<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MAY 25, 1998
--------------------------------
ARBOR SOFTWARE CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRATION AS SPECIFIED IN CHARTER)
DELAWARE 000-26934 77-0277772
- --------------------------------------------------------------------------------
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION OF FILE NUMBER) IDENTIFICATION NO.)
INCORPORATION)
1344 CROSSMAN AVENUE, SUNNYVALE, CALIFORNIA 94089
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (408) 744-9500
----------------------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
The undersigned registrant, Arbor Software Corporation (the
"Registrant"), hereby amends the financial statements, exhibits and other
portions of its Current Report on Form 8-K, initially filed with the Securities
and Exchange Commission (the "Commission") on May 29, 1998, as set forth
herein. The May 29, 1998 original filing of the Form 8-K described the
merger of a subsidiary of the Registrant with Hyperion Software Corporation
("Hyperion").
Item 7 of the Registrant's Current Report on Form 8-K dated May 29,
1998, is hereby amended to include the financial statements and exhibits
indicated in Item 7 below.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Report of Independent Auditors..............................F-1
Consolidated Balance Sheet as of
June 30, 1997 and June 30, 1996...........................F-2
Consolidated Statement of Income for the years ended
June 30, 1997, June 30, 1996 and June 30, 1995............F-3
Consolidated Statement of Stockholder's Equity
for the years ended June 30, 1997, June 30, 1996
and June 30, 1995.........................................F-4
Consolidated Statement of Cash Flows for the years
ended June 30, 1997, June 30, 1996 and June 30, 1995......F-5
Notes to Consolidated Financial Statements..................F-6
Condensed Consolidated Balance Sheet as of
March 31, 1998 and June 30, 1997.........................F-20
Condensed Consolidated Statement of Income
(unaudited) for the nine months ended March 31,
1998 and March 31, 1997..................................F-21
Condensed Consolidated Statement of Cash Flows for
the nine months ended March 31, 1998 and March 31, 1997..F-22
Notes to Condensed Consolidated Financial Statements for
the nine month period ended March 31, 1998...............F-23
(b) Not Applicable
<PAGE> 3
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
2.1* Agreement and Plan of Merger dated May 25, 1998,
by and among Registrant, Merger Sub and Hyperion.
23.1 Consent of Ernst & Young LLP.
</TABLE>
- -----------
*Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on
Form 8-K dated as of May 25, 1998, filed with the Securities and Exchange
Commission on May 29, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Arbor Software Corporation
(Registrant)
Date: June 25, 1998 By: /s/ STEPHEN V. IMBLER
------------------------------------
Stephen V. Imbler
Senior Vice President and Chief
Financial Officer (Duly Authorized
Officer and Principal Financial
Officer)
5
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Hyperion Software Corporation
We have audited the accompanying consolidated balance sheet of Hyperion Software
Corporation and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1997. 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 generally accepted auditing
standards. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hyperion Software Corporation and subsidiaries at June 30, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Stamford, Connecticut
July 17, 1997
F-1
<PAGE> 5
Hyperion Software Corporation
Consolidated Balance Sheet
(in thousands, except for share data)
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
-----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 67,059 $ 42,361
Accounts receivable--net of allowances of $5,300 and $4,900 64,831 55,674
Prepaid expenses and other current assets 3,243 3,925
Deferred income taxes 3,811 3,349
-----------------------
TOTAL CURRENT ASSETS 138,944 105,309
Property and equipment--at cost, less accumulated depreciation
and amortization of $31,029 and $21,063 57,853 54,606
Product development costs--at cost, less accumulated
amortization of $6,796 and $7,818 8,526 11,985
Product distribution rights, goodwill and other intangible
assets--at cost, less accumulated amortization of
$7,631 and $5,784 11,103 6,087
Deposits and other assets 2,213 1,461
-----------------------
Total assets $218,639 $179,448
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 22,746 $ 20,728
Accrued employee compensation and benefits 19,882 15,380
Income taxes payable 8,898 4,215
Deferred revenue 44,619 36,832
Notes payable 563 705
-----------------------
TOTAL CURRENT LIABILITIES 96,708 77,860
Mortgage payable 7,823 8,336
Deferred income taxes 1,071 3,249
COMMITMENTS AND CONTINGENCIES - Note H
Stockholders' equity:
Preferred stock--$.01 par value; authorized--1,000,000
shares; none issued
Common stock--$.01 par value; authorized--50,000,000
shares; issued--22,577,437 and 21,362,626 shares 226 214
Additional paid-in capital 85,706 73,440
Retained earnings 41,994 30,116
Currency translation adjustments (1,376) (534)
Treasury stock, at cost--4,344,599 and 4,329,464 shares (13,513) (13,233)
-----------------------
TOTAL STOCKHOLDERS' EQUITY 113,037 90,003
-----------------------
Total liabilities and stockholders' equity $218,639 $179,448
=======================
</TABLE>
See accompanying notes.
F-2
<PAGE> 6
Hyperion Software Corporation
Consolidated Statement of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
REVENUES
Software licenses $112,115 $ 90,304 $ 77,985
License renewals and services 110,715 82,520 59,156
-----------------------------------
Total revenues 222,830 172,824 137,141
COSTS AND EXPENSES
Cost of revenues:
Software licenses 7,135 4,780 4,454
License renewals and services 69,076 53,258 36,443
Sales and marketing 72,277 55,484 44,324
Product development 33,046 26,839 20,980
Purchased research and development 2,000
General and administrative 19,216 16,443 11,302
Asset valuation and restructuring 4,400
Merger and integration 1,000
-----------------------------------
205,150 158,804 118,503
-----------------------------------
OPERATING INCOME 17,680 14,020 18,638
Interest income 1,747 1,480 1,620
Interest expense (349) (243) (119)
-----------------------------------
INCOME BEFORE INCOME TAXES 19,078 15,257 20,139
Provision for income taxes 7,200 5,800 8,000
-----------------------------------
NET INCOME $ 11,878 $ 9,457 $ 12,139
===================================
EARNINGS PER SHARE
Primary $ .64 $ .53 $ .70
Fully diluted $ .64 $ .53 $ .69
AVERAGE NUMBER OF SHARES OUTSTANDING
Primary 18,455 17,875 17,316
Fully diluted 18,698 17,933 17,480
</TABLE>
See accompanying notes.
