base fees and
performance fees. Base fees are recognized ratably over the period that assets
are under management. Performance fees are recognized only at the performance
measurement dates contained in the individual account management agreements and
are dependent upon performance of the account exceeding agreed upon benchmarks.
POSIT - POSIT revenues, which consist primarily of royalties based on the
trading volume of U.S. equities from the Portfolio System for Institutional
Trading ("POSIT") joint venture, are recognized as trades are executed on POSIT.
Other Ventures- Consulting fees for recurring, retainer-based services are
recognized ratably over the term of the service contract. Consulting fees for
non-recurring projects are recognized on a percentage of completion basis.
Income Taxes are provided at current rates. Deferred income taxes are computed
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Foreign Currency Translation - Beginning in April 2000, we deemed the functional
currency of all non-U.S. operations to be the U.S. dollar. For non-U.S.
operations, assets and liabilities are translated into U.S. dollars using
current exchange rates, and the translation adjustment effects are included in
net income. Prior to April 2000, the functional currency of Barra International
(Japan), Ltd. (Barra Japan) was the Japanese yen and, therefore, the effects of
currency translation adjustments on Barra Japan's assets and liabilities were
recorded as other comprehensive income or loss which is included as a component
of stockholders' equity.
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Stock-Based Awards to employees are accounted for using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. We also comply with the disclosure requirements
of Statement of Financial Accounting Standards No. 123. (See Note 10.)
Net Income Per Share - Basic net income per share is calculated by dividing net
income by the weighted average shares of common stock outstanding during the
year. For diluted net income per share, net income is divided by the weighted
average shares of common stock outstanding and potential common shares
outstanding during the year. Potential common shares included in the dilution
calculation consist of dilutive shares issuable upon the exercise of outstanding
common stock options computed using the treasury stock method. For all years
presented, the only difference between basic and diluted income per share is the
inclusion of dilutive stock options in the denominator for purposes of
calculating diluted income per share.
Fair Value of Financial Instruments -- The Company's financial instruments
include cash and cash equivalents, short-term and municipal debt securities,
accounts receivable, prepaid expenses, accounts payable, certain accrued
liabilities and deferred revenue. The carrying amounts of these items are a
reasonable estimate of their fair values.
Concentration of Credit Risk - The Company licenses its products and services to
investment managers primarily in the United States, Europe and Asia (primarily
Hong Kong and Japan). The Company evaluates the credit of its customers and does
not require collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations. Financial
instruments which may potentially subject the Company to concentrations of
credit risk consist principally of cash investments and short-term investments.
The Company's investment policy limits investments to short-term, low-risk
instruments.
Disclosures About Segments of an Enterprise -- In 1997 the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
(Statement 131), which establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements. Statement 131 requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. In addition, it establishes standards for related disclosures
about products and services, geographic areas and major customers. (See Note
11.)
New Accounting Standards
In December 1999, the Securities and Exchange Commission (SEC) 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 was adopted during our fourth
quarter of fiscal year 2001 and did not have a material impact on our income
statement presentation, operating results or financial position.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" (Statement
133). Statement 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. In June 1999, the FASB issues Statement No. 137, "Accounting
for Derivative Statement No. 133," which amended Statement No. 133 by deferring
the effective date to all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company will adopt SFAS 133 effective April 1, 2001.
Management does not expect the adoption of SFAS 133 to have a significant impact
on the financial position, results of operations, or cash flows of the Company
NOTE 3 - BUSINESS COMBINATIONS
BOND EXPRESS - In January 1999, we completed the acquisition of the general
partnership interest in Bond Express LP (BEX). The purchase price for the
remaining interest was $1 million, plus certain contingent consideration based
upon total revenues of BEX products earned during calendar 2000. In February
2000, we modified the terms of our acquisition of the BEX business. The
modification eliminated the contingent payment that otherwise would have been
payable in exchange for paying the seller an additional $1.1 million. The
initial consideration of $1 million plus the additional consideration of $1.1
million have been added to goodwill and are being amortized over 10 years. The
results of operations and financial position of BEX are now part of our
wholly-owned subsidiary Bond Express, Inc. and have been consolidated in our
financial statements since June 1996.
REDPOINT -- On June 17, 1998 we paid $5.5 million for substantially all of the
assets and assumption of certain liabilities of Redpoint Software Inc., which
was renamed RJM Ventures Inc. following the closing (RJM). Initial terms of the
acquisition agreement also provided for payments of up to an additional $12.5
million over a period of two years following the closing
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40
based upon the financial performance of the acquired assets. In April 1999, the
acquisition agreement was amended to replace the payment of contingent
consideration based on financial performance with a provision for royalty
payments equal to a certain percentage of future software license fees through
December 2000. In connection with the amended purchase agreement, we paid an
additional $1.5 million in cash representing additional purchase price of
$600,000 and prepaid royalties of $900,000. Approximately 45% of the prepaid
royalty and any future royalties are partially or fully refundable to us in the
event certain key former employees of RJM leave Barra before required employment
periods. As a result, 45% of any royalties earned will be recorded as
compensation expense over the term of the required employment. The remaining
portion of royalties will be recorded as additional goodwill. Compensation
expense related to prepaid royalties was $202,500 for each year ended March 31,
2001 and 2000.
The acquisition has been accounted for as a purchase, and the results of the
business acquired from RJM are included in the accompanying consolidated
financial statements from the date of acquisition only. The cost of the
acquisition has been allocated to the assets acquired and liabilities assumed
based on estimated fair values. This allocation resulted in tangible assets of
$200,000, consisting principally of premises and equipment, and goodwill of $6.4
million which is being amortized on a straight-line basis over ten years.
Comparative pro forma financial information has not been presented as the
results of operations of RJM were not material to our consolidated financial
statements.
