ITEM 1. BUSINESS
GENERAL
Founded in 1981, Hyperion Software Corporation (the "company") develops, markets and supports comprehensive analytic solutions that enable large, multinational companies to improve financial performance by maximizing the value of information. The company's internet/intranet-enabled applications support and enhance enterprise-wide financial processes, including planning, budgeting, forecasting, accounting, consolidation and performance analysis.
INDUSTRY BACKGROUND
Large corporations generate significant amounts of accounting, manufacturing, human resources, sales and marketing data. To be useful to senior executives, managers and analysts, such transactional data must be retrieved from a variety of financial and operational systems, then summarized and organized into meaningful business information that is consistent and easily accessible. The process of integrating the data is complicated because most large corporations use multiple accounting systems and transactional databases, conduct business in numerous locations and have diverse information requirements across functions and throughout the management hierarchy.
Historically, corporations have attempted to collect, summarize, organize and present information from fragmented computer systems and transactional data sources in a number of ways. In many instances, business information reports are assembled manually with the aid of spreadsheets and by using data from accounting ledgers and other operational systems. Additionally, many corporations have sought to automate business information systems through the use of mainframe, minicomputer or PC software developed by their internal information technology ("IT") departments. Hyperion believes that these internally developed systems are becoming increasingly obsolete because they are usually rigid in structure, complex to create, expensive to maintain, and difficult to update when information requirements change. In addition, growing corporate competition has increased the demand for more comprehensive and timely business information that is accessible throughout the corporation.
Continuing advances in computer and networking technology increasingly enable business information processing at large corporations to be moved to client/server architectures running on networks of personal computers. Client/server computing takes advantage of the power of personal computers by appropriately segregating user interface and application processing tasks between separate client and server machines. Networked PCs have significantly increased the ability to share information among users throughout an organization. The growth of internet/intranet technology has further enabled broader and more powerful information access within, outside and among corporations. While IT departments were initially slow to adopt network and internet/intranet technology, they now view networked PCs as a strategic element of information management. Network-based and internet/intranet-enabled solutions are now being implemented as a means of decreasing computing costs while improving the flow, accessibility and usefulness of corporate information.
Most financial analysts, accountants and many executives rely on personal computer spreadsheets for performance analysis, reporting and forecasting. While spreadsheets and other PC software tools have been used to perform some corporate business information tasks, they have limited capability for information sharing and lack the necessary controls to ensure corporate consistency. Existing custom or packaged software for mainframes or minicomputers is impractical to modify for network computing because it is based on operating systems and architectures which are incompatible with PCs and client/server technology and lack the ease of use of PC software.
Enterprise Resource Planning (ERP) systems are one means of addressing part of this market need. ERP systems are integrated software solutions that combine multiple business applications such as finance, human resources, marketing and distribution across the enterprise into a single system. This alternative to the narrower, more distinct applications of past years delivers benefits to corporations by coordinating an increasing number of functional processes into a single system solution. As business process automation becomes a higher and increasingly cost-effective priority for companies, ERP systems will become transactional "backbones" within the corporate infrastructure.
A second critical dimension to meeting this market need is the software applications which help organizations to make use of this transactional data. Recently termed "analytic applications" by leading industry analysts, these software solutions work on a stand-alone basis, or in conjunction with ERP systems to translate data into business intelligence and thus to maximize the value of financial information. The need for better business information has created a significant market opportunity for analytic application software. Since 1981, the company's experience in developing and marketing financial management and analytical software applications for PCs and networks has positioned it well for this market.
STRATEGY
The company's objective is to be the leading provider of client/server and internet/intranet-enabled financial management and analytical solutions to large, multidivision or multilocation companies worldwide. Hyperion focuses on designing financially intelligent software applications that manage complex business processes, access and distribute information, and measure and analyze the performance of a business. Integrated across these applications, Hyperion provides complete reporting and business analysis capabilities designed to support the way people access, deliver and analyze results. The applications are designed to be flexible, easy to maintain, cost-efficient, fast and functionally complete, using an architecture based on connectivity and openness to ERP and other best-of-class applications. The company intends to continue to extend and enhance its suite of integrated client/server and internet/intranet-enabled products through internal development and acquisition.
The company believes the use of evolving technology standards, when coupled with software that reflects financial intelligence and business applications expertise, produces clear and immediate benefits to an organization.
The company's strategy to achieve its objective includes the following elements:
Increase Penetration of Multisource Consolidation and Budgeting Markets. The company believes that a minority of potential customers has purchased network-based, Windows multisource consolidation (the management of financial information across multiple accounting and planning systems, operational data sources and geographies) and budgeting software. The company intends to further its penetration in these markets worldwide, and continue its leadership position by enhancing its current products and dedicating significant resources to sales, marketing, support and product development. In addition, the company intends to continue to expand upon its sales channel strategy through reseller relationships with other software providers that will provide access to markets that Hyperion has not traditionally exploited.
Leverage Existing Market Leadership Position. The company believes that the complementary set of planning, budgeting, forecasting, accounting, consolidation and performance analysis applications provides the complete, consistent results executives need to run their businesses. The quick, secure access of this interrelated information, in a common set of user tools, supports ad hoc analysis and reporting requirements. The company believes that its established strength in providing solutions places it in a strong position to market its applications to both new and existing customers, including the latest offerings, Hyperion OLAP for business analysis; and Hyperion's Spider-Man, a web-based business information access solution for an organization's global user community.
Focus on Leading Network, Internet/Intranet and Software Technologies. Hyperion Software is committed to the development of network-based software for business information applications. The company's solutions are designed to run in the Microsoft Windows environment, and all are compatible with widely-used PC networks and leading internet/intranet technology. The company intends to enhance its existing products and develop or acquire new products linked to client/server software standards, including Windows 95, Windows NT, and Oracle, Sybase and Microsoft SQL Server databases, as well as the emerging internet/intranet technologies.
Design Applications for Specific Corporate Information Needs. The company's product line is designed specifically for the collection, accounting, planning, reporting and interactive analysis of business data. Hyperion's applications fit business processes, with financial intelligence and preprogrammed functionality. This orientation to specific tasks serves to reduce implementation time and results in superior processing speed for fast data compilation and data access. The company is also committed to a combination of integrated, industry standard SQL and application specific databases.
Design for Ease of Implementation and Ease of Use. The company's products are designed for an end-user role in maintenance, with minimal training. Application expertise is built into products and is also provided by the company through consulting services. 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. Unlike many other PC software companies, the company licenses its products throughout the world primarily through a direct sales force. Products also are licensed through independent distributors and sales agents, including major accounting firms. Hyperion often provides 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 introduction of new products and license renewal fees. In addition, sales of training and consulting services to existing customers represents 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.
PRODUCTS AND SERVICES
The company's product line provides executives, managers, analysts and accountants with the capability to collect, process, report and analyze business information. The company's Hyperion Enterprise products consolidate and report financial and other business data; Hyperion Pillar is used for corporate budgeting and financial planning; Hyperion OLAP provides multidimensional analysis and reporting capabilities regarding complex, high-volume business data; the accounting products are used for corporate accounting; and Hyperion's Spider-Man application is a web-based business information access solution for the global user community of an organization. The company also offers installation, training, consulting and support services.
PRODUCTS
Hyperion Enterprise. Hyperion Enterprise, released in July 1991 and now in its fifth major release, is an advanced business information consolidation and reporting application which is designed to provide a unified view of accounting information across diverse general ledgers for management reporting, tax and statutory reporting requirements. The product allows for changes in corporate structure or reporting lines. The company began development of Hyperion Enterprise in mid-1988 as a new product that combines powerful consolidation and reporting capabilities with an open architecture, and administrative ease of use made possible through the graphical user interface of Windows. Hyperion Enterprise reflects the company's fifteen years of experience in financial and business information software. In each of the past three years, the company derived approximately 60% of its worldwide total revenues from Hyperion Enterprise licenses and related services.