F-3
<PAGE> 7
Hyperion Software Corporation
Consolidated Statement of Stockholders' Equity
(in thousands, except for share data)
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional Currency
Par Paid-in Retained Translation Treasury
Shares Value Capital Earnings Adjustments Stock
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 19,582,310 $196 $57,398 $ 9,536 $ (436) $(13,033)
Charge reflecting change in
Pillar Corporation's
fiscal year (1,016)
Exercise of stock options 795,756 8 3,669
Income tax benefit from exercise
of stock options 3,195
Currency translation effect 50
Net income 12,139
---------------------------------------------------------------------------
Balance at June 30, 1995 20,378,066 204 64,262 20,659 (386) (13,033)
Exercise of stock options 984,560 10 5,790 (200)
Income tax benefit from exercise
of stock options 3,388
Currency translation effect (148)
Net income 9,457
---------------------------------------------------------------------------
Balance at June 30, 1996 21,362,626 214 73,440 30,116 (534) (13,233)
Exercise of stock options 1,214,811 12 9,506 (280)
Income tax benefit from exercise
of stock options 2,760
Currency translation effect (842)
Net income 11,878
---------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 22,577,437 $226 $85,706 $41,994 $(1,376) $(13,513)
===========================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 8
Hyperion Software Corporation
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,878 $ 9,457 $ 12,139
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20,983 14,032 8,338
Asset valuation and restructuring charges, net of
payments of $258 4,142
Accounts receivable allowance provisions 2,487 4,229 1,667
Deferred income taxes (2,640) (1,206) 210
Charge reflecting change in Pillar Corporation's fiscal year (1,016)
Changes in operating assets and liabilities:
Accounts receivable (11,644) (11,897) (15,843)
Prepaid expenses and other assets 803 235 (2,463)
Accounts payable and accrued expenses 5,879 8,492 11,286
Income taxes payable 7,444 4,495 5,074
Deferred revenue 7,786 6,233 9,544
----------------------------------------
Cash provided by operating activities 47,118 34,070 28,936
INVESTING ACTIVITIES
Office and research facilities (578) (15,492) (14,308)
Leasehold improvements and purchases of furniture,
equipment and software (16,123) (16,726) (12,880)
Product development costs (4,792) (5,798) (5,207)
Deposits and intangible assets (1,564) (636) (1,921)
Business acquisitions (7,104) (3,183)
----------------------------------------
Cash used by investing activities (30,161) (41,835) (34,316)
FINANCING ACTIVITIES
Principal payments on notes payable (655) (610) (309)
Mortgage payable--proceeds 9,500
Exercise of stock options by employees 9,238 5,390 3,720
----------------------------------------
Cash provided by financing activities 8,583 4,780 12,911
Effect of exchange rate changes (842) (148) 50
----------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24,698 (3,133) 7,581
Cash and cash equivalents at beginning of year 42,361 45,494 37,913
----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 67,059 $ 42,361 $ 45,494
========================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 2,398 $ 2,511 $ 2,716
Interest ($266 and $243 capitalized in 1996 and 1995) 326 497 311
</TABLE>
See accompanying notes.
F-5
<PAGE> 9
Hyperion Software Corporation
Notes to Consolidated Financial Statements
BUSINESS
Hyperion Software Corporation (the "company") develops, markets and supports
comprehensive analytic solutions that enable large, multinational companies to
improve financial performance by maximizing the value of information. The
company's internet/intranet-enabled applications support and enhance
enterprise-wide financial processes, including planning, budgeting, forecasting,
accounting, consolidation and performance analysis.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the company and
its subsidiaries, all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated.
Assets and liabilities denominated in foreign currencies are translated at the
exchange rate on the balance sheet date. The related revenues, costs and
expenses are translated at average rates of exchange prevailing during the
reporting period. The resulting adjustments are charged or credited to
stockholders' equity. Translation adjustments relating to operations abroad that
are generally dependent on funding from the company's U.S. operations are
included in the statement of income.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Software license revenues are recognized upon execution of the license agreement
and delivery of the software. In all cases, however, collection of any related
receivable must be probable and no significant post-contract obligations of the
company shall be remaining.
License renewal (maintenance) fees for routine support and product updates are
recognized ratably over the term of the license agreement.
Current Assets and Liabilities
The company considers highly liquid investment instruments with remaining terms
of three months or less at the time of acquisition to be cash equivalents. Cash
equivalents are comprised primarily of investment-grade U.S. state and political
subdivision obligations.
All current assets and current liabilities, because of their short-term nature,
are stated at cost, which approximates market value. The carrying amount of the
company's borrowings approximates market value, as the obligations provide for
interest at floating rates.
F-6
<PAGE> 10
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." The company adopted SFAS No. 121 in fiscal
1997; the impact was not material.
Product Development Costs
The company begins capitalizing product development costs, principally wages and
contractor fees, only after establishing commercial and technical viability.
