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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________to _____________.
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COMMISSION FILE NUMBER 0-19538
HYPERION SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1326879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 LONG RIDGE ROAD, STAMFORD, CONNECTICUT 06902
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (203) 703-3000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
PAR VALUE $.01
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
As of September 18, 1996, there were 17,093,360 shares of the registrant's
Common Stock, $.01 par value, outstanding. The aggregate market value of the
registrant's voting stock held by non-affiliates as of September 18, 1996 was
approximately $226 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 1996 Annual Meeting of
Stockholders, scheduled to be held on November 13, 1996, are incorporated by
reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
Founded in 1981, Hyperion Software Corporation (the "company") develops,
markets and supports complete financial management and accounting solutions for
large, multinational corporations. The company's client/server products
facilitate the accounting, budgeting, multisource consolidation and business
analysis processes, giving users fast, dynamic access to and querying
capabilities of interrelated financial information. A common set of delivery
technologies enable superior reporting, spreadsheet analysis, data entry and
intranet information access.
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 general
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 management information
systems ("MIS") departments. Hyperion Software believes that these 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 local area networks ("LANs") 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. This trend in down-sizing
corporate computing has gained momentum as a result of improvements in PC
processing speeds and memory capacity and the widespread acceptance of LANs and
wide area networks (WANs). Local area and wide area networks have significantly
increased the ability to share information among users throughout an
organization. While MIS departments were initially slow to adopt network
technology, they now view networked PCs as a strategic element of information
management. LAN-based solutions are now accepted as an important means of
decreasing computing costs while improving the flow, accessibility and
usefulness of corporate information. Additionally, the flexibility and power of
new client/server architectures have led to MIS adoption of new technologies at
a faster pace.
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The need for better business information, combined with the acceptance of
PCs and network computing, including new client/server architectures, has
created a significant market opportunity for a new class of information software
designed to operate on this platform. Most financial analysts, accountants and
many executives rely on personal computer spreadsheets for analysis 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. Since 1981,
the company's experience in developing and marketing corporate financial
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
financial management and accounting solutions to large, multidivision or
multilocation companies worldwide. Hyperion Software focuses on designing
network-based applications that are easy to implement and operate and which
facilitate the redesign of financial and accounting processes. 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 other best-of-class applications. The company will continue to extend and
enhance its complete suite of integrated client/server products. The company
believes that its multisource consolidation, budgeting and reporting solutions
are well established in the financial and corporate offices of multinational
enterprises. Accordingly, as the accounting product line is expanded and
enhanced, Hyperion Software believes it is well positioned to participate in
this emerging client/server, accounting applications market. Integrated across
these financial and accounting processes, Hyperion provides complete reporting
and business analysis capabilities, designed to support the way people access,
deliver and analyze results.
The company believes that client/server and networked personal computing has
become a standard direction for the largest and best known companies in the
world. These technologies, when coupled with software that reflects applications
expertise, produce 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 this market and continue its leadership position by enhancing
its current products and dedicating significant resources to sales, marketing,
support and product development.
Leverage Existing Market Leadership Position. The company believes that the
complementary set of budgeting, accounting, multisource consolidation and
business 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
complete application suite to both new and existing customers, including the
latest offerings, Hyperion OLAP for business analysis; Hyperion's Spider-Man, a
web-based business information access solution for an organization's global user
community; and the accounting product line.
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Focus on Leading Network 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 LANs. The company
intends to enhance its existing products and develop new products linked to
client/server software standards, including Windows 95, Windows NT, Sybase SQL
Server and Oracle databases, as well as the emerging intranet technologies.
Design Applications for Specific Corporate Information Needs. The company's
product line is designed specifically for the collection, accounting, 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 Direct Sales and Support Relationships. Unlike many other PC
software companies, the company licenses its products throughout the world
primarily through a direct sales force. In certain territories outside of North
America, products are licensed through independent distributors, including major
accounting firms. Hyperion Software 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; Hyperion's
Spider-Man is a web-based business information access solution for the global
user community of an organization; and Hyperion OnTrack is a complete Visual
Information Access product. The company also offers installation, training,
consulting and support services.
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PRODUCTS
Hyperion Enterprise. Hyperion Enterprise, released in July 1991 and now in
its fourth major release, is an advanced business information consolidation and
reporting product designed to take advantage of the capabilities of the
Microsoft Windows graphical operating environment. 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 fourteen years of experience
in financial and business information software. The company derived
approximately 62%, 61% and 50% of its worldwide total revenues from Hyperion
Enterprise licenses and related services during fiscal 1996, 1995 and 1994,
respectively.
A Hyperion Enterprise headquarters site license is priced at $150,000
($175,000 for the SQL version), with administrative and reporting site licenses
priced at $30,000 and $6,000, respectively, or less, depending on the number of
sites.
Hyperion Pillar. Hyperion Pillar is a complete solution for corporate
planning needs. It facilitates the collaborative, iterative process of
enterprise-wide budgeting and forecasting. Hyperion Pillar helps give the
corporate plan greater credibility by allowing for 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. Product security features ensure that planning managers have complete
control over which users have access to what data. Hyperion 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 company evolves. Hyperion Pillar is typically licensed to user
groups of 10 or more, priced at $45,000 for 10 end users.
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,
multicurrency processing, and complex consolidation processing. A Hyperion
Ledger headquarters site license is priced at $120,000 per server.
Hyperion Reporting. Hyperion Reporting supports corporate requirements for
graphical, production reports. Users can easily design and customize reports to
deliver financial results using advanced formatting and rules. A Hyperion
Reporting headquarters site license is priced at $30,000 per server.
Hyperion Tools. Hyperion Tools is an object-oriented development environment
that runs under Microsoft Windows. It allows an organization to customize
Hyperion Software applications or build complementary applications to extend its
corporate systems. A Hyperion Tools headquarters site license is priced at
$45,000 per server.
Hyperion Admin. Hyperion Admin provides system control for the accounting
installation. User-defined parameter settings allow customers to tailor security
and processes to meet unique business requirements. Benefits of Hyperion Admin
include reduced maintenance and increased system integrity. Simplified set-up
functions and predefined values allow for quicker installation. A Hyperion Admin
headquarters site license is priced at $60,000 per server.
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Hyperion Payables. Hyperion Payables is an accounts payable system that
allows the user to control the management of its organization's cash
disbursement function. Vendor invoices are paid in the system using system
generated checks, manual checks and electronic funds transfer payments. Hyperion
Payables is also capable of tracking data for 1099 vendors, facilitating bank
account reconciliations and maintaining the periods and years of data in the
system through periodic processing. A Hyperion Payables headquarters site
license is priced at $90,000 per server.