Hyperion Pillar. Pillar is a complete solution for corporate planning and budgeting needs. It facilitates the collaborative, iterative process of enterprise-wide budgeting and forecasting. Hyperion Pillar helps give the corporate plan greater credibility by allowing line managers to assume full accountability for their budgets. The software enables users to build up their budgets from a series of line items the way they think--in units, rates and/or amounts. Security features ensure that planning managers have control over each user's access to specific data. Pillar is a Windows-based solution with flexible import/export capabilities for interaction with virtually all financial software systems. The product easily allows for changes in corporate structure or reporting lines, making it easy to change the plan as the corporation evolves.
Hyperion OLAP. Hyperion OLAP, released in April 1996, provides powerful multidimensional analysis and reporting capabilities to support complex, high-volume business analysis of issues such as customer or product line profitability. Hyperion OLAP combines built-in financial intelligence with a high performance, on-line analytical processing (OLAP) engine and superior information access capabilities. Continuing to leverage the company's experience in financial and business information software, Hyperion OLAP complements the overall integrated Hyperion solution as well as a wide range of ERP systems and other information sources. Hyperion OLAP allows analysis in up to 16 dimensions and is suitable for multi-user applications, "what-if" analysis and nomadic usage.
Hyperion's accounting products, initially released in March 1995, allow an enterprise to control the detailed collection and reporting of day-to-day business transactions. The accounting products are designed for fast installation and easy maintenance. Superior integration among modules allows users to drill-down from ledger information to supporting subsystem transactions.
Hyperion Ledger. Hyperion Ledger is a Windows-based, general ledger accounting system for large, corporate client/server environments. Hyperion Ledger controls the management of a full range of advanced accounting functions, including flexible account structures, intercompany transaction control and complex consolidation processing. In addition to the general ledger, the company's full suite of accounting products includes Hyperion Reporting, Hyperion Tools, Hyperion Admin, Hyperion Payables, Hyperion Receivables and Hyperion Assets.
The company offers several complementary modules integrated across the product line:
Hyperion's Spider-Man Web Delivery. Hyperion's Spider-Man application, released in August 1996, is a gateway into the Hyperion solution for the global user community of a corporation. A web-based server application, it provides all users, around the world, with an intelligent view of the reports within each application--accounting, budgeting, multisource consolidation, business analysis. It allows users to navigate through a consistent set of current corporate data, as well as information from any other internet source.
Hyperion Analyst. Hyperion Analyst, released in April 1996, provides multidimensional, on-line analysis capabilities tailored specifically to working with financial and accounting data. Hyperion Analyst allows users to "slice and dice" information seamlessly from our financial applications directly within a Microsoft Excel or Lotus 1-2-3 spreadsheet.
Hyperion Schedules. Hyperion Schedules, released in November 1995, provides schedule-based data entry within our financial processes to capture corporate financial information. Hyperion Schedules provides complete control and customization of data entry screens.
SERVICES
The company provides design consulting and implementation support for its products and their operation on local or wide area networks and offers a range of administrator and end-user courses at its training facilities or at the customer's site. Implementation, consulting and training services are not included in software license fees, but are provided on a time and materials basis. This allows the customer to determine the level of support appropriate to its needs and permits the company to provide high quality services on a profitable basis.
Under the terms of the company's standard license agreement, customers, at their option, pay a license renewal (maintenance) fee annually. The annual fee charged to a customer is generally a fixed percentage of the then-current list prices for the licensed software used by the customer. This fee entitles customers to support, including a user hotline and electronic bulletin board, and to any updates and enhancements provided for their software. The company's product support function provides a hotline, collects and evaluates requests for enhancement of products and, together with the product management and planning group, coordinates the design, development and release of new products and product enhancements.
An active user group, including a steering committee, works closely with the company in helping to define product enhancement priorities and direction. A user conference is held annually. This year's conference, in Orlando, was attended by over 2,300 people from more than 850 companies. Regional user meetings and product-specific focus groups are also scheduled periodically, including an annual European user conference.
CUSTOMERS
Hyperion Software markets its products worldwide to multidivision and/or multilocation organizations with diverse information management requirements. The company has licensed its software to more than 3,200 corporate headquarters customers. In the past three fiscal years, no one customer accounted for more than 10% of total revenues. The company's customers include the following:
ABN Amro Holding ING America Life Aetna Life & Casualty ITT Industries Inc. Ahold Johnson & Johnson Aluminum Company of America Kimberly-Clark Corporation American Brands Kmart Corporation American Express Lotus Development Corporation Amoco Corporation LVMH AT&T GIS MCI Telecomm. Corp., Network Services Automatic Data Processing McKesson Corporation B.A.T. Industries Microsoft Corporation Baxter Healthcare Motorola, Inc. Bayer Corp. National Australia Bank Limited Bell Atlantic Corporation Netscape Communications BellSouth Corporation Nokia Mobile Phones Berjaya Group Berhad Norsk Hydro Black & Decker Corporation NYNEX Corporation Bristol-Myers Squibb Company PepsiCo Inc. Broken Hill Properties Price Costco Wholesale Corp. BTR plc The Prudential Insurance Company of America Campbell Soup Company PT Astra Chase Manhattan Bank Qantas Airways Chevron Corporation Roche Holding Ciba-Geigy Corporation Rockwell International Corp. Compaq Computer Sainsbury J Creative Technology Ltd. San Miguel Corporation Dean Witter Discover & Co. Sara Lee Corporation Digital Equipment SBC Communications DST Systems Inc. Sprint Eastman Kodak Company Standard Chartered Ford Motor Credit Company Swiss Bank Corporation Fortis - AG Swiss Reinsurance Group General Electric Company Telecom Italia Glaxo Texaco Inc. Granada Group The Travelers Hanson plc Union Bank of Switzerland Heineken United Parcel Service Household Finance Corporation Wang Laboratories HSBC Holdings The Washington Post ICI plc Young & Rubicam
SALES AND MARKETING
The company has a direct sales force comprised of 226 sales personnel as of June 30, 1997. The company supports its sales force with lead generation and marketing programs which include telemarketing, public relations, direct mail, advertising, seminars, trade shows and ongoing customer communication programs and third-party alliances. The company has sales offices at its headquarters in Stamford, Connecticut and in: Alexandria, Amsterdam, Atlanta, Baltimore, Boston, Brussels, Calgary, Chicago, Cleveland, Copenhagen, Dallas, Denver, Detroit, Foster City, Frankfurt, Hong Kong, Houston, Linz, London, Los Angeles, Madrid, Manchester, Milan, Milwaukee, Minneapolis, Montreal, Munich, Newark, Ottawa, Paris, Philadelphia, Rome, San Francisco, Sao Paulo, Seattle, Singapore, St. Louis, Stockholm, Syracuse, Tokyo, Toronto and Washington, DC. Product support and training are available as well through many of these locations.
The company also markets its products through independent distributors and sales agents. The company has license and distribution agreements with independent distributors and sales agents in: Australia, Brazil, Finland, Israel, Japan, Korea, Mexico, New Zealand, Poland, Singapore, South Africa and Switzerland, as well as other territories of Europe and North America. The company's distributors and agents include The Baan Company, affiliates of Arthur Andersen & Co. (in Japan and Switzerland), and affiliates of KPMG Peat Marwick (in Australia and New Zealand). The distributors generally maintain sales and service personnel dedicated solely 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 license renewal fees. In each of its 1997, 1996 and 1995 fiscal years, approximately 36.4%, 33.2% and 28.1%, respectively, of the company's total revenues were derived from sources outside of the United States.
Because the company generally ships its products shortly after license agreements are signed, the company's software licensing backlog typically is small.
