<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
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 0-26934
HYPERION SOLUTIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0277772
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1344 CROSSMAN AVENUE, SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices, including zip code)
(408) 744-9500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ___
As of November 13, 2000, there were 33,081,745 shares of the Registrant's
common stock, $.001 par value, outstanding.
<PAGE> 2
Hyperion Solutions Corporation
Form 10-Q
CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet -- September 30, 2000 and June 30, 2000.......................................... 2
Condensed Consolidated Statement of Income -- Three Months Ended
September 30, 2000 and 1999 ........................................................................................ 3
Condensed Consolidated Statement of Cash Flows --
Three Months Ended September 30, 2000 and 1999...................................................................... 4
Notes to Condensed Consolidated Financial Statements -- September 30, 2000............................................ 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................... 15
Item 6. Exhibits and Reports on Form 8-K................................................................................ 15
SIGNATURES.............................................................................................................. 16
</TABLE>
(C) Copyright 2000 Hyperion Solutions Corporation. All rights reserved.
Hyperion, Essbase, Hyperion Pillar and Hyperion Enterprise are registered
trademarks of Hyperion Solutions Corporation. Hyperion Solutions, the
Hyperion "H" logo, What's Going On, Essbase-Ready, Hyperion Essbase OLAP
Server, Hyperion Web Site Analysis Suite, Hyperion Customer Interaction
Center, Hyperion Planning, Hyperion Financial Management, Hyperion
Application Link, Hyperion Allocations Manager, Hyperion Performance
Scorecard, Hyperion Activity Based Management, Hyperion Enterprise
Reporting, Hyperion Reports, Hyperion Analyzer, Hyperion Integration
Server, Hyperion Application Builder, Hyperion Essbase API, Hyperion
Essbase Application Manager, Hyperion Essbase Currency Conversion, Hyperion
Essbase Partitioning Option, Hyperion Objects, Hyperion Essbase SQL
Interface, Hyperion Field Services Analysis, Hyperion Product Quality
Analysis, Hyperion Essbase Spreadsheet Add-in, Hyperion Essbase Spreadsheet
Toolkit, Hyperion Web Gateway and HyperionReady are trademarks of Hyperion
Solutions Corporation. All other trademarks and company names mentioned are
the property of their respective owners.
For further information, refer to the Hyperion Solutions Corporation annual
report on Form 10-K for the year ended June 30, 2000.
<PAGE> 3
Hyperion Solutions Corporation
Condensed Consolidated Balance Sheet
(in thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 263,650 $ 262,408
Short-term investments 30,517 32,751
Accounts receivable -- net of allowances of $21,483 and $16,250 138,885 161,883
Prepaid expenses and other current assets 10,778 8,349
Deferred income taxes 12,552 9,866
--------- ---------
TOTAL CURRENT ASSETS 456,382 475,257
Property and equipment -- at cost, less accumulated
depreciation and amortization of $83,686 and $78,694 84,425 71,669
Acquired technologies, goodwill and other intangible assets --
at cost, less accumulated amortization of $26,922 and $24,434 24,252 25,942
Other assets 15,841 17,023
--------- ---------
TOTAL ASSETS $ 580,900 $ 589,891
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 49,429 $ 49,933
Accrued employee compensation and benefits 28,184 32,572
Income taxes payable 4,340 6,179
Deferred revenue 86,949 88,828
--------- ---------
TOTAL CURRENT LIABILITIES 168,902 177,512
Long-term debt 102,481 102,518
Stockholders' equity:
Preferred stock -- $.001 par value; 5,000 shares authorized; none issued -- --
Common stock -- $.001 par value; 300,000 shares authorized;
32,818 and 32,616 shares issued and outstanding 33 33
Additional paid-in capital 201,412 197,376
Retained earnings 115,643 119,736
Currency translation adjustments (7,571) (7,284)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 309,517 309,861
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 580,900 $ 589,891
========= =========
</TABLE>
Note: the balance sheet at June 30, 2000 has been derived from the audited
financial statements at that date.