Hyperion Receivables. Hyperion Receivables is a full featured credit and
receivables management solution. It provides the flexibility and power to manage
credit risk and monitor customer performance. Navigation through and retrieval
of data is efficient and simple, allowing credit professionals, customer service
and accounting personnel easy access to view customer balance data and gather
other information on-line. A Hyperion Receivables headquarters site license is
priced at $90,000 per server.
Hyperion Assets. Hyperion Assets is a fixed asset system that provides tools
to make searching for and analyzing asset data and activity efficient and
powerful. Capital accountants and tax preparers have ready access to asset
information, eliminating wasted time searching for answers to end user or
management questions. A Hyperion Assets headquarters site license is priced at
$70,000 per server.
Hyperion OLAP. Hyperion OLAP, released in April 1996, provides powerful
multidimensional analysis and reporting capabilities to support complex,
high-volume business 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. Smart dimensions for accounting, currency and time series
intelligence facilitate complex query and "what-if" analysis. A Hyperion OLAP
site license is priced at $60,000 per server, including 10 users.
The company offers several complementary modules integrated across the
product line:
Hyperion's Spider-Man. Hyperion's Spider-Man, released in August 1996, is a
web-based server application, a gateway into the Hyperion solution for the
global user community of a corporation. 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.
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Hyperion OnTrack. Hyperion OnTrack, introduced in 1989 and now in its third
major release, is a Windows-based, Visual Information Access product. Hyperion
OnTrack provides senior executives, managers and analysts with access to
business information through an attractive, intuitive user interface.
Presentation of information from a variety of sources, which may include one of
the company's financial reporting software products, is easily accomplished
through a set of Windows-based system administration facilities. Information
from mainframe or network-based systems, such as marketing, sales, human
resources or production data, and external information, such as stock price
quotations or economic data, may also be incorporated. Graphics and spreadsheets
are easily integrated. A key benefit to Hyperion OnTrack is greatly reduced
development and maintenance effort in comparison to traditional mainframe-based
systems.
A headquarters site license for OnTrack is priced at $85,000, with
administrative and reporting site licenses priced at $10,000 and $5,000,
respectively, or less, depending on the number of sites.
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 and 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 directions. A
user conference is held annually. This year's conference, in Dallas, was
attended by over 2,000 people from more than 700 companies. Regional user
meetings and product-specific focus groups are also scheduled periodically,
including an annual European user conference.
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CUSTOMERS AND APPLICATIONS
The company markets its products worldwide to multidivisional and/or
multilocational organizations which have extensive operations and significant
information management requirements. Examples of the use of Hyperion Software
products by the company's clients include the following:
- A leading international home appliance manufacturer and marketer has
implemented Hyperion Enterprise as part of its global financial
information process reengineering initiative. Operating in more than 120
countries, sites from around the world were previously faxing data to
corporate headquarters, where the data was manually entered into
spreadsheets. The entire process was "extremely tedious and prone to
error," according to the customer. Now, Hyperion Enterprise is
addressing the customer's expanding global information requirements,
providing easy access to data, direct links to spreadsheets and easy
system maintenance, all within a Microsoft Windows-based computing
environment.
- A healthcare company eliminated tedious re-keying of data and
dramatically reduced manual input by using Hyperion Enterprise for its
worldwide financial information requirements. An expanding presence in
Europe and the addition of a new line of over-the-counter products
required that the customer keep track of an extensive amount of product
data on a global basis. Essential business data of the customer includes
knowing where and when sales are made, products are introduced, and
whether budgets are being achieved. Hyperion Enterprise's flexible
reporting, dynamic links to spreadsheet products, speed, and access to
both detail and top-level data for more than 500 products is the
cornerstone for this data.
- A leading, worldwide, personal computer manufacturer using Hyperion
Pillar has reduced its budget roll-up process from three days to three
hours. According to the computer company's finance group, it now spends
80 percent of its time on analysis and 20 percent on mechanics. Prior to
installing Hyperion Pillar, the customer used a spreadsheet-based system
and applied as much as 80 percent of its time verifying numbers.
- One of the world's largest producers of denim and decorative fabrics was
experiencing the typical drawbacks of a mainframe general ledger system
that no longer fit the needs of a growing organization. Slow response
time, reporting inflexibility, tedious manual keying of data, cumbersome
maintenance, poor vendor support, and a difficult to use interface were
all factors that led this international company to choose Hyperion's
accounting products. Now, with Hyperion's client/server accounting
system, the customer has been able to shorten its quarterly closing
cycle and get better and more timely access to financial information.
According to the customer's accounting team, its users can now select
the accounting period and cost center and run their own summary level
reports. They can view data by plant or division and see up to five
years of history in just minutes.
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The company has licensed its software to nearly 3,000 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:
Abbey National Hong Kong Shanghai Bank
Aetna Life & Casualty HSBC Holdings
Ahold ICI
AIG Life International Paper
Aluminum Company of America ITT Hartford
Allied Domecq Johnson & Johnson
Allied Signal Commercial Avionics Systems Kimberly-Clark
American Express Kmart
American Home Products KNP-BT
Ameritech LVMH
Amoco McDonnell Douglas
Asia Pacific Breweries MCI Telecomm. Corp., Network Services
AT&T GIS McKesson Water Products
Bass Merck & Co.
B.A.T. Industries Microsoft
Bayer Corporation Mobil Oil
Bell Atlantic Motorola, Inc.
BellSouth Corporation National Australia Bank Limited
Berjaya Group Berhad National Westminster Bancorp
Boots Company Nokia
Bristol-Myers Squibb Norsk Hydro
British Petroleum NYNEX
BTR Pacific Dunlop Limited
Chevron PepsiCo
Ciba-Geigy Philip Morris
Coca Cola Amatil Price Costco
Columbia/HCA Information Services The Prudential Insurance Company of America
Daimler Benz Interservices Prudential Corporation
Digital Equipment PT Astra
E.I. DuPont de Nemours Rabobank
Eastman Kodak Company Rockwell International
First Pacific Company Ltd. Sara Lee Corporation
Ford Motor Credit SBC Communications, Inc.
Fortis - AG Siemens
Foster's Brewing Group Limited Singapore Technologies
Glaxo Sprint
Goodyear Tire & Rubber Texaco Inc.