PRODUCT DEVELOPMENT
To date, all of the company's principal products have been developed by its internal staff except for Hyperion Pillar, which was acquired in connection with the company's acquisition of Pillar Corporation (November 1994), and portions of Hyperion OLAP. When developing a new product or enhancement, the company works closely with current and prospective customers to determine their requirements. A user product enhancement committee, comprised of representatives of certain of the company's customers, meets quarterly and advises the company of its priorities for product development and enhancement, as well as product support service.
On July 1, 1997, the company joined forces with The Baan Company, a leading provider of enterprise-wide business management software to companies requiring best-of-class manufacturing capabilities, engaging Baan to remarket Hyperion products and establishing a joint venture development effort for accounting products. The two-year definitive alliance is intended to leverage Baan's expertise in complex transactional Enterprise Resource Planning solutions and Hyperion's command of corporate financial planning, reporting and performance analysis. Hyperion and Baan have agreed to share equally in the cost of developing next generation accounting products which may be licensed to end users by either company.
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 Pillar, Hyperion OLAP and Hyperion's Spider-Man. As of June 30, 1997, the company's product development was performed by 247 employees primarily located at its Foster City, California and Stamford, Connecticut facilities.
During fiscal 1997, 1996 and 1995, the company's product development expense, which is net of capitalized development costs, was $33 million, $26.8 million and $21 million, or 14.8%, 15.5% and 15.3% of total revenues, respectively. In accordance with Statement of Financial Accounting Standards No. 86, the company capitalizes certain development costs. During fiscal 1997, 1996 and 1995, the company capitalized $4.8 million, $5.8 million and $5.2 million, respectively, or 12.7%, 17.8% and 19.9% of total product development expenditures (excluding purchased research and development).
COMPETITION
The company operates in an intensely competitive market which demands product quality, functionality, performance, reliability, ease of use, customer satisfaction, service, price, vendor reputation and financial stability. The company believes that its products currently compete favorably with respect to such factors, although it may be at a competitive disadvantage against companies with greater financial, technological, marketing, service and support resources.
The company faces competition from a variety of business application software vendors and software tool vendors, as well as from software developed by IT departments of potential customers. Many of the company's existing and potential customers utilize legacy software developed internally for mainframes or minicomputers. The market for client/server and internet/intranet-enabled corporate financial software is still an emerging one. As markets develop for the company's products, additional competitors may enter or expand into those markets and competition may intensify.
PROPRIETARY RIGHTS AND LICENSES
The company depends upon a combination of trade secret, copyright and trademark laws, license agreements, nondisclosure and other contractual provisions and technical measures to protect its proprietary rights in its products. In addition, the company attempts to protect its trade secrets and other proprietary information through agreements with employees and consultants. Despite these precautions, it may be possible for unauthorized third parties to copy aspects of the company's products or to obtain information that the company regards as proprietary. The company also seeks to protect the source code of its products as a trade secret.
The company distributes its products under software license agreements which grant customers a nonexclusive, nontransferable license to the company's products and contain terms and conditions prohibiting the unauthorized reproductions or transfer of the company's products. The company does not provide licensees with the source code for its products.
Customers are billed an initial license fee for the software upon delivery and, subsequently, are billed an annual maintenance fee entitling them to routine support and product updates. This fee is typically calculated at a fixed percentage of the then-current price of all licensed software used by the customer. The annual maintenance fee is optional; however, without payment, the licensee is entitled only to use the software in its then current form, without receiving future updates or product support. See "Services."
(C) 1997 Hyperion Software Operations Inc. All rights reserved. Hyperion, Hyperion Software, the Hyperion Software Logo, Hyperion Admin, Hyperion Analyst, Hyperion Assets, Hyperion Financials, Hyperion Forms, Hyperion Ledger, Hyperion OLAP, Hyperion OnTrack, Hyperion Payables, Hyperion Pillar, Hyperion Receivables, Hyperion Reporting, Hyperion Retrieve, Hyperion Tools, Business Intelligence, Financial Intelligence, IMRS, LedgerLink, Micro Control and Pillar are registered trademarks and Hyperion Analytical Ledger, Hyperion Enterprise, Hyperion Purchasing and Build&Link are trademarks of Hyperion Software Operations Inc., a wholly-owned subsidiary of Hyperion Software Corporation. MARVEL COMICS, SPIDER-MAN: TM & (C) 1997 Marvel Characters, Inc. All rights reserved. All other trademarks and company names mentioned are the property of their respective owners.
EMPLOYEES
As of July 31, 1997, the company employed a total of 1,226 employees, including 309 in marketing and sales, 784 in product development, support and technical services, and 133 in management, administration and finance. None of the company's employees is represented by a labor union. The company has experienced no work stoppages and believes that its employee relations are good.
The executive officers of the company are as follows:
Name Age Position ---- --- -------- James A. Perakis.........53 President, Chief Executive Officer and Chairman Mark J. Bilger..........38 Senior Vice President, Product Development Lucy Rae Ricciardi.......55 Senior Vice President and Chief Financial Officer Craig M. Schiff..........42 Senior Vice President and Corporate Secretary
Mr. Perakis is Chairman of the Board of Directors, Chief Executive Officer and President of the company. Mr. Perakis has served as Chief Executive Officer and as a director of the company since September 1985. From 1983 to September 1985, Mr. Perakis served as Senior Vice President and General Manager of Chase Decision Systems, a division of Interactive Data Corporation, a developer and marketer of mainframe software for planning and financial applications. From 1979 to 1983, Mr. Perakis was Chief Financial Officer of Interactive Data Corporation, a supplier of data and software to financial and corporate markets.
Mr. Bilger was appointed Senior Vice President, Product Development in July 1997. Prior to joining Hyperion, Mr. Bilger was Director of Software Development, Emerging Markets for the IBM Software Group, a division of the IBM Corporation. Mr. Bilger managed IBM's product development efforts for the insurance industry worldwide, as well as for the finance and banking industry of Asia-Pacific.
Ms. Ricciardi has served as Senior Vice President and Chief Financial Officer of the company since July 1995. From February 1990 to July 1995, Ms. Ricciardi served as Vice President - Finance and Chief Financial Officer of the company. From February 1988 to February 1990, Ms. Ricciardi served as Director of Finance of the company. Prior to 1988, Ms. Ricciardi was associated with Dun & Bradstreet, most recently in its Acquisitions Analysis Group.
Mr. Schiff was appointed Senior Vice President and Corporate Secretary in May 1996. From July 1985 to May 1996, Mr. Schiff served as Vice President - Products and Services and Corporate Secretary of the company. Mr. Schiff originally joined the company in July 1983. Prior to July 1983, Mr. Schiff served in a variety of customer service and support positions with General Electric Information Services.
ITEM 2.
ITEM 2. PROPERTIES
The company's principal administrative, marketing and product development and support functions are located in Stamford, Connecticut, where the company owns and occupies approximately 230,000 square feet of office space. The Stamford facilities permit future expansion of up to 300,000 square feet of additional space. The company also leases regional office space for its local sales and service needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
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.
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.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The company's common stock trades on The Nasdaq Stock Market under the symbol HYSW. The following table sets forth, for the periods indicated, the high and low sales prices of the common stock as reported on The Nasdaq Stock Market.
As of September 15, 1997, the company had 146 stockholders of record and approximately 5,400 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. The company's credit agreement with its lender contains covenants that restrict the company regarding the payment of dividends.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data)
(a) Includes Pillar Corporation (see Note B to the accompanying financial statements). (b) All share and per share data have been retroactively adjusted to reflect a two-for-one stock split effected in the form of a 100% stock dividend paid in December 1995.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - --------------------------------------------------------------------------------
Hyperion Software Corporation 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 license renewal fee entitling customers to routine support and product updates is billed annually. Hyperion licenses its products throughout the world primarily through a direct sales force. Products also are licensed through independent distributors and sales agents, including major accounting firms. The company includes in revenues its net share of revenues generated by distributors. When an agent has facilitated the sale and Hyperion is the licensor, the license revenue is reported gross and a commission charge is reflected.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES
Software license revenues rose primarily as a result of an increase in the number of licenses sold (unit volume) versus, for example, price increases. Sales of budgeting and analysis solutions were particularly strong, as were sales of consolidation and reporting applications in Europe.