GLOBAL ADVANCED TECHNOLOGY (GAT) AND INNOSEARCH CORPORATION (INNOSEARCH) - On
June 24, 1997, we completed the acquisition of a 100% equity interest in GAT and
a majority ownership interest in Innosearch, an affiliate of GAT. The total
purchase price of approximately $19,904,000 included 1,056,884 shares of
unregistered Barra common stock valued at $9,866,000, liabilities assumed of
$6,058,000, and cash and transaction costs of $3,980,000. In February 1998, an
additional $1,000,000 was paid in connection with the acquisition of the
remaining minority interest in Innosearch, which resulted in additional goodwill
of $469,500. The acquisitions were accounted for as a purchase, and the results
of GAT and Innosearch are included in the accompanying consolidated financial
statements from the date of acquisition only.
The cost of the acquisitions was allocated on the basis of the estimated fair
value of assets acquired and liabilities assumed. This allocation resulted in
tangible assets of $3,763,000 consisting principally of accounts receivable and
premises and equipment, capitalized software of $1,217,000, purchased in-process
technology of $9,914,000, deferred tax assets of $1,100,000 and goodwill of
$3,910,000. The amount allocated to purchased in-process technology was
immediately expensed. Goodwill from the acquisition was initially amortized over
ten years until March 31, 1999 when it was written off. We recorded a charge of
$3,990,000 in March 1999 to write-off the remaining unamortized amounts of
goodwill and capitalized software costs in connection with discontinuing certain
U.S. fixed income products. (See Note 13.)
THE ESTIMATE DIRECTORY (TED) AND DIRECTUS - On October 9, 1997, Barra (U.K.),
Ltd., our wholly-owned subsidiary, completed the acquisition of the assets and
assumption of certain liabilities of two businesses from Edinburgh Financial
Publishing Limited (EFP) and two of EFP's affiliates for a total purchase price
of $17,412,000. The two businesses are TED, a database of analysts' earnings
estimates, and Directus, a corporate directors equity trading information
service. The total purchase consisted of $11,778,000 in cash, liabilities
assumed of $4,897,000 and transaction costs of $737,000. The acquisition was
accounted for as a purchase, and the results of Barra (U.K.), Ltd. are included
in the accompanying consolidated financial statements from the date of
acquisition only. The cost of the acquisition was allocated on the basis of the
estimated fair value of assets acquired and liabilities assumed and resulted in
goodwill of $15,536,000 which was being amortized over 20 years.
In two separate transactions during 2001, we sold both the TED and Directus
businesses to unrelated third parties. Total cash proceeds from the sales of
these businesses were $13.1 million and resulted in a loss of $1.1 million.
NOTE 4 -- SYMPHONY LLC
The capitalization of Symphony LLC consists of three Interest Classes (Class 1,
Class 3 and Class 4, as defined in the Operating Agreement). Class 1 and Class 4
interests belong to Symphony Asset Management, Inc. (a wholly-owned subsidiary
of Barra, Inc. (SAMI)) while the Class 3 interest belongs to Maestro LLC
(Maestro), whose owners are the principals of Symphony LLC. At March 31, 2001,
the total capital accounts attributable to Barra were $11.3 million and the
capital account of Maestro was $1.2 million. In the event of sale or liquidation
of the business, Barra's Class 1 interest would receive a preferential
distribution of $2.1 million prior to the payout of any other capital account
and the remaining amount would be split equally between SAMI and Maestro after
receiving distributions of their respective capital account balances.
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The Operating Agreement provides for a profits interest (the Class 3 interest)
that started at 25% and grew to a maximum of 50% based on levels of Symphony LLC
operating income (as defined in the Operating Agreement). The Class 3 interest
attained the maximum profits interest in the quarter ended March 31, 1998.
Beginning April 1, 1999, Symphony LLC granted awards to certain key employees
under an Equity Appreciation Plan (EAP). The EAP provides discretionary awards
equal to a certain percentage interest in the equity of Symphony LLC which vest
over time until retirement or immediately in the event of death, disability or
sale of Symphony LLC. At March 31, 2001, awards representing an interest of
approximately 8% in Symphony LLC had been granted. Compensation expense on each
award is measured as the difference between the fair market value of the award
and the exercise price of the award. Compensation expense for each award is
initially deferred and then charged to compensation expense evenly over the
remaining period of the employee's service until retirement. Compensation
expense on EAP awards for the years ended March 31, 2001 and 2000 was $972,000
and $266,000, respectively.
We have consolidated the financial position and results of operations of
Symphony LLC and separately recorded the Class 3 interest share of net assets
and net income as a minority interest. The Class 3 interests share of profits
was $18,816,000 $15,824,000 and $8,073,000 for the years ended March 31, 2001,
2000 and 1999, respectively.
On June 15, 2001, we signed a definitive agreement, along with the principals of
Symphony LLC, to sell Symphony LLC to Nuveen. (See Note 14 for further
information regarding Symphony LLC.)