Product development costs are stated at the lower of cost or net realizable
value. Annual amortization of these costs represents the greater of the amount
computed using (i) the ratio that current gross revenues for the product(s) bear
to the total current and anticipated future gross revenues for the product(s),
or (ii) the straight-line method over the remaining estimated economic life of
the product(s); generally such deferred costs are amortized over four years.
Amortization commences when the product is available for general release to
customers. Amortization expense totaled $4.8 million for 1997, $3.2 million for
1996 and $2.2 million for 1995.
Depreciation/Amortization
Depreciation and amortization are computed principally using the straight-line
method over the estimated useful lives of the applicable assets.
Income Taxes
The company provides for taxes based on current taxable income and the future
tax consequences of temporary differences between the financial reporting and
income tax carrying values of its assets and liabilities.
Earnings Per Share
Earnings per share ("EPS") are calculated by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period after giving effect to the two-for-one stock split and merger with Pillar
Corporation (see Note B). For primary EPS, common equivalent shares are shares
which would be issuable upon the exercise of outstanding stock options, reduced
by the number of shares assumed to be purchased by the company with the proceeds
obtained therefrom at the average market price during the period. For the fully
diluted EPS calculation, shares are assumed to be purchased by the company at
the higher of the average or period-end market price and, therefore, this
calculation may include additional equivalent shares. All share and per share
data have been retroactively adjusted to reflect a two-for-one stock split
effected in the form of a 100% stock dividend paid in December 1995.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which changes the methodology of calculating earnings per
share. The company will adopt SFAS No. 128 in December 1997. The company does
not expect the adoption of SFAS No. 128 to have a material effect on the
earnings per share information presented.
<PAGE> 11
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components as part of a complete set of
financial statements. Comprehensive income is a measure of all changes in equity
of any enterprise that results from recognized transactions and other economic
events of a period other than transactions with owners in their capacity as
owners. The company will adopt SFAS No. 130 in fiscal 1999.
Equity Based Compensation
The company accounts for stock option grants in accordance with Accounting
Principles Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to
Employees." The company generally prices its stock options at fair market value
on the date of grant and, therefore, no compensation expense is recognized for
the stock options granted.
B. STRATEGIC ALLIANCE AND ACQUISITIONS
On July 1, 1997, the company joined forces with The Baan Company, a leading
provider of enterprise-wide business management software to companies requiring
best-of-class manufacturing capabilities, engaging Baan to remarket Hyperion
products and establishing a joint venture development effort for accounting
products. The two-year definitive alliance is intended to leverage Baan's
expertise in complex transactional Enterprise Resource Planning solutions and
Hyperion's command of corporate financial planning, reporting and performance
analysis. Baan has agreed to pay Hyperion royalties of at least $8 million for
fiscal 1998 and each has agreed to share equally in the cost of developing next
generation accounting products which may be licensed to end users by either
company. Hyperion incurred nonrecurring charges in its June 1997 quarter of $4.4
million ($2.8 million net of tax benefits or $.15 per share) for asset valuation
(write-off of certain capitalized software costs, $3.5 million) and
restructuring (employee and officer severance, and customer and professional
services) costs related to the joint development agreement.
In July 1996, the company acquired the exclusive distribution and service rights
to its corporate budgeting product in Belgium, France and the United Kingdom for
$7.6 million. The acquisition was accounted for as a purchase transaction and,
accordingly, the purchase price was allocated to identifiable intangible assets
based on their estimated fair values. The net operating results of the acquired
business from the date of purchase are included in the accompanying statement of
income. Pro forma statement of income data as if the acquisition had occurred on
July 1, 1994 is not shown, as it would not differ significantly from reported
results.
During the quarter ended December 1995, the company concluded two strategic
acquisitions, described below, involving application technologies and an
important European client base. The acquisitions, which amounted to $3.6
million, were accounted for as purchase transactions and, accordingly, $2
million was allocated to purchased research and development and $1.6 million was
allocated to identifiable intangible assets based on their estimated fair
values. The purchased research and development is reflected as a one-time charge
in the company's operating results. The charge had the effect of reducing net
income for fiscal 1996 by approximately $1.3 million or $.07 per share.
<PAGE> 12
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
B. STRATEGIC ALLIANCE AND ACQUISITIONS (CONTINUED)
In December 1995, the company acquired certain assets and application
technologies, and assumed certain obligations of Trust Consult s.a., a
Brussels-based financial solutions provider. Along with over 130 customers,
Hyperion gained significant European statutory consolidation and reporting
expertise and technology. The net operating results of the acquired business
from the date of purchase are included in the accompanying statement of income.
Pro forma statement of income data as if the acquisition had occurred on July 1,
1994 is not shown, as it would not differ significantly from reported results.
In November 1995, the company acquired certain rights from Sinper Corporation to
its powerful database engine, TM/1, technology. The new technology was used in
the development of Hyperion OLAP (On-Line Analytical Processing), a solution for
customers' most complex and high volume multidimensional analysis needs, such as
product profitability and sales analysis. Hyperion OLAP became commercially
available in April 1996.
On November 29, 1994, the company issued 1,141,592 shares of its common stock
(including 146,970 shares underlying options and warrants assumed by Hyperion
Software) in connection with the merger with Pillar Corporation ("Pillar").
Pillar, based in California, develops, markets and supports client/server
corporate budgeting and planning solutions. The acquisition was accounted for as
a pooling of interests. Accordingly, the financial statements were restated for
all prior periods to include Pillar. Further, all common share and per share
data were restated for prior periods.
For the three-month, pre-merger period ended September 30, 1994, revenues and
net income of the company and Pillar were as follows, in thousands (unaudited):
<TABLE>
<CAPTION>
<S> <C>
REVENUES
Hyperion Software $22,470
Pillar 3,858
-------------------------------------------------------------
$26,328
=============================================================
NET INCOME
Hyperion Software $ 1,225
Pillar 1,016
adjustment (a) (370)
-------------------------------------------------------------
$ 1,871
=============================================================
</TABLE>
(a) To adjust the provision for income taxes to reflect, on a
combined company basis, the annual effective tax rate.
