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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



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FORM 10-Q

|         |  |                                                 
|-------- |  | ------------------------------------------------
|Checkbox |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
|        
|        
|        
|        
|         |  | OF THE SECURITIES EXCHANGE ACT OF 1934          

For the quarterly period ended December 31, 2001

OR

|    |  |                                                  
|--- |  | -------------------------------------------------
|Box |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|   
|   
|   
|   
|    |  | OF THE SECURITIES EXCHANGE ACT OF 1934           

For the transition period from          to        .



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Commission File Number 0-26934

Hyperion Solutions Corporation
(Exact name of registrant as specified in its charter)

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 77-0277772
(I.R.S. Employer
Identification No.)

1344 Crossman Avenue, Sunnyvale, California 94089
(Address of principal executive offices, including zip code)

(408) 744-9500
(Registrants telephone number, including area code)



| |                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes  Checkbox      No  Box

As
of February 12, 2002, there were 32,831,063 shares of the Registrants
common stock, $.001 par value, outstanding



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TABLE OF CONTENTS



|                                                                            |                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Condensed Consolidated Balance Sheets                                      
|Condensed Consolidated Statements of Income and Comprehensive Income (Loss)
|Condensed Consolidated Statements of Cash Flows                            
|Notes to Condensed Consolidated Financial Statements (unaudited)           
|                                                                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|Part II. Other Information                                                 
|                                                                            | Item 1. Legal Proceedings                                                                    
|                                                                            | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                                                            | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                 
|EX-10.1                                                                    



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##### Table of Contents



Hyperion Solutions Corporation
Form 10-Q
Contents

|                                                                                              |                                                                                                                                                                                      |  |      |   | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | - | 
|                                                                                              |                                                                                                                                                                                      |  | Page
|                                                                                              |                                                                                                                                                                                      |  |     
|Part I. Financial Information                                                                 |                                                                                                                                                                                      |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements                                                                  |                                                                                                                                                                                      |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets  December 31, 2001 (unaudited) and June 30, 2001                                                                                              |  |      | 2 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (unaudited) 
Three Months Ended December 31, 2001 and 2000; Six Months Ended December 31, 2001 and 2000 |  |      | 3 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows (unaudited) -
Six Months Ended December 31, 2001 and 2000                                                                            |  |      | 4 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Condensed Consolidated Financial Statements (unaudited)  December 31, 2001                                                                                                 |  |      | 5 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                                                                                      |  | 9    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                                                                                      |  | 15   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Part II. Other Information                                                                    |                                                                                                                                                                                      |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |                                                                                                                                                                                      |  | 15   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                                                                                      |  | 16   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                                                                                      |  | 16   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Signatures                                                                                    |                                                                                                                                                                                      |  | 17   |  

Hyperion, the Hyperion H Logo, and Essbase are registered trademarks, and
Hyperion Solutions is a trademark of Hyperion
         Solutions
Corporation. All other trademarks and company names mentioned are the property of their respective
owners. All rights
         reserved.

For further information, refer to the Hyperion Solutions Corporation annual
report on Form 10-K for the year ended June 30, 2001.





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##### Table of Contents






Hyperion Solutions Corporation
Condensed Consolidated Balance Sheets
(in thousands)