The increase in license renewal and service revenue is mainly attributable to the year-to-year growth of the company's installed customer base.
Revenues generated from markets outside the United States for fiscal 1997 and 1996 were $81 million and $57.4 million, or 36.4% and 33.2% of total revenues, respectively. Revenue growth was particularly strong in Europe, most notably in Germany, the Netherlands and the United Kingdom.
COST OF REVENUES
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 increase in the cost of software license revenues principally reflects the associated increase in the amortization of capitalized costs related to new products, product enhancements and the recent acquisition of distribution rights to the company's corporate budgeting product in Belgium, France and the United Kingdom. The amortization of capitalized software costs begins upon the general release of the software to customers.
The increase in the cost of license renewal and service revenues was due primarily to additional staffing expense for both installation and ongoing support services.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OPERATING EXPENSES
The increase in sales and marketing expenses is primarily due to a net increase in sales-marketing personnel, an increase in commission costs directly associated with the increase in software license revenues and, to a lesser extent, greater overall marketing initiatives.
The increase in product development expenses reflects additional personnel and third-party development costs associated with expanded research and development activities. In fiscal 1997 and 1996, the company capitalized $4.8 million and $5.8 million of software development costs, respectively, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." The amounts capitalized primarily relate to the company's development of enterprise-wide financial management and accounting solutions for client/server environments and represented 12.7% and 17.8% of total product development expenditures (excluding purchased research and development). Capitalized software costs are amortized over the estimated economic life of the product, but generally not more than four years.
In the second quarter of fiscal 1996, the company concluded two strategic acquisitions involving application technologies and an important European client base. The acquisitions, which amounted to $3.6 million, were accounted for as purchase transactions and, accordingly, $2 million was allocated to purchased research and development and $1.6 million was allocated to identifiable intangible assets based on their estimated fair values. The purchased research and development was reflected as a one-time charge in the company's 1996 operating results.
The increase in general and administrative expenses resulted, for the most part, from increases in personnel and professional services costs incurred to support the growth of the company's overall operations.
On July 1, 1997, the company joined forces with The Baan Company, a leading provider of enterprise-wide business management software to companies requiring best-of-class manufacturing capabilities, engaging Baan to remarket Hyperion products and establishing a joint venture development effort for accounting products. The two-year definitive alliance is intended to leverage Baan's expertise in complex transactional Enterprise Resource Planning solutions and Hyperion's command of corporate financial planning, reporting and performance analysis. Baan has agreed to pay Hyperion royalties of at least $8 million for fiscal 1998 and each has agreed to share equally in the cost of developing next generation accounting products which may be licensed to end users by either company. Hyperion incurred nonrecurring charges in its June 1997 quarter of $4.4 million for asset valuation and restructuring costs related to the joint development agreement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NONOPERATING INCOME AND EXPENSE
Interest income increased due to the increase in cash available for investment which resulted from operations.
PROVISION FOR INCOME TAXES
The company's effective income tax rate remained substantially unchanged at approximately 38%. For the full year ending June 30, 1998, the company expects its tax rate to decline to approximately 36%. The anticipated rate reduction is mainly attributable to the recent tax law change that will yield the company additional benefits with respect to export sales.
NET INCOME
As a result of the above factors (including the nonrecurring charges), net income for 1997 increased to $11.9 million, or by 25.6%, from $9.5 million for 1996.
To date, the overall impact of inflation on the company has not been material.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which changes the methodology of calculating earnings per share. The company will adopt SFAS No. 128 in December 1997. The company does not expect the adoption of SFAS No. 128 to have a material effect on the earnings per share information presented.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In fiscal 1999, the company will adopt the provisions of these statements, which will not impact the company's financial position, results of operations or cash flows.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES
Software license revenues rose primarily as a result of an increase in the number of licenses sold (unit volume) versus, for example, price increases. While the growth was led by demand for the company's enterprise financial reporting and budgeting products, management believes that a slower than planned orientation of its sales force to a multiproduct, complete financial solution approach, together with delays in the commercial release of certain products, were the reasons for the decline in sales growth as compared to prior years.
The increase in license renewal and service revenue is mainly attributable to the year-to-year growth of the company's installed customer base.
Revenues generated from markets outside the United States for fiscal 1996 and 1995 were $57.4 million and $38.5 million, or 33.2% and 28.1% of total revenues, respectively. Revenue growth was particularly strong in Canada, certain territories of Asia, and in Europe, most notably in the Netherlands.
COST OF REVENUES
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 increase in the cost of software license revenues principally reflects the associated increase in the amortization of capitalized costs related to new products and product enhancements. The amortization of capitalized software costs begins upon the general release of the software to customers.
The increase in the cost of license renewal and service revenues was due primarily to additional staffing expense for both installation and ongoing support services. The professional services staff includes new members dedicated to the company's recently released (March 1995) set of accounting products.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OPERATING EXPENSES
The increase in sales and marketing expenses is primarily due to a net increase in sales-marketing personnel.
The increase in product development expenses reflects additional personnel and third-party development costs associated with expanded research and development activities. In fiscal 1996 and 1995, the company capitalized $5.8 million and $5.2 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 primarily relate to the company's development of enterprise-wide financial management and accounting solutions for client/server environments and represented 17.8% and 19.9% of total product development expenditures (excluding purchased research and development). Capitalized software costs are amortized over the estimated economic life of the product, but generally not more than four years.
In the second quarter of fiscal 1996, the company concluded two strategic acquisitions involving application technologies and an important European client base. Specifically, in December 1995, the company acquired certain assets and application technologies, and assumed certain obligations of Trust Consult s.a., a Brussels-based financial solutions provider. Along with over 130 customers, Hyperion gained significant European statutory consolidation and reporting expertise and technology. In November 1995, the company acquired certain rights from Sinper Corporation to its powerful database engine, TM/1, technology. The new technology was used in the development of Hyperion OLAP (On-Line Analytical Processing), a solution for customers' most complex and high volume multidimensional analysis needs, such as product profitability and sales analysis. Hyperion OLAP became commercially available in April 1996. The acquisitions, which amounted to $3.6 million, were accounted for as purchase transactions and, accordingly, $2 million was allocated to purchased research and development and $1.6 million was allocated to identifiable intangible assets based on their estimated fair values. The purchased research and development is reflected as a one-time charge in the company's operating results.
The increase in general and administrative expenses resulted from increases in personnel and professional services costs incurred to support the growth of the company's overall operations and, to a lesser extent, the effect of currency exchange rate changes and an increase in the provision for doubtful accounts.
In November 1994, the company completed a merger with Pillar Corporation, which develops, markets and supports client/server corporate budgeting and planning solutions. In connection with the acquisition, which was accounted for as a pooling of interests, the company charged $1 million to operations in fiscal 1995 for nonrecurring merger and integration costs incurred.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NONOPERATING INCOME AND EXPENSE
The slight decline in interest income, for the most part, was due to the decrease in cash available for investment which resulted from a higher level of funds reinvested in the business.
PROVISION FOR INCOME TAXES
The company's effective income tax rate decreased from 39.7% to 38%. The change in the effective rate primarily relates to the nondeductible merger costs incurred in fiscal 1995.
NET INCOME
As a result of the above factors (including the nonrecurring charges), net income for 1996 decreased to $9.5 million, or by 22.1%, from $12.1 million for 1995.