NOTE 5 - INCOME TAXES
The provision for income taxes for the years ended March 31, consists of the
following (in thousands):
2001 2000 1999
-------- -------- --------
CURRENT:
Federal $ 19,626 $ 11,523 $ 7,816
State 4,169 742 793
Foreign 3,914 1,937 3,103
-------- -------- --------
Total current 27,709 14,202 11,712
-------- -------- --------
DEFERRED:
Federal (2,732) (711) (1,053)
State (187) (3) (50)
Foreign (405) (9) 262
-------- -------- --------
Total deferred (3,324) (723) (841)
-------- -------- --------
TOTAL TAX PROVISION $ 24,385 $ 13,479 $ 10,871
======== ======== ========
Barra provides for U.S. income taxes on the earnings of foreign subsidiaries
unless they are considered permanently invested outside of the U.S. Deferred
taxes are determined based on the estimated future tax effects of differences
between the financial statement and tax basis of assets and liabilities given
the provisions of the enacted tax laws. No valuation allowances for deferred tax
assets were deemed to be necessary at the balance sheet dates presented. The tax
effect of significant temporary differences representing deferred tax assets and
liabilities as of March 31 is as follows (in thousands):
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2001 2000
-------- --------
DEFERRED TAX ASSETS
Accrued vacation pay not currently deductible $ 870 $ 784
Other accrued expenses not deductible 3,622 1,300
Restructuring charges not currently deductible -- 1,039
State taxes 1,469 608
Deferred rent 453 320
Research and development costs not currently deductible 1,624 --
Other 115 304
-------- --------
Total $ 8,153 $ 4,355
-------- --------
DEFERRED TAX LIABILITIES
Intangibles (725) 240
Basis difference in fixed assets 2,603 1,591
Prepaid expenses currently deductible 119 163
Other 471 --
-------- --------
Total $ 2,468 $ 1,994
-------- --------
NET DEFERRED TAX ASSET $ 5,685 $ 2,361
======== ========
The reconciliation between the tax rate computed by applying the United States
federal statutory tax rate of 35.0% to income before income taxes and the actual
effective tax rate is as follows:
2001 2000 1999
----------------------------------
Income tax at statutory rate 35.0% 35.0% 35.0%
State income tax, net of federal income tax effect 4.2 3.4 3.6
Foreign taxes higher than federal rate -- 2.7 1.4
Non-taxable portion of dividends and interest (.1) (.2) (.5)
Effect of foreign sales corporation earnings (1.1) (1.5) (1.4)
Nondeductible acquisition charges and write-offs -- -- 5.8
Other (3.0) (2.9) 1.6
----------------------------------
Income tax at effective rate 35.0% 36.5% 45.5%
==================================
NOTE 6 - LEASES AND OTHER COMMITMENTS
Aggregate minimum future annual lease payments for facilities under operating
leases are as follows (in thousands):
AGGREGATE ANNUAL
YEAR ENDING MARCH 31: LEASE PAYMENTS
--------------------- ----------------
2002 $ 5,536
2003 4,765
2004 3,720
2005 3,266
2006 2,991
Thereafter 6,479
-------
$ 26,757
Sublease income (709)
--------
Total $ 26,048
========
Rental expense was $5,151,000, $5,179,000 and $5,510,000 for the years ended
March 31, 2001, 2000 and 1999, respectively.
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Rental expense for outside computer usage was $1,361,000, $1,891,000 and
$2,796,000 for the years ended March 31, 2001, 2000 and 1999, respectively.
We have also committed to funding an additional $4.0 million for certain asset
management products developed by Symphony.
NOTE 7 -- POSIT
POSIT is a computerized institutional trading system that is owned by a general
partnership between us and ITG, Inc. (ITG). The partnership has licensed the
U.S. equity version of POSIT to ITG, which operates the POSIT system for U.S.
equities. Our revenues represent a 95% share of license royalties paid by ITG to
the partnership.
Global POSIT was established as a 50% owned joint venture in the United Kingdom
on May 31, 1990. It operated a computerized trading network that was designed to
facilitate trading in international equities. Profit and loss was allocated 50%
to the Company and 50% to ITG, the other joint venture partner. Our share of
losses is included in equity in net loss of investees and was $169,000 in the
year ended March 31, 1999. During 1999, Barra and ITG terminated the Global
POSIT joint venture.
In November 1998, the POSIT partnership granted a license to a joint venture
between ITG and Societe Generale to use the POSIT technology for the trading of
equities of European issuers. In May 2001, ITG bought out Societe Generale's
interest in the partnership. EuroPOSIT currently covers U.K. and European
Country equities. A royalty is paid to the POSIT partnership based upon the
commissions received for trades of European securities on EuroPOSIT. We receive
a share of that royalty after the payment of certain operating and development
costs. Revenues to Barra from EuroPOSIT for the years ended March 31, 2001, 2000
and 1999 were $246,000, $1,199,000 and $73,000, respectively.
NOTE 8 - INVESTMENTS IN UNCONSOLIDATED COMPANIES
In March 1997, we purchased 68,037 shares of Series C Convertible Preferred
Stock in Quote.Com, Inc. (Quote.Com) for $446,000. In April 1997, we purchased
an additional 46,368 shares of the same securities for $304,000. In December
1999, we received 33,903 shares of Lycos, Inc. stock as part of Lycos'
acquisition of Quote.Com. In January 2000, we sold all of our shares in Lycos
for a pre-tax gain of $1,682,000.
In April 1997, we purchased 272.7 shares of Series A Convertible Preferred Stock
of Alacra, Inc. (formerly Data Downlink Corporation (Alacra)) for $1,500,000.
During 1999, we purchased 47.29 shares of Series C Convertible Preferred Stock
of Alacra for $372,000. At March 31, 1999 we owned approximately 20% of Alacra
and accounted for our investment in Alacra using the equity method. In June
1999, Alacra received additional funding which diluted our ownership below 20%
and resulted in our change to the cost method of accounting for the remainder of
fiscal 2000 and all of fiscal 2001. Our equity in Alacra's losses was $66,000
and $273,000 for the years ended March 31, 2000, and 1999, respectively. In
April 2000, we purchased 964,630 shares of Series F Convertible Preferred Stock
of Alacra for $3,000,000 which increased our ownership to approximately 16%.
In 2001, we made investments of $98,000 and had equity in losses of $24,000 in
various other companies or joint ventures. In 2000, we made investments of
$144,000 and had equity in losses of $47,000 in various other companies or joint
ventures. In 1999, we made investments of $514,000 and had equity in losses of
$140,000 in other investments.
NOTE 9 - RETIREMENT PLANS
We sponsor a tax-qualified employee savings and retirement plan for all eligible
U.S. employees. Eligible employees may contribute up to 15% of their earnings,
subject to annual limitations. We match qualified employee contributions dollar
for dollar up to an annual maximum of $2,000 and employees vest in our match
over the first five years of their employment. Contribution expense was
$390,000, $827,000 and $802,000 for the years ended March 31, 2001, 2000 and
1999, respectively.
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NOTE 10 -STOCK-BASED COMPENSATION PLANS
Stock Option Plans:
1991 and 2000 Equity Plans.