See accompanying notes.
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<PAGE> 4
Hyperion Solutions Corporation
Condensed Consolidated Statement of Income (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
--------- ---------
<S> <C> <C>
REVENUES
Software licenses $ 45,023 $ 46,401
Maintenance and services 70,031 60,849
--------- ---------
TOTAL REVENUES 115,054 107,250
COSTS AND EXPENSES
Cost of Revenues:
Software licenses 3,791 1,298
Maintenance and services 35,696 29,563
Sales and marketing 48,540 41,434
Research and development 19,426 16,292
General and administrative 16,606 10,426
--------- ---------
124,059 99,013
OPERATING INCOME (LOSS) (9,005) 8,237
Interest income 3,756 2,795
Interest expense (1,353) (1,407)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (6,602) 9,625
Provision for (benefit from) income taxes (2,509) 3,600
--------- ---------
NET INCOME (LOSS) $ (4,093) $ 6,025
========= =========
EARNINGS (LOSS) PER SHARE
Basic $ (.12) $ .20
Diluted $ (.12) $ .19
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 32,813 30,873
Diluted 32,813 31,556
</TABLE>
See accompanying notes.
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<PAGE> 5
Hyperion Solutions Corporation
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (4,093) $ 6,025
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 9,185 8,324
Accounts receivable allowance provisions 8,323 1,844
Changes in operating assets and liabilities:
Accounts receivable 14,676 1,739
Prepaid expenses and other assets (1,247) 321
Deferred income taxes (2,686) 538
Accounts payable and accrued expenses (4,892) (14,056)
Income taxes payable (820) 1,949
Deferred revenue (1,879) 4,052
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 16,567 10,736
INVESTING ACTIVITIES
Purchases/sales of short-term investments, net 2,234 (1,961)
Purchases of property and equipment (19,412) (2,673)
Purchases of intangible and other assets (839) (489)
--------- ---------
CASH USED BY INVESTING ACTIVITIES (18,017) (5,123)
FINANCING ACTIVITIES
Principal payments on notes payable (37) (150)
Exercise of stock options by employees 3,016 512
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 2,979 362
Effect of exchange rate change (287) 1,121
INCREASE IN CASH AND CASH EQUIVALENTS
1,242 7,096
Cash and cash equivalents at beginning of period 262,408 233,515
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 263,650 $ 240,611
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Income taxes $ 250 $ 1,117
Interest $ 2,292 $ 2,305
</TABLE>
See accompanying notes.
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<PAGE> 6
Hyperion Solutions Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2000
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 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes 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 three month period ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the full year ending June 30,
2001. For further information, refer to the consolidated financial statements
and accompanying notes for the year ended June 30, 2000 included in the Hyperion
Solutions Corporation (the "Company" or "Hyperion") report on Form 10-K filed on
September 28, 2000.
B. EARNINGS PER SHARE
Shares used in computing basic and diluted earnings per share are based on the
weighted average shares outstanding in each period. Basic earnings per share
excludes the effects of stock options, warrants and convertible securities.
Diluted earnings per share includes the dilutive effect of the assumed exercise
of stock option, warrant and/or convertible security rights using the treasury
stock method.
The following table sets forth the computation of basic and diluted earnings
(loss) per share ("EPS") (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
Numerator -- net income (loss) $ (4,093) $ 6,025
======== ========
Denominator for basic EPS -- weighted-average shares 32,813 30,873
Effect of dilutive securities:
Stock option rights -- 683
-------- --------
Denominator for diluted EPS -- adjusted weighted-average shares
and assumed conversions 32,813 31,556
======== ========
Basic earnings (loss) per share $ (.12) $ .20
Diluted earnings (loss) per share $ (.12) $ .19
</TABLE>
For the three month period ended September 30, 2000, all stock option rights
totaling 7.9 million were excluded from the diluted EPS calculation because
their effect would be antidilutive as a result of the net loss. For the three
month period ended September 30, 1999, certain stock option rights of 3.0
million common shares were excluded from the diluted EPS calculation because
their effect would be antidilutive. For the same reason, shares of common stock
issuable upon conversion of the convertible subordinated notes due 2005 have
been excluded from the diluted EPS calculation.