RISK FACTORS AND QUARTERLY FINANCIAL INFORMATION
The company operates with a minimal software licensing backlog. Therefore, quarterly revenues and operating results are quite 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 hiring plans, the scheduling of sales and marketing programs, new product development by the company 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. 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Except for the historical information contained in this report on Form 10-K, 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 those discussed in the preceding paragraph; whether the accounting products contemplated to be jointly developed by Baan and Hyperion are developed in a timely fashion and are accepted by the market; whether the proposed coordination of sales prospects between the companies works in practice and results in increased revenues for the company; whether the strategic advantages and synergies contemplated to be gained by the parties are actually able to be realized; and the impact of competitive products and pricing. 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.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS - --------------------------------------------------------------------------------
To date, the company has financed its business principally through positive cash flow from operations and sales of its common stock. For fiscal years 1997, 1996, and 1995, the company generated positive cash flow from operations of $47.1 million, $34.1 million and $28.9 million, respectively.
Cash used by investing activities amounted to $30.2 million for fiscal 1997, including $16.1 million primarily for purchases of computer equipment and software, $4.8 million for product development costs, $1.6 million for deposits and intangible assets, and $7.1 million to acquire the exclusive distribution and service rights to the company's corporate budgeting product in Belgium, France and the United Kingdom.
Financing activities in fiscal 1997, including stock options exercised by employees and payments of indebtedness, generated cash of $8.6 million. In connection with the stock options exercised by certain of its employees (for a total of 1,214,811 common shares), the company recognized (as a credit to additional paid-in capital) an income tax benefit of $2.8 million for the year ended June 30, 1997.
As of June 30, 1997, the company had cash and cash equivalents of $67.1 million and working capital of $42.2 million, no long-term debt other than the mortgage loan (currently at an interest rate of 3.9%) for the Stamford, Connecticut office and research facility, and its ratio of current assets to current liabilities was 1.4 to 1. Cash equivalents are comprised primarily of investment-grade U.S. state and political subdivision obligations with varying terms of three months or less. The company has long-term credit availability of $25 million under a revolving credit facility. For further details of the credit facility, see Note E of the company's financial statements. The company anticipates capital expenditures of approximately $35 million for its 1998 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 funds generated from operations, existing cash balances and its available credit facility will be sufficient to finance the company's operations for at least the next two years.
In 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of." The company adopted SFAS No. 121 in fiscal 1997 and its impact on the company's financial statements was not significant.
The company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The company generally prices its stock options at fair market value on the date of grant and, therefore, no compensation expense is recognized for the stock options granted. In fiscal 1997, the company adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" (see Note G of the company's financial statements).
ITEM 8.
ITEM 8. REPORT OF INDEPENDENT AUDITORS FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders Hyperion Software Corporation
We have audited the accompanying consolidated balance sheet of Hyperion Software Corporation and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1997. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hyperion Software Corporation and subsidiaries at June 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Stamford, Connecticut July 17, 1997
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Hyperion Software Corporation
Consolidated Balance Sheet (in thousands, except for share data)
See accompanying notes.
Hyperion Software Corporation
Consolidated Statement of Income (in thousands, except per share data)
See accompanying notes.
Hyperion Software Corporation
Consolidated Statement of Stockholders' Equity (in thousands, except for share data)
See accompanying notes.
Hyperion Software Corporation
Consolidated Statement of Cash Flows (in thousands)
See accompanying notes.
Hyperion Software Corporation
Notes to Consolidated Financial Statements
BUSINESS
Hyperion Software Corporation (the "company") develops, markets and supports comprehensive analytic solutions that enable large, multinational companies to improve financial performance by maximizing the value of information. The company's internet/intranet-enabled applications support and enhance enterprise-wide financial processes, including planning, budgeting, forecasting, accounting, consolidation and performance analysis.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the company and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated.
Assets and liabilities denominated in foreign currencies are translated at the exchange rate on the balance sheet date. The related revenues, costs and expenses are translated at average rates of exchange prevailing during the reporting period. The resulting adjustments are charged or credited to stockholders' equity. Translation adjustments relating to operations abroad that are generally dependent on funding from the company's U.S. operations are included in the statement of income.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Software license revenues are recognized upon execution of the license agreement and delivery of the software. In all cases, however, collection of any related receivable must be probable and no significant post-contract obligations of the company shall be remaining.
License renewal (maintenance) fees for routine support and product updates are recognized ratably over the term of the license agreement.
Current Assets and Liabilities
The company considers highly liquid investment instruments with remaining terms of three months or less at the time of acquisition to be cash equivalents. Cash equivalents are comprised primarily of investment-grade U.S. state and political subdivision obligations.
All current assets and current liabilities, because of their short-term nature, are stated at cost, which approximates market value. The carrying amount of the company's borrowings approximates market value, as the obligations provide for interest at floating rates.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of." The company adopted SFAS No. 121 in fiscal 1997; the impact was not material.
Product Development Costs
The company begins capitalizing product development costs, principally wages and contractor fees, only after establishing commercial and technical viability. Product development costs are stated at the lower of cost or net realizable value. Annual amortization of these costs represents the greater of the amount computed using (i) the ratio that current gross revenues for the product(s) bear to the total current and anticipated future gross revenues for the product(s), or (ii) the straight-line method over the remaining estimated economic life of the product(s); generally such deferred costs are amortized over four years. Amortization commences when the product is available for general release to customers. Amortization expense totaled $4.8 million for 1997, $3.2 million for 1996 and $2.2 million for 1995.
Depreciation/Amortization
Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the applicable assets.
Income Taxes
The company provides for taxes based on current taxable income and the future tax consequences of temporary differences between the financial reporting and income tax carrying values of its assets and liabilities.
Earnings Per Share
Earnings per share ("EPS") are calculated by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period after giving effect to the two-for-one stock split and merger with Pillar Corporation (see Note B). For primary EPS, common equivalent shares are shares which would be issuable upon the exercise of outstanding stock options, reduced by the number of shares assumed to be purchased by the company with the proceeds obtained therefrom at the average market price during the period. For the fully diluted EPS calculation, shares are assumed to be purchased by the company at the higher of the average or period-end market price and, therefore, this calculation may include additional equivalent shares. All share and per share data have been retroactively adjusted to reflect a two-for-one stock split effected in the form of a 100% stock dividend paid in December 1995.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which changes the methodology of calculating earnings per share. The company will adopt SFAS No. 128 in December 1997. The company does not expect the adoption of SFAS No. 128 to have a material effect on the earnings per share information presented.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components as part of a complete set of financial statements. Comprehensive income is a measure of all changes in equity of any enterprise that results from recognized transactions and other economic events of a period other than transactions with owners in their capacity as owners. The company will adopt SFAS No. 130 in fiscal 1999.
Equity Based Compensation
The company accounts for stock option grants in accordance with Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to Employees." The company generally prices its stock options at fair market value on the date of grant and, therefore, no compensation expense is recognized for the stock options granted.
B. STRATEGIC ALLIANCE AND ACQUISITIONS
On July 1, 1997, the company joined forces with The Baan Company, a leading provider of enterprise-wide business management software to companies requiring best-of-class manufacturing capabilities, engaging Baan to remarket Hyperion products and establishing a joint venture development effort for accounting products. The two-year definitive alliance is intended to leverage Baan's expertise in complex transactional Enterprise Resource Planning solutions and Hyperion's command of corporate financial planning, reporting and performance analysis. Baan has agreed to pay Hyperion royalties of at least $8 million for fiscal 1998 and each has agreed to share equally in the cost of developing next generation accounting products which may be licensed to end users by either company. Hyperion incurred nonrecurring charges in its June 1997 quarter of $4.4 million ($2.8 million net of tax benefits or $.15 per share) for asset valuation (write-off of certain capitalized software costs, $3.5 million) and restructuring (employee and officer severance, and customer and professional services) costs related to the joint development agreement.