Pillar previously used the fiscal year ended September 30 for its financial
reporting. Pillar's operating results for the year ended September 30, 1994 were
included in Hyperion's consolidated statement of income for the year ended June
30, 1994. The accompanying statement of income reflects the operations of
Hyperion Software and Pillar for the years ended June 30, 1997, 1996 and 1995.
Accordingly, the duplication of Pillar's net income, for the three months ended
September 30, 1994, in retained earnings has been adjusted by a $1 million
charge to retained earnings in fiscal 1995.
In connection with the acquisition, the company charged $1 million to operations
for nonrecurring merger and integration costs (principally professional fees)
incurred.
<PAGE> 13
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
C. PROPERTY, EQUIPMENT AND RELATED MORTGAGE LOAN
Property and equipment consists of the following at June 30:
<TABLE>
<CAPTION>
Depreciation/
Amortization
1997 1996 Period
- -----------------------------------------------------------------------------------------------
(in thousands) (years)
<S> <C> <C> <C>
Land $ 3,800 $ 3,800
Office and research facilities 26,578 26,000 39
Furniture, equipment and software 56,223 43,866 3 to 7
Leasehold improvements 2,281 2,003 lease term*
- -----------------------------------------------------------------------------
88,882 75,669
Less accumulated depreciation and amortization 31,029 21,063
- -----------------------------------------------------------------------------
$57,853 $54,606
=============================================================================
</TABLE>
* Leasehold improvements are amortized over the lesser of the remaining
life of the lease or the useful life of the improvements.
Depreciation and amortization of these assets totaled $13.5 million, $9.4
million and $5.4 million for 1997, 1996 and 1995, respectively.
On January 20, 1995, the company completed the purchase of an office and
research facility in Stamford, Connecticut for $11.4 million. The purchase price
was financed by the Connecticut Development Authority ("CDA," an agency of the
State of Connecticut) through a $9.5 million mortgage loan, with company funds
used for the balance. In the interest of Connecticut-based jobs, the CDA agreed
to such financing over a 15-year period at LIBOR minus 2%, subject to, among
other things: (i) the creation of a specified number of new Connecticut-based
jobs, (ii) a 10-year residency in the state, and (iii) the payment of the
remaining unpaid principal at the end of year ten. Violations of certain such
requirements, if any, would result in additional interest charges and/or a
penalty payment.
D. PRODUCT DISTRIBUTION RIGHTS, GOODWILL AND OTHER INTANGIBLE ASSETS
Components of intangible assets, which relate primarily to business
acquisitions, are as follows at June 30:
<TABLE>
<CAPTION>
Amortization
1997 1996 Period
- ----------------------------------------------------------------------------------------------
(in thousands) (years)
<S> <C> <C> <C>
Product distribution and service rights $ 9,123 $ 1,570 3 to 7
Goodwill 3,685 3,648 4 to 20
Software/technology 2,039 2,489 2 to 6
Customer base 2,219 2,219 3 to 5
Copyrights, trademarks and other 1,618 1,416 4 to 6
Noncompete agreements 50 529 3
- ----------------------------------------------------------------------------
18,734 11,871
Less accumulated amortization 7,631 5,784
- ----------------------------------------------------------------------------
$11,103 $ 6,087
============================================================================
</TABLE>
<PAGE> 14
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
D. PRODUCT DISTRIBUTION RIGHTS, GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
The carrying value of intangible assets will be reviewed by management if the
facts and circumstances suggest that the value(s) may be impaired. If this
review indicates that the carrying amount(s) will not be recoverable, as
determined based on the undiscounted cash flows attributable to such asset(s)
over the remaining amortization period, management will reduce the carrying
amount by the estimated shortfall of cash flows.
E. AVAILABLE CREDIT FACILITY
The company may borrow up to $25 million under an amended and restated credit
facility (the "Facility") with The Bank of New York. Key provisions of the
Facility are as follows: (i) the maturity date is June 30, 2000, (ii) the
interest rate is the bank's base rate plus .25% or, at the company's option,
LIBOR plus 1.5%, (iii) a commitment fee is charged based on any unused credit,
at the rate of .25% per annum, and (iv) borrowings under the Facility are
limited to the sum of (a) 85% of eligible accounts receivable, as defined, from
debtors located in the United States, plus (b) 75% of eligible accounts
receivable, as defined, from debtors located outside of the United States.
Other significant terms of the Facility restrict the company regarding the
payment of dividends, capital expenditures and acquisitions, and additional
indebtedness, including other fiscal commitments, and require the company to
maintain minimum net worth and working capital ratios and to meet certain
profitability criteria, as defined. Except for its office and research
facilities (see Note C), substantially all of the company's assets have been
pledged as security under terms of the Facility.
