<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________.
--------------------------------
COMMISSION FILE NUMBER 0-26934
HYPERION SOLUTIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0277772
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1344 CROSSMAN AVENUE, SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices, including zip code)
(408) 744-9500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO
----- ----
As of May 10, 2000, there were 32,476,203 shares of the Registrant's
common stock, $.001 par value, outstanding.
- --------------------------------------------------------------------------------
<PAGE> 2
Hyperion Solutions Corporation
Form 10-Q
CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet--March 31, 2000 and June 30, 1999................................................2
Condensed Consolidated Statement of Income-- Three Months Ended
March 31, 2000 and 1999; Nine Months Ended March 31, 2000 and 1999..................................................3
Condensed Consolidated Statement of Cash Flows--
Nine Months Ended March 31, 2000 and 1999...........................................................................4
Notes to Condensed Consolidated Financial Statements--March 31, 2000..................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................................15
Item 6. Exhibits and Reports on Form 8-K................................................................................15
SIGNATURES..............................................................................................................16
</TABLE>
Copyright 2000 Hyperion Solutions Corporation. All rights reserved. Hyperion,
Essbase, Pillar, Hyperion Pillar, Hyperion Enterprise, Hyperion Reporting,
LedgerLink, Netprophet, The Model Approach, Business Intelligence, and Financial
Intelligence are registered trademarks and Hyperion Solutions, the Hyperion "H"
logo, See The Future First, Essbase-Ready, Hyperion Essbase, Hyperion
Allocations, Hyperion DataExtend, Hyperion Distributed Retrieve, Hyperion
Distributed Schedules, Hyperion Drill Manager, Hyperion Objects, Hyperion
Quicksends, Hyperion Schedules, Hyperion Integration Server, HyperionReady,
Hyperion Web Gateway, The Scoring Approach and Performance Achievement are
trademarks of Hyperion Solutions Corporation. Wired for OLAP and the Appsource
Corporation logo are trademarks of Appsource Corporation, a wholly owned
subsidiary of Hyperion Solutions Corporation.
All other trademarks and company names mentioned are the property of their
respective owners.
For further information, refer to the Hyperion Solutions Corporation annual
report on Form 10-K for the year ended June 30, 1999.
<PAGE> 3
Hyperion Solutions Corporation
Condensed Consolidated Balance Sheet
(in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
------------------------------
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 250,381 $ 233,515
Short-term investments 37,610 38,341
Accounts receivable--net of allowances of $12,900 and $11,800 138,077 110,744
Prepaid expenses and other current assets 16,056 6,290
Deferred income taxes 9,362 10,386
-----------------------------
TOTAL CURRENT ASSETS 451,486 399,276
Property and equipment--at cost, less accumulated depreciation
and amortization of $83,265 and $65,444 68,740 75,456
Acquired technologies, goodwill and other intangible assets--at
cost, less accumulated amortization of $22,813 and $17,186 23,617 26,522
Other assets 15,216 11,640
-----------------------------
Total assets $ 559,059 $ 512,894
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 41,585 $ 55,012
Accrued employee compensation and benefits 27,603 29,920
Income taxes payable 2,345
Deferred revenue 90,135 81,089
-----------------------------
TOTAL CURRENT LIABILITIES 159,323 168,366
Long-term debt 102,562 103,752
Stockholders' equity:
Preferred stock--$.001 par value; 5,000 shares authorized;
none issued
Common stock--$.001 par value; 300,000 shares authorized;
32,375 and 30,842 shares issued and outstanding 32 31
Additional paid-in capital 191,795 153,545
Retained earnings 110,628 90,917
Currency translation adjustments (5,281) (3,717)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 297,174 240,776
-----------------------------
Total liabilities and stockholders' equity $ 559,059 $ 512,894
=============================
</TABLE>
Note: the balance sheet at June 30, 1999 has been derived from the audited
financial statements at that date.
See accompanying notes.