In July 1996, the company acquired the exclusive distribution and service rights to its corporate budgeting product in Belgium, France and the United Kingdom for $7.6 million. The acquisition was accounted for as a purchase transaction and, accordingly, the purchase price was allocated to identifiable intangible assets based on their estimated fair values. The net operating results of the acquired business from the date of purchase are included in the accompanying statement of income. Pro forma statement of income data as if the acquisition had occurred on July 1, 1994 is not shown, as it would not differ significantly from reported results.
During the quarter ended December 1995, the company concluded two strategic acquisitions, described below, involving application technologies and an important European client base. The acquisitions, which amounted to $3.6 million, were accounted for as purchase transactions and, accordingly, $2 million was allocated to purchased research and development and $1.6 million was allocated to identifiable intangible assets based on their estimated fair values. The purchased research and development is reflected as a one-time charge in the company's operating results. The charge had the effect of reducing net income for fiscal 1996 by approximately $1.3 million or $.07 per share.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
B. STRATEGIC ALLIANCE AND ACQUISITIONS (CONTINUED)
In December 1995, the company acquired certain assets and application technologies, and assumed certain obligations of Trust Consult s.a., a Brussels-based financial solutions provider. Along with over 130 customers, Hyperion gained significant European statutory consolidation and reporting expertise and technology. The net operating results of the acquired business from the date of purchase are included in the accompanying statement of income. Pro forma statement of income data as if the acquisition had occurred on July 1, 1994 is not shown, as it would not differ significantly from reported results.
In November 1995, the company acquired certain rights from Sinper Corporation to its powerful database engine, TM/1, technology. The new technology was used in the development of Hyperion OLAP (On-Line Analytical Processing), a solution for customers' most complex and high volume multidimensional analysis needs, such as product profitability and sales analysis. Hyperion OLAP became commercially available in April 1996.
On November 29, 1994, the company issued 1,141,592 shares of its common stock (including 146,970 shares underlying options and warrants assumed by Hyperion Software) in connection with the merger with Pillar Corporation ("Pillar"). Pillar, based in California, develops, markets and supports client/server corporate budgeting and planning solutions. The acquisition was accounted for as a pooling of interests. Accordingly, the financial statements were restated for all prior periods to include Pillar. Further, all common share and per share data were restated for prior periods.
For the three-month, pre-merger period ended September 30, 1994, revenues and net income of the company and Pillar were as follows, in thousands (unaudited):
(a) To adjust the provision for income taxes to reflect, on a combined company basis, the annual effective tax rate.
Pillar previously used the fiscal year ended September 30 for its financial reporting. Pillar's operating results for the year ended September 30, 1994 were included in Hyperion's consolidated statement of income for the year ended June 30, 1994. The accompanying statement of income reflects the operations of Hyperion Software and Pillar for the years ended June 30, 1997, 1996 and 1995. Accordingly, the duplication of Pillar's net income, for the three months ended September 30, 1994, in retained earnings has been adjusted by a $1 million charge to retained earnings in fiscal 1995.
In connection with the acquisition, the company charged $1 million to operations for nonrecurring merger and integration costs (principally professional fees) incurred.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
C. PROPERTY, EQUIPMENT AND RELATED MORTGAGE LOAN
Property and equipment consists of the following at June 30:
* Leasehold improvements are amortized over the lesser of the remaining life of the lease or the useful life of the improvements.
Depreciation and amortization of these assets totaled $13.5 million, $9.4 million and $5.4 million for 1997, 1996 and 1995, respectively.
On January 20, 1995, the company completed the purchase of an office and research facility in Stamford, Connecticut for $11.4 million. The purchase price was financed by the Connecticut Development Authority ("CDA," an agency of the State of Connecticut) through a $9.5 million mortgage loan, with company funds used for the balance. In the interest of Connecticut-based jobs, the CDA agreed to such financing over a 15-year period at LIBOR minus 2%, subject to, among other things: (i) the creation of a specified number of new Connecticut-based jobs, (ii) a 10-year residency in the state, and (iii) the payment of the remaining unpaid principal at the end of year ten. Violations of certain such requirements, if any, would result in additional interest charges and/or a penalty payment.
D. PRODUCT DISTRIBUTION RIGHTS, GOODWILL AND OTHER INTANGIBLE ASSETS
Components of intangible assets, which relate primarily to business acquisitions, are as follows at June 30:
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
D. PRODUCT DISTRIBUTION RIGHTS, GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
The carrying value of intangible assets will be reviewed by management if the facts and circumstances suggest that the value(s) may be impaired. If this review indicates that the carrying amount(s) will not be recoverable, as determined based on the undiscounted cash flows attributable to such asset(s) over the remaining amortization period, management will reduce the carrying amount by the estimated shortfall of cash flows.
E. AVAILABLE CREDIT FACILITY
The company may borrow up to $25 million under an amended and restated credit facility (the "Facility") with The Bank of New York. Key provisions of the Facility are as follows: (i) the maturity date is June 30, 2000, (ii) the interest rate is the bank's base rate plus .25% or, at the company's option, LIBOR plus 1.5%, (iii) a commitment fee is charged based on any unused credit, at the rate of .25% per annum, and (iv) borrowings under the Facility are limited to the sum of (a) 85% of eligible accounts receivable, as defined, from debtors located in the United States, plus (b) 75% of eligible accounts receivable, as defined, from debtors located outside of the United States.
Other significant terms of the Facility restrict the company regarding the payment of dividends, capital expenditures and acquisitions, and additional indebtedness, including other fiscal commitments, and require the company to maintain minimum net worth and working capital ratios and to meet certain profitability criteria, as defined. Except for its office and research facilities (see Note C), substantially all of the company's assets have been pledged as security under terms of the Facility.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
F. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Significant components of deferred tax assets and liabilities at June 30 are as follows:
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
F. INCOME TAXES (CONTINUED)
The effective income tax rate varied from the statutory U.S. federal tax rate as follows:
The company has U.S. and non-U.S. net operating loss (NOL) carryforwards of $4.1 million and U.S. federal and state tax credit carryforwards of $1.5 million, which expire as follows:
The company's utilization of NOL and tax credit carryforwards, acquired through the merger with Pillar Corporation (see Note B), is subject to annual limitations as prescribed by Sections 382 and 383 of the Internal Revenue Code and similar state authority.
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS
The company has elected to follow APBO No. 25 and related interpretations in accounting for its stock option and employee stock purchase plans because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APBO No. 25, because generally the exercise price of the company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
The company grants options to employees pursuant to its 1991 Stock Plan ("1991 Plan"). Under the 1991 Plan, the company may grant options to purchase in the aggregate up to 4 million shares of common stock. At June 30, 1997, there were, in the aggregate, outstanding options to purchase 2.4 million shares of common stock pursuant to the 1991 Plan. Options granted under the 1991 Plan have ten-year terms and are generally exercisable at 25% per year commencing one year from the date of grant.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED)
The company grants options to its non-employee directors pursuant to its 1991 Non-Employee Director Stock Option Plan ("Director Plan"). The Director Plan provides that options to acquire an aggregate of up to .2 million shares of common stock may be granted to non-employee directors of the company. At June 30, 1997, there were, in the aggregate, outstanding options to purchase .1 million shares of common stock pursuant to the Director Plan. Options under the Director Plan generally are exercisable in full on the date of grant, except under certain circumstances under which they vest at 33% per year. Options granted under the Director Plan have ten-year terms.
The company has granted options under certain other stock option plans and certain employee compensation arrangements pursuant to which it no longer makes any new option grants, but pursuant to which there continues to exist outstanding options to purchase shares of common stock. These options generally expire ten years after their grant date. Under these plans and employee compensation arrangements, there are options outstanding to purchase .2 million shares of common stock as of June 30, 1997. These stock option plans include plans assumed by the company in connection with its acquisition of Pillar Corporation (see Note B).