<PAGE> 15
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
F. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their tax bases. Significant components of deferred tax assets and
liabilities at June 30 are as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $1,588 $ 4,054
Deferred revenue 1,048 1,510
Accounts receivable 2,240 1,893
Other intangible assets 1,213 1,418
Tax credit carryforwards 1,157 876
Property and equipment 684
Accrued expenses 523 310
Other 53 167
- -------------------------------------------------------------------------------
8,506 10,228
Less valuation allowance 2,356 4,944
- -------------------------------------------------------------------------------
6,150 5,284
- -------------------------------------------------------------------------------
Deferred income tax liabilities:
Product development costs 3,410 4,914
Property and equipment 270
- -------------------------------------------------------------------------------
3,410 5,184
- -------------------------------------------------------------------------------
Net deferred income tax asset $2,740 $ 100
===============================================================================
The provision for income taxes consists of the following charges (credits):
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
U.S. $ 6,282 $ 4,214 $5,211
State 1,376 1,419 1,709
Other countries 2,182 1,373 870
- -------------------------------------------------------------------------------
9,840 7,006 7,790
- -------------------------------------------------------------------------------
Deferred:
U.S. (1,880) (800) 252
State (760) (379)
Other countries (27) (42)
- -------------------------------------------------------------------------------
(2,640) (1,206) 210
- -------------------------------------------------------------------------------
$ 7,200 $ 5,800 $8,000
===============================================================================
</TABLE>
<PAGE> 16
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
F. INCOME TAXES (CONTINUED)
The effective income tax rate varied from the statutory U.S. federal tax rate as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. tax rate 35.0% 35.0% 35.0%
State income taxes, net of U.S. tax benefit 2.1 4.5 5.6
Tax exempt interest (2.1) (1.9) (1.9)
Non-U.S. operations, including export sales 5.4 (0.6) (2.0)
Change in valuation allowance (3.9) (0.9) 1.6
Other--net 1.2 1.9 1.4
- ------------------------------------------------------------------------------------
Effective income tax rate 37.7% 38.0% 39.7%
====================================================================================
</TABLE>
The company has U.S. and non-U.S. net operating loss (NOL) carryforwards of $4.1
million and U.S. federal and state tax credit carryforwards of $1.5 million,
which expire as follows:
<TABLE>
<CAPTION>
NOL Tax Credit
Year Carryforwards Carryforwards
- ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
2001 $ 232
2003 55
2004 $1,662 138
2005 and thereafter 326
No expiration date 2,402 750
- ------------------------------------------------------------------------------
$4,064 $1,501
==============================================================================
</TABLE>
The company's utilization of NOL and tax credit carryforwards, acquired through
the merger with Pillar Corporation (see Note B), is subject to annual
limitations as prescribed by Sections 382 and 383 of the Internal Revenue Code
and similar state authority.
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS
The company has elected to follow APBO No. 25 and related interpretations in
accounting for its stock option and employee stock purchase plans because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123 requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APBO No. 25, because generally the
exercise price of the company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
The company grants options to employees pursuant to its 1991 Stock Plan ("1991
Plan"). Under the 1991 Plan, the company may grant options to purchase in the
aggregate up to 4 million shares of common stock. At June 30, 1997, there were,
in the aggregate, outstanding options to purchase 2.4 million shares of common
stock pursuant to the 1991 Plan. Options granted under the 1991 Plan have
ten-year terms and are generally exercisable at 25% per year commencing one year
from the date of grant.
<PAGE> 17
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED)
The company grants options to its non-employee directors pursuant to its 1991
Non-Employee Director Stock Option Plan ("Director Plan"). The Director Plan
provides that options to acquire an aggregate of up to .2 million shares of
common stock may be granted to non-employee directors of the company. At June
30, 1997, there were, in the aggregate, outstanding options to purchase .1
million shares of common stock pursuant to the Director Plan. Options under the
Director Plan generally are exercisable in full on the date of grant, except
under certain circumstances under which they vest at 33% per year. Options
granted under the Director Plan have ten-year terms.
The company has granted options under certain other stock option plans and
certain employee compensation arrangements pursuant to which it no longer makes
any new option grants, but pursuant to which there continues to exist
outstanding options to purchase shares of common stock. These options generally
expire ten years after their grant date. Under these plans and employee
compensation arrangements, there are options outstanding to purchase .2 million
shares of common stock as of June 30, 1997. These stock option plans include
plans assumed by the company in connection with its acquisition of Pillar
Corporation (see Note B).
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, which also requires that the information be determined as if the
company had accounted for its employee stock options granted subsequent to June
30, 1995 under the fair value method of that statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for both fiscal 1997 and
1996: risk-free interest rate of 6.4%; volatility factors of the expected market
price of the company's common stock of .25; and a weighted-average average life
for the options of 5.5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The company's pro
forma net income would have been approximately $9.4 million and $7.9 million and
pro forma primary and fully diluted earnings per share would have been $.50 and
$.44 for the fiscal years ended June 30, 1997 and 1996, respectively.
In accordance with provisions of SFAS No. 123, the pro forma disclosures include
only the effect of stock options granted in fiscal 1996 and fiscal 1997. These
pro forma effects may not be representative of the effects of SFAS No. 123 on
future years because of the fact that options vest over several years and new
grants are generally made each year.
<PAGE> 18
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED)
The following table presents a summary of the company's stock option activity
and related information for the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- -----------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,059,751 $ 9.53 3,053,688 $ 6.36 3,269,132 $ 4.77
Granted:
Plans 984,999 13.63 1,566,279 18.55 456,332 12.66
Exercised:
Plans (807,446) 6.97 (497,258) 4.53 (283,034) 3.50
Compensation arrangements (191,500) 2.75 (297,500) 2.50 (359,800) 2.04
Forfeited/exchanged:
Plans (391,845) 14.04 (765,458) 21.33 (28,942) 6.81
--------- ------ --------- ------ --------- ------
Outstanding at year-end 2,653,959 $11.66 3,059,751 $ 9.53 3,053,688 $ 6.36
========= ====== ========= ====== ========= ======
Options exercisable at year-end 1,237,921 $ 9.24 1,663,658 $ 6.21 1,983,440 $ 4.21
========= ====== ========= ====== ========= ======
Weighted average fair value of
options granted during the year $ 5.06 $ 6.53
====== ======
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- -----------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Years of Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ---------------- -------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
$ .38 - 5.00 284,804 3.6 $ 2.99 284,214 $ 2.99
5.01 - 10.00 587,459 5.6 8.56 545,459 8.52
10.01 - 15.00 1,458,080 8.6 12.69 293,370 12.34
15.01 - 20.00 196,716 9.0 18.48 62,216 18.23
20.01 - 24.88 126,900 8.7 23.03 52,662 22.48
- ---------------------------------------------------------------------------------------------------------
$ .38 - 24.88 2,653,959 7.1 $11.66 1,237,921 $ 9.24
=========================================================================================================
</TABLE>
Under the 1991 Employee Stock Purchase Plan ("Purchase Plan"), shares of the
company's common stock may be purchased at six-month intervals at 85% of the
lower of the fair market value on the first or the last business day of each
six-month period. Employees may purchase shares having a value not exceeding 10%
of their gross compensation, up to 1,000 shares, during an offering period. Two
million shares were originally reserved for under the Purchase Plan, which term
lasts for ten years.