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<PAGE> 7
C. COMPREHENSIVE INCOME
Comprehensive income is a measure of all changes in equity of an enterprise that
results from recognized transactions and other economic events of a period other
than transactions with owners in their capacity as owners. For the periods
indicated, comprehensive income of the Company was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------- -------
<S> <C> <C>
Net income (loss) $(4,093) $ 6,025
Currency translation adjustments (287) 1,121
------- -------
Comprehensive income (loss) $(4,380) $ 7,146
======= =======
</TABLE>
D. 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.
E. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company has identified two reportable operating segments based on the
criteria of Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information": software licensing and
maintenance and services. Software license fees of $45.0 million and $46.4
million for the three months ended September 30, 2000 and 1999, respectively,
are derived from the sale of software product licenses. Maintenance and services
revenues of $70.0 million and $60.8 million for the three months ended September
30, 2000 and 1999, respectively, result from providing product installation,
support and training services.
The Company's Chief Executive Officer evaluates performance based on measures of
segment revenues, gross profit and company-wide operating results. Employee
headcount and operating costs and expenses are managed by functional areas,
rather than by revenue segments. Moreover, the Company does not account for or
report to the CEO its assets or capital expenditures by segments. The
significant accounting policies of the reportable segments are the same as those
summarized in the Company's annual report on Form 10-K filed on September 28,
2000.
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<PAGE> 8
The accompanying statement of income discloses the financial information of the
Company's reportable segments in accordance with Statement 131 for the three
month period ended September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Other
U.S. U.K. International
Operations Operations Operations Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
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<S> <C> <C> <C> <C> <C>
2000
Revenues:
Customers $ 97,854 $ 6,143 $ 11,057 $ -- $ 115,054
Intercompany 4,059 -- 3,791 (7,850) --
-----------------------------------------------------------------------------------------------------------------
Total 101,913 6,143 14,848 (7,850) 115,054
=================================================================================================================
Operating income (loss) (1,459) (1,519) (6,027) -- (9,005)
=================================================================================================================
Identifiable assets $ 540,354 $ 16,492 $ 24,054 $ -- $ 580,900
=================================================================================================================
1999
Revenues:
Customers $ 93,164 $ 6,478 $ 7,608 $ -- $ 107,250
Intercompany 3,234 -- 6,069 (9,303) --
-----------------------------------------------------------------------------------------------------------------
Total 96,398 6,478 13,677 (9,303) $ 107,250
=================================================================================================================
Operating income (loss) 19,867 (3,292) (8,338) -- 8,237
=================================================================================================================
Identifiable assets $ 426,471 $ 13,189 $ 72,685 $ -- $ 512,345
=================================================================================================================
</TABLE>
"Other International Operations" relate to subsidiaries in Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Italy, Hong Kong,
Japan, the Netherlands, Norway, Singapore, Spain, Sweden and Switzerland.
Operating income from operations outside the United States approximates
income 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 (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
------- -------
<S> <C> <C>
U.K. operations $ 6,143 $ 6,478
Other international operations 11,057 7,608
Export 22,886 22,861
---------------------------------------------------------------------------
$40,086 $36,947
===========================================================================
Percentage of total revenues 34.8% 34.4%
===========================================================================
</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.
-7-
<PAGE> 9
Hyperion Solutions Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
Hyperion develops, markets and supports enterprise analytic application software
that helps companies better understand, optimize and operate their businesses.