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the company had accounted for its employee stock options granted subsequent to June 30, 1995 under the fair value method of that statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for both fiscal 1997 and 1996: risk-free interest rate of 6.4%; volatility factors of the expected market price of the company's common stock of .25; and a weighted-average average life for the options of 5.5 years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The company's pro forma net income would have been approximately $9.4 million and $7.9 million and pro forma primary and fully diluted earnings per share would have been $.50 and $.44 for the fiscal years ended June 30, 1997 and 1996, respectively.
In accordance with provisions of SFAS No. 123, the pro forma disclosures include only the effect of stock options granted in fiscal 1996 and fiscal 1997. These pro forma effects may not be representative of the effects of SFAS No. 123 on future years because of the fact that options vest over several years and new grants are generally made each year.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED)
The following table presents a summary of the company's stock option activity and related information for the years ended June 30:
The following table summarizes information about stock options outstanding at June 30, 1997:
Under the 1991 Employee Stock Purchase Plan ("Purchase Plan"), shares of the company's common stock may be purchased at six-month intervals at 85% of the lower of the fair market value on the first or the last business day of each six-month period. Employees may purchase shares having a value not exceeding 10% of their gross compensation, up to 1,000 shares, during an offering period. Two million shares were originally reserved for under the Purchase Plan, which term lasts for ten years.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED)
The following summarizes shares of common stock reserved for issuance as of June 30, 1997:
In addition, 1,158,916 shares are reserved for sale under the Purchase Plan.
The company maintains an employee savings plan that qualifies as a cash or deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the plan, participating U.S. employees may defer up to 15% of their pre-tax compensation, but not more than $9,500 per calendar year. The company contributes to the plan, annually, up to a maximum of $1,000 per participant. Similar savings plans are maintained with respect to certain non-U.S. employees. In fiscal 1997, 1996 and 1995, the company contributed $1.1 million, $1 million and $.7 million, respectively, to the savings plans.
H. COMMITMENTS AND CONTINGENCIES
The company leases office facilities and certain equipment under various operating lease agreements. The leases expire at various times through the year 2003.
Future minimum lease payments under all operating leases with noncancellable terms in excess of one year amount to $15.8 million as follows (in millions): $5.4 in 1998, $4.2 in 1999, $3.1 in 2000, $1.9 in 2001, $1.1 in 2002 and $.1 thereafter. Certain of the office leases provide as well for contingent payments based on building operating expenses. Rental expense for the years ended June 30, 1997, 1996 and 1995 under all lease agreements was $5.6 million, $5.9 million and $5 million, respectively.
From time to time, in the normal course of business, various claims are made against the company. At this time, in the opinion of management, there are no pending claims the outcome of which is expected to result in a material adverse effect on the financial position of the company.
I. STOCKHOLDER RIGHTS PLAN
In November 1995, the company adopted a stockholder rights plan (the "Rights Plan") in which preferred stock rights were distributed as a rights dividend at the rate of one right for each share of common stock held as of the close of business on December 1, 1995. The Rights Plan is designed to deter coercive or unfair takeover tactics and to prevent an acquirer from gaining control of the company without offering a fair price to all of the company's stockholders. The plan is intended to protect the interests of stockholders in the event the company is confronted in the future with coercive or unfair takeover tactics.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
I. STOCKHOLDER RIGHTS PLAN (CONTINUED)
Each right will entitle holders of company common stock to buy one share of Series A Junior Participating Preferred Stock of the company at an exercise price of $150. The rights will be exercisable only if a person or group acquires more than 15% of the common stock, or announces a tender or exchange offer which would result in its ownership of 15% or more of the common stock, or a person owning 10% or more of the common stock is determined by the board to be an Adverse Person, as defined in the Rights Plan.
If any person or group becomes the beneficial owner of 20% or more of the common stock except pursuant to a tender offer for all shares at a price that a majority of the independent directors determines to be fair; a more-than-15% stockholder engages in a merger with the company in which the company survives and its common stock remains outstanding and unchanged; certain other self-dealing events involving the company and a more-than-15% stockholder occur; or, under certain circumstances, the board determines a 10% or more stockholder to be an Adverse Person (collectively "Flip-In Events"), each right not owned by such person or related parties will entitle its holder to purchase, at the then current exercise price of the right, common stock of the company having a value of twice the right's exercise price (or, in certain circumstances, a combination of cash, property, common stock or other securities or a reduction in the exercise price having an aggregate value equal to the value of the common stock otherwise purchasable). After the occurrence of a Flip-In Event and before any person or affiliated group becomes the owner of 50% or more of the then outstanding common stock, the company may also exchange one share of common stock for each right outstanding. In addition, if the company is involved in a merger or other business combination transaction with another person in which its common stock is changed or converted, or sells or transfers more than 50% of its assets or earning power to another person, each right that has not previously been exercised will entitle its holder to purchase, at the then current exercise price of the right, shares of common stock of such other person having a value of twice the right's exercise price.
The company can, in certain circumstances, redeem the rights at $.01 per right. The rights will expire on November 17, 2005, unless earlier redeemed or exchanged.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
J. FINANCIAL DATA BY GEOGRAPHIC AREA
"Other International Operations" relate primarily to subsidiaries in Austria, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Singapore and Spain. Operating income (loss) from operations outside the United States approximates income (loss) before income taxes of such operations. Intercompany revenues between geographic areas are accounted for at prices representative of unaffiliated party transactions of a similar nature.
Revenues from markets outside the United States were as follows (dollars in thousands):
The majority of "Export" revenues, some of which are generated through independent distributors and agents, results from product licenses and services sold to customers throughout Europe.
The above disclosures are made pursuant to SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." In fiscal 1999, the company will adopt the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which supersede the provisions of SFAS No. 14.
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
K. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations for the two years ended June 30, 1997 (in thousands, except per share data):
PART II (CONTINUED)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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 1997 Annual Meeting of Stockholders. See also the section entitled "Employees" appearing in Part I hereof.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
See the section entitled "Compensation Information Concerning Directors and Officers," which is incorporated herein by reference to the company's Proxy Statement for its 1997 Annual Meeting of Stockholders.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the section entitled "Principal Holders of Voting Securities," which is incorporated herein by reference to the company's Proxy Statement for its 1997 Annual Meeting of Stockholders.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section entitled "Certain Transactions," which is incorporated herein by reference to the company's Proxy Statement for its 1997 Annual Meeting of Stockholders.
PART IV
ITEM 14.