<PAGE> 19
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED)
The following summarizes shares of common stock reserved for issuance as of June
30, 1997:
<TABLE>
<S> <C>
Stock options granted and outstanding 2,653,959
Stock options not yet granted 749,871
---------
3,403,830 (3.1 million at
========= September 15, 1997)
</TABLE>
In addition, 1,158,916 shares are reserved for sale under the Purchase Plan.
The company maintains an employee savings plan that qualifies as a cash or
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the plan, participating U.S. employees may defer up to 15% of their
pre-tax compensation, but not more than $9,500 per calendar year. The company
contributes to the plan, annually, up to a maximum of $1,000 per participant.
Similar savings plans are maintained with respect to certain non-U.S. employees.
In fiscal 1997, 1996 and 1995, the company contributed $1.1 million, $1 million
and $.7 million, respectively, to the savings plans.
H. COMMITMENTS AND CONTINGENCIES
The company leases office facilities and certain equipment under various
operating lease agreements. The leases expire at various times through the year
2003.
Future minimum lease payments under all operating leases with noncancellable
terms in excess of one year amount to $15.8 million as follows (in millions):
$5.4 in 1998, $4.2 in 1999, $3.1 in 2000, $1.9 in 2001, $1.1 in 2002 and $.1
thereafter. Certain of the office leases provide as well for contingent payments
based on building operating expenses. Rental expense for the years ended June
30, 1997, 1996 and 1995 under all lease agreements was $5.6 million, $5.9
million and $5 million, respectively.
From time to time, in the normal course of business, various claims are made
against the company. At this time, in the opinion of management, there are no
pending claims the outcome of which is expected to result in a material adverse
effect on the financial position of the company.
I. STOCKHOLDER RIGHTS PLAN
In November 1995, the company adopted a stockholder rights plan (the "Rights
Plan") in which preferred stock rights were distributed as a rights dividend at
the rate of one right for each share of common stock held as of the close of
business on December 1, 1995. The Rights Plan is designed to deter coercive or
unfair takeover tactics and to prevent an acquirer from gaining control of the
company without offering a fair price to all of the company's stockholders. The
plan is intended to protect the interests of stockholders in the event the
company is confronted in the future with coercive or unfair takeover tactics.
<PAGE> 20
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
I. STOCKHOLDER RIGHTS PLAN (CONTINUED)
Each right will entitle holders of company common stock to buy one share of
Series A Junior Participating Preferred Stock of the company at an exercise
price of $150. The rights will be exercisable only if a person or group acquires
more than 15% of the common stock, or announces a tender or exchange offer which
would result in its ownership of 15% or more of the common stock, or a person
owning 10% or more of the common stock is determined by the board to be an
Adverse Person, as defined in the Rights Plan.
If any person or group becomes the beneficial owner of 20% or more of the common
stock except pursuant to a tender offer for all shares at a price that a
majority of the independent directors determines to be fair; a more-than-15%
stockholder engages in a merger with the company in which the company survives
and its common stock remains outstanding and unchanged; certain other
self-dealing events involving the company and a more-than-15% stockholder occur;
or, under certain circumstances, the board determines a 10% or more stockholder
to be an Adverse Person (collectively "Flip-In Events"), each right not owned by
such person or related parties will entitle its holder to purchase, at the then
current exercise price of the right, common stock of the company having a value
of twice the right's exercise price (or, in certain circumstances, a combination
of cash, property, common stock or other securities or a reduction in the
exercise price having an aggregate value equal to the value of the common stock
otherwise purchasable). After the occurrence of a Flip-In Event and before any
person or affiliated group becomes the owner of 50% or more of the then
outstanding common stock, the company may also exchange one share of common
stock for each right outstanding. In addition, if the company is involved in a
merger or other business combination transaction with another person in which
its common stock is changed or converted, or sells or transfers more than 50% of
its assets or earning power to another person, each right that has not
previously been exercised will entitle its holder to purchase, at the then
current exercise price of the right, shares of common stock of such other person
having a value of twice the right's exercise price.
The company can, in certain circumstances, redeem the rights at $.01 per right.
The rights will expire on November 17, 2005, unless earlier redeemed or
exchanged.