Hyperion's products complement software that companies use to capture and
organize data. Hyperion's products integrate with, extend and enhance
transaction-processing applications, enterprise resource planning (ERP) and
customer relationship management packaged applications, and data warehouses. The
Company's offerings are based on Hyperion's enterprise-class analytic platform
and include packaged analytic applications, OLAP (on-line analytical processing)
server technology, data and application integration technologies, and a family
of robust tools for client-server and web-enabled reporting, analysis,
presentation and application development. Hyperion and its partners deliver
client/server and web-based products for a broad range of analytic applications
including budgeting and planning, financial consolidation and reporting,
activity-based management, performance management, campaign management analysis,
promotional analysis, sales forecasting, demand planning, e-business analysis
and industry-specific solutions. The Company's solutions are used by large
organizations worldwide.
Hyperion derives revenues from licensing its software products and providing
related product installation, support and training services. Customers are
billed an initial fee for the software upon delivery. A maintenance fee
entitling customers to routine support and product updates is billed annually.
With operations in twenty-six countries, Hyperion licenses its products
throughout the world primarily through a direct sales force. Products also are
licensed through independent distributors and sales agents, including other
technology and application software companies, and major accounting firms
("channel partners"). The Company includes in revenues its net share of revenues
generated by distributors. In the event that an agent has facilitated the sale
and Hyperion is the licensor, the license revenue is reported gross and a
commission charge is reflected.
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
First Quarter Ended
September 30, 2000 Change 1999
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Software licenses $ 45,023 -3.0% $ 46,401
Percentage of total revenues 39.1% 43.3%
-----------------------------------------------------------------------------------
Maintenance and services $ 70,031 15.1% $ 60,849
Percentage of total revenues 60.9% 56.7%
-----------------------------------------------------------------------------------
</TABLE>
Software license revenues declined in the first quarter of fiscal 2001 versus
the first quarter of fiscal 2000 as a result of a decrease in the number of
licenses sold, primarily attributable to direct sales in North America.
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<PAGE> 10
The increase in maintenance and services revenue is mainly attributable to the
year-to-year growth of the Company's installed customer base.
Revenues generated from markets outside the United States, including export
sales, for the first quarter of fiscal 2000 and 1999 were $40.1 million and
$36.9 million, or 34.8% and 34.4% of total revenues, respectively. The increase
was due primarily to revenue growth in France and Spain offset to a lesser
degree by decreases in Austria and Sweden.
Revenues derived from channel partners for the three months ended September 30,
2000 and 1999 were 11.5% and 15.0% of total revenues, respectively.
COST OF REVENUES
<TABLE>
<CAPTION>
First Quarter Ended
September 30, 2000 Change 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Software licenses $ 3,791 192.1% $ 1,298
Gross profit percentage 91.6% 97.2%
-----------------------------------------------------------------------------------
Maintenance and services $ 35,696 20.8% $ 29,563
Gross profit percentage 49.0% 51.4%
-----------------------------------------------------------------------------------
</TABLE>
Cost of software license revenues consists primarily of the cost of product
packaging and documentation materials, amortization of capitalized software
costs, amortization of certain intangible assets related to business
acquisitions, and royalty expenses. The amortization of capitalized software
costs begins upon the general release of the software to customers. The increase
in the cost of software license revenues for the three month period ended
September 30, 2000 principally reflects an increase in amortization of acquired
products and royalty payments.
In the first quarter of fiscal 2000 and 1999, the Company capitalized $0.5
million and $0.5 million of software development costs, respectively, in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
The amounts capitalized relate to the Company's development of enterprise-wide,
packaged analytic application solutions for client/server environments.
Capitalized software costs are amortized over the estimated economic life of the
product, but generally not more than three years.
The increase in the cost of maintenance and service revenues was due primarily
to an increase in salaries and related expenditures.
OPERATING EXPENSES
<TABLE>
<CAPTION>
First Quarter Ended
September 30, 2000 Change 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and marketing $ 48,540 17.2% $ 41,434
Percentage of total revenues 42.2% 38.6%
-----------------------------------------------------------------------------------
Research and development $ 19,426 19.2% $ 16,292
Percentage of total revenues 16.9% 15.2%
-----------------------------------------------------------------------------------
General and administrative $ 16,606 59.3% $ 10,426
Percentage of total revenues 14.4% 9.7%
-----------------------------------------------------------------------------------
</TABLE>
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<PAGE> 11
The increase in sales and marketing expenses is primarily attributable to a
corporate branding advertising campaign.
