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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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)
Registrant's telephone number, including area code: (408) 744-9500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 15, 2000, there were 32,718,204 shares of the registrant's
Common Stock, $.001 par value, outstanding. The aggregate market value of the
registrant's voting stock held by nonaffiliates as of September 15, 2000 was
approximately $926 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders, scheduled to be held on November 15, 2000, are incorporated by
reference in Part III hereof.
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Hyperion Solutions Corporation
Form 10-K
CONTENTS
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PAGE
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Item 1. Business ................................................................ 2
Item 2. Properties .............................................................. 17
Item 3. Legal Proceedings ....................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders ..................... 17
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 18
Item 6. Selected Consolidated Financial Data .................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 20
Item 8. Report of Independent Accountants, Financial Statements
and Supplementary Data .................................................. 31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................................ 57
Item 10. Directors and Executive Officers of the Registrant ...................... 57
Item 11. Executive Compensation .................................................. 57
Item 12. Security Ownership of Certain Beneficial Owners and Management .......... 57
Item 13. Certain Relationships and Related Transactions .......................... 57
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ......... 58
Signatures ....................................................................... 61
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(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.
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FORWARD-LOOKING STATEMENTS
Except for the historical information contained in this report on Form 10-K
and the Annual Report to shareholders of which this Form 10-K is a part, 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 Annual Report.
Further, readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
PART I
ITEM 1. BUSINESS
GENERAL
Founded in 1991, Hyperion Solutions Corporation (the "Company" or
"Hyperion") develops, markets and supports business analysis software, which
helps turn raw data into business information. The Company's products and
services enables companies and their employees to plan, manage, and execute
business strategies to achieve faster revenue and profit growth, and ultimately
create value for their shareholders.
Hyperion's products analyze the raw data captured in operational systems,
which improves the return on investment that organizations have made in
enterprise resource planning ("ERP"), supply chain management ("SCM"), customer
relationship management ("CRM"), marketing automation, Web and e-commerce
systems and data warehouses.
Hyperion provides a full suite of applications that cover analytical needs
across a wide variety of functional areas extending from "front office" to "back
office." Hyperion uses its best of breed technology - Hyperion Essbase OLAP
Server - as the foundation of its comprehensive enterprise analysis platform.
This on-line analytical processing ("OLAP") server technology, along with
packaged business analysis applications, and an extensive family of application
development tools and data and application integration technologies give
Hyperion one of the deepest and broadest product offerings in the market. In
addition, Hyperion offers highly rated support and services from offices in 26
countries, and works with over 400 partners to provide solutions to more than
6,000 customer organizations worldwide.
Hyperion and its network of over 400 partners deliver Web and
mobile-enabled solutions that address a broad range of cross-industry and
industry-specific business analysis requirements. These include performance
measurement; financial planning, analysis and consolidation; management
reporting; customer relationship analysis; partner relationship analysis;
product profitability; budgeting, planning and forecasting; and demand and
capacity planning. Hyperion is headquartered in Sunnyvale, California.
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INDUSTRY BACKGROUND
In response to today's competitive pressures, most businesses need faster
revenue and profit growth, which ultimately leads to value creation. They also
need analysis support for the full business cycle, including its reporting,
analyzing, modeling and planning stages. They require systems and processes that
facilitate faster, better decisions in relation to opportunities and threats,
support for increasingly collaborative planning and help in driving execution of
those decisions and plans.
At the same time, organizations generate significant volumes of transaction
level data within their sales, marketing, service, support, development,
manufacturing, finance and administrative systems. This data is typically
captured in different formats in a variety of information systems. Web and
e-commerce initiatives have added another important but disparate source of data
about employees, customers, suppliers, partners and competitors. Data is also
obtained from external sources for use in applications such as competitive
benchmarking.
Business analysis software helps turn this raw data into "Business
Information." At its best, software (such as Hyperion's) provides a full "circle
of analysis," often starting with helping the organization to get a 360 degree
view of their customers from a number of touchpoints. But it should not end
there. The customer analysis should be linked to analysis of other company data,
including operational, supplier, employee and financial. Organizations want the
flexibility to start with their most pressing analysis needs, such as financial
or performance analysis, and then incorporate customer analysis - as they
complete the circle.
Hyperion believes that customers will increasingly demand a full suite and
integrated platform approach that supports more effective decision-making and
faster revenue and profit growth. The applications, technology foundation and
associated tools and services which comprise a company's business analysis
platform must be specifically designed to leverage the return on the investment
that organizations have already made in raw data collection and operational
systems.
This strategic approach is in contrast to the tactical manner in which some
organizations address analysis requirements today. Using standalone
applications, query and reporting tools and spreadsheets, for example, employees
in different functional areas conduct analyses that are potentially incomplete
or inaccurate. Deployment of a common business analysis platform helps employees
execute the basic management cycle of reporting, analyzing, modeling and
planning by providing consistent information. Additionally, it allows an
organization to create and execute strategic, financial and operational plans
that are in alignment.
To be useful, all of the data to be analyzed must also be accessed,
cleansed, transformed, extracted and then analyzed using an assortment of
sophisticated quantitative methods. It must be summarized, visualized and
presented in a variety of formats - from spreadsheets and specialized financial
report formats, to multidimensional views and graphical Web-based presentations
- that are meaningful and intuitive to users throughout the organization. Since
most global organizations use multiple operational systems that capture data in
different formats, integrating and interpreting this enterprise data is an
increasingly critical requirement. To take full advantage of the value of the
data stored in existing systems and accelerate decision-making requires specific
business analysis software that provides data quality and integrity, scalability
and ease of use across the organization.
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Hyperion believes that the business analysis software market is developing
as a historical parallel of the relational database applications market. The
business analysis software market includes two significant segments: the "buy"
market supported by packaged (or "pre-built") analysis applications, and
"custom-built" analysis applications, in both cases based on key technologies
that include OLAP servers, data and application integration technologies, and
Web-enabled reporting, analysis, presentation and application development tools.
Organizations demand the availability of both "custom-built" and "pre-built"
solutions to accommodate current and future requirements. Historically,
companies initially purchased relational databases and developed applications
with in-house or third party resources. Later, as packaged applications such as
ERP and CRM suites became more fully functional and general purpose in scope,
the total life cycle cost of ownership decreased sufficiently to create a
commercial market opportunity. As expected, organizations are increasingly
buying packaged business analysis applications when feasible and OLAP tools and
technologies to develop custom analysis applications in-house to meet their more
specialized needs.
The Company believes that, in the business analysis software market as in
the relational database market, applications drag technologies and vice versa.
Both create network effects. "Network effects" means that the greater the number
of solutions that are available on a platform, the more valuable that platform
becomes to customers. Hyperion believes that it must fully embrace partners to
maximize the number of third-party solutions available on the Hyperion platform
to be successful in the business analysis software market.
Hyperion's business analysis platform is comprehensive, scalable, open and
enterprise-class and meets industry needs with a full suite and platform
approach specifically designed to leverage return on the investment
organizations have already made in raw data collection and operational systems.
Business analysis software represents the next logical step in the evolution of
enterprise application software and has spawned an industry that will exceed
$11.6 billion in the next four years, according to industry analysts. Hyperion
is currently the leader in this fast growing, global business analysis software
market.
STRATEGY
Hyperion's objective is to be the leading global provider of business
analysis software products and services. These products and services give the
Company's customers the power to leverage their information assets for strategic
purposes and enable organizations to improve customer service, make additional
sales to existing customers and successfully exploit new market opportunities to
drive profitable growth. The Company intends to accomplish this by continuing to
enhance its scalable, easy-to-use, cross-platform OLAP technology and tools,
bringing more packaged business analysis applications to market faster, basing
these applications and related services on its OLAP technology, and expanding
its network of partners. Hyperion intends to deliver business analysis solutions
for emerging market requirements such as performance management, electronic
customer relationship management ("eCRM") analysis, supply-chain management
("SCM") analysis, trading exchange analysis, workforce and skills management
analysis and industry-specific analyses. The Company also intends to enable
these solutions for new mobile-based information delivery technologies such as
wireless application protocol ("WAP").
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Hyperion believes that a high level of customer service and the resultant
high level of customer satisfaction is critical to the successful marketing and
sales of its existing and new products. The Company provides a broad range of
worldwide consulting, training and support services that help its customers and
partners implement, customize, enhance, support and extend its business analysis
platform. In response to market conditions, Hyperion is committed to building a
world-class workforce to deliver these offerings. Hyperion is also committed to
supporting the more than 400 partners that deliver complementary products and
services, meeting a wide variety of customer requirements. These solutions
include additional packaged business analysis applications, data and application
integration technologies, tools, custom application development and
implementation and training services, all of which use the Company's OLAP server
technology as the foundation. The Company believes that the number of partners
offering solutions based on Hyperion applications and technology coupled with
sustained growth in new partnerships validate its business analysis platform as
an emerging standard. These partner relationships increase the network effects
of Hyperion's business analysis platform, enhance the Company's market reach and
provide Hyperion customers with comprehensive solutions that deliver greater
flexibility and choice.
Key elements of the Company's strategy include:
Leverage Existing Market Leadership Position. The Company plans to enhance
its OLAP technology, Hyperion Essbase OLAP Server, with even greater scalability
and ease of use features and tighter integration with relational data sources.
The Company intends to actively seek the co-development of vertical and
horizontal applications based on Hyperion Essbase with outside organizations.
The Company also intends to embed Hyperion Essbase as a key differentiator in
all of its business analysis applications. Hyperion believes that these
activities will increase the ability of the Company and its partners to deliver
an integrated suite of business analysis applications across key market areas.
The Company believes its key strengths are its established distribution channels
and comprehensive strategic technology platform for business analysis, but also
believes that its proven domain expertise and credibility gained from market
leadership in the financial applications area can be leveraged to win business
in new markets.
Increase Focus and Penetration of Key Markets. The Company plans to focus
its intellectual capital and leverage its partners to provide best-of-breed
business analysis solutions in key markets including performance management,
eCRM analysis, financial analysis, supply-chain analysis, OLAP technology and
tools, and data warehousing. Hyperion alliance partners will also provide
additional solutions for markets outside of the Company's current areas of focus
such as workforce analysis and industry-specific solutions.
Foster Strategic Relationships. To accelerate the adoption of the Company's
business analysis platform, Hyperion has established over 400 strategic
relationships, including the following:
- Application Partners include enterprise software companies such as ERP
providers that either integrate their enterprise packaged application
suite with Hyperion products to enhance business analysis capabilities,
and/or develop horizontal or vertical business analysis applications
such as budgeting, sales forecasting, demand planning or profitability
analysis, using Hyperion products.
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- Tools Partners include developers of products and technologies that
integrate with the Hyperion product family for enterprise information
delivery and analysis. These tools include query and reporting,
application development, spreadsheets, visualization, statistics,
mapping and systems management.
- Data Integration Partners include developers of software that work with
the Company to provide data integration with data marts, data
warehouses or packaged application suites such as ERP and customer
relationship management packages.
- Platform Partners manufacture and/or develop hardware platforms,
operating systems, and relational databases supported by the Hyperion
products.
- Complementary Technology Partners focus on the resale, implementation
and support of complementary software technology that works with the
Company's software products.
- Service Partners include system integrators and consulting and
education partners that sublicense Hyperion products and/or provide
services including systems planning, analysis, design, development,
implementation, customization, systems integration and training
services to the Company's customers and partners.
- Distribution Partners include worldwide and territory-specific
organizations that sell and support Hyperion products in a specific
geography.
Hyperion's partner network enhances and expands the Company's distribution
channels, and extends its business analysis platform by providing a wider range
of choices for its customers.
Design for Ease of Implementation and Ease of Use. The Company's packaged
application products are designed for an end-user role in maintenance, with
minimal training. By supporting familiar interfaces such as spreadsheets, Web
browsers and, increasingly, mobile-based computing interfaces, users become
productive more quickly. The Company also provides process-specific analysis
expertise by embedding that expertise into its packaged application offerings
and through its experienced consulting personnel. Following implementation,
customers are able to operate self-sufficiently with trained administrators at
headquarters locations and independent end-users at headquarters and at remote
sites.
Maintain Sales and Support Relationships. The Company licenses its products
to customers throughout the world through a direct sales force as well as
through independent distributors and sales agents in certain regions, and
through reseller arrangements with other technology and application software
companies, and major systems integrators ("channel partners"). Hyperion and its
partners often provide installation and post-sale consulting support to build
long-term customer relationships.
Generate Follow-on Revenues. The Company generates revenues from existing
customers through licensing for additional users, the cross-selling of licenses
of new products and annual maintenance fees. In addition, sales of training and
consulting services to existing customers represent a significant portion of the
Company's total service revenues. Follow-on revenues leverage sales and
marketing resources and strengthen the Company's relationships with its
customers.
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PRODUCTS AND SERVICES
Hyperion offers customers an open, scalable, flexible and integrated
business analysis platform which consists of: Hyperion Essbase, its OLAP server
technology; four categories of packaged business analysis applications including
Hyperion eCRM Analysis, Hyperion Financial Analysis, Hyperion Performance
Management, and the newly announced Hyperion Supply-Chain Management Analysis;
and Hyperion Tools. These products, coupled with many partner offerings, offer a
suite of business analysis solutions that help customers plan, monitor, manage
and execute their strategies more effectively.