On July 29, 1991, we adopted a Stock Option Plan (1991 Plan) for the granting of
stock options to employees (including officers and employee directors) and
non-employee directors or consultants. The 1991 Plan was modified in 1994, 1997
and expires in 2001. A replacement plan, the 2000 Equity Participation Plan of
Barra, Inc. (2000 Plan) was ratified, adopted, and approved by our stockholders
on August, 3, 2000. At the adoption of the 2000 Plan, the Company reserved the
following shares of its Common Stock for issuance thereunder: (a) 1,650,000
shares; and (b) all shares that remained reserved for issuance under the 1991
Plan or that later became available for issuance under the 1991 Plan as a result
of options granted thereunder expiring or otherwise becoming unexercisable.
Under the 2000 Plan incentive stock options (ISOs) may be granted only to
employees of the Company but non-qualified stock options (NQSOs), restricted
stock, stock appreciation rights (SARs) and other awards (collectively, Awards)
may be granted to employees, consultants and non-employee directors of the
Company. The Board of Directors, or a committee thereof, determines the vesting
period, payment form and exercise date of the Awards granted under the 2000
Plan, provided that no ISO may be exercised later than ten years after its date
of grant. For options issued under the 1991 Plan and 2000 Plan through December
31, 2000, the vesting periods have generally been set at 20% per year over five
years. For options issued under the 2000 Plan since January 1, 2001, the vesting
periods have generally been set at four years at the annual rate of 25% for the
first year and thereafter at the monthly rate of 1/36th per month for the next
three years.
Directors Stock Option Plan.
On July 31, 1997, the stockholders approved the adoption of the Directors Option
Plan (the "Directors Plan") for the granting of stock options to non-employee
directors and employee directors. The Plan was amended in 2000 to permit the
issuance of up to 375,000 shares of Common stock under the Directors Plan. The
Directors Plan provides for automatic grants of NQSOs in accordance with a fixed
formula to non-employee directors. In addition, the Directors Plan allows
discretionary grants of ISO's to employee directors and NQSOs to all directors.
At the time of its adoption, the Directors Plan provided that each eligible
director would receive NQSO grants for 7,500 shares and each person who
subsequently became a non-employee director would receive a grant of 10,000
shares (the "Initial" grants). In addition, on each anniversary of an Initial
grant, the optionee would receive NQSO grants for an additional 2,000 shares
(the "Succeeding" grants). The Directors Plan was later amended to increase the
options subject to Initial grants to 15,000 shares and the options subject to
the Succeeding grants to 4,000 shares. The exercise price for all ISOs, Initial
grants and Succeeding grants will not be less than the fair market value of the
common stock at the date of grant. NQSOs granted pursuant to Initial grants vest
over a period of five years at a rate of 20% per year. NQSOs granted pursuant to
Succeeding grants are fully vested at the time of the grant. ISOs will vest over
discretionary periods not to exceed five years.
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45
A summary of the status of all our stock option plans as of and during the years
ended March 31, 1999, 2000, and 2001 follows:
SHARES SUBJECT TO WEIGHTED AVERAGE SHARES AVAILABLE
OUTSTANDING OPTIONS EXERCISE PRICE FOR FUTURE GRANTS
------------------- ---------------- -----------------
Outstanding, Balance at April 1, 1998 4,002,116 7.57 1,866,495
(including 1,383,027 exercisable at a
weighted average exercise price of
$3.86)
Granted 833,550 14.41 (833,550)
Canceled (326,588) 11.13 326,588
Exercised (567,651) 4.93 --
-----------------------------------------------------
Outstanding, Balance at March 31, 3,941,427 9.15 1,359,533
1999 (including 1,693,578 exercisable
at a weighted average exercise price
of $4.33)
Granted 1,180,500 18.75 (1,180,500)
Canceled (357,293) 11.77 357,293
Exercised (633,149) 5.50 --
-----------------------------------------------------
Outstanding, Balance at March 31, 2000 4,131,485 12.21 536,326
(including 1,832,480 exercisable at a
weighted average exercise price of
$5.61)
Additional shares authorized 1,650,000
Granted 1,032,750 41.30 (1,032,750)
Canceled (240,090) 16.61 240,090
Exercised (933,428) 7.75 --
-----------------------------------------------------
Outstanding, Balance at March 31, 2001 3,990,717 20.51 1,393,666
Weighted average fair value of
options granted during 2001 $ 26.36
Additional information regarding options outstanding as of March 31, 2001 is as
follows:
Stock Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------
Weighted Average
Remaining Weighted
Range of Exercise Number Contractual Weighted Average Number Average
Prices Outstanding Life (yrs) Exercise Price Exercisable Exercise Price
- --------------------------------------------------------------------------------------------------------------------
$ 2.67 to $9.06 822,949 3.7 $ 4.66 804,949 $ 4.56
$ 11.11 to $14.25 913,068 7.3 13.59 342,445 13.18
$ 14.36 to $20.00 819,200 7.5 17.67 271,536 17.21
$ 21.375 to 42.50 719,000 9.0 26.20 106,500 22.73
$ 45.06 and over 716,500 9.8 45.07 -- --
--------- -----------------------------------------------
3,990,717 7.4 $ 20.51 1,525,430 $ 10.01
========= ===============================================
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Employee Stock Purchase Plan.
Under the 1996 Employee Stock Purchase Plan, (the "Purchase Plan"), we are
authorized to issue up to 1,687,500 shares of common stock to our employees.
Under the terms of the Purchase Plan, employees can choose to have up to 15% of
their annual base earnings withheld, subject to an annual limitation, to
purchase Barra common stock. The purchase price of the stock is 85% of the
lesser of the fair market value as of the beginning or end of each three-month
offer period, subject to an annual limitation. Under the Purchase Plan, we
issued 40,222, 67,905 and 65,788 shares in 2001, 2000 and 1999. The weighted
average purchase price of shares issued in 2001, 2000 and 1999 was $28.14, 12.60
and 12.78, respectively. The weighted-average fair value of shares issued in
2001, 2000 and 1999 was $39.35, $17.39 and $15.05, respectively. At March 31,
2001 there were 1,434,788 shares of common stock reserved for future issuance
under the Purchase Plan.
Additional Stock-Based Award Information.