The increase in research and development expenses reflects additional personnel
costs associated with expanded product research and development activities.
The increase in general and administrative expenses resulted, for the most part,
from an increase in the use of independent consultants and an increase in the
allowance for doubtful accounts.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate was 38% for the first quarter ended
September 30, 2000 as compared to 37% for the first quarter ended
September 30, 1999. The increase in the effective income tax rate is
attributable to a decrease in state tax credits available to the Company
and a slight increase of taxable income in foreign jurisdictions with
statutory rates higher than the U.S. The Company's expected effective rate
for the remainder of fiscal 2001 is 38%.
NET INCOME (LOSS)
As a result of the above factors, the Company had a net loss of $4.1 million for
the three month period ended September 30, 2000, compared to net income of $6.0
million for the corresponding period of 1999.
To date, the overall impact of inflation on the Company has not been material,
although the Company is experiencing increases in employee compensation due to a
competitive labor market.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its business through positive cash flow from
operations and, to a lesser extent, through the issuance of its capital stock
and convertible subordinated notes.
Net cash provided by operating activities amounted to $16.6 million for the
three months ended September 30, 2000 and $10.7 million for the three months
ended September 30, 1999. The increase is primarily attributed to an increase in
accounts payable and a decrease in accounts receivable.
Cash used by investing activities amounted to $18.0 million for the first
quarter of fiscal 2001, and $5.1 million for the first quarter of fiscal 2000.
The increase primarily results from an increase in purchases of property and
equipment.
Financing activities in the first quarter of fiscal 2001, including stock
options exercised by employees and payments of indebtedness, generated cash of
$3.0 million, as compared to $0.4 million for the first quarter of fiscal 2000.
In connection with the stock options exercised by certain of its employees (for
a total of 202,000 common shares for the first quarter of fiscal 2001 and 59,000
common shares for the first quarter of fiscal 2000), the Company recognized (as
a credit to additional paid-in capital) an income tax benefit of $1.0 million
for the three months ended September 30, 2000, and $0.2 million for the three
months ended September 30, 1999.
As of September 30, 2000 and 1999, respectively, the Company had cash, cash
equivalents and short-term investments of $294.2 million and $280.9 million,
working capital of $287.5 million and $240.5 million, and long-term debt of
$102.5 million and $100.0 million. Cash equivalents are comprised primarily of
investment-grade commercial paper, U.S. federal, state and political subdivision
obligations with varying terms of three months or less. The Company anticipates
capital expenditures of approximately $35 million for its 2001 fiscal year
consistent with capital expenditures of $30 million for fiscal 2000. The Company
intends to evaluate continue to review potential acquisitions and business
alliances.
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<PAGE> 12
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. The Company believes that its
current cash and short-term investment balances, and the funds generated from
its operations, if any, will be sufficient to finance the Company's business for
at least the next year.
RISK FACTORS
Except for the historical information contained in this report on Form 10-Q, the
matters discussed herein are forward-looking statements that involve risks and
uncertainties. Actual events and the Company's future results may vary
significantly based on a number of factors, including, but not limited to, those
discussed below under "Market Risks" and "Factors that May Affect Future
Results". Any forward-looking statements should be considered in light of these
factors as well as other risks as detailed elsewhere in this report on Form
10-Q, and in the Company's most recent annual report on Form 10-K. Further,
readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
MARKET RISKS
At September 30, 2000 and 1999, respectively, the Company's investment portfolio
consisted of investment-grade debt securities, excluding those classified as
cash equivalents, of $30.5 million and $40.3 million that are classified as
available-for-sale. The portfolio is invested predominantly in short-term
securities to minimize interest rate risk and for liquidity purposes in the
event of immediate cash needs. Accordingly, if market interest rates were to
increase immediately and uniformly by 10% from levels as of September 30, 2000,
the decline in the fair value of the portfolio would not be material.