-2-
<PAGE> 4
Hyperion Solutions Corporation
Condensed Consolidated Statement of Income (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
REVENUES
Software licenses $ 62,192 $ 48,024 $ 164,333 $ 153,614
Maintenance and services 63,606 53,622 184,508 159,872
----------------------------- -----------------------------
Total revenues 125,798 101,646 348,841 313,486
----------------------------- -----------------------------
COSTS AND EXPENSES
Cost of revenues:
Software licenses 1,760 1,383 4,761 5,920
Maintenance and services 34,772 28,871 96,896 85,113
Sales and marketing 49,851 41,936 136,768 120,304
Research and development 17,912 16,579 50,874 46,845
General and administrative 10,959 9,953 31,719 28,039
Merger costs (credits) (305) 21,800
Restructuring charge 2,066 2,066
----------------------------- -----------------------------
117,320 98,722 322,779 308,021
----------------------------- -----------------------------
OPERATING INCOME 8,478 2,924 26,062 5,465
Interest income 3,365 2,556 9,346 8,444
Interest expense (1,430) (1,351) (4,097) (3,965)
----------------------------- -----------------------------
INCOME BEFORE INCOME TAXES 10,413 4,129 31,311 9,944
Provision for income taxes 3,800 1,550 11,600 8,650
----------------------------- -----------------------------
NET INCOME $ 6,613 $ 2,579 $ 19,711 $ 1,294
============================= =============================
EARNINGS PER SHARE
Basic $ .21 $ .09 $ .63 $ .04
Diluted $ .19 $ .08 $ .62 $ .04
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 32,042 30,337 31,384 30,043
Diluted 34,558 30,728 32,016 30,823
</TABLE>
See accompanying notes.
-3-
<PAGE> 5
Hyperion Solutions Corporation
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
2000 1999
---------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 8,882 $ 29,560
INVESTING ACTIVITIES
Purchases of property and equipment (12,003) (20,959)
Short-term investments, net 731 449
Intangible and other assets (5,025) (1,458)
-----------------------------
Cash used by investing activities (16,297) (21,968)
FINANCING ACTIVITIES
Principal payments on notes payable (4,484) (730)
Exercise of stock options by employees 30,329 10,367
-----------------------------
Cash provided by financing activities 25,845 9,637
Effect of exchange rate changes (1,564) (913)
-----------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 16,866 16,316
Cash and cash equivalents at beginning of period 233,515 221,868
-----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 250,381 $ 238,184
=============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NONCASH ACTIVITIES
Cash paid during the period for:
Income taxes $ 14,551 $ 22,998
Interest 4,670 4,705
</TABLE>
See accompanying notes.
-4-
<PAGE> 6
Hyperion Solutions Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring accruals, considered necessary for a fair presentation
have been included in the accompanying unaudited financial statements. Operating
results for the three- and nine-month periods ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full year
ending June 30, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended June 30, 1999
included in the Hyperion Solutions Corporation (the "Company" or "Hyperion")
report on Form 10-K filed on September 28, 1999.
B. EARNINGS PER SHARE
Shares used in computing basic and diluted earnings per share are based on the
weighted average shares outstanding in each period. Basic earnings per share
excludes the effects of stock options, warrants and convertible securities.
Diluted earnings per share includes the dilutive effect of the assumed exercise
of stock option, warrant and/or convertible security rights using the treasury
stock method.
The following table sets forth the computation of basic and diluted earnings per
share ("EPS") (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
------------------------ ------------------------
<S> <C> <C> <C> <C>
Numerator--net income $ 6,613 $ 2,579 $19,711 $ 1,294
======================== ========================
Denominator for basic EPS--weighted-average shares 32,042 30,337 31,384 30,043
Effect of dilutive securities:
Stock option rights 2,516 391 632 780
------------------------ ------------------------
Denominator for diluted EPS--adjusted weighted-
average shares and assumed conversions 34,558 30,728 32,016 30,823
======================== ========================
Basic earnings per share $ .21 $ .09 $ .63 $ .04
Diluted earnings per share $ .19 $ .08 $ .62 $ .04
</TABLE>
-5-
<PAGE> 7
Hyperion Solutions Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
March 31, 2000
B. EARNINGS PER SHARE (CONTINUED)
Because their effect would be antidilutive, certain stock option rights for .2
million and 1.4 million common shares were excluded from the diluted EPS
calculation, respectively, for the three- and nine-month periods ended March 31,
2000. For the three- and nine-month periods ended March 31, 1999, 3.8 million
and 3.7 million common shares, respectively, were excluded from the diluted EPS
calculation. For the same reason, shares of common stock issuable upon
conversion of the convertible subordinated notes due 2005 have been excluded
from the diluted EPS calculation.