As discussed in Note 2, we continue to account for our stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
its related interpretations. Accordingly no compensation expense has been
recognized in the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), requires the disclosure of pro forma net income and
earnings per share had we adopted the fair value method as of the beginning of
1995. Under SFAS 123, the fair value of stock based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from our stock
option awards. These models also require subjective assumptions, including
future stock volatility and expected time to exercise, which greatly affect the
calculated values. Our calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions: weighted average
expected life, 72 months for all years presented; stock volatility, 66% in 2001,
50% in 2000 and 60% in 1999; risk free interest rates, 5.5% in 2001, 6.2% in
2000 and 5.00% in 1999; and no dividends during the expected term for all years.
If the computed fair values of the 2001, 2000 and 1999 awards under the Plan had
been amortized to expense over the vesting period of the awards, pro forma net
income would have been $41,102,000 ($1.96 per basic share and $1.83 per diluted
share) in 2001, $21,083,000 ($1.00 per basic share and $.96 per diluted share)
in 2000 and $11,546,000 ($.55 per basic share and $.53 per diluted share) in
1999. The effects of applying SFAS No. 123 on pro forma disclosures of net
income and net income per share for 2001, 2000 and 1999 are not likely to be
representative of the pro forma effects on net income and net income per share
in future years.
NOTE 11 -- SEGMENT INFORMATION
In 1999, we adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker when deciding how to allocate resources and when
assessing performance. Our chief operating decision making group is the
Executive Committee, which is comprised of the Chief Executive Officer and
certain other Executive Officers (the "Committee).
Years ended March 31, 2001 and 2000 - Effective in the September 1999 quarter,
Barra was reorganized into two business units, Barra Core and Barra Ventures.
Segment financial information for the year ended March 31, 2000 is presented as
if the reorganization had taken place at the beginning of the fiscal year. The
Core Business unit is one segment and the Ventures unit has three segments:
Symphony, POSIT and Other Ventures.
Barra's business segments are organized on the basis of differences in their
related products and services. The Core Business is the portfolio and enterprise
risk management 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 venture is a jointly owned subsidiary
that provides asset management services. Other Ventures include Global
Estimates, Bond Express, Barra RogersCasey and Strategic Consulting.
Segment income from operations is defined as segment revenues net of segment
expenses, restructuring charges, and equity in joint venture gains and losses
for the current year. 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
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and amortization. Segment expenses also include allocated portions of research
and development, general and administrative expenses, amortization of acquired
intangibles, and interest income for the current year.
Year ended March 31, 1999 -- In prior years, the business was organized and
reported on differently. Subscription and consulting revenue included the
portfolio and enterprise risk business along with the Global Estimates, Bond
Express, Barra RogersCasey and Strategic Consulting businesses. Electronic
trading was the POSIT business and substantially all of the asset management
business was Symphony Asset Management. Also in prior years, there was no
allocation of research and development, general and administrative expenses,
amortization of intangibles, interest and other income or non-recurring
acquisition charges and write-offs to the segments.
For all years 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 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 years
ended March 31, 2001, 2000 and 1999, respectively (amounts in thousands):
Year ended March 31, 2001:
---------- --------------------------------------------------------
Barra Core Barra Ventures
---------- --------------------------------------------------------
Symphony
POSIT Asset Total
Core Joint Venture Management Other Ventures Consolidated
---------- ------------- ---------- --------- --------- ------------
Revenues:
Portfolio and Enterprise $ 111,260 $ 111,260
Risk Management
Symphony Asset Mgmt 61,835 61,835 61,835
POSIT 21,070 21,070 21,070
Other Ventures 30,253 30,253 30,253
--------- --------- --------- --------- --------- ---------
Total Segment revenues 111,260 21,070 61,835 30,253 113,158 224,418
--------- --------- --------- --------- --------- ---------
Compensation and Benefits (53,944) (1,462) (18,983) (21,079) (41,524) (95,468)
Other Segment expenses (28,569) (740) (5,696) (8,920) (15,356) (43,925)
Interest income and other 3,193 1,190 1,190 4,383
Equity in joint venture gains
(losses) and minority
interest 183 (18,816) (24) (18,657) (18,657)
Loss on sale of Estimates
Business (1,064) (1,064) (1,064)
--------- --------- --------- --------- --------- ---------
Total Segment expenses (79,320) (2,019) (42,305) (31,087) (75,411) (154,731)
--------- --------- --------- --------- --------- ---------
Segment income $ 31,940 $ 19,051 $ 19,530 (834) $ 37,747 $ 69,687
========= ========= ========= ========= ========= =========
Depreciation and
amortization $ 6,005 $ 75 $ 265 $ 1,819 $ 2,159 $ 8,164
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Year ended March 31, 2000:
---------- ------------------------------------------------------
Barra Core Barra Ventures
---------- ------------------------------------------------------
POSIT Symphony
Joint Asset Total
Core Venture Management Other Ventures Consolidated
---------- --------- ---------- --------- --------- ------------
Revenues:
Portfolio and Enterprise $ 92,362 $ 92,362
Risk Management
Symphony Asset Mgmt 46,901 46,901 46,901
POSIT 19,064 19,064 19,064
Other Ventures 28,222 28,222 28,222
------------------------------------------------------------------------------------
Total Segment revenues 92,362 19,064 46,901 28,222 94,187 186,549
------------------------------------------------------------------------------------
Compensation and Benefits (55,995) (1,175) (10,471) (20,184) (31,830) (87,825)
Other Segment expenses (27,159) (320) (4,871) (8,478) (13,669) (40,828)
Interest income and other 1,434 864 1,682 2,546 3,980
Equity in joint venture gains
(losses) and minority
interest 109 (15,824) (222) (15,937) (15,937)
Restructuring charges (9,024) (9,024)
------------------------------------------------------------------------------------
Total Segment expenses (90,744) (1,386) (30,302) (27,202) (58,890) (149,634)
------------------------------------------------------------------------------------
Segment income $ 1,618 $ 17,678 $ 16,599 1,020 $ 35,297 $ 36,915
====================================================================================
Depreciation and
amortization $ 5,775 $ 150 $ 302 $ 1,950 $ 2,402 $ 8,177
Year ended March 31, 1999:
-----------------------------------------------------------------------
Subscription
and Electronic Asset Consolidated
Consulting Trading Management Other Total
-----------------------------------------------------------------------
Revenues $ 114,661 $ 16,235 $ 27,163 $ 158,059
Segment expenses (71,950) (1,451) (11,591) (84,992)
Minority interest (8,073) (8,073)
-----------------------------------------------------------------------
Segment income 42,711 14,784 7,499 64,994
-----------------------------------------------------------------------
Research and development ($ 21,854) (21,854)
General and administrative (13,753) (13,753)
Non-recurring acquisition charges
and write-off of goodwill and
capitalized software (3,990) (3,990)
Amortization of intangibles (2,395) (2,395)
Interest and other 1,460 1,460
Equity in JV gains (losses) (582) (582)
-----------------------------------------------------------------------
Income (loss) before income taxes $ 42,711 $ 14,784 $ 7,499 $ (41,114) 23,880
=====================================================================
Depreciation and amortization $ 3,241 $ 100 $ 254 $ 1,500 $ 5,095
Revenues are distributed to geographic areas based on the country in which the
Barra sales office is located. For all years presented, no one customer
accounted for more than 10% of total revenues. Long-lived assets are attributed
to geographic areas based on the country where the assets are located.