HYPERION ESSBASE TECHNOLOGIES
OLAP (Online Analytical Processing) is an enabling technology that supports
a wide variety of existing and emerging business analysis applications. OLAP
technology allows data to be explored well beyond the capabilities of
traditional reporting systems. Using sophisticated, statistical and mathematical
calculations, intuitive multidimensional views and a highly scalable
architecture, it supports interactive reporting, analysis, modeling, and
planning activities. The Company believes, based on independent industry analyst
product evaluations and market share estimates, that its Hyperion Essbase OLAP
server is the industry's leading OLAP technology.
Hyperion Essbase OLAP Server is a strategic platform optimized for
enterprise reporting, analysis, modeling and planning applications. It supports
multi-user read/write access, large-scale data capacity, robust analytical
calculations, and sophisticated queries. Hyperion Essbase OLAP Server
facilitates intuitive data navigation by providing multidimensional views of
both summary and detail data. The Company believes these capabilities reduce the
time and effort involved in training new users and deliver consistent, rapid
response times in network-centric computing environments with large numbers of
simultaneous users. In addition to integration with standard desktop tools such
as spreadsheets and Web browsers, Hyperion Essbase works with a wide range of
best-in-class tools and applications from Essbase-Ready partners.
Hyperion Integration Server is a suite of graphical tools and scalable data
integration services that dramatically reduces the time and expense to create,
deploy and manage business analysis applications. Hyperion Integration Server
uses centralized, reusable metadata to automate the process of creating and
managing business analysis applications that use Hyperion Essbase and draw data
from relational sources such as data warehouses, data marts, transaction
processing applications, Web and e-commerce systems, ERP and CRM packages and
other front office automation and operational systems. Hyperion Integration
Server allows users to navigate from summarized, calculated and derived data
managed by Hyperion Essbase to detail data stored in these relational sources.
HYPERION eCRM ANALYSIS SOLUTIONS
Hyperion provides an integrated suite of eCRM analysis applications that
complement operational customer relationship management (CRM) packages with a
complete family of solutions that will enable customer relationship analysis
across multiple touch points and business channels. By offering an end-to-end
view of customer interactions, Hyperion eCRM Analysis enables further refinement
of customer-facing business processes, increases customer satisfaction and
loyalty, and enhances customer lifetime value.
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Hyperion eCRM Analysis is designed to complement operational CRM packages
and allow sales, service and marketing personnel to make more effective
decisions based on the detailed analysis of customer relationships. Hyperion
eCRM Analysis can also integrate product, financial, demographic and
psychographic data from other sources to enable richer customer analyses that
more accurately quantify a customer's lifetime value. Through a comprehensive
family of business analysis applications, Hyperion eCRM Analysis will help its
customers gain a better understanding of their customers' behaviors, needs and
preferences across all touch points and deliver a true "360-degree" view of
their customer relationships. The Company believes that the information gained
by using its eCRM analysis applications will drive business processes
refinements that lead to more satisfied customers and stronger customer
relationships.
Hyperion eCRM Analysis applications include:
Hyperion Web Site Analysis Suite is a business analysis application that is
designed to allow businesses to understand, manage, and optimize the experience
of visitors to their Web sites. Hyperion Web Site Analysis Suite includes
comprehensive measurements and analyses of the technical performance of Web
sites that help to drive continuous improvements and increase returns from
e-business investments.
Hyperion Customer Interaction Center is a business analysis application
that is designed to help organizations understand, manage and improve their
customer service operations. With Hyperion Customer Interaction Center,
companies can improve service levels, more effectively use customer service
representatives (CSRs) and increase customer satisfaction and loyalty. Hyperion
Customer Interaction Center facilitates the analysis necessary to understand and
successfully manage even the most complex call center operations.
The Company intends to expand the number of applications in Hyperion eCRM
Analysis with offerings that support e-commerce analysis, field services
analysis, product quality analysis, sales force analysis and customer profile
analysis.
HYPERION FINANCIAL ANALYSIS SOLUTIONS
Hyperion Financial Analysis Solutions provide comprehensive support for the
reporting, analysis, modeling and planning needs of global finance
organizations. Hyperion financial analysis applications are designed to improve
information quality and enhance understanding of financial performance across an
organization by further extending the capabilities and reach of the finance
department into other functional areas of the business.
Hyperion Pillar is a business analysis application for enterprise-wide
budgeting, planning and forecasting. It is designed to increase the reliability,
efficiency, and speed of combined bottom-up and top-down budgeting. By
facilitating participation of line managers and business activity experts in the
budgeting, planning and forecasting process, Hyperion Pillar can improve an
organization's ability to respond to changing conditions and deliver immediate
budget revisions and projected financial statements. Hyperion Pillar features an
open architecture that eases customization and integration with third-party
business applications such as spreadsheets, and enables a company to increase
usage and decrease its total cost
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of ownership. It is appropriate for organizations seeking an advanced
operational planning solution supporting many remote users and limited IT
resource requirements.
Hyperion Planning is a Web-based business analysis application designed to
enable collaborative, event-based operational planning processes throughout an
organization and fulfill a wide range of financial and operational needs such as
budgeting and planning. Hyperion Planning provides support for the complete
planning process and helps drive continuous business improvement. Using Hyperion
Planning, decision-makers and front-line managers can communicate a desired
course of action to facilitate effective collaboration so that the planning
process is optimized and efficient. When a material event occurs that changes a
critical assumption, planners can quickly adapt, ensuring that plans are
relevant and useful. Hyperion Planning can improve the effectiveness of
virtually any operational planning process. As contrasted with Hyperion Pillar,
it is most appropriate for companies seeking a solution that delivers real-time
planning, sophisticated modeling, dynamic forecasting and event-driven
reallocation of resources to a large number of users.
Hyperion Enterprise is a business analysis application designed to simplify
the collection, consolidation and reporting of financial results, reduce the
time organizations spend on these activities and improve financial analysis and
planning capabilities. It is appropriate for global organizations seeking a
comprehensive consolidation and reporting solution with many remote users and
low IT support requirements.
Hyperion Financial Management is a business analysis application designed
to help organizations develop value-focused strategies, link their financial
plans to these strategies and monitor the execution of those plans to deliver
the expected value. Suitable for large-scale Web deployments, Hyperion Financial
Management can act as a shared financial resource for thousands of users across
the enterprise that facilitates collaborative efforts in the day-to-day
management of the business. Hyperion Financial Management can also produce
auditable reports and forecasts for external consumers, such as regulatory
bodies, financial analysts, stakeholders and business partners. As contrasted
with Hyperion Enterprise, it is most appropriate for companies seeking a
centralized, comprehensive, extensible, Web-based financial analysis solution to
unify the financial reporting, analysis, modeling and planning processes.
Hyperion Application Link is a suite of graphical application integration
services designed to reduce the time and expense required to integrate data from
ERP systems, transaction-processing applications, data warehouses and other
sources with packaged business analysis applications.
Hyperion Allocations Manager is a business analysis application designed to
facilitate the assignment of shared revenues, costs and capital across
organizations. Hyperion Allocations Manager helps shorten the development and
implementation cycles of financial analysis applications, improve application
maintenance, and reduce the total cost of ownership of financial analysis
solutions.
HYPERION PERFORMANCE MANAGEMENT SOLUTIONS
Hyperion Performance Management Solutions are designed to facilitate the
performance management process in strategy-focused organizations. Using strategy
and accountability
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maps, activity-based modeling capabilities, and personalized, Web-enabled
performance scorecards, Hyperion Performance Management helps businesses align
activities and resources, monitor performance results and adjust strategy in a
cycle of continuous improvement. Hyperion Performance Management can help
employees to better understand, align with and execute their organization's
strategy. As a result, they are more accountable for the results.
Hyperion Performance Scorecard is a Web-based business analysis application
designed to help employees throughout an organization gain a clear understanding
of organizational strategy and accountability. Organizations that deploy
Hyperion Performance Scorecard are better able to bridge the gap between
strategy and execution, engage a broader range of employees in planning
activities and respond more proactively to changing business conditions.
Hyperion Performance Scorecard embeds industry-leading metric libraries, exposes
world class benchmarking services and supports customized and standard
performance measurement frameworks, including the Balanced Scorecard.
Hyperion Activity Based Management is a Web-enabled business analysis
application that is designed to help manage and optimize strategy by causing
assumptions about strategy to be constantly tested and revised. Using an
operational approach rather than strictly financial formulas, Hyperion Activity
Based Management builds sophisticated models of activities within a business
process in order to determine the true cost of a customer, product or channel,
for example, and promote a better understanding of resource utilization and
associated operational constraints. Starting with requirements, the
activity-based models determine how employees, processes and resources should be
deployed to fulfill these requirements most efficiently.
HYPERION ANALYSIS TOOLS
Hyperion Analysis Tools are designed to provide best-in-class solutions for
a broad range of enterprise analysis, reporting and information delivery needs.
Hyperion Analysis Tools range from solutions that work right out of the box,
through to an open, standards-based framework for assembling custom business
analysis applications.
Hyperion Enterprise Reporting is an advanced financial reporting solution
for Hyperion Enterprise. An intuitive graphical interface helps users create
sophisticated production-quality financial reports for printing or on-line
access. Embedded process-specific financial intelligence provides accurate and
detailed financial information, while a comprehensive library of financial
functions and calculations allow users to derive new metrics.
Hyperion Reports delivers highly formatted management reports to an
enterprise. Tightly integrated with Hyperion Essbase OLAP Server, Hyperion
Reports provides versatile query and reporting capabilities that allow users to
create reports from data in multiple sources. A scalable, cross-platform Report
Server facilitates deployment to large user communities. These features make
Hyperion Reports an appropriate solution for a wide range of enterprise
reporting applications, including profit-and-loss, balance sheet and statutory
reporting.
Hyperion Analyzer delivers intuitive Web-based graphical presentation of
OLAP data and interactive analysis across all levels of an organization.
Designed for enterprise-wide deployment, Hyperion Analyzer can adapt to meet the
information requirements of employees
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in different functions and at different levels of the organization. This makes
it ideal for a broad range of sales, marketing, and other ad-hoc business
analysis applications such as sales analysis, product profitability, and key
performance measurement.
SERVICES AND SUPPORT
Hyperion believes that a high level of customer service and the resultant
high level of customer satisfaction is important to the successful marketing and
sale of its products. The Company offers an extensive selection of worldwide
training, consulting, and technical support services to install, implement,
customize, and support its products. Consulting and training services are not
included in software license fees, but are provided on a time and materials
basis. Within the area of technical support, enhanced support offerings are not
included in the software license fees. The Company believes that as a result of
providing customers with the flexibility to select and customize the level of
consulting, training, and technical support services that best meets their
needs, customer satisfaction has remained high. Hyperion's services and support
organization consisted of 878 employees as of June 30, 2000. Hyperion has also
established a global network of partners who deliver implementation and training
services.
Under the terms of the Company's standard license agreement, customers may,
at their option, pay a maintenance fee annually. This maintenance fee entitles
customers to technical support, including telephone and Web-based support, and
to any updates and enhancements provided for their software.
SALES AND MARKETING
Hyperion markets and sells its products in the United States, Canada,
Europe and Asia through its direct sales force and worldwide through original
equipment manufacturers (OEMs), value-added resellers (VARs), independent
distributors and sales agents. The Company supports its sales force with lead
generation and marketing programs which include telemarketing, public relations,
direct mail, advertising, seminars, trade shows, education, ongoing customer
communication programs, third-party alliances and user group conferences.
Worldwide and regional user conferences are held annually. Regional user
meetings and product-specific focus groups are also scheduled periodically.
Sales cycles generally last from three to nine months. Hyperion has dedicated
sales, marketing and technical alliance resources designed to optimize its
partner relationships. The direct sales force is compensated for direct sales as
well as sales made through indirect channel partners to ensure appropriate
cooperation with the Company's OEMs and VARs, independent distributors and sales
agents. The Company has licensed its software to more than 6,000 organizations
worldwide, many of which are multidivision and/or multilocation organizations
with diverse information management requirements. In the past three fiscal
years, no one customer accounted for more than 10% of total revenues.
Hyperion's sales and marketing organization consisted of 678 employees as
of June 30, 2000. The Company has sales offices at its headquarters in
Sunnyvale, California and in other U.S. and international locations including
Amsterdam, Atlanta, Baltimore, Boston, Brussels, Calgary, Charlotte, Chicago,
Cincinnati, Cleveland, Copenhagen, Dallas, Denver, Detroit, Frankfurt, Hamburg,
Hong Kong, Houston, Linz, London, Los Angeles, Madrid, Manchester, Melbourne,
Milan, Milwaukee, Minneapolis, Montreal, Munich, Newark, New York City, Ottawa,
-11-
<PAGE> 13
Paris, Philadelphia, Pittsburgh, Rome, San Diego, San Francisco, Sao Paolo,
Seattle, Seoul, Singapore, Stamford, St. Louis, Stockholm, Sydney, Tokyo,
Toronto, Washington, D.C. and Zurich. Product support and training are available
as well through many of these locations.