|                                                                                                                            |                                                                                                            |   |              |         |          |   |         |         |  
|--------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | - | ------------ | ------- | -------- | - | ------- | ------- | -
|                                                                                                                            |                                                                                                            |   | December 31, |         | June 30,
|                                                                                                                            |                                                                                                            |   | 2001         |         | 2001    
|                                                                                                                            |                                                                                                            |   |              |         |         
|                                                                                                                            |                                                                                                            |   | (Unaudited)  |         |          |   |        
|ASSETS                                                                                                                      |                                                                                                            |   |              |         |          |   |         |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Current Assets:                                                                                                             |                                                                                                            |   |              |         |          |   |         |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Cash and cash equivalents                                                                                  |   | $            | 288,024 |          |   | $       | 232,904 |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Short-term investments                                                                                     |   |              | 12,978  |          |   |         | 22,462  |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Accounts receivable  net of allowances of $14,214 and $12,476                                             |   |              | 105,121 |          |   |         | 156,835 |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Prepaid expenses and other current assets                                                                  |   |              | 17,513  |          |   |         | 20,491  |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Deferred income taxes                                                                                      |   |              | 20,577  |          |   |         | 19,175  |  
|                                                                                                                            |                                                                                                            |   |              |         |          |   |         |        
|TOTAL CURRENT ASSETS                                                                                                        |                                                                                                            |   | 444,213      |         |          |   | 451,867 |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Property and equipment  at cost, less accumulated depreciation and
amortization of $111,517 and $102,124                   |                                                                                                            |   | 69,645       |         |          |   | 80,752  |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Acquired technologies, goodwill and other intangible assets  at cost, less
accumulated amortization of $30,746 and $28,865 |                                                                                                            |   | 18,759       |         |          |   | 16,472  |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Other assets                                                                                                                |                                                                                                            |   | 5,955        |         |          |   | 8,008   |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Deferred income taxes                                                                                                       |                                                                                                            |   | 14,107       |         |          |   | 13,294  |        
|                                                                                                                            |                                                                                                            |   |              |         |          |   |         |        
|TOTAL ASSETS                                                                                                                |                                                                                                            | $ | 552,679      |         |          | $ | 570,393 |        
|                                                                                                                            |                                                                                                            |   |              |         |          |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                        |                                                                                                            |   |              |         |          |   |         |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Current liabilities:                                                                                                        |                                                                                                            |   |              |         |          |   |         |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Accounts payable and accrued expenses                                                                      |   | $            | 46,118  |          |   | $       | 52,211  |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Accrued employee compensation and benefits                                                                 |   |              | 33,154  |          |   |         | 31,554  |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Deferred revenue                                                                                           |   |              | 79,424  |          |   |         | 100,234 |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Other liabilities                                                                                          |   |              | 11,101  |          |   |         | 13,727  |  
|                                                                                                                            |                                                                                                            |   |              |         |          |   |         |        
|TOTAL CURRENT LIABILITIES                                                                                                   |                                                                                                            |   | 169,797      |         |          |   | 197,726 |        
|                                                                                                                           
|Other long-term liabilities                                                                                                 |                                                                                                            |   | 11,476       |         |          |   | 14,303  |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Long-term debt                                                                                                              |                                                                                                            |   | 90,925       |         |          |   | 91,045  |        
|                                                                                                                           
|Stockholders equity:                                                                                                       |                                                                                                            |   |              |         |          |   |         |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Preferred stock  $.001 par value; 5,000 shares authorized;
none issued                                    |   |              |        |          |   |         |        |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Common stock  $.001 par value; 300,000 shares authorized;
34,145 and 33,715 shares issued and outstanding |   |              | 34      |          |   |         | 34      |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Additional paid-in capital                                                                                 |   |              | 219,032 |          |   |         | 212,952 |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Less treasury stock, at cost: 1,344 and 1,355 common shares                                                |   |              | (23,097 | )        |   |         | (23,270 | )
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Retained earnings                                                                                          |   |              | 94,165  |          |   |         | 88,599  |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Accumulated other comprehensive loss                                                                       |   |              | (9,653  | )        |   |         | (10,996 | )
|                                                                                                                            |                                                                                                            |   |              |         |          |   |         |        
|TOTAL STOCKHOLDERS EQUITY                                                                                                  |                                                                                                            |   | 280,481      |         |          |   | 267,319 |        
|                                                                                                                            |                                                                                                            |   |              |         |          |   |         |        
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |                                                                                                            | $ | 552,679      |         |          | $ | 570,393 |        
|                                                                                                                            |                                                                                                            |   |              |         |          |   |         |        

See accompanying notes to condensed consolidated financial statements.