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The following table presents a summary of revenue and long-lived assets by
geographic region as of and for the years ended March 31, 2001, 2000 and 1999
(in thousands):
2001 2000 1999
------------------------------------------------------------------------------------
Long Lived Long Lived Long Lived
Revenues Assets Revenues Assets Revenues Assets
------------------------------------------------------------------------------------
North America:
United States $159,247 $ 30,455 $131,119 $ 29,992 $105,719 $ 27,306
Other 3,833 47 3,114 74 3,190 172
------------------------------------------------------------------------------------
Total North
America 163,080 30,502 134,233 30,066 108,909 27,478
------------------------------------------------------------------------------------
Europe:
United Kingdom 28,381 1,692 21,288 15,958 19,861 16,701
Germany 7,092 62 4,851 36 4,937 54
Other 2,614 32 5,800 92 5,620 68
------------------------------------------------------------------------------------
Total Europe 38,087 1,786 31,939 16,086 30,418 16,823
------------------------------------------------------------------------------------
Asia and
Australia:
Japan 17,810 4,082 14,400 3,833 12,321 3,588
Other 5,441 162 5,977 147 6,411 171
------------------------------------------------------------------------------------
Total Asia and
Australia 23,251 4,244 20,377 3,980 18,732 3,759
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Total $224,418 $ 36,532 $186,549 $ 50,132 $158,059 $ 48,060
===================================================================================
NOTE 12 - CONTINGENCIES
The Company is subject to various legal proceedings and claims either asserted
or unasserted arising in the normal course of business. While the outcome of
these proceedings and claims cannot be predicted with certainty, it is
management's opinion that the results of any such legal matters will not be
material to the Company's consolidated financial statements.
NOTE 13 -- RESTRUCTURING CHARGES
We had two restructuring events during 2000. First, 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. The restructuring
plan discontinued certain U.S. fixed income products and eliminated various
sales, client and product support positions in the U.S. Revenues from
discontinued products ceased on April 30, 1999. Customers who had prepaid
subscriptions for periods after April 30, 1999 received refunds. Although the
decision to discontinue these products was made in April 1999, certain support
activities continued through December 31, 1999. All termination notices and
benefits were communicated to the affected employees prior to June 30, 1999. We
recorded a charge of $5,561,000 in connection with this restructuring. The
charge consisted of: (a) $3.6 million in severance, termination benefits, and
wages for approximately 50 terminated employees (some of which were retained for
various periods up until December 31, 1999 to exclusively support the
discontinued products); (b) $1.3 million for non-cancelable services directly
related to the discontinued products including certain costs associated with
continuing to support the products up until their final termination dates; and
(c) $.4 million in excess facilities costs.
In March 2000, our management announced and implemented a second restructuring
plan aimed at consolidating a global structure for our sales and client support
organization for the Core Business. This restructuring plan consisted
principally of closing four offices, terminating one of our most significant
outside computing services contracts, and terminating approximately 20
employees. All termination notices and benefits were communicated to the
affected employees prior to
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March 31, 2000. We recorded a charge of $3,463,000 in connection with this
restructuring plan which consisted of: a) $2,328,000 in severance and related
termination benefits; b) $600,000 in termination fees associated with the
computing services contract; and c) $535,000 in excess facilities and other
miscellaneous costs.
As of March 31, 2001 all charges related to the restructuring had been paid.
Activity in the restructuring accrual for the period from March 31, 2000 to
March 31, 2001 is summarized as follows (in thousands):
-------------------------------------------------------------
Severance and
termination Facilities Other
benefits Excess Restructuring Total
-------------------------------------------------------------
Balance at March 31, 2000 $ 2,119 $ 210 $ 325 $ 2,654
Reclassification 79 -- (79) --
Cash payments (2,198) (210) (246) (2,654)
-------------------------------------------------------------
Balance at March 31, 2001 -- -- -- --
=============================================================
NOTE 14- SUBSEQUENT EVENT
On June 15, 2001, the Company and Maesetro signed a definitive agreement to sell
Symphony LLC to The John Nuveen Company (Nuveen). Barra and Maestro each have a
50 percent ownership interest in Symphony LLC.
Nuveen will initially pay $210 million in cash with additional future payments
based on Symphony LLC's business exceeding specific growth and profitability
targets over the next five years. Barra will receive approximately $128 million
of the initial cash proceeds and up to an additional $12 million in future
contingent consideration for its ownership interest in Symphony LLC.
The transaction, expected to be completed within the next 60 days, is subject to
regulatory approval, certain consent requirements and other customary closing
conditions. Barra's net proceeds on the sale of its interest in Symphony LLC are
expected to be taxed at approximately 38 percent. All estimated proceeds stated
above do not reflect any adjustment for income taxes, transaction fees or other
possible purchase price adjustments based on actual results at the time of
closing.