Hyperion has been able to leverage sales and marketing through its
partnering strategy with channel partners that distribute or resell the
Company's products in their respective markets. The Company has license and
distribution agreements with independent distributors and sales agents in
Argentina, Australia, Brazil, Egypt, Finland, Greece, Hungary, Israel, Japan,
Korea, Mexico, New Zealand, Poland, Singapore, South Africa, Taiwan, Turkey and
Switzerland, as well as other territories of North America, Europe and Asia. The
distributors generally maintain sales and services personnel dedicated to the
Company's products. The distribution agreements generally provide for the right
to offer the Company's products within a territory, in return for royalties
typically equal to 50% of license and renewal fees.
Revenues derived from channel partners for fiscal 2000, 1999 and 1998 were
16.5%, 14% and 10.7% of total revenues, respectively. Hyperion's channel
partners include, but are not limited to: Arthur Andersen LLP; Comshare,
Incorporated; Deloitte & Touche LLP; Ernst & Young Technologies, Inc.; Fujitsu
Limited; International Business Machines Corporation; i2 Technologies, Inc.;
KPMG Consulting Inc.; Lawson Associates, Inc.; Mitsubishi Corporation;
PeopleSoft, Inc.; ShowCase Corporation; Software House International; Vantage
Source and Walker Interactive Systems, Inc.
In each of its 2000, 1999 and 1998 fiscal years, approximately 34.4%, 37.6%
and 31.7%, respectively, of the Company's total revenues were derived from
markets outside of the United States.
RESEARCH AND DEVELOPMENT
The Company's products have been developed by its internal staff as well as
through strategic acquisitions. When developing a new product or enhancement,
the Company consults with customers and other external resources to determine
their requirements.
The Company's development efforts are focused on new products, as well as
on maintaining the competitiveness of its current product line, including
development of the next releases of Hyperion Enterprise, Hyperion Essbase OLAP
Server, Hyperion Performance Measurement and Hyperion Pillar. During calendar
year 2000, Hyperion expects to have released at least thirteen major new
products or releases, a significant increase over the prior three calendar
years. As of June 30, 2000, the Company's product development was performed by
496 employees located at its facilities in Sunnyvale and Foster City,
California; Stamford, Connecticut; Orlando, Florida; Atlanta, Georgia; and
Toronto, Canada.
COMPETITION
The markets in which Hyperion competes are intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. The Company's current and potential competitors offer a variety of
reporting, analysis, modeling and planning software solutions and generally fall
within four categories: (i) vendors of OLAP Server software; (ii) vendors of
enterprise software applications that support transaction processes and
front/back office automation; (iii) vendors of front-end information access
tools; and (iv) vendors of
-12-
<PAGE> 14
packaged business analysis applications. While competition is intense on any
individual business analysis opportunity, the Company believes that no other
competitor currently has the singular focus and breadth of products and services
required to deliver enterprise-wide business analysis solutions. As the
visibility of business analysis solutions continues to increase with industry
senior executives, Hyperion believes it is currently positioned to capitalize
on the demand. As markets continue to develop for business analysis software
products, additional competitors may enter or expand into those markets and
competition may intensify.
Hyperion has experienced, and expects that it will continue to experience,
increased competition from current and potential competitors, some of whom have
significantly greater financial, technical, marketing and other resources than
the Company. Such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than the
Company. Also, certain current and potential competitors may have greater name
recognition or more extensive customer bases that could be leveraged, thereby
gaining market share to the Company's detriment. Hyperion expects additional
competition as other established and emerging companies enter into the
enterprise software market and new products and technologies are introduced. In
addition, as the Company develops and enhances its software and complementary
products, the resulting new functionality may duplicate the functionality of,
and thus compete with, other products offered by channel partners. 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.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of
Hyperion's existing and prospective customers. Further competitive pressures,
such as those resulting from competitors' discounting of their products, may
require the Company to reduce the price of its software products, which would
materially adversely affect the Company's business, operating results and
financial condition. There can be no assurance that Hyperion will be able to
compete successfully against current and future competitors, and the failure to
do so would have a material adverse effect upon the Company's business,
operating results and financial condition. See "Part I, Item 7, Risk Factors."
PROPRIETARY RIGHTS AND LICENSES
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. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. Policing unauthorized use of the Company's products is
difficult, and while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy is expected to be a
persistent problem. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the United
States. 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. The Company has
entered into source code escrow agreements with a number of its customers and
indirect channel partners
-13-
<PAGE> 15
requiring release of source code under certain conditions. Generally, such
agreements provide that such parties will have a limited, nonexclusive right to
use such code in the event that there is an undismissed bankruptcy proceeding by
or against the Company, if the Company ceases to do business or if the Company
materially fails to meet its contractual obligations. The release of source code
may increase the likelihood of misappropriation by third parties.
Hyperion currently has a small number of patents relating to its products,
including four United States patents, two foreign patents and a number of patent
applications pending in the United States and abroad. There can be no assurance
that the Company's patents will not be invalidated, circumvented or challenged,
that the rights granted thereunder will provide competitive advantages to the
Company or that any of the Company's pending or future patent applications,
whether or not being currently challenged by applicable governmental patent
examiners, will be issued with the scope of the claims sought by the Company, if
at all. Furthermore, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology or design
around the patents owned by the Company. In 1998, the U.S. Patent and Trademark
Office granted two requests for reexamination of the Company's U.S. Patent No.
5,359,724 (the "'724 Patent"). The requests were made by Gentia Software in
connection with its litigation with the Company over the validity and
enforceability of the '724 Patent. While the litigation between Gentia and the
Company has been settled, the reexamination proceedings are currently pending.
See "Item 3. Legal Proceedings."
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.
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in the Company's products to perform key functions.
There can be no assurance that these third party software licenses will continue
to be available to the Company on commercially reasonable terms. The loss of, or
inability to maintain, any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated, which would materially adversely affect the Company's
business, operating results and financial condition.
The Company distributes its products under software license agreements that
grant customers a nonexclusive, nontransferable license to the Company's
products and contain terms and conditions prohibiting the unauthorized
reproduction or transfer of the Company's products. Generally, the Company does
not provide end users with the source code for its products except under the
escrow arrangements as described above.
-14-
<PAGE> 16
EMPLOYEES
As of July 31, 2000, the Company employed a total of 2,464 employees,
including 701 in marketing and sales, 1,416 in research and development,
services and customer support, and 347 in management, administration and
finance. None of the Company's employees is represented by a labor union. The
Company believes its relations with employees are good.
The executive officers of the Company as of September 15, 2000, are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jeffrey R. Rodek... 47 Chairman and Chief Executive Officer
Stephen V. Imbler.. 48 President and Chief Operating Officer
David W. Odell..... 37 Chief Financial Officer
Michael L. Sternad. 49 Chief Strategy Officer
Beth E. Broderson.. 44 Chief Marketing Officer
Dyke J. Hensen..... 44 Chief Products Officer
Larry J. Braverman. 40 Vice President, General Counsel and Secretary
</TABLE>
Jeffrey R. Rodek has served as Chairman and Chief Executive Officer of
Hyperion since October 1999. He has been a member of Hyperion's Board of
Directors since January 1998. Prior to joining Hyperion, Rodek served as
President and Worldwide Chief Operating Officer of Ingram Micro from January
1995 to October 1999. Previously, Rodek spent 16 years at Federal Express, where
he held several executive positions, including Senior Vice President of
Operations, the Americas; Senior Vice President, Central Support Services; and
Vice President, Financial Planning. He earned a bachelor's degree in mechanical
engineering and a master's degree in business administration with an emphasis in
finance from Ohio State University, where he is currently a member of the
Advisory Council for the Fisher College of Business.
Stephen V. Imbler is Hyperion's President and Chief Operating Officer.
Prior to the merger between Arbor Software and Hyperion Software, Imbler held
the position of Vice President and CFO at Arbor Software for three years. Imbler
joined Arbor Software in 1995 from Gupta Technologies, Inc. (now Centura
Software Corporation). During his tenure at Gupta, he served as Senior Vice
President of Finance and Operations, and CFO. During his career, Imbler has held
a variety of senior level positions, including Vice President and CFO at Quick
Response Services, Inc.; several executive positions at Oracle Corporation,
including Vice President, U.S. Finance and Operations, and Vice President,
Finance (Oracle Corporate); and Senior Tax Manager at Peat Marwick, San
Francisco. Imbler received a master's degree in public accounting from the
University of Texas, is a Certified Public Accountant and holds a bachelor's
degree in music from Wichita State University.
Michael L. Sternad serves as Chief Strategy Officer for Hyperion. Sternad
joined Hyperion in October 1999 as Chief Financial Officer, and brings to
Hyperion more than 25 years of financial management experience. Before joining
the Company, Sternad served as Worldwide Vice President of Financial Planning
and Control at Ingram Micro from January 1997 to October 1999. Previously, he
held financial management positions at Carson Pirie Scott & Company and Federal
Express. He earned a bachelor's degree in business administration and a master's
degree in business administration with an emphasis in finance from Ohio State
University.
-15-
<PAGE> 17
David W. Odell joined Hyperion on August 30, 2000 as Chief Financial
Officer and a Corporate Vice President. He joined Hyperion from KPMG LLP, with
more than fifteen years of broad global financial experience, including
accounting, risk management, information technology, and performance
measurement. Elected a Partner of the Firm in 1996, and most recently based in
Sydney, Australia, he managed finance and operations for KPMG's IT Risk
Management business unit and was the partner responsible for the Firm's
Assurance Practice engagement with Bankers Trust Australia. Mr. Odell holds a
bachelor's of business administration in accounting from the University of Texas
at Austin, and is a Certified Public Accountant.
Beth E. Broderson joined Hyperion in May 2000 as the Company's Chief
Marketing Officer. Previously, Broderson served as Director of Marketing at KPMG
Consulting from November 1999, where she successfully developed and implemented
marketing programs for its e-business solutions. For 15 years prior to that, she
served in management roles at integrated marketing services companies in the
United States and Europe with Hill, Holliday (an Interpublic company) and
Ketchum Communications (an Omnicom company). Broderson earned a bachelor of arts
degree, magna cum laude, from Boston University.
Dyke J. Hensen was appointed the Company's Chief Product Officer in January
2000. Prior to assuming this position, Hensen served as Hyperion's Vice
President of Global Channels from 1999 to 2000 and Channel Sales Director from
1997 to 1999. From 1995 to 1997, Hensen was the Channel Sales Manager for Arbor
Software. Before joining Arbor, Hensen was National Sales Manager for Pilot
Software's decision support division, and held sales management positions at ADP
Network Services and Motorola. Hensen received a bachelor's of science in
business administration, cum laude, from the University of New Hampshire,
Plymouth State College.
Larry J. Braverman is Corporate Vice President, General Counsel and
Secretary of the Company. Braverman joined Arbor Software Corporation as its
General Counsel in 1996 and has held his current position at the Company since
the merger between Arbor Software and Hyperion Software in 1998. From 1990 to
1995, Braverman worked in various positions in the Legal Department at Lotus
Development Corporation, most recently as Senior Corporate Counsel. In 1996,
Braverman provided legal services to Parametric Technology Corporation on a
consulting basis. Braverman received a B.A. from Columbia College and a J.D.
from Columbia Law School. Braverman is admitted to the Bars of the States of
California and Massachusetts.
-16-
<PAGE> 18
ITEM 2. PROPERTIES
Hyperion's principal administrative, sales and services, marketing, and
research and development facilities are principally located in Sunnyvale and
Foster City, California, Stamford, Connecticut, Toronto, Canada, Atlanta,
Georgia and Orlando, Florida. The Company occupies approximately 100,000 square
feet at its headquarters in Sunnyvale, California, pursuant to a lease which
expires in December 2002. The Company also owns and occupies approximately
230,000 square feet in Stamford, Connecticut. The Stamford site permits future
expansion of approximately 300,000 square feet of additional space. The Company
also leases office space throughout the world for its local sales and services
needs. Hyperion believes that its existing facilities are adequate for its
current needs; however, if additional space is needed in the future, Hyperion
believes that suitable additional or alternative space will be available on
commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
On July 11, 1997, Gentia Software filed a request for reexamination of
Hyperion's U.S. Patent No. 5,359,724 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 PTO. The Company believes
that the outcome of such action will not have a material adverse effect on the
financial position of the Company.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders through the solicitation of
proxies or otherwise.
-17-
<PAGE> 19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on the Nasdaq National Market under the
symbol "HYSL." The following table sets forth, for the periods indicated, the
high and low sales prices of the common stock as reported on the Nasdaq National
Market.
<TABLE>
<S> <C> <C>
----------------------------------------------------------------------
FISCAL 1999: HIGH LOW
----------------------------------------------------------------------
First quarter $40 1/2 $19 3/4
Second quarter 36 1/8 12
Third quarter 21 7/16 12 1/4
Fourth quarter 18 1/4 9 7/8
----------------------------------------------------------------------
FISCAL 2000: HIGH LOW
----------------------------------------------------------------------
First quarter $24 3/8 $15 1/8
Second quarter 44 18 5/8
Third quarter 65 28 3/8
Fourth quarter 35 20
----------------------------------------------------------------------
FISCAL 2001: HIGH LOW
----------------------------------------------------------------------
First quarter (through September 15th) $34 15/16 $22
</TABLE>
As of September 15, 2000, the Company had 249 stockholders of record and
approximately 14,000 beneficial holders of its common stock.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all earnings to finance future
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.