C. COMPREHENSIVE INCOME
Comprehensive income is a measure of all changes in equity of an enterprise that
results from recognized transactions and other economic events of a period other
than transactions with owners in their capacity as owners. For the periods
indicated, comprehensive income of the Company was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net income $ 6,613 $ 2,579 $ 19,711 $ 1,294
Currency translation adjustments (1,072) (1,904) (1,564) (913)
--------------------------- ---------------------------
Comprehensive income $ 5,541 $ 675 $ 18,147 $ 381
=========================== ===========================
</TABLE>
D. CONTINGENCIES
From time to time, in the normal course of business, various claims are made
against the Company. At this time, in the opinion of management, there are no
pending claims the outcome of which is expected to result in a material adverse
effect on the financial position of the Company.
E. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company has identified two reportable operating segments based on the
criteria of Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information": software licensing,
and maintenance and services. Software license fees 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 in the Company's annual report on Form 10-K filed on September 28,
1999.
-6-
<PAGE> 8
Hyperion Solutions Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
March 31, 2000
E. SEGMENT AND GEOGRAPHICAL INFORMATION (CONTINUED)
The accompanying statement of income discloses the financial information of
the Company's reportable segments in accordance with Statement 131 for the
three- and nine-month periods ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Other
U.S. U.K. International
Operations Operations Operations Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------------------
(in thousands)
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Revenues:
Customers $ 110,188 $ 7,560 $ 8,050 $ 125,798
Intercompany 3,672 5,926 $ (9,598)
--------------------------------------------------------------------------------------------------------------------------------
Total 113,860 7,560 13,976 (9,598) 125,798
================================================================================================================================
Operating income (loss) $ 15,794 $ 227 $ (7,543) $ 8,478
================================================================================================================================
1999
Revenues:
Customers $ 87,806 $ 7,244 $ 6,596 $ 101,646
Intercompany 3,028 7,566 $ (10,594)
--------------------------------------------------------------------------------------------------------------------------------
Total 90,834 7,244 14,162 (10,594) 101,646
================================================================================================================================
Operating income (loss) $ 9,138 $ (3,210) $ (3,004) $ 2,924
================================================================================================================================
NINE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------------------------------------------------
2000
Revenues:
Customers $ 301,580 $ 23,057 $ 24,204 $ 348,841
Intercompany 10,767 19,056 $ (29,823)
--------------------------------------------------------------------------------------------------------------------------------
Total 312,347 23,057 43,260 (29,823) 348,841
================================================================================================================================
Operating income (loss) 53,048 (1,471) (25,515) 26,062
================================================================================================================================
Identifiable assets $ 463,256 $ 14,949 $ 80,854 $ 559,059
================================================================================================================================
1999
Revenues:
Customers $ 265,502 $ 25,325 $ 22,659 $ 313,486
Intercompany 9,645 75 19,303 $ (29,023)
--------------------------------------------------------------------------------------------------------------------------------
Total 275,147 25,400 41,962 (29,023) 313,486
================================================================================================================================
Operating income (loss) 21,215 1,122 (16,872) 5,465
================================================================================================================================
Identifiable assets $ 399,199 $ 19,519 $ 70,994 $ 489,712
================================================================================================================================
</TABLE>
-7-
<PAGE> 9
Hyperion Solutions Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
March 31, 2000
E. SEGMENT AND GEOGRAPHICAL INFORMATION (CONTINUED)
"Other International Operations" relate to subsidiaries in Austria,
Belgium, Canada, Finland, France, Germany, Italy, Japan, the Netherlands,
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>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
U.K. operations $ 7,560 $ 7,244 $ 23,057 $ 25,325
Other international operations 8,050 6,596 24,204 22,659
Export 29,627 26,318 76,382 66,071
---------------------------------------------------------------------------------------------------------------------
$ 45,237 $ 40,158 $123,643 $114,055
=====================================================================================================================
Percentage of total revenues 36.0% 39.5% 35.4% 36.4%
=====================================================================================================================
</TABLE>
The majority of "Export" revenues, some of which are generated through
independent distributors and agents, results from product licenses and
services sold to customers throughout Europe.
-8-
<PAGE> 10
Hyperion Solutions Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
- --------------------------------------------------------------------------------
Hyperion develops, markets and supports enterprise analytic application software
that helps companies better understand, optimize and operate their businesses.