Grand Metropolitan The Travelers
Hanson Industries United Parcel Service
Heineken Zeneca
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SALES AND MARKETING
The company has a direct sales force comprised of 185 sales personnel as of
June 30, 1996. 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: Amsterdam, Atlanta, Austin, Baltimore, Boston,
Brussels, Calgary, Chicago, Copenhagen, Dallas, Denver, Detroit, Frankfurt,
Houston, Linz, London, Los Angeles, Madrid, Manchester, Milan, Milwaukee,
Minneapolis, Montreal, Munich, Newark, Ottawa, Paris, Philadelphia, Rome,
Sacramento, 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 markets its products outside of North America through a
combination of subsidiaries and independent distributors. These distributors are
managed through the company's operations facilities in Milan and Singapore,
which are staffed by 33 company personnel. The company has license and
distribution agreements with independent distributors in: Australia, Finland,
Israel, Japan, Mexico, New Zealand, Poland, South Africa and Switzerland. The
company's distributors include affiliates of Arthur Andersen & Co. in Japan and
Switzerland, and 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 between the company and its
distributors generally provide for the exclusive 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 1996, 1995 and 1994 fiscal
years, approximately 33.2%, 28.1% and 26.7%, 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 and Hyperion OnTrack. 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.
The company's current product development efforts are primarily focused on
the accounting products, and 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, 1996,
the company's product development was performed by 249 employees primarily
located at its Stamford, Connecticut headquarters.
During fiscal 1996, 1995 and 1994, the company's product development
expense, which is net of capitalized development costs, was $26.8 million, $21
million and $12.8 million, or 15.5% (16.7% including purchased research and
development), 15.3% and 13.5% of total revenues, respectively. In accordance
with Statement of Financial Accounting Standards No. 86, the company capitalizes
certain development costs. During fiscal 1996, 1995 and 1994, the company
capitalized $5.8 million, $5.2 million and $4 million, respectively, or 17.8%,
19.9% and 23.9% of total product development expenditures (excluding purchased
research and development).
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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 experiences competition from a variety of business application
software vendors and software tool vendors, as well as from software developed
by IS 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 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 renewal and 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."
Hyperion, Hyperion Software, Hyperion Financials, Pillar, Micro Control,
IMRS, Financial Intelligence, and Business Intelligence are registered
trademarks and Hyperion Enterprise, Hyperion Pillar, Hyperion Analyst, Hyperion
OLAP, Hyperion Retrieve, Hyperion Reporting, Hyperion Forms, Hyperion OnTrack,
Hyperion Ledger, Hyperion Payables, Hyperion Admin, Hyperion Tools, Hyperion
Purchasing, Hyperion Receivables, Hyperion Assets, Conversion Catalyst and
LedgerLink are trademarks of Hyperion Software Operations Inc., a wholly-owned
subsidiary of Hyperion Software Corporation. Marvel Comics, Spider-Man:
[Trademark] & [Copyright] 1996 Marvel Characters, Inc. All rights reserved.
All other trademarks and company names mentioned are the property of their
respective owners.
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EMPLOYEES
As of July 31, 1996, the company employed a total of 1,046 employees,
including 250 in marketing and sales, 685 in product development, support and
technical services, and 111 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....................52 Chief Executive Officer and Chairman
Peter F. DiGiammarino...............43 President, Chief Operating Officer and Director
Lucy Rae Ricciardi..................54 Senior Vice President and Chief Financial Officer
David M. Sample.....................48 Senior Vice President
Craig M. Schiff.....................41 Senior Vice President and Corporate Secretary
Mr. Perakis is Chairman of the Board of Directors and Chief Executive
Officer of the company. Mr. Perakis has served as Chief Executive Officer and as
a director of the company since September 1985. From December 1987 to May 1996,
Mr. Perakis also served as President of the company. 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. DiGiammarino was appointed President and Chief Operating Officer, as
well as a member of the board of directors of the company, in May 1996. Prior to
joining Hyperion Software, Mr. DiGiammarino was Vice President and Business Area
Manager at American Management Systems (AMS), Inc., a consulting and systems
development firm. Mr. DiGiammarino also served as a member of AMS's operating
group. Mr. DiGiammarino joined AMS in 1977.
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. Sample has served as Senior Vice President of the company since July
1993. From July 1986 to July 1993, Mr. Sample served as Vice President - Sales
of the company. From 1978 to July 1986, Mr. Sample was associated with the
Business Information Services Division of Control Data Corporation, most
recently as a District Sales Manager.
Mr. Schiff was appointed Senior Vice President and Corporate Secretary of
the company 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.
-12-
13
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. 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. 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.
-13-
14
PART II
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.
----------------------------------------------------------------------
Fiscal 1995: High Low
----------------------------------------------------------------------
First quarter $18 3/4 $10 5/8
Second quarter 20 1/8 16
Third quarter 24 7/8 17 3/8
Fourth quarter 24 1/2 15 5/8
----------------------------------------------------------------------
FISCAL 1996: HIGH LOW
----------------------------------------------------------------------
First quarter $28 3/8 $22
Second quarter 28 1/4 18 1/4
Third quarter 23 14
Fourth quarter 22 9 3/4
----------------------------------------------------------------------
FISCAL 1997: HIGH LOW
----------------------------------------------------------------------
First quarter (through September 18th) $14 5/8 $10 1/2
The stock prices have been adjusted to give retroactive effect to the
two-for-one stock split effected in the form of a 100% stock dividend paid in
December 1995. As of September 18, 1996, the company had 215 stockholders of
record and approximately 7,300 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.
-14-
15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
YEAR ENDED JUNE 30
---------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------
STATEMENT OF INCOME DATA (a)
REVENUES
Software licenses $ 90,304 $ 77,985 $51,687 $35,801 $28,609
License renewals and services 82,520 59,156 42,575 30,844 20,242
---------------------------------------------------------
Total revenues 172,824 137,141 94,262 66,645 48,851
COSTS AND EXPENSES
Cost of revenues:
Software licenses 4,780 4,454 2,820 1,841 1,309
License renewals and services 53,258 36,443 24,921 18,541 12,249
Sales and marketing 55,484 44,324 30,036 21,325 17,504
Product development 26,839 20,980 12,767 9,196 6,944
Purchased research and development 2,000 2,600
General and administrative 16,443 11,302 9,703 8,407 5,790
Merger and integration 1,000
---------------------------------------------------------
158,804 118,503 80,247 61,910 43,796
---------------------------------------------------------
OPERATING INCOME 14,020 18,638 14,015 4,735 5,055
Interest income 1,480 1,620 851 605 569
Interest expense (243) (119) (117) (137) (439)
---------------------------------------------------------
INCOME BEFORE INCOME TAXES 15,257 20,139 14,749 5,203 5,185
Provision for income taxes 5,800 8,000 6,140 2,860 2,750
---------------------------------------------------------
NET INCOME $ 9,457 $ 12,139 $ 8,609 $ 2,343(c) $ 2,435
=========================================================
EARNINGS PER SHARE (b)
Primary $.53 $.70 $.52 $.15(c) $.17
Fully diluted $.53 $.69 $.52 $.15(c) $.17
AVERAGE NUMBER OF SHARES OUTSTANDING (b)
Primary 17,875 17,316 16,584 15,500 14,106
Fully diluted 17,933 17,480 16,600 15,904 14,246
JUNE 30
---------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------
BALANCE SHEET DATA (a)
Working capital $ 27,449 $ 37,306 $34,829 $25,839 $24,590
Total assets 179,448 146,158 94,715 67,358 52,670
Total long-term debt 8,336 8,910
Stockholders' equity 90,003 71,706 53,661 40,683 32,894
<FN>
(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.