18
<PAGE> 20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
REVENUES
Software licenses $ 240,326 $ 205,991 $ 214,297 $ 151,202 $ 111,842
Maintenance and services 256,579 218,894 162,796 119,011 86,116
-------------------------------------------------------------------------
Total revenues 496,905 424,885 377,093 270,213 197,958
-------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of revenues:
Software licenses 8,782 7,799 10,335 7,866 5,486
Maintenance and services 141,915 115,265 93,829 72,929 54,167
Sales and marketing 191,414 164,913 133,124 96,009 69,544
Research and development 70,199 63,813 48,957 40,000 30,524
Acquired in-process technology 3,000 2,000
General and administrative 44,437 38,500 35,557 23,807 19,091
Merger costs (credits) (305) 19,473
Restructuring charge 2,066
Asset valuation and restructuring 4,400
-------------------------------------------------------------------------
Total costs and expenses 458,508 409,763 324,802 245,011 180,812
-------------------------------------------------------------------------
OPERATING INCOME 38,397 15,122 52,291 25,202 17,146
Interest income 13,010 11,029 5,031 3,430 2,252
Interest expense (5,588) (5,378) (641) (591) (547)
-------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 45,819 20,773 56,681 28,041 18,851
Provision for income taxes 17,000 12,800 21,924 10,337 6,516
=========================================================================
NET INCOME $ 28,819 $ 7,973 $ 34,757 $ 17,704 $ 12,335
=========================================================================
EARNINGS PER SHARE
Basic $ .91 $ .26 $ 1.19 $ .64 $ .57
Diluted $ .87 $ .26 $ 1.13 $ .61 $ .45
AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 31,665 30,196 29,121 27,537 21,728
Diluted 33,107 30,855 30,770 29,261 27,544
CASH GENERATED BY OPERATING
ACTIVITIES $ 27,774 $ 43,160 $ 87,571 $ 49,703 $ 42,946
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and short-term investments $295,159 $271,856 $257,347 $ 95,910 $ 79,024
Working capital 297,745 230,910 218,033 72,480 59,518
Total assets 589,891 512,894 476,665 278,228 225,331
Deferred revenue 88,828 81,089 63,724 50,573 40,613
Total long-term debt 102,518 103,752 107,314 8,102 9,429
Stockholders' equity 309,861 240,776 213,225 155,609 124,309
</TABLE>
-19-
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
--------------------------------------------------------------------------------
Hyperion Solutions Corporation (the "Company" or "Hyperion") develops,
markets and supports business analysis software, which helps turn raw data into
business information. The Company's products and services enables companies and
their employees to plan, manage, and execute business strategies to achieve
faster revenue and profit growth, and ultimately create value for their
shareholders. The Company's products analyze the raw data captured in
operational systems, which improves the return on investment that organizations
have made in enterprise resource planning ("ERP"), supply chain management
("SCM"), customer relationship management ("CRM"), marketing automation, Web and
e-commerce systems and data warehouses.
Hyperion provides a full suite of applications that cover analytical needs
across a wide variety of functional areas extending from "front office" to "back
office." Hyperion uses its best of breed technology - Hyperion Essbase OLAP
Server - as the foundation of its comprehensive enterprise analysis platform.
This online analytical processing ("OLAP") server technology, along with
packaged business analysis applications, and an extensive family of application
development tools and data and application integration technologies give
Hyperion one of the deepest and broadest product offerings in the market. In
addition, Hyperion offers highly rated support and services from offices in 26
countries, and works with over 400 partners to provide solutions to more than
6,000 customer organizations worldwide.
Hyperion and its network of over 400 partners deliver Web and
mobile-enabled solutions that address a broad range of cross-industry and
industry-specific business analysis requirements. These include performance
measurement; financial planning, analysis and consolidation; management
reporting; customer relationship analysis; partner relationship analysis;
product profitability; budgeting, planning and forecasting; and demand and
capacity planning. The Company is headquartered in Sunnyvale, California.
Hyperion derives revenues from licensing its software products and providing
related software maintenance and support, product installation and
implementation, and training services. Customers are billed an initial license
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
through a direct sales force and through independent distributors and sales
agents, including other technology and application software companies, and major
systems integrators ("channel partners"). The Company includes in revenues its
net share of revenues generated by channel partners. 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.
-20-
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
REVENUES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------
2000 CHANGE 1999 CHANGE 1998
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Software licenses $240,326 16.7% $205,991 (3.9)% $214,297
Percentage of total revenues 48.4% 48.5% 56.8%
----------------------------------------------------------------------------------------
Maintenance and services $256,579 17.2% $218,894 34.5% $162,796
Percentage of total revenues 51.6% 51.5% 43.2%
----------------------------------------------------------------------------------------
</TABLE>
Software license revenues rose in fiscal 2000 over the prior fiscal year
primarily as a result of an increase in the number of licenses sold (unit
volumes) versus, for example, price increases. The growth in software sales was
led by increased sales force productivity and demand for the Company's business
analysis software.
Software license revenues declined in fiscal 1999 versus fiscal 1998 primarily
as a result of a decrease in the number of licenses sold (unit volume) versus,
for example, price decreases. Moreover, due primarily to merger integration
related activities, including sales and marketing execution issues, software
sales were less than the Company plan, particularly in North America beginning
in the December 1998 quarter. The Company appointed new sales leadership and
expanded its sales training and lead generation programs, resulting in sales
productivity improving gradually each quarter through the balance of fiscal
2000.
Service and annual maintenance revenue grew in fiscal 2000, albeit at a slower
rate than in the prior fiscal year, due to reduced license revenue volumes in
fiscal 1999 and the first half of fiscal 2000.
Revenues generated from markets outside the United States, including export
sales, for fiscal 2000, 1999 and 1998 were $171.1 million, $159.9 million and
$119.6 million, or 34.4%, 37.6% and 31.7% of total revenues, respectively.
Revenue growth was particularly strong in France, Italy and Scandinavia in
fiscal 2000, and in France, Italy and the Netherlands in fiscal 1999.
Revenues derived from channel partners for fiscal 2000, 1999 and 1998 were
16.5%, 14% and 10.7% of total revenues, respectively.
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. Effective July 1, 1998, the
Company adopted the SOP, as amended, and the impact on operating results for the
fiscal year was not material. However, should the Company adopt new licensing
practices or change its current ones, in response to a preference from the
market or otherwise, then the Company's revenue recognition practices may be
subject to significant change to comply with the accounting requirements of the
SOP, as amended.
-21-
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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.
Management is currently assessing the impact that adoption of SAB No. 101 will
have on the Company's financial statements.
COST OF REVENUES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------
2000 CHANGE 1999 CHANGE 1998
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Software licenses $ 8,782 12.6% $ 7,799 (24.5)% $ 10,335
Gross profit percentage 96.3% 96.2% 95.2%
--------------------------------------------------------------------------------------
Maintenance and services $141,915 23.1% $115,265 22.8% $ 93,829
Gross profit percentage 44.7% 47.3% 42.4%
--------------------------------------------------------------------------------------
</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 in fiscal 2000 over the prior fiscal
year principally reflects royalty fees related to third-party software
distributed by the Company and an increase in amortization expense of certain
intangible assets related to business and technology asset acquisitions. The
increase is offset, to a lesser extent, by a decrease in amortization of
capitalized software costs.
The nonrecurring increase in the cost of software license revenues in fiscal
1998 principally reflected royalty fees related to third-party software
distributed by the Company in 1998.
The increases in the cost of maintenance and service revenues for fiscal 2000
and 1999 were due primarily to additional staffing expense for both installation
and ongoing support services.
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------
2000 CHANGE 1999 CHANGE 1998
------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Sales and marketing $191,414 16.1% $164,913 23.9% $133,124
Percentage of total revenues 38.5% 38.8% 35.3%
---------------------------------------------------------------------------------------
Research and development $ 70,199 10.0% $ 63,813 30.3% $ 48,957
Percentage of total revenues 14.1% 15.0% 13.0%
---------------------------------------------------------------------------------------
General and administrative $ 44,437 15.4% $ 38,500 8.3% $ 35,557
Percentage of total revenues 8.9% 9.1% 9.4%
---------------------------------------------------------------------------------------
</TABLE>
For the most part, the increase in sales and marketing expenses in fiscal 2000
was due to a net increase in sales and marketing personnel. In fiscal 1999,
sales and marketing expenses rose over fiscal 1998 for the same reason.
-22-
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The increase in research and development expenses reflects additional personnel
costs associated with expanded product research and development activities. In
fiscal 2000, 1999 and 1998, the Company capitalized $2.6 million, $1.8 million
and $2.7 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 and represented
3.5%, 2.7% and 5.2% of total research and development expenditures (excluding
acquired in-process technology). Capitalized software costs are amortized over
the estimated economic life of the product, but generally not for more than
three years.
The increase in general and administrative expenses for fiscal 2000 resulted,
for the most part, from an increase in personnel costs incurred to manage and
support the growth of the Company's overall operations, offset to a lesser
extent by a change in accounting estimates of $3.7 million, primarily related to
product warranties for older product lines and the reduction of tax
contingencies in various jurisdictions.
The increase in general and administrative expenses for fiscal 1999 resulted,
for the most part, from increases in personnel and professional services costs
incurred to manage and support the growth of the Company's overall operations.
Also, the increase in 1999 was net of the $1.2 million charge incurred in the
first quarter of 1998 for additional support expenses associated with certain
discontinued Hyperion products.
The merger of Arbor Software Corporation (former name of the Company) and
Hyperion Software Corporation was completed on August 24, 1998. The Company's
financial statements have been restated for all periods presented to reflect the
business combination, which was accounted for as a pooling of interests. The
Company charged $19.5 million, $17.4 million after taxes, to operations for
nonrecurring merger costs incurred. These charges include direct transaction
costs primarily for financial advisory services and legal fees of $13.9 million,
and costs of $5.6 million associated with combining the operations of the two
companies, including $3.4 million for restructuring (more specifically, $1.9
million for the closing of duplicate offices, employee severance and
relocations) and the write down of certain intangible assets. For further
details of the merger, see Note B of the accompanying financial statements.
In fiscal 2000, the Company recorded a one-time charge to operations of
approximately $2.1 million, $1.3 million after taxes, associated with
restructuring its European operations and costs associated with outsourcing its
North American-based accounting department. This charge is comprised primarily
of severance costs.
INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
2000 CHANGE 1999 CHANGE 1998
---------------------------------------------------
(dollars in thousands)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $13,010 18.0% $11,029 119.2% $5,031
------------------------------------------------------------------------
Interest expense $(5,588) 3.9% $(5,378) 739.0% $ (641)
------------------------------------------------------------------------
</TABLE>
-23-
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Net interest income grew in fiscal 2000 due to the increase in cash available
for investment. Growth in the prior year was also due to the increase in cash
available for investment, resulting from the issuance in March 1998 of $100
million of 4.5% convertible subordinated notes and from operations.
PROVISION FOR INCOME TAXES
Excluding the impact of merger costs in the prior year, the Company's effective
income tax rate remained substantially unchanged at approximately 37%.
NET INCOME
As a result of the above factors, net income for 2000 increased to $28.8
million, or by 261%, from $8 million for 1999. Net income decreased 77.1% in
1999, from $34.8 million for 1998. Excluding the nonrecurring charges, the
Company would have had net income of $30 million, $25.4 million and $37.8
million for the fiscal years ended June 30, 2000, 1999 and 1998, respectively.
To date, the overall impact of inflation on the Company has not been material.
RECENT ACCOUNTING PRONOUNCEMENTS
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
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 will adopt SFAS 133, as amended, in its quarter
ending September 30, 2000. The Company has not engaged in hedging activities or
invested in derivative instruments and, accordingly, does not believe
implementation of SFAS 133 will have a material effect on its financial
statements.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an
interpretation of APB Opinion No. 25" ("FIN 44"). This Interpretation clarifies
the definition of employee for purposes of applying Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. This Interpretation is effective July 1, 2000, but
certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. The Company believes that
the impact of FIN 44 will not have a material effect on the financial position
of the Company.
-24-
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RISK FACTORS AND QUARTERLY FINANCIAL INFORMATION
MARKET RISKS
At June 30, 2000, the Company's investment portfolio consisted of
investment-grade debt securities, excluding those classified as cash
equivalents, of $32.8 million (see Notes A and C of the accompanying financial
statements). 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 June 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
(see Note G of the accompanying financial statements) 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 revenue and expenses associated
with 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. See "Part I, Item 1, Competition."
-25-
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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
-26-
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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.
ORGANIZATIONAL AND PRODUCT INTEGRATION RELATED TO ACQUISITIONS. The Company has
made and expects to continue to make acquisitions of, or significant investments
in, businesses that offer complementary products, services and technologies.
There are risks involved in acquisitions of businesses, 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 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.
NEW PRODUCT INTRODUCTION. 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's failure to successfully enhance
and improve its 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 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.
-27-
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 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 all 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.
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.
See "Part I, Item 1, Proprietary Rights and Licenses."
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
-28-
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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. See "Part I, Item 1,
Proprietary Rights and Licenses."
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.