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##### Table of Contents






Hyperion Solutions Corporation
Condensed Consolidated Statements of Income and Comprehensive Income (Loss)
(in thousands, except per share data)
(unaudited)

|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |         |       |  
|-------------------------------------------------------------------------- | ------------------------ | ----------------------------------------- | ------- | ------------------ | ---- | ---------------- | ------- | ------ | ---- | ---- | ------- | ------- | ---- | - | ------- | ------- | ----- | -
|                                                                           |                          |                                           |         | Three Months Ended |      | Six Months Ended
|                                                                           |                          |                                           |         | December 31,       |      | December 31,    
|                                                                           |                          |                                           |         |                    |      |                 
|                                                                           |                          |                                           |         | 2001               |      | 2000             |         | 2001   |      | 2000
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |     
|REVENUES                                                                   |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Software licenses        |                                           | $       | 46,190             |      |                  | $       | 64,330 |      |      | $       | 84,998  |      |   | $       | 109,353 |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Maintenance and services |                                           |         | 70,447             |      |                  |         | 70,128 |      |      |         | 146,298 |      |   |         | 140,159 |      
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|TOTAL REVENUES                                                             |                          |                                           | 116,637 |                    |      |                  | 134,458 |        |      |      | 231,296 |         |      |   | 249,512 |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|COSTS AND EXPENSES                                                         |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Cost of revenues:                                                          |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Software licenses        |                                           |         | 3,572              |      |                  |         | 5,178  |      |      |         | 6,567   |      |   |         | 8,969   |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Maintenance and services |                                           |         | 32,173             |      |                  |         | 34,885 |      |      |         | 66,021  |      |   |         | 70,581  |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Sales and marketing                                                        |                          |                                           | 43,528  |                    |      |                  | 52,763  |        |      |      | 84,795  |         |      |   | 101,303 |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Research and development                                                   |                          |                                           | 16,723  |                    |      |                  | 22,865  |        |      |      | 35,615  |         |      |   | 42,291  |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|General and administrative                                                 |                          |                                           | 15,571  |                    |      |                  | 19,972  |        |      |      | 31,169  |         |      |   | 36,578  |        
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|TOTAL COSTS AND EXPENSES                                                   |                          |                                           | 111,567 |                    |      |                  | 135,663 |        |      |      | 224,167 |         |      |   | 259,722 |        
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|OPERATING INCOME (LOSS)                                                    |                          |                                           | 5,070   |                    |      |                  | (1,205  | )      |      |      | 7,129   |         |      |   | (10,210 | )      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Interest income                                                            |                          |                                           | 1,925   |                    |      |                  | 3,807   |        |      |      | 4,067   |         |      |   | 7,563   |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Interest expense                                                           |                          |                                           | (1,168  | )                  |      |                  | (1,303  | )      |      |      | (2,329  | )       |      |   | (2,656  | )      
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|INCOME (LOSS) BEFORE INCOME TAXES                                          |                          |                                           | 5,827   |                    |      |                  | 1,299   |        |      |      | 8,867   |         |      |   | (5,303  | )      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Provision for (benefit from) income taxes                                  |                          |                                           | 2,098   |                    |      |                  | 493     |        |      |      | 3,192   |         |      |   | (2,016  | )      
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                                    |                          |                                           | 3,729   |                    |      |                  | 806     |        |      |      | 5,675   |         |      |   | (3,287  | )      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Extraordinary item  gain on redemption of debt,
net of income tax of $898 |                          |                                           |        |                    |      |                  | 1,464   |        |      |      |        |         |      |   | 1,464   |        
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|NET INCOME (LOSS)                                                          |                          | $                                         | 3,729   |                    |      | $                | 2,270   |        |      | $    | 5,675   |         |      | $ | (1,823  | )      
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|Other comprehensive income (loss)                                          |                          |                                           | (1,226  | )                  |      |                  | 813     |        |      |      | 1,343   |         |      |   | 526     |        
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|COMPREHENSIVE INCOME (LOSS)                                                |                          | $                                         | 2,503   |                    |      | $                | 3,083   |        |      | $    | 7,018   |         |      | $ | (1,297  | )      
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|EARNINGS (LOSS) PER SHARE                                                  |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Basic                    |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |         |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                          | Earnings (loss) before extraordinary item |         | $                  | 0.11 |                  |         | $      | 0.02 |      |         | $       | 0.17 |   |         | $       | (0.10 | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                          | Extraordinary gain                        |         |                    |     |                  |         |        | 0.05 |      |         |         |     |   |         |         | 0.04  |  
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                          | Basic earnings (loss) per share           |         | $                  | 0.11 |                  |         | $      | 0.07 |      |         | $       | 0.17 |   |         | $       | (0.06 | )
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|                                                                           | Diluted                  |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |         |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                          | Earnings (loss) before extraordinary item |         | $                  | 0.11 |                  |         | $      | 0.02 |      |         | $       | 0.17 |   |         | $       | (0.10 | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                          | Extraordinary gain                        |         |                    |     |                  |         |        | 0.05 |      |         |         |     |   |         |         | 0.04  |  
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           |                          | Diluted earnings (loss) per share         |         | $                  | 0.11 |                  |         | $      | 0.07 |      |         | $       | 0.17 |   |         | $       | (0.06 | )
|                                                                           |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                              |                          |                                           |         |                    |      |                  |         |        |      |      |         |         |      |   |         |        
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Basic                    |                                           |         | 32,724             |      |                  |         | 33,107 |      |      |         | 32,584  |      |   |         | 32,960  |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                           | Diluted                  |                                           |         | 33,128             |      |                  |         | 33,237 |      |      |         | 32,835  |      |   |         | 32,960  |      