<PAGE> 21
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
J. FINANCIAL DATA BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
Other
U.S. U.K. International
Operations Operations Operations Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1997
Revenues:
Customers $182,703 $21,233 $18,894 $222,830
Intercompany 11,504 23,958 $(35,462)
- ----------------------------------------------------------------------------------------------------------
Total 194,207 21,233 42,852 $(35,462) 222,830
==========================================================================================================
Operating income 13,499 2,931 1,250 17,680
==========================================================================================================
Identifiable assets $180,455 $14,713 $23,471 $218,639
==========================================================================================================
1996
Revenues:
Customers $140,888 $13,623 $18,313 $172,824
Intercompany 6,092 7,428 $(13,520)
- ----------------------------------------------------------------------------------------------------------
Total 146,980 13,623 25,741 $(13,520) 172,824
==========================================================================================================
Operating income 12,579 921 520 14,020
==========================================================================================================
Identifiable assets $150,977 $10,093 $18,378 $179,448
==========================================================================================================
1995
Revenues:
Customers $115,284 $13,290 $ 8,567 $137,141
Intercompany 6,212 3,935 $(10,147)
- ----------------------------------------------------------------------------------------------------------
Total 121,496 13,290 12,502 $(10,147) 137,141
==========================================================================================================
Operating income (loss) 23,120 928 (5,410) 18,638
==========================================================================================================
Identifiable assets $128,033 $ 9,781 $ 8,344 $146,158
==========================================================================================================
</TABLE>
"Other International Operations" relate primarily to subsidiaries in Austria,
Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Singapore and
Spain. Operating income (loss) from operations outside the United States
approximates income (loss) before income taxes of such operations. Intercompany
revenues between geographic areas are accounted for at prices representative of
unaffiliated party transactions of a similar nature.
Revenues from markets outside the United States were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.K. operations $21,233 $13,623 $13,290
Other international operations 18,894 18,313 8,567
Export 40,888 25,439 16,614
- --------------------------------------------------------------------------------
$81,015 $57,375 $38,471
================================================================================
Percentage of total revenues 36% 33% 28%
================================================================================
</TABLE>
The majority of "Export" revenues, some of which are
generated through independent distributors and agents,
results from product licenses and services sold to
customers throughout Europe.
The above disclosures are made pursuant to SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." In fiscal 1999, the company will adopt the
provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which supersede the provisions of SFAS No. 14.
<PAGE> 22
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
K. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended June 30, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
FISCAL 1997 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $45,987 $52,696 $50,523 $73,624
Gross profit 29,772 34,709 31,306 50,832
Net income 2,041 2,636 1,315 5,886
Earnings per share .11 .14 .07 .31
<CAPTION>
- ---------------------------------------------------------------------------
Fiscal 1996 Sept. 30 Dec. 31 March 31 June 30
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $36,633 $40,725 $36,856 $58,610
Gross profit 24,199 26,845 22,473 41,269
Net income 2,216 1,521 369 5,351
Earnings per share .12 .08 .02 .30
</TABLE>
<PAGE> 23
Hyperion Software Corporation
Condensed Consolidated Balance Sheet
(in thousands, except for share data)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
----------------------------
<S> <C> <C>
ASSETS (Unaudited) (Note)
Current assets:
Cash and cash equivalents $ 93,817 $ 67,059
Accounts receivable--net of allowances of $7,000 and $5,300 71,263 64,831
Prepaid expenses and other current assets 4,375 3,243
Deferred income taxes 5,800 3,811
---------------------------
TOTAL CURRENT ASSETS 175,255 138,944
Property and equipment--at cost, less accumulated depreciation
and amortization of $42,143 and $31,029 59,740 57,853
Product development costs--at cost, less accumulated
amortization of $9,598 and $6,796 7,888 8,526
Product distribution rights, goodwill and other intangible assets--
at cost, less accumulated amortization of $10,033 and $7,631 8,928 11,103
Deposits and other assets 3,373 2,213
---------------------------
Total assets $ 255,184 $ 218,639
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 30,473 $ 22,746
Accrued employee compensation and benefits 18,837 19,882
Income taxes payable 8,791 8,898
Deferred revenue 51,250 44,619
Notes payable 513 563
---------------------------
TOTAL CURRENT LIABILITIES 109,864 96,708
Mortgage payable 7,454 7,823
Deferred income taxes 1,071
Stockholders' equity:
Preferred stock--$.01 par value; authorized--1,000,000 shares;
none issued
Common stock--$.01 par value; authorized--50,000,000 shares;
issued--23,385,105 and 22,577,437 shares 234 226
Additional paid-in capital 99,871 85,706
Retained earnings 53,448 41,994
Currency translation adjustments (2,174) (1,376)
Treasury stock, at cost--4,344,599 shares (13,513) (13,513)
---------------------------
TOTAL STOCKHOLDERS' EQUITY 137,866 113,037
---------------------------
Total liabilities and stockholders' equity $ 255,184 $ 218,639
===========================
</TABLE>
Note: the balance sheet at June 30, 1997 has been derived from the accompanying
audited financial statements at that date.
See accompanying notes.
F-20
<PAGE> 24
Hyperion Software Corporation
Condensed Consolidated Statement of Income (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1998 1997
---------------------------
<S> <C> <C>
REVENUES
Software licenses $ 93,395 $ 70,316
License renewals and services 104,126 78,890
---------------------------
Total revenues 197,521 149,206
COSTS AND EXPENSES
Cost of revenues:
Software licenses 6,301 5,205
License renewals and services 62,665 48,214
Sales and marketing 64,489 49,435
Product development 26,909 23,605
General and administrative 21,140 14,030
---------------------------
181,504 140,489
---------------------------
OPERATING INCOME 16,017 8,717
Interest income 2,273 1,208
Interest expense (252) (258)
---------------------------
INCOME BEFORE INCOME TAXES 18,038 9,667
Provision for income taxes 6,600 3,675
---------------------------
NET INCOME $ 11,438 $ 5,992
===========================
EARNINGS PER SHARE
Basic $ .61 $ .35
Diluted $ .58 $ .33
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 18,730 17,263
Diluted 19,697 18,364
</TABLE>
See accompanying notes.