QUARTERLY RESULTS
The following table sets forth certain unaudited operating results for each of
the Company's eight most recent fiscal quarters. This information has been
prepared by the Company on the same basis as its audited financial statements
appearing elsewhere in this Annual Report and includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
this information when read in conjunction with the Company's audited financial
statements and notes thereto. The Company's operating results for any one
quarter or series of quarters are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2000 2000 1999 1999 1999 1999 1998 1998
----------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $148,064 $125,798 $115,793 $107,250 $111,399 $101,646 $106,958 $104,882
Operating income
(loss) 12,335 8,478(b) 9,347 8,237 9,657(a) 2,924 12,124 (9,583)(a)
Net income (loss) 9,108 6,613(b) 7,073 6,025 6,679(a) 2,579 8,648 (9,933)(a)
Diluted earnings
(loss) per share .27 .19(b) .22 .19 .22(a) .08 .28 (.33)(a)
</TABLE>
(a) Excluding the $21.8 million ($18.7 million after tax) nonrecurring charge
accrued in the September quarter for merger costs and the related $(2.3)
million ($(1.3) million after tax) credit recorded in the June quarter, the
Company would have had operating income of $12.2 million and $7.3 million,
and net income of $8.8 million and $5.4 million or $.28 and $.17 per pro
forma diluted share, for its first quarter ended September 30, 1998 and its
fourth quarter ended June 30, 1999, respectively.
(b) Excluding the $2.1 million ($1.3 million after tax) nonrecurring charge
accrued in the March quarter for restructuring, the Company would have had
operating income of $10.5 million and net income of $7.9 million or $.23
per pro forma diluted share.
-29-
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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. For fiscal years 2000, 1999 and 1998, the
Company generated positive cash flow from operations of $27.8 million, $43.2
million and $87.6 million, respectively.
Cash used by investing activities amounted to $26 million for fiscal 2000,
including $21.8 million primarily for purchases of computer equipment and
software.
Financing activities in fiscal 2000, including stock options exercised by
employees and payments of indebtedness, generated net cash of $30.7 million. In
connection with the stock options exercised by certain of its employees (for a
total of 1,774,000 common shares), the Company recognized (as a credit to
additional paid-in capital) an income tax benefit of $8.6 million for the year
ended June 30, 2000. The Company also made principal payments of $4.5 million
related to the loan agreement with the Connecticut Development Authority (the
"CDA") governing the $9.5 million mortgage loan issued to the Company by the CDA
in 1995 to purchase an office and research facility in Stamford, Connecticut.
As of June 30, 2000, the Company had cash, cash equivalents and short-term
investments of $295.2 million, working capital of $297.7 million, and $102.5
million of long-term debt. Cash equivalents are comprised primarily of
investment-grade commercial paper, and U.S. federal, state and political
subdivision obligations with varying terms of three months or less. The Company
anticipates capital expenditures of approximately $30 million for its 2001
fiscal year. The Company intends to continue to review potential acquisitions
and business alliances that it believes would enhance its growth and
profitability.
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.
-30-
<PAGE> 32
ITEM 8. REPORT OF INDEPENDENT ACCOUNTANTS,
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-31-
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Hyperion Solutions Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 58 present fairly, in all material
respects, the financial position of Hyperion Solutions Corporation and its
subsidiaries at June 30, 2000 and 1999, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2000,
in conformity with accounting principles generally accepted in the United
States. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) on page 58 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
July 28, 2000
-32-
<PAGE> 34
Hyperion Solutions Corporation
Consolidated Balance Sheet
(in thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 30,
2000 1999
-------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 262,408 $ 233,515
Short-term investments 32,751 38,341
Accounts receivable -- net of allowances of $16,250 and $11,800 161,883 110,744
Prepaid expenses and other current assets 8,349 6,290
Deferred income taxes 9,866 10,386
-------------------------
TOTAL CURRENT ASSETS 475,257 399,276
Property and equipment -- at cost, less accumulated depreciation
and amortization of $78,694 and $65,444 71,669 75,456
Acquired technologies, goodwill and other intangible assets -- at
cost, less accumulated amortization of $24,434 and $17,186 25,942 26,522
Other assets 17,023 11,640
-------------------------
Total assets $ 589,891 $ 512,894
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 49,933 $ 55,012
Accrued employee compensation and benefits 32,572 29,920
Income taxes payable 6,179 2,345
Deferred revenue 88,828 81,089
-------------------------
TOTAL CURRENT LIABILITIES 177,512 168,366
Long-term debt 102,518 103,752
Stockholders' equity:
Preferred stock -- $.001 par value; 5,000 shares authorized;
none issued
Common stock -- $.001 par value; 300,000 shares authorized;
32,616 and 30,842 shares issued and outstanding 33 31
Additional paid-in capital 197,376 153,545
Retained earnings 119,736 90,917
Currency translation adjustments (7,284) (3,717)
-------------------------
TOTAL STOCKHOLDERS' EQUITY 309,861 240,776
-------------------------
Total liabilities and stockholders' equity $ 589,891 $ 512,894
=========================
</TABLE>
See accompanying notes.
-33-
<PAGE> 35
Hyperion Solutions Corporation
Consolidated Statement of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
-----------------------------------------
<S> <C> <C> <C>
REVENUES
Software licenses $ 240,326 $ 205,991 $ 214,297
Maintenance and services 256,579 218,894 162,796
-----------------------------------------
Total revenues 496,905 424,885 377,093
-----------------------------------------
COSTS AND EXPENSES
Cost of revenues:
Software licenses 8,782 7,799 10,335
Maintenance and services 141,915 115,265 93,829
Sales and marketing 191,414 164,913 133,124
Research and development 70,199 63,813 48,957
Acquired in-process technology 3,000
General and administrative 44,437 38,500 35,557
Merger costs (305) 19,473
Restructuring charge 2,066
-----------------------------------------
Total costs and expenses 458,508 409,763 324,802
-----------------------------------------
OPERATING INCOME 38,397 15,122 52,291
Interest income 13,010 11,029 5,031
Interest expense (5,588) (5,378) (641)
-----------------------------------------
INCOME BEFORE INCOME TAXES 45,819 20,773 56,681
Provision for income taxes 17,000 12,800 21,924
-----------------------------------------
NET INCOME $ 28,819 $ 7,973 $ 34,757
=========================================
EARNINGS PER SHARE
Basic $.91 $.26 $1.19
Diluted $.87 $.26 $1.13
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 31,665 30,196 29,121
Diluted 33,107 30,855 30,770
</TABLE>
See accompanying notes.
-34-
<PAGE> 36
Hyperion Solutions Corporation
Consolidated Statement of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------ Additional Currency
Par Paid-in Retained Translation
Shares Value Capital Earnings Adjustments
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 28,447 $28 $111,625 $ 45,301 $(1,345)
Exercise of stock options 1,031 2 13,158
Income tax benefit from exercise
of stock options 7,189
Issuance of common stock in connection with a
business acquisition 96 3,200
Currency translation effect (690)
Net income 34,757
----------------------------------------------------------------------
Balance at June 30, 1998 29,574 30 135,172 80,058 (2,035)
Exercise of stock options 1,268 1 15,508
Income tax benefit from exercise
of stock options 2,865
Credit reflecting change in fiscal year 2,886
Currency translation effect (1,682)
Net income 7,973
----------------------------------------------------------------------
Balance at June 30, 1999 30,842 31 153,545 90,917 (3,717)
Exercise of stock options 1,774 2 35,197
Income tax benefit from exercise
of stock options 8,634
Currency translation effect (3,567)
Net income 28,819
=======================================================================
BALANCE AT JUNE 30, 2000 32,616 $33 $197,376 $119,736 $(7,284)
=======================================================================
</TABLE>
Consolidated Statement of Comprehensive Income
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
----------------------------------------
<S> <C> <C> <C>
Net income $28,819 $ 7,973 $34,757
Currency translation adjustments (3,567) (1,682) (690)
---------------------------------------
COMPREHENSIVE INCOME $25,252 $ 6,291 $34,067
=======================================
</TABLE>
See accompanying notes.
-35-
<PAGE> 37
Hyperion Solutions Corporation
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
-------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 28,819 $ 7,973 $ 34,757
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 34,482 33,963 28,616
Accounts receivable allowance provisions 8,316 8,382 5,113
Deferred income taxes (3,368) (4,192) (5,364)
Acquired in-process technology 3,000
Credit reflecting change in fiscal year 2,886
Changes in operating assets and liabilities:
Accounts receivable (59,454) (19,138) (25,875)
Prepaid expenses and other assets (1,514) 2,568 (2,962)
Accounts payable and accrued expenses 286 4,880 24,327
Income taxes payable 12,468 (10,891) 12,808
Deferred revenue 7,739 16,729 13,151
--------------------------------------------
Cash provided by operating activities 27,774 43,160 87,571
--------------------------------------------
INVESTING ACTIVITIES
Purchases/sales of short-term investments, net 5,590 (2,862) (12,275)
Purchases of property and equipment (21,805) (24,376) (28,355)
Intangible and other assets (4,683) (1,879) (2,725)
Business acquisitions (5,088) (15,395) (2,965)
--------------------------------------------
Cash used by investing activities (25,986) (44,512) (46,320)
--------------------------------------------
FINANCING ACTIVITIES
Issuance of convertible subordinated notes, net 97,000
Principal payments on notes payable (4,527) (827) (1,292)
Exercise of stock options by employees 35,199 15,508 12,893
--------------------------------------------
Cash provided by financing activities 30,672 14,681 108,601
Effect of exchange rate changes (3,567) (1,682) (690)
--------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 28,893 11,647 149,162
Cash and cash equivalents at beginning of year 233,515 221,868 72,706
--------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $262,408 $233,515 $221,868
============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND
NONCASH ACTIVITIES
Cash paid during the year for:
Income taxes $ 8,500 $ 29,087 $ 14,205
Interest 4,712 4,871 420
Common stock issued in connection with a
business acquisition 3,200
</TABLE>
See accompanying notes.
-36-
<PAGE> 38
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements
BUSINESS
Hyperion Solutions Corporation (the "Company" or "Hyperion") develops,
markets and supports business analysis software, which helps turn raw data into
business information. The Company's products and services enable companies and
their employees to plan, manage, and execute business strategies to achieve
faster revenue and profit growth, and ultimately create value for their
shareholders.
Hyperion's products analyze the raw data captured in operational systems,
which improves the return on investment organizations have made in enterprise
resource planning ("ERP"), supply chain management ("SCM"), customer
relationship management ("CRM"), marketing automation, Web and e-commerce
systems, and data warehouses.
Hyperion provides a full suite of applications, which cover analytical
needs across a wide variety of functional areas extending from "front office to
back office." Hyperion uses its best-of-breed technology - Hyperion Essbase OLAP
Server - as the foundation of its comprehensive enterprise analysis platform.
This online analytical processing ("OLAP") server technology, along with
packaged business analysis applications, and an extensive family of application
development tools and data and application integration technologies give
Hyperion one of the deepest and broadest product offerings in the market. In
addition, Hyperion offers highly rated support and services from offices in 26
countries, and works with over 400 partners to provide solutions to more than
6,000 customer organizations worldwide.
Hyperion and its network of over 400 partners deliver Web and
mobile-enabled solutions that address a broad range of cross-industry and
industry-specific business analysis requirements. These include performance
measurement; financial planning, analysis and consolidation; management
reporting; customer relationship analysis; partner relationship analysis;
product profitability; budgeting, planning and forecasting; and demand and
capacity planning. Hyperion is headquartered in Sunnyvale, California.
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.
-37-
<PAGE> 39
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Otherwise, software license fees are deferred until
all of the requirements for revenue recognition have been satisfied. Maintenance
fees for routine support and product updates are recognized ratably over the
term of the license agreement, which is typically twelve months. Training and
consulting service revenues are recognized as the services are performed.
Allowances for estimated future returns and discounts are provided upon
recognition of revenues.
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.
Management is currently assessing the impact that adoption of SAB No. 101 will
have on the Company's financial statements.
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. Effective July 1, 1998, the
Company adopted the SOP, as amended, and the impact on operating results for the
fiscal year was not material. However, should the Company adopt new or change
its current licensing practices, in response to a preference from the market or
otherwise, then the Company's revenue recognition practices may be subject to
significant change to comply with the accounting requirements of the SOP, as
amended.
Equity Based Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. The Company generally prices its stock options at fair
market value on the date of grant and, therefore, under Opinion 25, no
compensation expense is recognized for stock options granted.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an
interpretation of APB Opinion No. 25" ("FIN 44"). This Interpretation clarifies
the definition of employee for purposes of applying Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. This Interpretation is effective July 1, 2000, but
certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. The Company believes that
the impact of FIN 44 will not have a material effect on the financial position
of the Company.
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 and
those with remaining terms greater than three months but no more than a year are
considered short-term investments. Cash equivalents are comprised primarily of
investment-grade commercial paper, and U.S. federal, state and political
subdivision obligations. All of the Company's short-term investments are
classified as available-for-sale (see Note C).
-38-
<PAGE> 40
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
All current assets and current liabilities, because of their short-term nature,
are stated at cost, which approximates market value. The fair value of the
Company's 4.5% convertible subordinated debt was approximately $88.5 million at
June 30, 2000, based on quoted market price. The carrying amount of the
Company's mortgage loan, which provides for interest at a floating rate,
approximates market value (see Note G).
Intangible Assets
The carrying value of intangible assets is reviewed by management if and when
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.
The Company begins capitalizing product development costs, principally wages and
contractor fees, only after establishing commercial and technical viability.
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 three years.