Hyperion's products complement software that companies use to capture and
organize data. Hyperion's products integrate with, extend and enhance
transaction processing applications, enterprise resource planning (ERP) and
customer relationship management packaged applications, and data warehouses. The
Company's offerings are based on Hyperion's enterprise-class analytic platform
and include packaged analytic applications, OLAP (on-line analytical processing)
server technology, data and application integration technologies, and a family
of robust tools for client-server and web-enabled reporting, analysis,
presentation and application development. Hyperion and its partners deliver
client/server and web-based products for a broad range of analytic applications
including budgeting and planning, financial consolidation and reporting,
activity-based management, performance management, campaign management analysis,
promotional analysis, sales forecasting, demand planning, e-business analysis
and industry-specific solutions. The Company's solutions are used by large
organizations worldwide.
Hyperion derives revenues from licensing its software products and providing
related product installation, support and training services. Customers are
billed an initial fee for the software upon delivery. A maintenance fee
entitling customers to routine support and product updates is billed annually.
With operations in twenty-six countries, Hyperion licenses its products
throughout the world primarily through a direct sales force. Products also are
licensed through independent distributors and sales agents, including other
technology and application software companies, and major accounting firms
("channel partners"). The Company includes in revenues its net share of revenues
generated by distributors. In the event that an agent has facilitated the sale
and Hyperion is the licensor, the license revenue is reported gross and a
commission charge is reflected.
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
REVENUES
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
March 31, 2000 CHANGE 1999 2000 CHANGE 1999
- ----------------------------------- --------------------------------------- ----------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Software licenses $ 62,192 29.5% $ 48,024 $ 164,333 7.0% $153,614
Percentage of total revenues 49.4% 47.2% 47.1% 49.0%
- ----------------------------------- --------------------------------------- ----------------------------------------
Maintenance and services $ 63,606 18.6% $ 53,622 $ 184,508 15.4% $159,872
Percentage of total revenues 50.6% 52.8% 52.9% 51.0%
- ----------------------------------- --------------------------------------- ----------------------------------------
</TABLE>
-9-
<PAGE> 11
Hyperion Solutions Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Software license revenues for the three-month period ended March 31, 2000 rose
primarily as a result of an increase in the number of licenses sold (unit
volume) versus, for example, price increases. The growth in software sales was
led by demand for the Company's OLAP server and tools. For the nine-month
period, software license revenues increased modestly primarily as a result of an
increase in the number of licenses sold (unit volume). License revenue growth
for the nine-month period was impacted by merger related sales-marketing issues.
The increase in maintenance and services revenue is mainly attributable to the
year-to-year growth of the Company's installed customer base.
Revenues, including export sales, generated from markets outside the United
States for the first three quarters of fiscal 2000 and 1999 were $123.6 million
and $114.1 million, or 35.4% and 36.4% of total revenues, respectively. The
increase was due primarily to revenue growth in Italy, Japan and Scandinavia,
offset to a lesser extent, by decreases in Germany and the United Kingdom.
Revenues derived from channel partners for the three months ended March 31, 2000
and 1999 were 22.4% and 15.9% of total revenues, respectively. For the nine
months ended March 31, 2000 and 1999, partner revenues were 17.4% and 14% of
total revenues.
COST OF REVENUES
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
March 31, 2000 CHANGE 1999 2000 CHANGE 1999
- ----------------------------------- --------------------------------------- ----------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Software licenses $ 1,760 27.3% $ 1,383 $ 4,761 (19.6)% $ 5,920
Gross profit percentage 97.2% 97.1% 97.1% 96.1%
- ----------------------------------- --------------------------------------- ----------------------------------------
Maintenance and services $ 34,772 20.4% $ 28,871 $ 96,896 13.8% $85,113
Gross profit percentage 45.3% 46.2% 47.5% 46.8%
- ----------------------------------- --------------------------------------- ----------------------------------------
</TABLE>
Cost of software license revenues consists primarily of the cost of product
packaging and documentation materials, amortization of capitalized software
costs, amortization of certain intangible assets related to business
acquisitions, and royalty expenses. The amortization of capitalized software
costs begins upon the general release of the software to customers. The increase
in the cost of software license revenues for the three-month period ended March
31, 2000 principally reflects an increase in amortization expense of certain
intangible assets related to business acquisitions. For the nine-month period,
the cost of software license revenues decreased primarily as a result of a
decrease in amortization of capitalized software costs.
The increase in the cost of maintenance and service revenues was due primarily
to additional staffing expense for increasing installation and ongoing support
services.