F-21
<PAGE> 25
Hyperion Software Corporation
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1998 1997
------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 36,448 $ 32,385
INVESTING ACTIVITIES
Office facility improvements and purchases of furniture,
equipment and software (14,169) (12,948)
Product development costs (2,164) (3,282)
Deposits and intangible assets (252) (1,129)
Business acquisitions (7,104)
--------------------------
Cash used by investing activities (16,585) (24,463)
FINANCING ACTIVITIES
Principal payments on notes payable (419) (486)
Exercise of stock options by employees 8,112 3,866
--------------------------
Cash provided by financing activities 7,693 3,380
Effect of exchange rate changes (798) (697)
--------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 26,758 10,605
Cash and cash equivalents at beginning of period 67,059 42,361
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,817 $ 52,966
==========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 5,314 $ 2,157
Interest 237 241
</TABLE>
See accompanying notes.
F-22
<PAGE> 26
Hyperion Software Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1998
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 8-K and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation have been included in the accompanying unaudited
financial statements. Operating results for the nine-month period ended March
31, 1998 are not necessarily indicative of the results that may be expected for
the full year ending June 30, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
company's annual report on Form 10-K for the year ended June 30, 1997.
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented and where necessary restated to conform to the
Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings per
share ("EPS") (in thousands, except per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1998 1997
------------------
<S> <C> <C>
Numerator - net income $11,438 $ 5,992
==================
Denominator for basic EPS - weighted-average shares 18,730 17,263
Effect of dilutive securities:
Stock option rights 967 1,101
------------------
Denominator for diluted EPS - adjusted weighted-average shares and
assumed conversions 19,697 18,364
==================
Basic earnings per share $ .61 $ .35
Diluted earnings per share $ .58 $ .33
</TABLE>
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2, "Software Revenue Recognition" ("SOP"), which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. The company believes that the
requirements of this SOP, which supersede the revenue recognition guidance of
SOP 91-1, do not differ significantly from its revenue recognition practices and
policy requirements. Accordingly, adoption of the SOP, as amended, is not
expected to materially impact the company's results of operations.
B. CONTINGENCIES
From time to time, in the normal course of business, various claims are made
against the company. At this time, in the opinion of management, there are no
pending claims the outcome of which is expected to result in a material adverse
effect on the financial position of the company.
F-23
<PAGE> 27
Hyperion Software Corporation
Notes to Condensed Consolidated Financial Statements - Continued (Unaudited)
B. CONTINGENCIES (Continued)
The company is assessing both the readiness of its internal business
information systems for handling the Year 2000 and the compliance of products
sold by the company. The company has determined that it will need to modify or
replace portions of its internal business information systems so that the
systems will function properly with respect to dates in the Year 2000 and
beyond. The company has also initiated discussions with its significant
vendors, service providers and large customers to evaluate Year 2000 issues, if
any, relating to the interaction of their systems with the company's internal
systems. The company anticipates that it will successfully address Year 2000
issues relating to its internal business information systems by the end of
fiscal 1999. The cost of the company's internal systems Year 2000 efforts is
not expected to be material to the company's financial position.
The company believes that its current products are Year 2000 compliant. However,
prior versions of certain of these products currently installed at customer
sites will require upgrading or other modifications to become Year 2000
compliant. The company believes that it is not legally responsible for costs
incurred by these customers to achieve Year 2000 compliance. However, there can
be no assurance that these customers will not assert claims against the company
with respect to Year 2000 issues. The company is taking steps to identify
affected customers, raise customer awareness related to noncompliance of the
company's older products and assist its customers in assessing their risks. The
company may incur increasing customer satisfaction costs related to these
actions over the next few years. Since customer satisfaction programs are
ongoing, the scope of any Year 2000 complications are not fully known and
potential liability issues in certain areas are unclear, the potential impact on
the company's financial position with respect to these matters is not known at
this time.
The company's Hyperion accounting software, a product set formerly offered by
the company, is not Year 2000 compliant. The company is aware of a limited
number of customers continuing to use this product. The company is obligated
under its agreements with certain of these customers to provide upgrades which
are Year 2000 compliant. The company has made available to these customers a
migration path to a product offered pursuant to the company's alliance with
Baan/Coda, which the company believes is Year 2000 compliant. The company also
expects to make available to these customers a Year 2000 compliant release of
its accounting software prior to the end of calendar year 1998. The company
does not expect the cost associated with this compliance effort, including
planning, implementation and testing, to be material to its financial position,
although there can be no assurance that the company will not be required to
incur significant unanticipated costs in relation to its compliance obligations.
While the company believes that its planning efforts are adequate to address
its Year 2000 issues on a timely basis, there can be no assurance that there
will not be a delay in, or increased costs associated with, implementation of
changes to address any such issues, which could have a material adverse effect
on the company and its financial position and future results of operations.
<PAGE> 28
ARBOR SOFTWARE CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
2.1* Agreement and Plan of Merger dated May 25, 1998,
by and among Registrant, Merger Sub and Hyperion.
23.1 Consent of Ernst & Young LLP.
</TABLE>
- -----------
*Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on
Form 8-K dated as of May 25, 1998, filed with the Securities and Exchange
Commission on May 29, 1998.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
Arbor Software Corporation (Form S-3 filed with the Securities and Exchange
Commission on June 12, 1998 for the registration of $100,000,000 of 4 1/2%
Convertible Subordinated Notes and 1,774,403 shares of Common Stock) of our
report dated July 17, 1997, with respect to the financial statements of Hyperion
Software Corporation for the year ended June 30, 1997 included in Arbor Software
Corporation's Current Report on Form 8-K/A.
/s/ Ernst & Young LLP
----------------------------
ERNST & YOUNG LLP
Stamford, Connecticut
June 24, 1998