(c) Includes a one-time charge relating to the fiscal 1993 purchase of research and development, which had
the effect of reducing net income by approximately $1.6 million or $.10 per share.
-15-
16
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 Software licenses its products throughout the world
primarily through a direct sales force. In certain territories outside of North
America, products are licensed through independent distributors, including major
accounting firms. The company includes in revenues its net share of revenues
generated by distributors.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES
1996 CHANGE 1995
- - -------------------------------------------------------------------------
(dollars in thousands)
Software licenses $90,304 15.8% $77,985
Percentage of total revenues 52.3% 56.9%
- - -------------------------------------------------------------------------
License renewals and services $82,520 39.5% $59,156
Percentage of total revenues 47.7% 43.1%
- - -------------------------------------------------------------------------
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
1996 CHANGE 1995
- - -------------------------------------------------------------------------
(dollars in thousands)
Software licenses $ 4,780 7.3% $ 4,454
Gross profit percentage 94.7% 94.3%
- - -------------------------------------------------------------------------
License renewals and services $53,258 46.1% $36,443
Gross profit percentage 35.5% 38.4%
- - -------------------------------------------------------------------------
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.
-16-
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OPERATING EXPENSES
1996 CHANGE 1995
- - ----------------------------------------------------------------------------
(dollars in thousands)
Sales and marketing $55,484 25.2% $44,324
Percentage of total revenues 32.1% 32.3%
- - ----------------------------------------------------------------------------
Product development $26,839 27.9% $20,980
Percentage of total revenues 15.5% 15.3%
- - ----------------------------------------------------------------------------
General and administrative $16,443 45.5% $11,302
Percentage of total revenues 9.5% 8.2%
- - ----------------------------------------------------------------------------
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.
-17-
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NONOPERATING INCOME AND EXPENSE
1996 CHANGE 1995
- - -------------------------------------------------------------------------------
(dollars in thousands)
Interest income $1,480 8.6% $1,620
- - -------------------------------------------------------------------------------
Interest expense $ (243) 104.2% $ (119)
- - -------------------------------------------------------------------------------
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.
To date, the overall impact of inflation on the company has not been material.
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 will adopt SFAS No. 121 in
fiscal 1997, and the impact, if any, is not expected to be material.
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 intends to adopt the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES
1995 CHANGE 1994
- - -------------------------------------------------------------------------
(dollars in thousands)
Software licenses $77,985 50.9% $51,687
Percentage of total revenues 56.9% 54.8%
- - -------------------------------------------------------------------------
License renewals and services $59,156 38.9% $42,575
Percentage of total revenues 43.1% 45.2%
- - -------------------------------------------------------------------------
Software license revenues rose primarily as a result of an increase in the
number of licenses sold versus, for example, price increases. Demand for the
company's Microsoft Windows-based enterprise financial reporting and budgeting
products continues to be strong. Windows-based product licenses comprise more
than 90% of the company's total software license revenues.
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 1995 and
1994 were $38.5 million and $25.1 million, or 28.1% and 26.7% of total revenues,
respectively.
-18-
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
COST OF REVENUES
1995 CHANGE 1994
- - -------------------------------------------------------------------------
(dollars in thousands)
Software licenses $ 4,454 57.9% $ 2,820
Gross profit percentage 94.3% 94.5%
- - -------------------------------------------------------------------------
License renewals and services $36,443 46.2% $24,921
Gross profit percentage 38.4% 41.5%
- - -------------------------------------------------------------------------
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 number of software
licenses sold and the amortization of capitalized costs ($1 million) related to
new products and product enhancements. The amortization of capitalized software
costs commences 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 newly released (March 1995) set of accounting products.
OPERATING EXPENSES
1995 CHANGE 1994
- - ------------------------------------------------------------------------------
(dollars in thousands)
Sales and marketing $44,324 47.6% $30,036
Percentage of total revenues 32.3% 31.9%
- - ------------------------------------------------------------------------------
Product development $20,980 64.3% $12,767
Percentage of total revenues 15.3% 13.5%
- - ------------------------------------------------------------------------------
General and administrative $11,302 16.5% $ 9,703
Percentage of total revenues 8.2% 10.3%
- - ------------------------------------------------------------------------------
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 significant 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 1995 and 1994, the company capitalized $5.2 million and $4
million of software development costs, respectively, in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed." The amounts
capitalized primarily relate to the company's development of Microsoft
Windows-based financial management and accounting applications for client/server
environments and represented 19.9% and 23.9% of total product development
expenditures. Capitalized software costs are amortized over the estimated
economic life of the product, but generally not more than four years.
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, partially offset by a decrease in the provision
for doubtful accounts from the requirement of the prior year.
-19-
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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, based
in California, develops, markets and supports client/server corporate budgeting
and planning solutions. Pillar generated revenues of approximately $10 million
for its year ended September 30, 1994. The acquisition has been accounted for as
a pooling of interests and, accordingly, the financial statements have been
restated for all prior periods to include Pillar. Further, all common share and
per share data have been restated for prior periods. In connection with the
acquisition, the company charged $1 million to operations in fiscal 1995 for
nonrecurring merger and integration costs incurred. For further details, see
Note B to the accompanying financial statements.
NONOPERATING INCOME AND EXPENSE
1995 CHANGE 1994
- - ----------------------------------------------------------------------------
(dollars in thousands)
Interest income $1,620 90.4% $ 851
- - ----------------------------------------------------------------------------
Interest expense $ (119) 1.7% $(117)
- - ----------------------------------------------------------------------------
Interest income increased due to a general rise in interest rates and the
increase in cash available for investment which resulted from operations.
PROVISION FOR INCOME TAXES
The company's effective income tax rate decreased from 41.6% to 39.7%, as a
greater portion of the company's earnings arose in certain jurisdictions where
the income tax rates are lower, offset 1.9% by nondeductible merger costs.