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 Software Corporation are included in Item 8:
Consolidated Balance Sheet as of June 30, 1997 and 1996
Consolidated Statement of Income for the years ended June 30, 1997, 1996 and 1995
Consolidated Statement of Stockholders' Equity for the years ended June 30, 1997, 1996 and 1995
Consolidated Statement of Cash Flows for the years ended June 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Financial statement schedule, which is included at the end of this report:
Schedule VIII - 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:
Exhibit No. Description ----------- -----------
3.1(b) - Restated Certificate of Incorporation of the company 3.2(b) - By-laws of the company, as amended and restated 10.1(b) - 1985 Incentive Stock Option Plan 10.2(b) - 1989 Stock Option Plan 10.3(b) - 1991 Stock Plan 10.4(b) - 1991 Employee Stock Purchase Plan 10.5(b) - 1991 Non-Employee Director Stock Option Plan 10.6(b) - Sub-Lease Agreement with Amstar Corporation for the lease of premises located at 777 Long Ridge Road, Stamford, CT 10.7(b) - Sub-Lease Agreement with Citicorp North America, Inc. for the lease of premises located at 777 Long Ridge Road, Stamford, CT 10.8(b) - Sub-Lease Agreement with National Reinsurance Corporation for the lease of premises located at 777 Long Ridge Road, Stamford, CT 10.9(c) - Amended and Restated Credit Agreement with The Bank of New York and the signatory banks thereto, dated as of May 1, 1992 (including forms of guaranty and security agreement, and pledge agreement) 10.10(b) - Registration Rights Agreement among the company and certain holders of Common Stock of the company, dated as of August 9, 1991
Exhibit No. Description ----------- -----------
10.11(f) - Employment Agreement with James A. Perakis, dated as of August 1, 1993 10.12(f) - Employment Agreement with David M. Sample, dated as of July 1, 1994 10.13(f) - Employment Agreement with Lucy Rae Ricciardi, dated as of July 1, 1994 10.14(f) - Employment Agreement with Craig M. Schiff, dated as of July 1, 1994 10.15(f) - Employment Agreement with John N. Adinolfi, dated as of July 1, 1994 10.16(f) - Employment Agreement with Gordon O. Rapkin, dated as of July 1, 1994 10.17(b) - Agreement with Marco Arese Lucini, dated as of October 1, 1990 10.18(b) - Stock Option Agreement with Harry S. Gruner, dated as of December 22, 1989 10.19(b) - Employment Agreement with Thomas Bell, dated as of July 1, 1994 10.20(b) - Form of Software License Agreement 10.21(b) - Consulting Agreement with Natcom Consulting Services Ltd., dated as of January 1, 1988 10.22(b) - Consulting Agreement with Natcom Consulting Services Ltd., dated as of January 1, 1991, and amendments thereto 10.23(b) - Software Development License Agreement with Teknedata S.R.L. 10.24(b) - Lease with 1033 Washington Blvd. Associates, dated as of December 23, 1985 and amended thereto 10.25(h) - Purchase and Sale Agreement with Combustion Engineering, Inc., dated January 20, 1995, regarding the purchase of an office facility 10.26(h) - Loan Agreement with the Connecticut Development Authority, dated January 20, 1995, regarding the financing of an office facility (including related Promissory Note and Mortgage Deed) 10.27(b) - License Agreement with KPMG Peat Marwick Hungerfords Management Consultants dated as of June 8, 1989 10.28(b) - Trademark and Tradename License Agreement with KPMG of Hong Kong 10.29(b) - License Agreement with IMRS Nordic dated as of January 1, 1989 10.30(b) - License Agreement with Prologic Decision Support (PTY) Ltd. dated as of March 28, 1991 10.31(b) - License Agreement with Arthur Andersen Japan dated as of December 17, 1990 10.32(a) - Software Development and License Agreement with Channel Computing, Inc., dated February 27, 1992 10.33(b) - License Agreement with Arthur Andersen AG dated as of November 2, 1989 10.34 [Reserved] 10.35 [Reserved] 10.36(a) - Distributor Agreement with Arthur Andersen Auditors, S.A. dated March 1, 1992 10.37(a) - Distributor Agreement with Austrian Industries Informatics Ges.m.b.H dated July 1, 1992 10.38(c) - Amendment to the Termination of the License Agreement with Sema Group Systems Limited, Government and Commerce Division, dated March 31, 1992 10.39(c) - Exclusive Sales Agency Agreement with Sema Group Systems Limited, Government and Commerce Division, dated April 1, 1992 10.40(c) - Business Purchase and Sale Agreement with Sema Group Systems Limited, Government and Commerce Division, dated March 31, 1992, effective July 1, 1992
Exhibit No. Description ----------- -----------
10.41(d) - Asset Purchase and Sale Agreement between Columbia Software, Inc. and IMRS Inc., dated January 21, 1993 10.42(d) - Asset Purchase and Sale Agreement between MAI Systems Corporation and IMRS Inc., dated February 12, 1993 10.43(e) - Letter Agreement with Arthur Andersen AG, dated as of May 19, 1993, regarding distribution of company products in Switzerland and Liechtenstein 10.44(i) - Waiver and Amendment No. 2 to Amended and Restated Credit Agreement with The Bank of New York and signatory banks thereto, dated as of June 30, 1995 10.45(e) - Employment Agreement with Terence W. Rogers, dated as of July 16, 1993 10.46(f) - Distributor Agreement with Consultores de Integracion de Sistemas S.A. de C.V. 10.47(f) - Distributor Agreement with Delteq Systems Pte Ltd. 10.48(g) - Agreement and Plan of Reorganization dated as of November 7, 1994 by and among IMRS Inc., IP Merger, Inc., Pillar Corporation and American Stock Transfer & Trust Company, as escrow Agent 10.49(g) - Agreement and Plan of Merger dated as of November 29, 1994 among IMRS Inc., IP Merger, Inc. and Pillar Corporation 10.50(j) - Employment Agreement with Peter F. DiGiammarino, dated as of May 29, 1996 10.51(k) - Amendment No. 1 to Employment Agreement and Senior Advisory Arrangement between the company and Lucy R. Ricciardi, dated as of December 3, 1996 10.52 - Employment Agreement with Anthony A. Colangelo, dated as of July 1, 1996 (filed herewith) 10.53 - Employment Agreement with William I. Kerr, dated as of July 1, 1996 (filed herewith) 10.54 - Employment Agreement with Mark J. Bilger, dated as of May 27, 1997 (filed herewith) 11.1 - Statement Re: Computation of Earnings Per Share (filed herewith) 22.1 - Subsidiaries of the company (filed herewith) 23.1 - Consent of Ernst & Young LLP, independent auditors (filed herewith) 27 - Financial Data Schedule
- -----------------
(a) Incorporated by reference to the exhibits to the registrant's Registration Statement on Form S-1 File No. 33-50694
(b) Incorporated by reference to the exhibits to the registrant's Registration Statement on Form S-1 File No. 33-42855
(c) Incorporated by reference to the exhibits to the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992
(d) Incorporated by reference to the exhibits to the registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992
(e) Incorporated by reference to the exhibits to the registrant's Annual Report on Form 10-K for the year ended June 30, 1993
(f) Incorporated by reference to the exhibits to the registrant's Annual Report on Form 10-K for the year ended June 30, 1994
(g) Incorporated by reference to the exhibits to the registrant's Current Report on Form 8-K, dated November 29, 1994, which was filed on December 14, 1994
(h) Incorporated by reference to the exhibits to the registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994
(i) Incorporated by reference to the exhibits to the registrant's Annual Report on Form 10-K for the year ended June 30, 1995
(j) Incorporated by reference to the exhibits to the registrant's Annual Report on Form 10-K for the year ended June 30, 1996
(k) Incorporated by reference to the exhibits to the registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996
(b) Reports on Form 8-K:
No reports on Form 8-K were filed or were required to be filed by the registrant during the fourth quarter of the fiscal year ended June 30, 1997.
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 22, 1997 Hyperion Software Corporation (Registrant)
By: /s/ James A. Perakis --------------------------------- James A. Perakis Chief Executive 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.
SIGNATURE TITLE DATE - --------- ----- ----
/s/ James A. Perakis Chief Executive Officer September 22, 1997 - -------------------------- and Chairman James A. Perakis
/s/ Gary G. Greenfield Director September 24, 1997 - -------------------------- Gary G. Greenfield
/s/ Harry S. Gruner Director September 22, 1997 - -------------------------- Harry S. Gruner
/s/ Marco Arese Lucini Director September 23, 1997 - -------------------------- Marco Arese Lucini
/s/ Aldo Papone Director September 23, 1997 - -------------------------- Aldo Papone
/s/ Robert W. Thomson Director September 23, 1997 - -------------------------- Robert W. Thomson
/s/ Lucy Rae Ricciardi Senior Vice President September 22, 1997 - -------------------------- and Chief Financial Officer Lucy Rae Ricciardi
/s/ Michael A. Manto Vice President September 22, 1997 - -------------------------- and Corporate Controller Michael A. Manto
ITEM 14(a)(2) AND ITEM 14(d). FINANCIAL STATEMENT SCHEDULE
HYPERION SOFTWARE CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
(a) Charged to revenues (b) Write-offs, returns and discounts, net of recoveries (c) Recognition and adjustments