-10-
<PAGE> 12
Hyperion Solutions Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
OPERATING EXPENSES
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
March 31, 2000 CHANGE 1999 2000 CHANGE 1999
- ----------------------------------- --------------------------------------- ----------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing $49,851 18.9% $41,936 $136,768 13.7% $120,304
Percentage of total revenues 39.6% 41.3% 39.2% 38.4%
- ----------------------------------- --------------------------------------- ----------------------------------------
Research and development $17,912 8.0% $16,579 $ 50,874 8.6% $ 46,845
Percentage of total revenues 14.2% 16.3% 14.6% 14.9%
- ----------------------------------- --------------------------------------- ----------------------------------------
General and administrative $10,959 10.1% $ 9,953 $ 31,719 13.1% $ 28,039
Percentage of total revenues 8.7% 9.8% 9.1% 8.9%
- ----------------------------------- --------------------------------------- ----------------------------------------
</TABLE>
The increase in sales and marketing expenses is primarily due to a net increase
in sales-marketing personnel.
The increase in research and development expenses reflects additional personnel
costs associated with expanded product research and development activities. In
the first three quarters of fiscal 2000 and 1999, the Company capitalized $2.1
million and $1.4 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 4% and 2.8% of total research and development expenditures.
Capitalized software costs are amortized over the estimated economic life of the
product, but generally not more than three years.
The increase in general and administrative expenses 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 $2.5 million ($.8 million in the March 2000 quarter),
primarily related to product warranties for older product lines and the
reduction of tax contingencies in various jurisdictions.
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 America-based
accounting department. This charge is comprised primarily of severance costs.
The merger of Arbor Software Corporation (former name of the Company) and
Hyperion Software Corporation was completed on August 24, 1998. In the quarter
ended September 30, 1998, the Company charged $21.8 million, $18.7 million after
taxes, to operations for nonrecurring costs incurred in connection with the
business combination.
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%. The
Company's expected effective rate for the remainder of the fiscal year is 37%.
-11-
<PAGE> 13
Hyperion Solutions Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
NET INCOME
As a result of the above factors, net income for the three-month period ended
March 31, 2000 increased to $6.6 million, or by 156%, from $2.6 million for the
corresponding period of 1999. The Company had net income of $19.7 million for
the nine-month period ended March 31, 2000, compared to net income of $1.3
million for the same period of the prior year.
To date, the overall impact of inflation on the Company has not been material,
although the Company is beginning to see substantial increases in employee
compensation.
RISK FACTORS
Except for the historical information contained in this report on Form 10-Q, the
matters discussed herein are forward-looking statements that involve risks and
uncertainties. Actual events and the Company's future results may vary
significantly based on a number of factors, including, but not limited to, those
discussed below under "Market Risks" and "Factors that May Affect Future
Results" and those related to: the process of integrating the businesses of
Arbor Software and Hyperion Software to realize the synergies anticipated to
result therefrom; the impact of competitive products and pricing; the process of
effecting the Company's recent acquisitions to realize the synergies anticipated
to result therefrom; the Company's ability to develop and release timely and
competitive enhancements to its existing products; whether the Company can
successfully develop and bring to market new product offerings in high growth
sectors of the business analytics market; and whether the Company can hire and
retain key employees necessary to execute its business plan. Any forward-looking
statements should be considered in light of these factors as well as other risks
as detailed elsewhere in this report on Form 10-Q, and in the Company's most
recent annual report on Form 10-K. Further, readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof.
MARKET RISKS
At March 31, 2000, the Company's investment portfolio consisted of
investment-grade debt securities, excluding those classified as cash
equivalents, of $37.6 million. 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 March 31, 2000,
the decline in the fair value of the portfolio would not be material.
The Company's long-term debt bears interest, for the most part, at a fixed rate
and, therefore, relative to its long-term debt, an immediate 10% change in
market interest rates would not materially impact the Company's financial
statements.
Approximately one-third of the Company's sales, cost of sales and marketing is
transacted in local currencies. As a result, the Company's operations from
markets outside the United States are subject to foreign exchange rate
fluctuations.