NET INCOME
As a result of the above factors, net income for 1995 increased to $12.1
million, or by 41%, from $8.6 million for 1994.
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 following 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.
-20-
21
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. The company's future results may vary significantly based on a
number of factors, such as those discussed in the preceding paragraph, as well
as other risks as detailed in the company's registration statement on Form S-3
declared effective January 18, 1995, particularly under "Investment
Considerations."
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.
Quarter Ended
----------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
1996 1996 1995 1995 1995 1995 1994 1994
----------------------------------------------------------------------------------
(in thousands, except per share data)
(unaudited)
Total revenues $58,610 $36,856 $40,725 $36,633 $50,676 $30,082 $30,055 $26,328
Operating income 8,423 383 2,032(a) 3,182 10,868 1,941 3,009(b) 2,820
Net income 5,351 369 1,521(a) 2,216 6,860 1,397 2,011(b) 1,871
Earnings per share .30 .02 .08(a) .12 .39 .08 .12(b) .11
<FN>
(a) Includes one-time charges relating to purchases of research and
development, which had the effect of reducing operating income by $2
million and net income by approximately $1.3 million or $.07 per share.
(b) Includes nonrecurring merger and integration charges relating to the
acquisition of Pillar Corporation, which had the effect of reducing
operating and net income by approximately $1 million or $.05 per share.
-21-
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
- - --------------------------------------------------------------------------------
To date, the company has financed its business principally through positive cash
flow from operations and sales of its common stock. For fiscal years 1996, 1995,
and 1994, the company generated positive cash flow from operations of $34.1
million, $28.9 million and $19.7 million, respectively.
Cash used by investing activities amounted to $41.8 million for fiscal 1996,
including $15.5 million for office facilities in progress, $16.7 million for
leasehold improvements and purchases of equipment and software, $5.8 million for
product development costs and $3.2 million for business acquisitions, as
described above, and to reacquire company product distribution and service
rights for certain territories of Europe.
Financing activities in fiscal 1996, including stock options exercised by
employees and payment of indebtedness, generated cash of $4.8 million. In
connection with the stock options exercised by certain of its employees (for a
total of 984,560 common shares), the company recognized (as a credit to
additional paid-in capital) an income tax benefit of $3.4 million for the year
ended June 30, 1996.
As of June 30, 1996, the company had cash and cash equivalents of $42.4 million
and working capital of $27.4 million, no long-term debt other than the mortgage
loan (currently at an interest rate of 3.06%) for the Stamford, Connecticut
office 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 1997 fiscal year. In July
1996, the company acquired a client base and the exclusive distribution and
service rights to its corporate budgeting product in Belgium, France and the
United Kingdom for $7.6 million. The company intends to continue to review
potential acquisitions 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.
-22-
23
ITEM 8. REPORT OF INDEPENDENT AUDITORS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-23-
24
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, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1996. 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, 1996 and 1995 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, 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.
Stamford, Connecticut
July 19, 1996
-24-
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Hyperion Software Corporation
Consolidated Balance Sheet
(in thousands, except for share data)
JUNE 30,
1996 1995
--------------------
ASSETS
Current assets:
Cash and cash equivalents $ 42,361 $ 45,494
Accounts receivable--net of allowances of $4,900 and $2,500 55,674 48,006
Prepaid expenses and other current assets 3,925 4,124
Deferred income taxes 3,349 2,059
--------------------
TOTAL CURRENT ASSETS 105,309 99,683
Property and equipment--at cost, less accumulated depreciation
and amortization of $21,063 and $13,570 54,606 32,093
Product development costs--at cost, less accumulated amortization
of $7,818 and $4,604 11,985 9,401
Goodwill and other intangible assets--at cost, less accumulated
amortization of $5,784 and $4,337 6,087 3,007
Deposits and other assets 1,461 1,974
--------------------
Total assets $179,448 $146,158
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 20,728 $ 13,050
Accrued employee compensation and benefits 15,380 14,879
Income taxes payable 4,215 3,108
Deferred revenue 36,832 30,599
Notes payable 705 741
--------------------
TOTAL CURRENT LIABILITIES 77,860 62,377
Mortgage payable 8,336 8,910
Deferred income taxes 3,249 3,165
COMMITMENTS AND CONTINGENCIES - Note H
Stockholders' equity:
Preferred stock--$.01 par value; authorized--1,000,000 shares; none issued
Common stock--$.01 par value; authorized--100,000,000 shares; issued--
21,362,626 and 20,378,066 shares 214 204
Additional paid-in capital 73,440 64,262
Retained earnings 30,116 20,659
Currency translation adjustments (534) (386)
Treasury stock, at cost--4,329,464 and 4,320,840 shares (13,233) (13,033)
--------------------
TOTAL STOCKHOLDERS' EQUITY 90,003 71,706
--------------------
Total liabilities and stockholders' equity $179,448 $146,158
====================
See accompanying notes.
-25-
26
Hyperion Software Corporation
Consolidated Statement of Income
(in thousands, except per share data)
YEAR ENDED JUNE 30,
1996 1995 1994
--------------------------------
REVENUES
Software licenses $ 90,304 $ 77,985 $51,687
License renewals and services 82,520 59,156 42,575
--------------------------------
Total revenues 172,824 137,141 94,262
COSTS AND EXPENSES
Cost of revenues:
Software licenses 4,780 4,454 2,820
License renewals and services 53,258 36,443 24,921
Sales and marketing 55,484 44,324 30,036
Product development 26,839 20,980 12,767
Purchased research and development 2,000
General and administrative 16,443 11,302 9,703
Merger and integration 1,000
--------------------------------
158,804 118,503 80,247
--------------------------------
OPERATING INCOME 14,020 18,638 14,015
Interest income 1,480 1,620 851
Interest expense (243) (119) (117)
--------------------------------
INCOME BEFORE INCOME TAXES 15,257 20,139 14,749
Provision for income taxes 5,800 8,000 6,140
--------------------------------
NET INCOME $ 9,457 $ 12,139 $ 8,609
================================
EARNINGS PER SHARE
Primary $.53 $.70 $.52
Fully diluted $.53 $.69 $.52
AVERAGE NUMBER OF SHARES OUTSTANDING
Primary 17,875 17,316 16,584
Fully diluted 17,933 17,480 16,600
See accompanying notes.