The Company's long-term debt bears interest, for the most part, at a fixed rate
and, therefore, relative to its long-term debt, an immediate 10% change in
market interest rates would not materially impact the Company's financial
statements.
Approximately one-third of the Company's sales, cost of sales and marketing is
transacted in local currencies. As a result, the Company's operations from
markets outside the United States are subject to foreign exchange rate
fluctuations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a very competitive and rapidly changing environment that
involves numerous risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks.
GENERAL ECONOMIC CONDITIONS. The revenue growth and profitability of the Company
depends on the overall demand for computer software and services, which in turn
depends on general economic and business conditions. A softening of demand for
computer software caused by weakening of the economy may result in decreased
revenues or lower growth rates. There can be no assurance that the Company will
be able to effectively promote revenue growth rates in all economic conditions.
COMPETITIVE ENVIRONMENT. The markets in which Hyperion competes are intensely
competitive, highly fragmented and characterized by rapidly changing technology
and evolving standards. Hyperion has experienced, and expects that it will
continue to experience, increased competition from current and potential
competitors, some of whom may have significantly greater financial, technical,
marketing and other resources than the Company. Hyperion expects additional
competition as other established and emerging companies enter into the
enterprise business analysis software market and new products and technologies
are introduced. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
would materially adversely affect the Company's business, operating results and
financial condition.
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<PAGE> 13
PRICING. Intense competition in the various markets in which the Company
competes may put pressure on the Company to reduce prices on certain products,
particularly in the markets where certain vendors offer deep discounts in an
effort to recapture or gain market share or to sell other software or hardware
products. Moreover, any broadly based changes to the Company's or its
competitors pricing packaging or distribution models could lead to a decline or
delay in sales as the Company's sales force and its customers adjust to the new
models. Any such price reductions and resulting lower license revenues could
have a material adverse effect on the Company's business, results of operations
or financial position if the Company cannot offset these price reductions with a
corresponding increase in sales volumes or lower spending.
HIRING AND RETENTION OF EMPLOYEES. The Company's future operating results depend
in significant part upon the continued service of its key technical and senior
management personnel. Hyperion's future success also depends on its continuing
ability to attract and retain highly qualified technical, sales, and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will retain its key managerial or technical personnel
or attract such personnel in the future. Hyperion has at times experienced and
continues to experience difficulty in recruiting qualified personnel and there
can be no assurance that the Company will not experience such difficulties in
the future. The Company, either directly or through personnel search firms,
actively recruits qualified research and development, financial and sales and
marketing personnel. If Hyperion is unable to hire and retain qualified
personnel in the future, such inability could have a material adverse effect on
the Company's business, operating results and financial condition.
BACK-ENDED QUARTERS. Quarterly revenues and operating results are highly
dependent on the volume and timing of the signing of licensing agreements and
product deliveries during the quarter, which are difficult to forecast. A
significant portion of the Company's quarterly software licensing agreements is
concluded in the last month of the fiscal quarter, generally with a
concentration of such revenues earned in the final ten business days of that
month. Due to the relatively fixed nature of certain costs, including personnel
and facilities expenses, a decline or shortfall in quarterly and/or annual
revenues typically results in lower profitability or may result in losses.
INTERNATIONAL OPERATIONS. A substantial portion of the Company's revenues is
derived from international sales and is therefore subject to the related risks,
including the general economic conditions in each country, the overlap of
different tax structures, the difficulty of managing an organization spread over
various countries, changes in regulatory requirements, compliance with a variety
of foreign laws and regulations, longer payment cycles and volatilities of
exchange rates in certain countries. There can be no assurances that the Company
will be able to successfully address each of these challenges in the near term.
Other risks associated with international operations include import and export
licensing requirements, trade restrictions and changes in tariff rates.