NOTE 15 - SELECTED QUARTERLY FINANCIAL DATA (IN THOUSANDS - UNAUDITED)
YEAR ENDED MARCH 31, 2001 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
Total operating revenues $ 51,216 $ 59,711 $ 64,894 $ 48,597
Total operating revenues net of operating expenses $ 14,903 $ 21,933 $ 28,810 $ 18,315
Net income $ 10,284 $ 11,284 $ 13,484 $ 10,250
Net income per share - diluted $ 0.45 $ 0.50 $ 0.60 $ 0.47
YEAR ENDED MARCH 31, 2000 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
Total operating revenues $ 44,531 $ 60,177 $ 43,808 $ 38,033
Total operating revenues net of operating expenses $ 9,539 $ 24,933 $ 12,872 $ 1,528
Net income $ 6,758 $ 10,342 $ 5,952 $ 384
Net income per share - diluted $ 0.31 $ 0.47 $ 0.27 $ 0.02
Income per share calculations for each of the quarters is based on the weighted
average common and common equivalent shares outstanding for each period, and the
sum of the quarters may not necessarily be equal to the full year income per
share amount. Quarterly financial data for the third fiscal quarter of 2001
includes a loss on the sale of the TED business of $1,064,000 or $.03 per
diluted share. Quarterly financial data for the first quarter of 2000 includes
restructuring charges of $5,561,000 or $.15 per diluted share. Quarterly
financial data for the fourth fiscal quarter of 2000 includes restructuring
charges of $3,463,000 or $.10 per diluted share and gain on sale of equity
securities of $1,682,000 or $.05 per diluted share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
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PART III
We have omitted from this Report certain information required by Part III as we
intend to file our definitive Proxy Statement pursuant to Regulation 14A not
later than 120 days after the end of the year covered by this Form 10-K, and
certain information in the Proxy Statement is incorporated here by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS
The information regarding our directors required by this Item 10 is incorporated
by reference to pages 2-5 of the Proxy Statement under the headings "Proposal
No. 1 - Election of Directors - Nominees, Business Experience of the Directors,
and Board Meetings and Committees."
EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding our Executive Officers required by this Item 10 is
included at the end of Part I of this Form 10-K.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The information regarding compliance with Section 16(a) of the Exchange Act
required by this Item 10 is incorporated by reference to page 24 of the Proxy
Statement under the heading "Compliance with Section 16(a) of the Securities
Exchange Act of 1934."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to pages
4, 11-12 of the Proxy Statement under the headings "Executive Compensation" and
"Report of the Compensation Committee and of the Board of Directors on Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to pages
5-7 of the Proxy Statement under the heading "Principal Stockholders and Share
Ownership by Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to pages
10-11 of the Proxy Statement under the heading "Executive Compensation -
Compensation Committee Interlocks, Insider Participation and Other
Transactions."
OTHER MATTERS
During the quarter ended March 31, 2001, we made certain repurchases of our own
Common Stock pursuant to our corporate repurchase plan. Under that plan, during
each quarter of 2001 our Board of Directors authorized our officers to
repurchase up to 500,000 shares of our Common Stock. A summary of those
purchases is set forth below:
TYPE OF NUMBER OF SHARES OF AGGREGATE PURCHASE
DATE TRANSACTION BARRA COMMON STOCK PRICE
---- ----------- ------------------- ------------------
February 6, 2001 Open Market 2,500 $ 117,180
February 7, 2001 Open Market 25,000 $1,168,754
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Form 10-K:
(1) Financial Statements.
The following financial statements are included in Item 8 of Part
II of this Form 10-K:
Reference Page
Independent Auditors' Report 31
Consolidated Financial Statements
Consolidated Balance Sheets 32
Consolidated Statements of Income 33
Consolidated Statements of Cash Flows 34
Consolidated Statements of Stockholders' Equity 35
Notes to Consolidated Financial Statements 36
(2) Financial Statement Schedules.
All Financial Statement Schedules are omitted because they are
not applicable or required, or because the required information
is given elsewhere in Part II, Items 7 and/or 8 of this Form
10-K.
(3) Exhibit Index.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3.1 Certificate of Incorporation of Barra, Inc. (incorporated
by reference to Exhibit 3.1 of our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
3.2 Bylaws of Barra, Inc. (incorporated by reference to
Exhibit 3.2 of our Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
4.1 Specimen stock certificate (incorporated by reference to
Exhibit 4.3 to our Form S-1 Registration Statement, as
amended (No. 33-42951), filed August 20, 1991
(Registration Statement).
10.1 POSIT Joint Venture Agreement, dated October 1, 1987,
between Barra, Inc. and Jefferies & Company, Inc. and
related Exclusive Software License Agreement, dated as of
October 1, 1987, and amended as of August 1990
(incorporated by reference to Exhibit 10.3 to the
Registration Statement).
10.2 Stock Option Plan of Barra, Inc. (incorporated by
reference to Exhibit 10.19 to the Registration Statement).
(1)
10.3 Agreement for Services, dated February 1, 1991 and July 1,
1991 between Barra, Inc. and Ziff Communications Company
(incorporated by reference to Exhibit 10.16 to the
Registration Statement).
10.4 Agreement for Services between Barra, Inc. and Ziff
Information Services, a division of Ziff Communications
Company, dated February 1, 1994 (incorporated by reference
to Exhibit 10.1 to our Annual Report on Form 10-K for the
fiscal year ended March 31, 1994).
10.5 Revolving Line of Credit Note, dated February 28, 1996,
made by Barra, Inc. to the Sumitomo Bank of California
(incorporated by reference to Exhibit 10.5 to our Annual
Report on Form 10-K for the fiscal year ended March 31,
1996).
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53
10.6 Commercial Loan Agreement, dated as of February 28, 1996,
between Barra, Inc. and The Sumitomo Bank of California
(incorporated by reference to Exhibit 10.6 to our Annual
Report on Form 10-K for the fiscal year ended March 31,
1996).