-26-
27
Hyperion Software Corporation
Consolidated Statement of Stockholders' Equity
(in thousands, except for share data)
Common Stock
----------------- Additional Currency
Par Paid-in Retained Translation Treasury
Shares Value Capital Earnings Adjustments Stock
----------------------------------------------------------------------
Balance at June 30, 1993 9,509,684 $ 95 $53,267 $ 927 $(573) $(13,033)
Two-for-one stock split 9,509,684 95 (95)
----------------------------------------------------------------------
As restated 19,019,368 190 53,172 927 (573) (13,033)
Exercise of stock options/
sale of shares 562,942 6 3,026
Income tax benefit from
exercise of stock options 1,200
Currency translation effect 137
Net income 8,609
----------------------------------------------------------------------
Balance at June 30, 1994 19,582,310 196 57,398 9,536 (436) (13,033)
Charge reflecting change in
Pillar Corporation's
fiscal year (1,016)
Exercise of stock options 795,756 8 3,669
Income tax benefit from
exercise of stock options 3,195
Currency translation effect 50
Net income 12,139
----------------------------------------------------------------------
Balance at June 30, 1995 20,378,066 204 64,262 20,659 (386) (13,033)
Exercise of stock options 984,560 10 5,790 (200)
Income tax benefit from
exercise of stock options 3,388
Currency translation effect (148)
Net income 9,457
----------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 21,362,626 $214 $73,440 $30,116 $(534) $(13,233)
======================================================================
See accompanying notes.
-27-
28
Hyperion Software Corporation
Consolidated Statement of Cash Flows
(in thousands)
YEAR ENDED JUNE 30,
1996 1995 1994
---------------------------------
OPERATING ACTIVITIES
Net income $ 9,457 $ 12,139 $ 8,609
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 14,032 8,338 5,347
Accounts receivable allowance provisions 4,229 1,667 2,029
Deferred income taxes (1,206) 210 2,312
Charge reflecting change in Pillar Corporation's fiscal year (1,016)
Changes in operating assets and liabilities:
Accounts receivable (11,897) (15,843) (12,126)
Prepaid expenses and other assets 235 (2,463) 161
Accounts payable and accrued expenses 8,492 11,286 3,898
Income taxes payable 4,495 5,074 448
Deferred revenue 6,233 9,544 9,029
---------------------------------
Cash provided by operating activities 34,070 28,936 19,707
INVESTING ACTIVITIES
Office facilities in progress (15,492) (14,308)
Leasehold improvements and purchases of furniture,
equipment and software (16,726) (12,880) (5,740)
Product development costs (5,798) (5,207) (4,009)
Deposits and intangible assets (636) (1,921)
Business acquisitions (3,183)
---------------------------------
Cash used by investing activities (41,835) (34,316) (9,749)
FINANCING ACTIVITIES
Notes payable--proceeds (payments), net (610) (309) 309
Mortgage payable--proceeds 9,500
Exercise of stock options by employees/sale of common stock 5,390 3,720 2,989
---------------------------------
Cash provided by financing activities 4,780 12,911 3,298
Effect of exchange rate changes (148) 50 137
---------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,133) 7,581 13,393
Cash and cash equivalents at beginning of year 45,494 37,913 24,520
---------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 42,361 $ 45,494 $ 37,913
=================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $2,511 $2,716 $2,170
Interest ($266 and $243 capitalized in 1996 and 1995) 497 311 69
See accompanying notes.
-28-
29
Hyperion Software Corporation
Notes to Consolidated Financial Statements
BUSINESS
Hyperion Software Corporation (the "company") develops, markets and supports
complete financial management and accounting solutions for large, multinational
corporations. The company's client/server products facilitate the accounting,
budgeting, multisource consolidation and business analysis processes, giving
users fast, dynamic access to and querying capabilities of interrelated
financial information. A common set of delivery technologies enable superior
reporting, spreadsheet analysis, data entry and intranet information access.
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. Translation adjustments resulting from this process are
charged or credited to stockholders' equity.
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 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 liabilities, because of their short-term nature, are
stated at cost, which approximates market value.
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 will adopt SFAS No. 121 in
fiscal 1997, and the impact, if any, is not expected to be material.
-29-
30
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $3.2 million for 1996, $2.2 million for
1995 and $1.3 million for 1994.
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. The stock
dividend resulted in a retroactively applied transfer of approximately $.1
million (par value of $.01 per share) from additional paid-in capital to common
stock.
Equity Based Compensation
The company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." 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 intends to adopt the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
B. ACQUISITIONS
In July 1996, the company acquired a client base and the exclusive distribution
and service rights to its corporate budgeting product in Belgium, France and the
United Kingdom for $7.6 million. The acquisition will be accounted for as a
purchase transaction in fiscal 1997 and, accordingly, the purchase price will be
allocated to identifiable intangible assets based on their estimated fair
values.
-30-
31
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
B. ACQUISITIONS (CONTINUED)
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.
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,
1993 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 has been accounted
for as a pooling of interests. Accordingly, the financial statements have been
restated for all prior periods to include Pillar. Further, all common share and
per share data have been restated for prior periods.
For the pre-merger periods indicated, revenues and net income of the company and
Pillar are as follows, in thousands:
Three months ended Year ended
September 30, 1994 June 30, 1994
- - ------------------------------------------------------------------------------
(unaudited)
REVENUES
Hyperion Software $22,470 $84,384
Pillar 3,858 9,878
- - ------------------------------------------------------------------------------
$26,328 $94,262
==============================================================================
NET INCOME
Hyperion Software $ 1,225 $ 8,470
Pillar 1,016 139
adjustment(a) (370)
- - ------------------------------------------------------------------------------
$ 1,871 $ 8,609
==============================================================================
<FN>
(a) To adjust the provision for income taxes to reflect, on a combined company
basis, the annual effective tax rate.
-31-
32
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
B. ACQUISITIONS (CONTINUED)
Pillar previously used the fiscal year ended September 30 for its financial
reporting. Pillar's operating results for the year ended September 30, 1994 are
included in the accompanying statement of income in the column headed June 30,
1994. The statement of income's comparative 1996 and 1995 results reflect the
operations of Hyperion Software and Pillar for the years ended June 30, 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.
C. PROPERTY, EQUIPMENT AND RELATED MORTGAGE LOAN
Property and equipment consists of the following at June 30:
Depreciation/
Amortization
1996 1995 Period
--------------------------------------------------------------------------------------------
(in thousands) (years)
Land $ 3,800 $ 3,800
Office facilities in progress 26,000 10,508 39
Furniture, equipment and software 43,866 29,106 3 to 7
Leasehold improvements 2,003 2,249 lease term*
-----------------------------------------------------------------------------
75,669 45,663
Less accumulated depreciation and amortization 21,063 13,570
-----------------------------------------------------------------------------
$54,606 $32,093
=============================================================================
<FN>
* 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 $9.4 million, $5.4 million
and $3.2 million for 1996, 1995 and 1994, respectively.