A significant portion of the Company's business is conducted in currencies other
than the U.S. dollar. Changes in the value of major foreign currencies relative
to the value of the U.S. dollar could have a material adverse effect on the
Company's business, operating results and financial condition.
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ORGANIZATIONAL AND PRODUCT INTEGRATION RELATED TO BUSINESS COMBINATIONS. The
Company has made and expects to continue to make acquisitions of, mergers with,
or significant investments in, businesses that offer complementary products,
services and technologies. There are risks involved in business combinations,
including but not limited to: the possibility that the Company pays more than
the value it derives from the acquisition; the difficulty of integrating the
operations and personnel of the acquired businesses; the possibility that all
aspects of the integration are not completed or that all of the anticipated
synergies of the acquisition are not realized; the potential product liability
associated with selling the acquired company's products; the potential
disruption of the Company's ongoing business and the distraction of management
from the Company's business. These factors could have a material adverse effect
on the Company's business, results of operations or financial position,
especially in the case of a large acquisition.
PRODUCT ENHANCEMENT AND NEW PRODUCT INTRODUCTIONS. The Company competes in a
market characterized by rapid technological advances in hardware and software
development, evolving standards in computer hardware and software technology and
frequent new product introductions and enhancements. The Company has recently
expanded its product offerings to include products in market segments it
believes have high and/or growing rates of customer demand, such as customer
relationship management, web analysis, and performance measurement. Such entry
into new markets has inherent risks, including, but not limited to, competition
from earlier and more established entrants, general economic conditions, market
acceptance of initial product releases, marketing effectiveness and the accuracy
of assumptions about the nature of customer demand. The Company's failure to
successfully introduce, market and sell new products or enhance and improve its
existing products in a timely manner, and position and/or price its products,
undetected errors or delays in new products or new versions of a product and/or
the failure of anticipated market growth could have a material adverse effect on
the Company's business, results of operations or financial position.
PARTNER SUPPORT OF HYPERION ESSBASE API. Hyperion's future success will depend
in part upon the availability of third party tools and applications that address
customer requirements and work with Hyperion's business analysis platform and
Hyperion Essbase through the Hyperion Essbase Application Programming Interface
("API"). Failure by third parties to support the Company's API, or failure by
the Company to maintain, develop and market competitive business analysis
applications or to adopt industry standard APIs, if and when they emerge, could
materially adversely affect the Company's business, operating results and
financial condition.
CONVERSION OF INTERNAL FINANCIAL SYSTEMS. The Company is in the process of
reengineering certain of its internal financial management processes and
migrating its internal financial systems to an Enterprise Resource Planning
("ERP") solution provided through an outsourcing engagement with Arthur Andersen
LLP. Arthur Andersen began performing certain accounting functions for the
Company in July 2000. The Company currently anticipates that the transition of
remaining identified activities will be completed by the end of fiscal 2001.
There can be no assurance, however, that such migration will be completed on
schedule or will not cause a disruption to the Company's operations or any
resulting disruption will not have an adverse impact on the Company's business,
operating results and financial condition.
SALES FORECASTS. The Company uses a "pipeline" system, a common industry
practice, to forecast sales and trends in the Company's business. The Company's
sales personnel monitor the status of proposals, such as the date when they
estimate that a customer will make a purchase decision and the potential dollar
amount of the sale. Management aggregates these estimates periodically in order
to generate a sales pipeline. Management compares the pipeline at various points
in time to look for trends in the Company's business. While this pipeline
analysis is useful to management in business planning and budgeting, these
pipeline forecasts are only estimates and may not correlate to revenues in a
particular quarter or over a longer period of time. A significant discrepancy
between actual results and sales forecasts could cause the Company to improperly
plan or budget and thereby adversely affect its business or results of
operations.
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SALES FORCE TRANSITION. The Company has restructured or made other adjustments
to its sales force operations in the past and may do so in the future. These
changes have historically resulted in temporary sales productivity issues in the
short term.
ENFORCEMENT OF THE COMPANY'S INTELLECTUAL PROPERTY RIGHTS. The Company relies
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. There can be no assurance that the Company's means of
protecting its proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar technology.