Amortization commences when the product is available for general release to
customers.
During fiscal 2000, 1999 and 1998, the Company's research and development
expenses, which are net of capitalized development costs, were $70.2 million,
$63.8 million and $49 million, or 14.1%, 15% and 13% of total revenues,
respectively. In accordance with Statement of Financial Accounting Standards No.
86, the Company capitalizes certain software development costs. During fiscal
2000, 1999 and 1998, the Company capitalized $2.6 million, $1.8 million and $2.7
million, respectively, or 3.5%, 2.7% and 5.2% of total research and development
expenditures (excluding acquired in-process technology).
Depreciation/Amortization
Depreciation and amortization are computed principally using the straight-line
method over the estimated useful lives of the applicable assets. (See Note D.)
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 (deferred income
taxes).
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.
-39-
<PAGE> 41
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share
Earnings per share ("EPS") is computed in accordance with SFAS No. 128,
"Earnings Per Share." Basic EPS is computed by dividing net income (loss)
available to common stockholders by the weighted number of common shares
outstanding during the period. Diluted EPS is computed using the weighted
average number of shares of common stock and potentially dilutive securities
outstanding during the period. Potentially dilutive securities consist of
convertible preferred stock (using the if converted method) and stock options
(using the treasury stock method). Potentially dilutive securities are excluded
from the computation if the effect is antidilutive.
The following table sets forth the computation of basic and diluted EPS (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Numerator -- net income $28,819 $ 7,973 $34,757
=======================================
Denominator for basic EPS -- weighted-average shares 31,665 30,196 29,121
Effect of dilutive securities:
Stock option rights 1,442 659 1,649
---------------------------------------
Denominator for diluted EPS -- adjusted weighted-average
shares and assumed conversions 33,107 30,855 30,770
=======================================
Basic earnings per share $ .91 $ .26 $ 1.19
Diluted earnings per share $ .87 $ .26 $ 1.13
</TABLE>
Because their effect would be antidilutive, certain stock option rights for 1.7
million and 3.8 million common shares were excluded from the diluted EPS
calculation for the years ended June 30, 2000, and 1999, respectively. For the
same reason, shares of common stock issuable upon conversion of the convertible
subordinated notes due 2005 (see Note G) have been excluded from the diluted EPS
calculation.
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.
-40-
<PAGE> 42
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Instruments and Hedging Activities
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 until the first fiscal
quarter ending June 30, 2000. In June 2000, the Financial 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 will adopt SFAS 133, as amended, in its quarter ending September 30,
2000. The Company has not engaged in hedging activities or invested in
derivative instruments and, accordingly, does not believe implementation of SFAS
133 will have a material effect on its financial statements.
B. BUSINESS COMBINATIONS AND STRATEGIC ALLIANCE
On May 14, 1999, the Company acquired all of the outstanding shares of Sapling
Corporation, the Toronto-based developer and marketer of business software for
performance measurement and activity-based management. The acquisition was
accounted for as a purchase transaction and, accordingly, the purchase price of
$15.4 million, excluding contingent payments based on certain software sales
targets for the year ending June 30, 2000, was allocated to identifiable assets
and liabilities, based on their estimated fair values, and to goodwill. Under
the purchase method of accounting, the results of operations of Sapling are
included in the Company's financial statements from the date of acquisition. Pro
forma statement of income data as if the acquisition had occurred on July 1,
1997 is not shown, as it would not differ significantly from reported results.
-41-
<PAGE> 43
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
B. BUSINESS COMBINATIONS AND STRATEGIC ALLIANCE (CONTINUED)
On August 24, 1998, the Company (the registrant, formerly named Arbor Software
Corporation) issued 18.2 million shares of its common stock in connection with
its merger with Hyperion Software Corporation. Hyperion Software, based in
Stamford, Connecticut, developed, marketed and supported comprehensive, packaged
analytic applications. Its products, which were sold to large organizations
worldwide, draw data from multiple sources across an enterprise for applications
such as reporting, ad hoc analysis, consolidation, planning, and budgeting. The
business combination, which qualified as a tax-free reorganization, was
accounted for as a pooling of interests. Accordingly, the financial statements
have been restated for all periods presented to include Hyperion Software.
Further, all common share and per share data have been restated for the
pre-merger periods presented.
Hyperion Software had a fiscal year end of June 30, while Arbor Software used a
March 31 year end. In connection with the merger, the Company changed its fiscal
year end from March 31 to June 30 and, accordingly, the accompanying statement
of income, labeled June 30, 1998, reflects the combination of the separate,
historical annual financial statements of Arbor Software and Hyperion Software
for the periods ended March 31, 1998 and June 30, 1998, respectively.
Accordingly, the exclusion of Arbor's net income for the three months ended June
30, 1998 from stockholders' equity has been adjusted by a $2.9 million credit to
retained earnings recorded in the three-month period ended September 30, 1998.
For the pre-merger period indicated, revenues and net income of the Company and
Hyperion Software are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1998
-------------
<S> <C>
Revenues
Hyperion Software $ 294,856
Arbor Software 82,237
---------
$ 377,093
=========
Net income
Hyperion Software $ 27,841
Arbor Software 6,916
---------
$ 34,757
=========
</TABLE>
The Company incurred charges to operations related to the merger of $19.5
million. These charges include direct transaction costs primarily for financial
advisory services and legal fees of $13.9 million, and costs of $5.6 million
associated with combining the operations of the two companies, including $3.4
million for restructuring (more specifically, $1.9 million for the closing of
duplicate offices, employee severance and relocations) and the write down of
certain intangible assets.
-42-
<PAGE> 44
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
C. SHORT-TERM INVESTMENTS
The following table sets forth the Company's short-term investment portfolio at
June 30:
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
State and municipal bonds $14,766 $ 6,245
U.S. government and agency obligations 4,999 4,999
Corporate bonds 10,994 26,092
Foreign debt securities 1,992 1,005
-----------------------------------------------------------------------------------------
$32,751 $ 38,341
=========================================================================================
</TABLE>
The portfolio of securities is classified as available-for-sale. Gross realized
gains and losses from the sale of such securities were not material for the
years ended June 30, 2000, 1999 and 1998. For the purpose of determining gross
realized gains and losses, the cost of securities is based upon specific
identification.
D. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
<TABLE>
<CAPTION>
Depreciation/
Amortization
2000 1999 Period
------------------------------------------------------------------------------------------------------------
(in thousands) (years)
<S> <C> <C> <C>
Land $ 3,800 $ 3,800
Office and research facilities 31,479 31,434 39
Building improvements 3,882 3,868 5 to 15
Furniture, equipment and software 100,581 91,965 2 to 7
Leasehold improvements 10,621 9,833 lease term*
--------------------------------------------------------------------------------------------
150,363 140,900
Less accumulated depreciation and amortization 78,694 65,444
--------------------------------------------------------------------------------------------
$ 71,669 $ 75,456
============================================================================================
</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 $25.6 million, $25.4
million and $21.5 million for 2000, 1999 and 1998, respectively.
-43-
<PAGE> 45
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
E. ACQUIRED TECHNOLOGIES, GOODWILL AND OTHER INTANGIBLE ASSETS
Components of intangible assets, which relate primarily to business
acquisitions, are as follows at June 30:
<TABLE>
<CAPTION>
Amortization
2000 1999 Period
------------------------------------------------------------------------------------------------
(in thousands) (years)
<S> <C> <C> <C>
Acquired technologies $ 9,733 $ 9,133 2 to 6
Goodwill 11,714 11,386 4 to 20
Product distribution and service rights 8,623 8,623 3 to 7
Product development costs 15,436 12,858 3
Copyrights, trademarks and other 4,870 1,708 3 to 4
------------------------------------------------------------------------------
50,376 43,708
Less accumulated amortization 24,434 17,186
------------------------------------------------------------------------------
$ 25,942 $ 26,522
==============================================================================
</TABLE>
Amortization of these assets totaled $8.9 million, $8.5 million and $7.1 million
for 2000, 1999 and 1998, respectively.
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>
2000 1999
------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $ 5,590 $ 4,045
Deferred revenue 164 1,056
Accounts receivable 6,554 5,053
Intangible assets 2,341 2,568
Property and equipment 6,995 5,017
Accrued expenses 3,773 4,246
Other 146 83
------------------------------------------------------------------------------------------------
25,563 22,068
Less valuation allowance 3,472 4,014
------------------------------------------------------------------------------------------------
22,091 18,054
------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Product development costs 1,599 1,555
Deferred compensation 625
------------------------------------------------------------------------------------------------
2,224 1,555
-------------------------------------------------------------------- -------------- ------------
Net deferred income tax assets $ 19,867 $ 16,499
================================================================================================
</TABLE>
-44-
<PAGE> 46
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
F. INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following charges (credits):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current:
U.S. $16,960 $10,970 $19,450
State 2,527 3,237 4,021
Other countries 1,481 2,785 3,817
--------------------------------------------------------------------------------------
20,968 16,992 27,288
--------------------------------------------------------------------------------------
Deferred:
U.S. (1,522) (3,282) (4,477)
State (447) (821) (691)
Other countries (1,999) (89) (196)
--------------------------------------------------------------------------------------
3,968 (4,192) (5,364)
--------------------------------------------------------------------------------------
$17,000 $12,800 $21,924
======================================================================================
</TABLE>
The effective income tax rate varied from the statutory U.S. federal tax rate as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. tax rate 35.0% 35.0% 35.0%
State income taxes, net of U.S. tax benefit 3.0 8.0 3.8
Tax exempt interest (4.8) (6.2) (1.3)
Goodwill 1.7 1.9 .3
Acquired in-process technology 1.8 1.9
Nondeductible merger costs 23.8
Non-U.S. operations, including export sales (1.1) (2.3) (.6)
Change in valuation allowance 0.3 (.6) (.3)
Other--net 1.2 2.0 (.1)
-----------------------------------------------------------------------------------------------
Effective income tax rate 37.1% 61.6% 38.7%
===============================================================================================
</TABLE>
The Company has non-U.S. net operating loss (NOL) carryforwards of $13.3 million
of which $4.5 million is carried forward indefinitely and the rest expires as
follows: $0.5 million in 2003, $2 million in 2004, $1 million in 2005, $0.8
million in 2006 and $4.5 million in 2007.
-45-
<PAGE> 47
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
G. LONG-TERM DEBT
Long-term debt consists of the following at June 30:
<TABLE>
<CAPTION>
2000 1999
---- ----
(in thousands)
<S> <C> <C>
4.5% convertible subordinated notes $100,000 $100,000
Mortgage payable 2,518 3,752
-----------------------------------------------------------------------------------------
$102,518 $103,752
=========================================================================================
</TABLE>
In March 1998, the Company issued $100 million of 4.5% convertible subordinated
notes (the "Notes"), due 2005. The Notes are subordinated to all existing and
future senior debt and are convertible into shares of the Company's common stock
at a conversion price of $56.36 per share. The Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after March 20,
2001, at 104.5% of the principal amount initially, and thereafter at prices
declining to 100% at maturity, in each case together with accrued interest. Each
holder of these Notes has the right, subject to certain conditions and
restrictions, to require the Company to offer to repurchase all outstanding
Notes, in whole or in part, owned by such holder, at specified repurchase prices
together with accrued interest upon the occurrence of certain events. The
Company incurred $3.3 million of costs in connection with the issuance of the
Notes which have been deferred and are included in other assets. These finance
costs are being recognized as interest expense over the term of the Notes using
the straight-line method, which approximates the effective interest method.
Interest on the Notes began accruing March 16, 1998, and is payable semi-
annually on March 15 and September 15.
As of January 1, 2000, the Company employed fewer employees in its Connecticut
office than the Connecticut Development Authority (the "CDA") required in
connection with a $9.5 million mortgage loan issued to the Company by the CDA to
purchase the Company's Connecticut office building. As a result under the terms
of the loan agreement, the Company was required to prepay $4.1 million of the
outstanding principal and pay additional interest of $.2 million. In addition,
the interest rate on the remaining outstanding principal increased by
approximately 1.4%.
H. COMMITMENTS AND CONTINGENCIES
The Company leases office and research facilities, and certain computer and
other equipment under various operating lease agreements. The leases expire at
various dates through 2006.
Future minimum lease payments under all operating leases with noncancellable
terms in excess of one year amount to $45.3 million as follows (in millions):
$14.5 in fiscal 2001, $11.7 in fiscal 2002, $7.7 in fiscal 2003, $4.5 in fiscal
2004 and $6.9 thereafter. In addition, certain of the facility leases provide
for contingent payments based on building operating expenses. Rental expense for
the fiscal years ended June 30, 2000, 1999 and 1998 under all lease agreements
was $13.1 million, $11.9 million and $8.6 million, respectively.
-46-
<PAGE> 48
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
H. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. COMMON STOCK ISSUED IN CONNECTION WITH EMPLOYEE BENEFIT PLANS AND EMPLOYEE
SAVINGS PROGRAMS
Stock Option Programs
In August 1995, the Company's Board of Directors (the "Board") adopted, and the
stockholders subsequently approved, the 1995 Stock Option/Stock Issuance Plan
(the "1995 Plan"). The 1995 Plan serves as the successor equity incentive
program to the Company's 1992 Stock Option Plan (the "Predecessor Plan").