On January 20, 1995, the company completed the purchase of an office 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.
-32-
33
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
D. GOODWILL AND OTHER INTANGIBLE ASSETS
Components of intangible assets, which relate primarily to business
acquisitions, are as follows at June 30:
Amortization
1996 1995 Period
-------------------------------------------------------------------------------
(in thousands) (years)
Goodwill $ 3,648 $2,687 4 to 20
Software/technology 2,489 2,089 2 to 6
Customer base 2,219 1,019 3 to 5
Product distribution and service rights 1,570 809 3 to 7
Noncompete agreements 529 476 3
Copyrights, trademarks and other 1,416 264 4 to 6
----------------------------------------------------------------
11,871 7,344
Less accumulated amortization 5,784 4,337
----------------------------------------------------------------
$ 6,087 $3,007
================================================================
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 facilities (see Note
C), substantially all of the company's assets have been pledged as security
under terms of the Facility.
-33-
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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:
1996 1995
--------------------------------------------------------------------------------
(in thousands)
Deferred income tax assets:
Net operating loss carryforwards $ 4,054 $ 5,143
Deferred revenue 1,510 1,777
Accounts receivable, allowances 1,893 795
Other intangible assets, amortization 1,418 347
Tax credit carryforwards 876 675
Accrued expenses 310 103
Other 167 237
--------------------------------------------------------------------------------
10,228 9,077
Less valuation allowance 4,944 5,985
--------------------------------------------------------------------------------
5,284 3,092
--------------------------------------------------------------------------------
Deferred income tax liabilities:
Product development costs 4,914 3,855
Property and equipment, depreciation 270 325
Other 18
--------------------------------------------------------------------------------
5,184 4,198
--------------------------------------------------------------------------------
Net deferred income tax asset (liability) $ 100 $(1,106)
================================================================================
The provision for income taxes consists of the following charges (credits):
1996 1995 1994
--------------------------------------------------------------------------------
(in thousands)
Current:
U.S. $ 4,214 $5,211 $2,271
State 1,419 1,709 957
Other countries 1,373 870 600
--------------------------------------------------------------------------------
7,006 7,790 3,828
--------------------------------------------------------------------------------
Deferred:
U.S. (800) 252 1,766
State (379) 588
Other countries (27) (42) (42)
--------------------------------------------------------------------------------
(1,206) 210 2,312
--------------------------------------------------------------------------------
$ 5,800 $8,000 $6,140
================================================================================
The effective income tax rate varied from the statutory U.S. federal tax rate as follows:
1996 1995 1994
--------------------------------------------------------------------------------
Statutory U.S. tax rate 35.0% 35.0% 35.0%
State income taxes, net of U.S. tax benefit 4.5 5.6 6.9
Tax exempt interest (1.9) (1.9) (1.3)
Export sales (2.8) (2.4) (.9)
Other--net 3.2 3.4 1.9
--------------------------------------------------------------------------------
Effective income tax rate 38.0% 39.7% 41.6%
================================================================================
-34-
35
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
F. INCOME TAXES (CONTINUED)
The company has U.S. federal, state and foreign net operating loss (NOL)
carryforwards of $12 million and U.S. federal and state tax credit carryforwards
of $1.1 million, which expire as follows:
NOL Tax Credit
Year Carryforwards Carryforwards
------------------------------------------------------------------------------
(in thousands)
1999 $ 547
2000 663
2001 160
2003 1,512 $ 55
2004 3,879 138
2005 and thereafter 2,712 326
No expiration date 2,525 549
------------------------------------------------------------------------------
$11,998 $1,068
==============================================================================
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
Under the company's stock option plans and its employee stock purchase plan
("Plans") and under certain employee compensation arrangements, 5,779,956
(1,374,776 under the employee stock purchase plan) shares of common stock are
reserved for issuance to eligible participants at June 30, 1996.
Changes in outstanding options were as follows:
Price Range Shares
-----------------------------------------------------------------------------------
Outstanding, June 30, 1993 $ .21 - $19.55 2,981,934
Options granted:
Plans 1.57 - 15.64 810,958
Options exercised:
Plans .75 - 9.75 (288,774)
Compensation arrangements .38 - 2.75 (213,444)
Options forfeited:
Plans .98 - 9.13 (21,542)
-----------------------------------------------------------------------------------
Outstanding, June 30, 1994 .21 - 19.55 3,269,132
-----------------------------------------------------------------------------------
Options granted:
Plans 4.69 - 23.50 609,254
Options exercised:
Plans .21 - 14.25 (435,956)
Compensation arrangements .38 - 2.75 (359,800)
Options forfeited:
Plans .98 - 19.55 (28,942)
-----------------------------------------------------------------------------------
Outstanding, June 30, 1995 .38 - 23.50 3,053,688
-----------------------------------------------------------------------------------
Options granted:
Plans 7.25 - 23.88 1,756,081
Options exercised:
Plans .38 - 19.55 (687,060)
Compensation arrangements 1.88 - 2.75 (297,500)
Options forfeited/exchanged:
Plans .98 - 23.88 (765,458)
-----------------------------------------------------------------------------------
OUTSTANDING, JUNE 30, 1996 $ .38 - $23.75 3,059,751
===================================================================================
-35-
36
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS (CONTINUED)
Generally, options under the stock option plans expire 10 years after the date
of grant, are granted at prices not less than fair market value and become
exercisable over two- to four-year periods. Under the employee stock 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. Options granted under employee compensation arrangements
become exercisable and expire over various periods. At June 30, 1996, 1,663,658
options outstanding for common stock were exercisable and the average option
price for all outstanding options was $9.67 per share. Outstanding options
expire on various dates beginning August 29, 1996 and ending on June 18, 2006.
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 1996, 1995 and 1994, the company contributed $1 million, $.7 million
and $.5 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
2002.
Future minimum lease payments under all operating leases with noncancellable
terms in excess of one year amount to $12.6 million as follows (in millions): $4
in 1997, $3.2 in 1998, $2.5 in 1999, $1.9 in 2000 and $1 in 2001 and 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, 1996,
1995 and 1994 under all lease agreements was $5.1 million, $4.4 million and $2.9
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.
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.
-36-
37
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
I. STOCKHOLDER RIGHTS PLAN (CONTINUED)
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.