POSSIBILITY OF INFRINGEMENT CLAIMS. The Company expects that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company, if at all. In the event of a
successful claim of product infringement against the Company and failure or
inability of the Company to license the infringed or similar technology, the
Company's business, operating results and financial condition would be
materially adversely affected.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly
affected by factors, including but not limited to, the announcement of new
products, product enhancements or technological innovation by the Company or its
competitors, changes in the Company's or its competitors' results of operations,
changes in revenue and revenue growth rates for the Company as a whole or for
specific geographic areas or business units, changes in earnings estimates by
market analysts, and general market conditions or market conditions specific to
particular industries. Technology stocks have experienced wide fluctuations in
prices, which sometimes have been unrelated to their operating performance. The
market price of the Company's Common Stock could be adversely affected by such
fluctuations.
ACCOUNTING PRONOUNCEMENTS AFFECTING THE CURRENT YEAR
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). SFAS 137 deferred the effective date of SFAS 133 until the first
fiscal quarter ending on or after June 30, 2000. In June 2000, the Financial
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Accounting Standards Board issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133" ("SFAS 138"). SFAS 138 amends certain of the accounting and
reporting standards of SFAS 133 for certain derivative instruments and certain
hedging activities. The Company adopted SFAS 133, as amended, in the quarter
ended September 30, 2000. The Company has not engaged in hedging activities or
invested in derivative instruments during the quarter ended September 30, 2000
and, accordingly, implementation of SFAS 133 did not have a material effect on
its financial statements.
In December 1999, the staff of the Securities and Exchange Commission issued its
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." SAB No. 101
provides guidance on the measurement and timing of revenue recognition in
financial statements of public companies. Changes in accounting policies to
apply the guidance of SAB No. 101, as amended, must be adopted by recording the
cumulative effect of the change in the fiscal quarter ending March 31, 2001. The
Company believes that the impact of SAB No. 101 will not have a material effect
on its financial statements.
Hyperion Solutions Corporation
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
On June 30, 2000, Hyperion Software (UK) plc was named as a defendant in a
lawsuit in the Technology & Construction Court in England for damages of
approximately 1.1 million pounds sterling (UK) in connection with an OLAP and
Hyperion Enterprise implementation that the claimants claim fails to meet its
requirements. Pleadings have been exchanged and the first case conference has
been fixed for November 10, 2000. The Company currently anticipates that a trial
date will be fixed for the second half of 2001. The Company believes it has
meritorious defenses and counterclaims and intends to vigorously defend this
action.
On July 11, 1997, Gentia Software filed a request for reexamination of
Hyperion's U.S. Patent No. 5,359,724 (the "`724 patent") with the United States
Patent and Trademark Office (the "PTO") arguing that the `724 patent was
anticipated and obvious in light of certain prior art references. On September
11, 1997, the PTO granted the request for reexamination. On February 27, 1998,
Gentia Software filed a request for a second reexamination of the `724 patent
with the PTO based on additional prior art references. On May 22, 1998, the PTO
granted that request for reexamination which was later consolidated with the
first reexamination. On March 31, 1999, the PTO issued a non-final office action
rejecting the claims of the `724 patent. Hyperion filed its response to the
office action on May 31, 1999. No final office action has been issued by the
Patent Office.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three month period
ended September 30, 2000.
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Hyperion Solutions Corporation
Form 10-Q for the three month period ended September 30, 2000
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 thereunto duly authorized.
Hyperion Solutions Corporation
<TABLE>
<S> <C>
/s/ Jeffrey R. Rodek 11/14/00
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Jeffrey R. Rodek Date
Chairman and Chief Executive Officer
/s/ David W. Odell 11/14/00
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David W. Odell Date
Chief Financial Officer
/s/ Michael L. Sternad 11/14/00
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Michael L. Sternad Date
Chief Strategy Officer
</TABLE>
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
27 Financial Data Schedule