Outstanding options under the Predecessor Plan were incorporated into the 1995
Plan upon effectiveness of the initial public offering. No further option grants
were made under the Predecessor Plan. The incorporated options will continue to
be governed by their existing terms which are essentially the same as options
granted under the Discretionary Option Grant Program described below. In
connection with the merger with Hyperion Software Corporation on August 24, 1998
(see Note B), the Company assumed all of the outstanding stock options of
Hyperion Software. Outstanding options assumed from Hyperion Software have terms
of ten years and are generally exercisable at 25% per year commencing one year
from the date of grant. No further option grants will be made under any of
Hyperion Software plans. Under the 1995 Plan, the Company may grant options to
purchase in the aggregate up to 8 million shares of common stock. At June 30,
2000, there were 1.7 million shares available for grant under the 1995 Plan.
The 1995 Plan is divided into four separate components: (i) the Discretionary
Option Grant Program, (ii) the Stock Issuance Program, (iii) the Salary
Investment Option Grant Program, and (iv) the Automatic Option Grant Program.
The 1995 Plan will terminate on September 30, 2005, unless terminated earlier by
the Board.
Options granted under the Discretionary Option Grant Program are for periods not
to exceed ten years, and must be issued at prices not less than 100% and 85%,
for incentive and nonqualified stock options, respectively, of the fair market
value of the stock on the date of grant. Incentive stock options granted to
stockholders who own greater than 10% of the outstanding stock are for periods
not to exceed five years and must be issued at prices not less than 110% of the
fair market value of the stock on the date of grant. Twenty-five percent of the
options granted under the Discretionary Option Grant Program are exercisable one
year after the date of grant and the remainder exercisable ratably each month
thereafter over the remaining thirty-six month period. The Discretionary Option
Grant Program also provides for the grant of stock appreciation rights. Stock
appreciation rights provide the holders with the election to surrender their
outstanding options for an appreciation distribution from the Company equal to
the excess of the fair market value of the vested shares of common stock subject
to each surrendered option over the aggregate exercise price payable for those
shares. Such appreciation distribution may be made in cash or in shares of
common stock. No stock appreciation rights had been granted under the 1995 Plan
as of June 30, 2000.
-47-
<PAGE> 49
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
I. COMMON STOCK ISSUED IN CONNECTION WITH EMPLOYEE BENEFIT PLANS AND EMPLOYEE
SAVINGS PROGRAMS (CONTINUED)
Under the Stock Issuance Program, individuals may be issued shares of common
stock directly through the purchase of shares at a price per share not less than
85% of the fair market value at the time of issuance or as a fully paid bonus
for services rendered to the Company. No shares had been issued under the Stock
Issuance Program as of June 30, 2000.
Under the Salary Investment Option Grant Program, each executive officer of the
Company may elect, prior to the start of a calendar year, to reduce his or her
base salary for that calendar year by a designated multiple of 1%, subject to a
maximum dollar amount. In return, the officer will automatically be granted, on
the first trading day in the calendar year for which the salary reduction is in
effect, a nonstatutory option to purchase that number of shares of common stock
determined by dividing the salary reduction amount by two-thirds of the fair
market value per share of common stock on the date of grant. The option will be
exercisable at a price per share equal to one-third of the fair market value of
the option shares on the date of grant. As a result, the total spread on the
option shares at the time of grant will be equal to the salary reduction amount.
The option will vest in a series of twelve equal monthly installments over the
calendar year for which the salary reduction is in effect. No executive officer
of the Company had elected to participate in the Salary Investment Option Grant
Program through June 30, 2000.
Non-executive officer members of the Board customarily receive option grants
pursuant to the provisions of the Automatic Option Grant Program. Each
individual who becomes a non-employee member of the Board is granted options to
purchase 10,000 shares of common stock at the fair market value of the stock on
the date he or she joins the Board. In addition, each individual who continues
to serve as a non-employee Board member will receive an option grant to purchase
an additional 5,000 shares of common stock at the fair market value of the stock
on the date of grant on each 12 month anniversary of his or her election to the
Board. Each automatic option will have a term of ten years, subject to earlier
termination following the optionee's cessation of Board service. The initial
10,000 share grant vests in a series of four successive equal annual
installments over the optionee's period of Board service measured from the grant
date. Each additional 5,000 share grant shall vest and become exercisable
immediately on the date of grant.
In September 1999, the Board adopted the 1999 Stock Option Plan (the "1999
Plan"). Under the 1999 Plan, participation by officers, as defined, and members
of the Board is prohibited, and only nonqualified stock options may be granted.
Options granted under the 1999 Plan are for periods not to exceed ten years. The
1999 Plan will terminate in September 2009, unless terminated earlier by the
Board. Under the 1999 Plan, 2 million shares are reserved for issuance. At June
30, 2000, there were .7 million shares available for grant under the 1999 Plan.
-48-
<PAGE> 50
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
I. COMMON STOCK ISSUED IN CONNECTION WITH EMPLOYEE BENEFIT PLANS AND EMPLOYEE
SAVINGS PROGRAMS (CONTINUED)
The following table presents a summary of the Company's stock option activity
for the years ended June 30 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
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 5,355 $22.69 4,614 $22.33 4,000 $13.68
Granted at market price 5,123 26.98 3,200 22.29 1,892 34.11
Exercised (1,251) 21.97 (893) 9.32 (775) 9.61
Forfeited/exchanged (1,735) 24.68 (1,566) 28.42 (503) 20.48
------ ----- ------ ----- ---- -----
Outstanding at year-end 7,492 $25.29 5,355 $22.69 4,614 $22.33
===== ====== ===== ====== ===== ======
Options exercisable at year-end 1,665 $21.46 1,785 $21.69 1,657 $11.72
===== ====== ===== ====== ===== ======
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 2000 (shares in thousands):
<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>
$ .23 - 10.00 117 3.60 $ 4.59 117 $ 4.59
10.01 - 20.00 2,834 8.52 16.71 825 14.93
20.01 - 30.00 2,660 8.95 24.10 385 26.55
30.01 - 40.00 578 8.41 33.97 214 34.71
40.01 - 57.63 1,303 9.28 44.37 124 42.11
-------------- ----- ---- ----- --- -----
$ .23 - 57.63 7,492 8.72 $25.29 1,665 $21.46
============== ===== ==== ====== ===== ======
</TABLE>
-49-
<PAGE> 51
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
I. COMMON STOCK ISSUED IN CONNECTION WITH EMPLOYEE BENEFIT PLANS AND EMPLOYEE
SAVINGS PROGRAMS (CONTINUED)
Employee Stock Purchase Plan
In August 1995, the Board adopted the Employee Stock Purchase Plan (the
"Purchase Plan") and reserved 150,000 shares of common stock for issuance to
eligible employees. The Purchase Plan, as amended in August 1997, permits
eligible employees to purchase common stock through periodic payroll deductions
of up to 10% of their cash compensation. Each offering period will have a
maximum duration of six months and shares of common stock will be purchased for
each participant at the conclusion of each offering period. The price at which
the common stock is purchased under the Purchase Plan is equal to 85% of the
lower of the fair market value of the common stock on the participant's entry
date into the offering period or the fair market value on the purchase date. In
fiscal 2000, 1999 and 1998, a total of 413,000, 360,000 and 74,000 shares,
respectively, were issued under the Purchase Plan. (Including shares sold under
the former Hyperion Software employee stock purchase plan (see Note B), a total
of 256,000 shares were issued in fiscal 1998.) In August 1997 and 1998, the
Company's stockholders approved amendments to increase the number of shares of
common stock reserved for issuance under the Purchase Plan by a total of 1.1
million shares. Accordingly, .5 million shares are available for issuance under
the Purchase Plan.
Restricted Stock
During fiscal 2000, the Company granted 100,000 restricted shares of common
stock to an officer of the Company. The market value of the shares awarded of
$1.9 million was recorded as unearned compensation - restricted stock. This
amount is not reflected as a separate component of stockholders' equity, but
rather has been netted within additional paid-in capital. Unearned compensation
is being amortized to expense over the four-year vesting period and amounted to
$.3 million in fiscal 2000.
Pro Forma Disclosure
The Company has elected to continue to follow the provisions of the Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations for financial reporting purposes and has adopted the
disclosure-only provisions of Statement No. 123, "Accounting for Stock-Based
Compensation," issued by the Financial Accounting Standards Board.
The weighted average estimated grant date fair value, as defined by Statement
123, for options granted under the Company's stock option plans in fiscal 2000,
1999 and 1998 was $11.26, $9.13 and $12.89 per share, respectively. The weighted
average estimated grant date fair value, as defined by Statement 123, for
purchase awards issued under the Company's employee stock purchase plan in
fiscal 2000, 1999 and 1998 was $7.80, $10.69 and $6.91 per share, respectively.
The estimated grant date fair value disclosed by the Company was calculated
using the Black-Scholes model. The Black-Scholes model, as well as other
currently accepted option valuation models, was developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require highly subjective assumptions, including future stock
price volatility and expected time until exercise, which greatly affect the
calculated grant date fair value.
-50-
<PAGE> 52
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
I. COMMON STOCK ISSUED IN CONNECTION WITH EMPLOYEE BENEFIT PLANS AND EMPLOYEE
SAVINGS PROGRAMS (CONTINUED)
The following weighted average assumptions are included in the estimated grant
date fair value calculations for the Company's stock option and purchase awards:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
----------------------------------------------------------
<S> <C> <C> <C>
Stock option plans:
Expected dividend yield 0% 0% 0%
Expected stock price volatility 40% 40% 25% to 60%
Risk free interest rate 6.24% 5.83% 5.5% to 5.76%
Expected life (years) 4.3 4.4 2.79 to 5.1
Stock purchase plan:
Expected dividend yield 0% 0% 0%
Expected stock price volatility 40% 40% 25% to 60%
Risk free interest rate 6.22% 5.14% 5.19% to 5.39%
Expected life (years) .5 .5 .5
</TABLE>
Pro Forma Net Income and Earnings Per Share
Had the Company recorded compensation based on the estimated grant date fair
value, as defined by Statement 123, for awards granted under its stock option
plans and stock purchase plan, the Company's net income and earnings per share
would have been reduced to the pro forma amounts below for the fiscal years
ended June 30, 2000, 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998
--------------------------------------
<S> <C> <C> <C>
Net income as reported $28,819 $7,973 $34,757
Pro forma net income (loss) 18,220 (3,141) 25,305
Earnings per share as reported:
Basic $.91 $.26 $1.19
Diluted .87 .26 1.13
Pro forma earnings (loss) per share:
Basic $.58 $(.10) $.87
Diluted .55 (.10) .82
</TABLE>
-51-
<PAGE> 53
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
I. COMMON STOCK ISSUED IN CONNECTION WITH EMPLOYEE BENEFIT PLANS AND
EMPLOYEE SAVINGS PROGRAMS (CONTINUED)
In accordance with provisions of Statement 123, the pro forma disclosures
include only the effect of stock options granted in fiscal 1996, 1997, 1998,
1999 and 2000. These pro forma effects for fiscal 1998 and 1999 may not be
representative of the effects of Statement 123 on future years because of the
fact that options vest over several years and new grants are generally made each
year.
Employee Savings Plans
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 $10,500 per calendar year. The Company
contributes to the plan, annually, up to a maximum of $2,000 per participant.
Similar savings plans are maintained with respect to certain non-U.S. employees.
In fiscal 2000, 1999 and 1998, the Company contributed $3.6 million, $2.8
million and $1.2 million, respectively, to the savings plans.
J. STOCKHOLDER RIGHTS PLAN
In June 1998, the Company adopted a stockholder rights plan (the "Rights Plan")
in which preferred stock purchase 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 July 3, 1998. 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.
Each right will entitle holders of Company common stock to buy one
one-thousandth of a share of Series A Junior Participating Preferred Stock of
the Company at an exercise price of $250 per one one-thousandth of a preferred
share. Generally, 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. Under the Rights Plan, the
ownership, tender offer and exchange offer thresholds of 15% increase to 25% for
certain grandfathered stockholders and approximately 20.5% for one stockholder
that held approximately 19.5% of the Company's issued and outstanding stock on
July 3, 1998.
-52-
<PAGE> 54
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
J. STOCKHOLDER RIGHTS PLAN (CONTINUED)
If any person or group becomes the beneficial owner of 15% or more of the common
stock (a "Flip-In Event"), 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 redeem the rights at $.01 per right prior to the date the
ownership thresholds are passed. The rights will expire on July 3, 2008, unless
earlier redeemed or exchanged.
K. RELATED PARTY TRANSACTIONS
Transactions with related parties are entered into only upon approval by a
majority of the independent directors of the Company and only upon terms
comparable to those that would be offered to unaffiliated parties.
In October 1999, the Company loaned $1 million to an officer of the Company in
connection with the issuance of restricted stock that is secured by a pledge of
such restricted stock. The loan matures October 2005 and bears interest at 6.02%
per annum.
L. RESTRUCTURING CHARGE
In March 2000, the Company recorded a one-time charge to operations of
approximately $2.1 million, $1.3 million after taxes, associated with
restructuring its European operations and costs associated with outsourcing its
North American-based accounting department. This charge is comprised primarily
of severance costs.
-53-
<PAGE> 55
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
M. 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 are derived from the sale of
software product licenses. Maintenance and services revenues come 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 above in Note A.