10.7 Barra, Inc. Net Office Lease, dated as of May 21, 1996, by
and between Barra, Inc. and First Milvia, LLC
(incorporated by reference to Exhibit 10.1 to our Annual
Report on Form 10-K for the fiscal year ended March 31,
1996).
10.8 Rogers, Casey & Associates, Inc. 1992 Stock Option and
Restricted Stock Plan and Addendum thereto (incorporated
by reference to Exhibit 4.3 to our registration statement
on Form S-8 filed September 11, 1997 (File No. 333-11771).
(1)
10.9 Form of Stock Option Agreement for Rogers, Casey &
Associates, Inc. 1992 Stock Option and Restricted Stock
Plan (incorporated by reference to Exhibit 4.4 to our
registration statement on Form S-8 filed September 11,
1997 (File No. 333-11771). (1)
10.10 Operating Agreement for Symphony Asset Management LLC
(incorporated by reference to Exhibit 10.2 to our
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
10.11 1996 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4.3 to our registration statement on
Form S-8 filed August 15, 1996 (File No. 333-10259).
10.12 Form of Stock Purchase Agreement for 1996 Employee Stock
Purchase Plan (incorporated by reference to Exhibit 4.4 to
our registration statement on Form S-8 filed August 15,
1996 (File No. 333-10259).
10.13 Form of Officers' Stock Purchase Agreement for 1996
Employee Stock Purchase Plan (incorporated by reference to
Exhibit 4.5 to our registration statement on Form S-8
filed August 15, 1996 (File No. 333-10259). (1)
10.17 Barra Directors Option Plan (incorporated by reference to
Exhibit No. 4.3 to Barra, Inc.'s registration statement on
Form S-8 filed September 11, 1997 (File No. 333-35381)).
(1)
10.18 Form of Stock Option Agreement for Barra Directors Option
Plan (incorporated by reference to Exhibit No. 4.4 to our
registration statement on Form S-8 filed September 11,
1997 (File No. 333-35381)). (1)
10.19 Barra Stock Option Plan and Amendment No. 1 thereto
(incorporated by reference to Exhibit No. 4.3 to our
registration statement on Form S-8 filed September 11,
1997 (File No. 333- 35379)). (1)
10.20 Amendment No. 2 to Barra Stock Option Plan dated January
28, 1999 (incorporated by reference to Exhibit No. 4.3 to
our registration statement on Form S-8 filed January 29,
1999 (File No. 333-35379)). (1)
10.21 Form of Indemnification Agreement between Barra, Inc. and
its officers and directors (incorporated by reference to
Exhibit D to the Proxy Statement for the Barra, Inc. 1998
Annual Meeting of Shareholders filed June 25, 1998).
10.22 2000 Equity Participation Plan of Barra, Inc.
(incorporated by reference to Exhibit No. 4.1 to our
registration statement on Form S-8 filed September 8, 2000
(File No. 333-45392)).
10.23 Acquisition Agreement, dated as of June 15, 2001, by and
among Barra, SAMI, Maestro, the owners of Maestro,
Symphony LLC and Nuveen (incorporated by reference to
Exhibit No. 2.1 to our Form 8-K filed June 18, 2001 (File
No. 0-19690)).
51
54
13.1 2001 Annual Report to Shareholders of Barra, Inc., which,
except for those portions expressly incorporated herein by
reference, is furnished solely for the information of the
Securities Exchange Commission and is not to be deemed
"filed."
21.1 List of Subsidiaries of Barra, Inc. (electronic filing
only)
23.1 Consent of Deloitte & Touche LLP (electronic filing only)
--------------------
(1) Management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Annual Report
on Form 10-K pursuant to Item 14(a).
THE EXHIBITS LISTED ABOVE ARE FILED AS PART OF, OR ARE
INCORPORATED BY REFERENCE INTO, THIS REPORT. COPIES OF THIS
REPORT WILL BE FURNISHED WITHOUT CHARGE UPON WRITTEN REQUEST TO
ANY STOCKHOLDER. COPIES OF THE EXHIBITS LISTED ABOVE WILL BE
FURNISHED UPON WRITTEN REQUEST AT REASONABLE COST TO ANY
STOCKHOLDER. SUCH REQUESTS SHOULD BE SENT TO BARRA, INC., 2100
MILVIA STREET, BERKELEY, CA 94704, ATTENTION: MARIA HEKKER,
GENERAL COUNSEL.
(b) Reports on Form 8-K:
None.
52
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Barra, Inc.
By: /s/ Gregory V. Stockett
-----------------------------------------------------
Name: Gregory V. Stockett
---------------------------------------------------
Title: Chief Financial Officer
--------------------------------------------------
Date: June 25, 2001
---------------------------------------------------
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Kamal Duggirala and
Gregory V. Stockett, and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorneys-in-fact, or his substitute or substitutes, may do cause to
be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934,
this report has been signed by the following persons, on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ A. George Battle Director June 25, 2001
- ----------------------------------------
A. George Battle
/s/ Kamal Duggirala Chief Executive Officer (Principal Executive Officer) June 25, 2001
- ---------------------------------------- and Director
Kamal Duggirala
/s/ M. Blair Hull Director June 25, 2001
- ----------------------------------------
M. Blair Hull
/s/ Gregory V. Stockett Chief Financial Officer (Principal Financial and June 25, 2001
- ---------------------------------------- Accounting Officer)
Gregory V. Stockett
/s/ Norman J. Laboe Director June 25, 2001
- ----------------------------------------
Norman J. Laboe
/s/ Clyde Ostler Director June 25, 2001
- ----------------------------------------
Clyde Ostler
/s/ Andrew Rudd Director and Chairman June 25, 2001
- ----------------------------------------
Andrew Rudd
53
56
EXHIBIT INDEX
Exhibit Description
------- ---------------------
13.1 2001 Annual Report to Shareholders of Barra, Inc., which,
except for those portions expressly incorporated herein by
reference, is furnished solely for the information of the
Securities Exchange Commission and is not to be deemed
"filed."
21.1 List of Subsidiaries of Barra, Inc. (electronic filing
only)
23.1 Consent of Deloitte & Touche LLP (electronic filing only)