-37-
38
Hyperion Software Corporation
Notes to Consolidated Financial Statements (continued)
J. FINANCIAL DATA BY GEOGRAPHIC AREA
Other
U.S. U.K. International
Operations Operations Operations Eliminations Consolidated
-------------------------------------------------------------------------------------------------
(in thousands)
1996
Revenues:
Customers $140,888 $13,623 $18,313 $172,824
Intercompany 6,092 7,428 $(13,520)
-------------------------------------------------------------------------------------------------
Total 146,980 13,623 25,741 $(13,520) 172,824
=================================================================================================
Operating income 12,579 921 520 14,020
=================================================================================================
Identifiable assets $150,977 $10,093 $18,378 $179,448
=================================================================================================
1995
Revenues:
Customers $115,284 $13,290 $ 8,567 $137,141
Intercompany 6,212 3,935 $(10,147)
-------------------------------------------------------------------------------------------------
Total 121,496 13,290 12,502 $(10,147) 137,141
=================================================================================================
Operating income (loss) 23,120 928 (5,410) 18,638
=================================================================================================
Identifiable assets $128,033 $ 9,781 $ 8,344 $146,158
=================================================================================================
1994
Revenues:
Customers $ 82,581 $ 9,070 $ 2,611 $ 94,262
Intercompany 2,900 3,913 $ (6,813)
-------------------------------------------------------------------------------------------------
Total 85,481 9,070 6,524 $ (6,813) 94,262
=================================================================================================
Operating income (loss) 14,174 667 (826) 14,015
=================================================================================================
Identifiable assets $ 86,132 $ 5,413 $ 3,170 $ 94,715
=================================================================================================
"Other International Operations" relate primarily to subsidiaries in Austria,
Belgium, Canada, France, Germany, Italy, Netherlands, Singapore, Spain and
Sweden. 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):
1996 1995 1994
----------------------------------------------------------------------
U.K. operations $13,623 $13,290 $ 9,070
Other international operations 18,313 8,567 2,611
Export 25,439 16,614 13,455
----------------------------------------------------------------------
$57,375 $38,471 $25,136
======================================================================
Percentage of total revenues 33% 28% 27%
======================================================================
The majority of "Export" revenues, some of which are generated through
independent distributors, results from product licenses and services sold
to customers throughout Europe.
-38-
39
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, 1996 (in thousands, except per share data):
------------------------------------------------------------------------------
FISCAL 1996 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
------------------------------------------------------------------------------
Total revenues $36,633 $40,725 $36,856 $58,610
Gross profit 24,199 26,845 22,473 41,269
Net income 2,216 1,521(a) 369 5,351
Earnings per share .12 .08(a) .02 .30
------------------------------------------------------------------------------
Fiscal 1995 Sept. 30 Dec. 31 March 31 June 30
------------------------------------------------------------------------------
Total revenues $26,328 $30,055 $30,082 $50,676
Gross profit 17,924 20,993 20,291 37,036
Net income 1,871 2,011(b) 1,397 6,860
Earnings per share .11 .12(b) .08 .39
<FN>
(a) Includes one-time charges relating to purchases of research and
development, which had the effect of reducing net income by
approximately $1.3 million or $.07 per share.
(b) Includes nonrecurring merger and integration charges relating to
the acquisition of Pillar Corporation, which had the effect of
reducing net income by approximately $1 million or $.05 per
share.
-39-
40
PART II (CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the sections entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance," which are incorporated herein by
reference to the company's Proxy Statement for its 1996 Annual Meeting of
Stockholders. See also the section entitled "Employees" appearing in Part I
hereof.
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 1996 Annual Meeting of Stockholders.
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 1996
Annual Meeting of Stockholders.
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 1996 Annual Meeting
of Stockholders.
-40-
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The consolidated financial statements of Hyperion Software Corporation
are included in Item 8:
Consolidated Balance Sheet as of June 30, 1996 and 1995
Consolidated Statement of Income for the years ended June 30, 1996,
1995 and 1994
Consolidated Statement of Stockholders' Equity for the years ended
June 30, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended June 30,
1996, 1995 and 1994
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, as amended and restated, of the company
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
-41-
42
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 Managements 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
-42-
43
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 - Employment Agreement with Peter F. DiGiammarino,
dated as of May 29, 1996 (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)
- - -----------------
(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
(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,
1996.
-43-
44
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 20, 1996 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 and Chairman September 20, 1996
- - ---------------------------------
James A. Perakis
/s/ Peter F. DiGiammarino President, Chief Operating Officer and Director September 20, 1996
- - ---------------------------------
Peter F. DiGiammarino
/s/ Gary G. Greenfield Director September 23, 1996
- - ---------------------------------
Gary G. Greenfield
/s/ Harry S. Gruner Director September 21, 1996
- - ---------------------------------
Harry S. Gruner
/s/ William W. Helman IV Director September 24, 1996
- - ---------------------------------
William W. Helman IV
/s/ Marco Arese Lucini Director September 23, 1996
- - ---------------------------------
Marco Arese Lucini
/s/ Aldo Papone Director September 24, 1996
- - ---------------------------------
Aldo Papone
/s/ Robert W. Thomson Director September 22, 1996
- - ---------------------------------
Robert W. Thomson
/s/ Lucy Rae Ricciardi Senior Vice President and Chief Financial Officer September 20, 1996
- - ---------------------------------
Lucy Rae Ricciardi
/s/ Michael A. Manto Vice President and Corporate Controller September 20, 1996
- - ---------------------------------
Michael A. Manto
-44-
45
ITEM 14(a)(2) AND ITEM 14(d). FINANCIAL STATEMENT SCHEDULE
HYPERION SOFTWARE CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
============================================================================================================
Additions
------------------------------
Charged
Balance at Charged to to Other Balance
Beginning Costs and Accounts Deductions- at End
Description of Period Expenses - Describe (a) Describe of Period
----------- ---------------------------------------------------------------------
For the year ended June 30, 1994
Allowance for doubtful accounts,
returns and discounts
$1,216 1,118 911 1,605 (b) $1,640
Valuation allowance for deferred
tax assets 5,810 153 181 (c) 5,782
For the year ended June 30, 1995
Allowance for doubtful accounts,
returns and discounts
$1,640 320 1,347 807 (b) $2,500
Valuation allowance for deferred
tax assets 5,782 567 364 (c) 5,985
For the year ended June 30, 1996
Allowance for doubtful accounts,
returns and discounts
$2,500 1,159 3,070 1,829 (b) $4,900
Valuation allowance for deferred
tax assets 5,985 486 1,527 (c) 4,944
<FN>
(a) Charged to revenues
(b) Write-offs, returns and discounts, net of recoveries
(c) Recognition and adjustments