The accompanying statement of income discloses the financial information of the
Company's reportable segments in accordance with Statement 131 for the fiscal
years ended June 30, 2000, 1999 and 1998.
-54-
<PAGE> 56
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
M. SEGMENT AND GEOGRAPHICAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Other
U.S. U.K. International
Operations Operations Operations Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
2000
Revenues:
Customers $433,251 $31,701 $31,953 $496,905
Intercompany 350 44,371 $(44,721)
--------------------------------------------------------------------------------------------------------------------------
Total 433,601 31,701 76,324 (44,721) 496,905
==========================================================================================================================
Operating income (loss) 60,028 (663) (20,968) 38,397
==========================================================================================================================
Identifiable assets $495,781 $16,892 $77,218 $589,891
==========================================================================================================================
1999
Revenues:
Customers $352,945 $29,276 $42,664 $424,885
Intercompany 3,710 75 38,210 $(41,995)
--------------------------------------------------------------------------------------------------------------------------
Total 356,655 29,351 80,874 $(41,995) 424,885
==========================================================================================================================
Operating income (loss) 12,798 (1,878) 4,202 15,122
==========================================================================================================================
Identifiable assets $415,728 $15,203 $81,963 $512,894
==========================================================================================================================
1998
Revenues:
Customers $327,569 $26,756 $22,768 $377,093
Intercompany 11,632 7,353 32,896 $(51,881)
--------------------------------------------------------------------------------------------------------------------------
Total 339,201 34,109 55,664 $(51,881) 377,093
==========================================================================================================================
Operating income 46,989 4,972 330 52,291
==========================================================================================================================
Identifiable assets $423,308 $21,288 $32,069 $476,665
==========================================================================================================================
</TABLE>
"Other International Operations" relate to subsidiaries in Austria,
Belgium, Canada, Finland, France, Germany, Italy, 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 (dollars
in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.K. operations $ 31,701 $ 29,276 $ 26,756
Other international operations 31,953 42,664 22,768
Export 107,407 87,915 70,044
=========================================================================================
$171,061 $159,855 $119,568
=========================================================================================
Percentage of total revenues 34% 38% 32%
=========================================================================================
</TABLE>
The majority of "Export" revenues, some of which are generated through
independent distributors and agents, result from product licenses and
services sold to customers throughout Europe.
-55-
<PAGE> 57
Hyperion Solutions Corporation
Notes to Consolidated Financial Statements (continued)
N. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the two fiscal years ended June 30, 2000 (in thousands, except per share
data):
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
FISCAL 2000 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $107,250 $115,783 $125,798 $148,064
Gross profit 76,389 81,529 89,266 99,024
Net income 6,025 7,073 6,613(a) 9,108
Diluted earnings per share .19 .22 .19(a) .27
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Fiscal 1999 Sept. 30 Dec. 31 March 31 June 30
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $104,882 $106,958 $101,646 $111,399
Gross profit 74,537 76,524 71,392 79,368
Net income (loss) (9,933)(b) 8,648 2,579 6,679(b)
Diluted earnings (loss) per share (.33)(b) .28 .08 .22(b)
</TABLE>
(a) Excluding the $2.1 million ($1.3 million after tax) nonrecurring
charge accrued in the March quarter for restructuring, the Company
would have had net income of $7.9 million or $.23 per pro forma
diluted share.
(b) Excluding the $21.8 million ($18.7 million after tax) nonrecurring
charge accrued in the September quarter for merger costs and the
related $(2.3) million ($(1.3) million after tax) credit recorded
in the June quarter, the Company would have had net income of $8.8
million and $5.4 million or $.28 and $.17 per pro forma diluted
share, for its first quarter ended September 30, 1998 and its
fourth quarter ended June 30, 1999, respectively.
-56-
<PAGE> 58
PART II (CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the sections entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance," which are incorporated herein by
reference to the Company's Proxy Statement for its 2000 Annual Meeting of
Stockholders. See also the section entitled "Employees" appearing in Part I
hereof.
ITEM 11. EXECUTIVE COMPENSATION
See the sections entitled "Director Compensation" and "Executive
Compensation and Related Information," which are incorporated herein by
reference to the Company's Proxy Statement for its 2000 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the section entitled "Stock Ownership of Certain Beneficial Owners and
Management," which is incorporated herein by reference to the Company's Proxy
Statement for its 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section entitled "Certain Relationships and Related Transactions",
which is incorporated herein by reference to the Company's Proxy Statement for
its 2000 Annual Meeting of Shareholders.
-57-
<PAGE> 59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The consolidated financial statements of Hyperion Solutions
Corporation are included in Item 8:
Consolidated Balance Sheet as of June 30, 2000, and 1999
Consolidated Statement of Income for the years ended June 30, 2000,
1999 and 1998
Consolidated Statement of Stockholders' Equity for the years ended
June 30, 2000, 1999 and 1998
Consolidated Statement of Comprehensive Income for the years ended
June 30, 2000, 1999 and 1998
Consolidated Statement of Cash Flows for the years ended June 30,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
(2) Financial statement schedule, which is included at the end of this
report:
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted since they are not required,
not applicable or the information has been included in the
consolidated financial statements or the notes thereto.
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1(a) - Agreement and Plan of Merger dated May 25, 1998, by and among Registrant, Merger Sub and
Hyperion
2.2(k) - Share Purchase Agreement, dated April 14, 1999, by and among the Registrant, HSC Acquisition
Co., and the shareholders of Sapling Corporation
3.1(h) - Registrant's Restated Certificate of Incorporation
3.2(g) - Registrant's Amended and Restated Bylaws
4.1(b) - Specimen Certificate of the Registrant's Common Stock
4.2(d) - Indenture dated March 15, 1998, by and between Registrant and State Street Bank and Trust
Company of California, N.A.
4.3(d) - Registration Rights Agreement dated March 15, 1998, by and between the Registrant and Morgan
Stanley & Co. Incorporated and BancAmerica Robertson Stephens
</TABLE>
-58-
<PAGE> 60
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1(b) - Master Lease Agreement and Warrant Agreement between the Registrant and Phoenix Leasing, dated
as of June 30, 1993
10.2(b) - 1992 Stock Option Plan
10.3(c) - 1995 Stock Option/Stock Issuance Plan
10.4(c) - Employee Stock Purchase Plan
10.5(b) - Form of Indemnification Agreement
10.6(c) - Real Property Lease between the Registrant and SBC&D & Company dated as of July 16, 1996
10.7(e) - Hyperion Software Corporation 1991 Stock Plan
10.8(e) - Hyperion Software Corporation 1991 Non-Employee Director Stock Option Plan
10.9(f) - Loan Agreement with the Connecticut Development Authority, dated January 20, 1995,
regarding financing of an office facility (including related Promissory Note and
Mortgage Deed)
10.10(i) - Employment Agreement with Stephen V. Imbler, dated February 23, 1999
10.11(i) - Employment Agreement with William B. Binch, dated February 23, 1999
10.12(i) - Amended & Restated Employment Agreement with James A. Perakis, dated January 1, 1999
10.13(k) - Separation Agreement with John M. Dillon, dated June 7, 1999
10.14(k) - Separation Agreement with William B. Binch, dated June 16, 1999
10.15(j) - Employment Agreement with Jeffrey R. Rodek, dated October 11, 1999
10.16(j) - Restricted Stock Award Agreement with Jeffrey R. Rodek, dated October 11, 1999
10.17(j) - Secured Promissory Note with Jeffrey R. Rodek, dated October 11, 1999
10.18(j) - Employment Offer Letter with Michael L. Sternad, dated October 11, 1999
10.19 - Hyperion Solutions Corporation 1999 Stock Option Plan
10.20 - Security and Pledge Agreement with Jeffrey R. Rodek, dated October 11, 1999
10.21 - Employment Agreement with Larry J. Braverman, dated February 23, 1999
10.22 - Employment Agreement with Beth E. Broderson, dated May 25, 2000
</TABLE>
-59-
<PAGE> 61
<TABLE>
<S> <C>
22.1 - List of subsidiaries of the Registrant (filed herewith)
23.1 - Consent of PricewaterhouseCoopers LLP, independent accountants (filed herewith)
27 - Financial Data Schedule (filed herewith)
</TABLE>
-----------------
(a) Previously filed as an Exhibit to the Registrant's Current
Report on Form 8-K, dated May 25, 1998
(b) Incorporated by reference to such exhibit as filed in the
Registrant's Registration Statement on Form S-1, filed
November 6, 1995 (file no. 33-97098), as amended
(c) Previously filed as an Exhibit to the Registrant's Annual
Report on Form 10-K, dated June 28, 1997
(d) Previously filed as an Exhibit to the Registrant's Current
Report on Form 8-K, dated March 5, 1998
Incorporated by reference to the exhibits to a Hyperion
Software Corporation Registration Statement or Current Report
(file no. 0-19538):
(e) Form S-1 file no. 33-42855
(f) Form 10-Q filed in February 1995
(g) Incorporated by reference to such exhibit as filed in the
Registrant's Registration Statement on Form S-4 (file no.
333-57197), as amended, filed on June 18, 1998
(h) Incorporated by reference to such exhibit as filed in the
Registrant's Current Report on Form 8-K, dated August 24,
1998 and filed on October 13, 1998
(i) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999
(j) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1999
(k) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K dated September 28, 1999.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three-month
period ended June 30, 2000.
-60-
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 28, 2000 Hyperion Solutions Corporation
(Registrant)
By: /s/ Michael L. Sternad
----------------------
Michael L. Sternad
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jeffrey R. Rodek Chairman and Chief Executive Officer September 28, 2000
----------------------------
Jeffrey R. Rodek
/s/ Stephen V. Imbler President and Chief Operating Officer September 28, 2000
----------------------------
Stephen V. Imbler
/s/ Michael L. Sternad Chief Financial Officer September 28, 2000
----------------------------
Michael L. Sternad
/s/ Gary G. Greenfield Director September 22, 2000
----------------------------
Gary G. Greenfield
/s/ Kenneth A. Goldman Director September 26, 2000
----------------------------
Kenneth A. Goldman
Director September , 2000
----------------------------
Aldo Papone
/s/ Henry R. Autry Director September 23, 2000
----------------------------
Henry R. Autry
</TABLE>
-61-
<PAGE> 63
ITEM 14(a)(2) AND ITEM 14(d). FINANCIAL STATEMENT SCHEDULE
HYPERION SOLUTIONS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
----------------------------
Charged
Balance at Charged to to Other Deductions Balance
Beginning Costs and Accounts - (Additions) - at End
Description of Period Expenses Describe(a) Describe of Period
----------- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended June 30, 1998
Allowance for doubtful accounts, returns
and discounts $ 6,083 1,297 4,000 2,488(b) $ 8,892
Valuation allowance for deferred tax assets 2,356 129 326(c) 2,159
For the year ended June 30, 1999
Allowance for doubtful accounts, returns
and discounts $ 8,892 1,582 6,800 5,474(b) $11,800
Valuation allowance for deferred tax assets 2,159 121 (1,734)(c) 4,014
For the year ended June 30, 2000
Allowance for doubtful accounts, returns
and discounts $11,800 1,460 6,856 3,866(B) $16,250
Valuation allowance for deferred tax assets 4,014 124 666(C) 3,472
</TABLE>
(a) Charged to revenues
(b) Write-offs, returns and discounts, net of recoveries
(c) Recognition and adjustments
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1(b) - Master Lease Agreement and Warrant Agreement between the Registrant and Phoenix Leasing, dated
as of June 30, 1993
10.2(b) - 1992 Stock Option Plan
10.3(c) - 1995 Stock Option/Stock Issuance Plan
10.4(c) - Employee Stock Purchase Plan
10.5(b) - Form of Indemnification Agreement
10.6(c) - Real Property Lease between the Registrant and SBC&D & Company dated as of July 16, 1996
10.7(e) - Hyperion Software Corporation 1991 Stock Plan
10.8(e) - Hyperion Software Corporation 1991 Non-Employee Director Stock Option Plan
10.9(f) - Loan Agreement with the Connecticut Development Authority, dated January 20, 1995,
regarding financing of an office facility (including related Promissory Note and
Mortgage Deed)
10.10(i) - Employment Agreement with Stephen V. Imbler, dated February 23, 1999
10.11(i) - Employment Agreement with William B. Binch, dated February 23, 1999
10.12(i) - Amended & Restated Employment Agreement with James A. Perakis, dated January 1, 1999
10.13(k) - Separation Agreement with John M. Dillon, dated June 7, 1999
10.14(k) - Separation Agreement with William B. Binch, dated June 16, 1999
10.15(j) - Employment Agreement with Jeffrey R. Rodek, dated October 11, 1999
10.16(j) - Restricted Stock Award Agreement with Jeffrey R. Rodek, dated October 11, 1999
10.17(j) - Secured Promissory Note with Jeffrey R. Rodek, dated October 11, 1999
10.18(j) - Employment Offer Letter with Michael L. Sternad, dated October 11, 1999
10.19 - Hyperion Solutions Corporation 1999 Stock Option Plan
10.20 - Security and Pledge Agreement with Jeffrey R. Rodek, dated October 11, 1999
10.21 - Employment Agreement with Larry J. Braverman, dated February 23, 1999
10.22 - Employment Agreement with Beth E. Broderson, dated May 25, 2000
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