-12-
<PAGE> 14
Hyperion Solutions Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company had a software licensing backlog of approximately $15 million at
June 30, 1999, which sales were completed in the September 1999 quarter upon
shipment of product to customers. The amount decreased sequentially in the
September 1999, December 1999 and March 2000 quarters, and at March 31, 2000,
the Company had a software licensing backlog of approximately $2 million. The
Company's backlog fluctuates from period to period; however, the Company
anticipates that the level of backlog will continue to decrease in the June 2000
quarter. Nonetheless, 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. The
Company's future operating results may fluctuate due to these and other factors,
such as customer buying patterns, the deferral and/or realization of deferred
software license revenues according to contract terms, the timing of new product
introductions and product upgrade releases, the Company's ability or inability
to retain qualified personnel, its overall hiring plans, the scheduling of sales
and marketing programs, new product development by the Company, its channel
partners or its competitors and currency exchange rate movements. 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. The Company
generally has realized lower revenues in its first (September) and third (March)
fiscal quarters than in the immediately preceding quarters. However, due to the
increase in the software revenue growth rate in the current quarter, total
revenues and net income were $125.8 million and $6.6 million, respectively, for
the third quarter of fiscal 2000, and $115.8 million and $7.1 million,
respectively, for the second quarter of fiscal 2000. The Company believes that
these revenue fluctuations are caused by customer buying patterns, including
traditionally slow purchase activity in the summer months and low purchase
activity in the corporate financial applications market during the March
quarter, as many potential customers are busy with their year-end closing and
financial reporting. In any case, 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.
-13-
<PAGE> 15
Hyperion Solutions Corporation
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 1997, 1998 and 1999, and
for the nine months ended March 31, 2000, the Company generated positive cash
flow from operations of $49.7 million, $87.6 million, $43.2 million and $8.9
million, respectively.
Cash used by investing activities amounted to $16.3 million for the first three
quarters of fiscal 2000, including $12 million primarily for purchases of
computer equipment and software, and $5 million for intangible and other assets,
comprised primarily of $2.1 million for product development costs, $1.2 million
for security deposits and $1 million for a loan to an executive officer.
Financing activities in the first three quarters of fiscal 2000, including stock
options exercised by employees and payments of indebtedness, generated cash of
$25.8 million. In connection with the stock options exercised by certain of its
employees (for a total of 1.5 million common shares), the Company recognized
(as a credit to additional paid-in capital) an income tax benefit of $7.9
million for the nine months ended March 31, 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 to purchase an office and
research facility in Stamford, Connecticut.
As of March 31, 2000, the Company had cash, cash equivalents and short-term
investments of $288 million, working capital of $292.2 million, and $102.6
million of long-term debt. Cash equivalents are comprised primarily of
investment-grade commercial paper, U.S. federal, state and political subdivision
obligations with varying terms of three months or less. The Company anticipates
capital expenditures of approximately $25 million for its 2000 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.
-14-
<PAGE> 16
Hyperion Solutions Corporation
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
On July 11, 1997, Gentia Software filed a request for reexamination of
Hyperion's U.S. Patent No. 5,359,724 (the "'724 patent") with the United States
Patent and Trademark Office (the "PTO") arguing that the '724 patent was
anticipated and obvious in light of certain prior art references. On September
11, 1997, the PTO granted the request for reexamination. On February 27, 1998,
Gentia Software filed a request for a second reexamination of the '724 patent
with the PTO based on additional prior art references. On May 22, 1998, the PTO
granted that request for reexamination which was later consolidated with the
first reexamination. On March 31, 1999, the PTO issued a non-final office action
rejecting the claims of the '724 patent. Hyperion filed its response to the
office action on May 31, 1999. No final office action has been issued by the
Patent Office.
From time to time, in the normal course of business, various claims are made
against the Company. At this time, in the opinion of management, there are no
pending claims the outcome of which is expected to result in a material adverse
effect on the financial position of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three-month period
ended March 31, 2000.
-15-
<PAGE> 17
Hyperion Solutions Corporation
Form 10-Q for the three-month period ended March 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hyperion Solutions Corporation
/s/ Michael L. Sternad 5/12/2000
-------------------------------------------------------
Michael L. Sternad Date
Chief Financial Officer
-16-
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HYPERION SOLUTIONS CORPORATION FOR THE
QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<CASH> 250,381
<SECURITIES> 37,610
<RECEIVABLES> 150,977
<ALLOWANCES> 12,900
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<CURRENT-ASSETS> 451,486
<PP&E> 152,005
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0
<COMMON> 32
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<OTHER-EXPENSES> 80,788
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