See accompanying notes to condensed consolidated financial statements.





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##### Table of Contents






Hyperion Solutions Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |         |       | 
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------------- | ------- | ---------------- | ----- | ---- | ------- | ------- | ----- | 
|                                                                                         |                                                                          |                                                   |         | Six Months Ended
|                                                                                         |                                                                          |                                                   |         | December 31,    
|                                                                                         |                                                                          |                                                   |         |                 
|                                                                                         |                                                                          |                                                   |         | 2001             |       | 2000
|                                                                                         |                                                                          |                                                   |         |                  |       |     
|CASH FLOWS FROM OPERATING ACTIVITIES                                                     |                                                                          |                                                   |         |                  |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Net income (loss)                                                                        |                                                                          | $                                                 | 5,675   |                  |       | $    | (1,823  | )      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                          |                                                   |         |                  |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Gain on redemption of debt                                               |                                                   |         |                 |       |      |         | (2,362  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Depreciation and amortization                                            |                                                   |         | 16,482           |       |      |         | 18,996  |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Provision for accounts receivable allowance and returns                  |                                                   |         | 7,279            |       |      |         | 12,991  |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deferred income taxes                                                    |                                                   |         | (2,166           | )     |      |         | (3,110  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Changes in assets and liabilities:                                                       |                                                                          |                                                   |         |                  |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accounts receivable                                                      |                                                   |         | 47,603           |       |      |         | (8,246  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Prepaid expenses and other current assets                                |                                                   |         | 3,010            |       |      |         | (2,285  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other assets                                                             |                                                   |         | (265             | )     |      |         | 605     |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accounts payable and accrued expenses                                    |                                                   |         | (8,901           | )     |      |         | 9,761   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accrued employee compensation and benefits                               |                                                   |         | 1,400            |       |      |         | (1,123  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Income taxes payable                                                     |                                                   |         | 650              |       |      |         | 699     |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deferred revenue                                                         |                                                   |         | (21,741          | )     |      |         | (6,120  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other liabilities                                                        |                                                   |         | (2,626           | )     |      |         |        |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other long-term liabilities                                              |                                                   |         | (2,827           | )     |      |         |        |      
|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |        
|Net cash provided by operating activities                                                |                                                                          |                                                   | 43,573  |                  |       |      | 17,983  |        
|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                     |                                                                          |                                                   |         |                  |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Proceeds from maturity of investments, net                               |                                                   |         | 11,519           |       |      |         | 5,186   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Purchases of property and equipment, net                                 |                                                   |         | (2,647           | )     |      |         | (28,969 | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Purchases of intangible and other assets, net                            |                                                   |         | (4,818           | )     |      |         | (2,209  | )    
|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |        
|Net cash provided by (used in) investing activities                                      |                                                                          |                                                   | 4,054   |                  |       |      | (25,992 | )      
|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                     |                                                                          |                                                   |         |                  |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Principal payments on notes payable                                      |                                                   |         | (119             | )     |      |         | (94     | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Redemption of debt                                                       |                                                   |         |                 |       |      |         | (8,652  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Treasury stock transactions                                              |                                                   |         | 64               |       |      |         | (8,631  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Proceeds from exercise of stock options and employee stock purchase plan |                                                   |         | 5,550            |       |      |         | 7,431   |      
|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |        
|Net cash provided by (used in) financing activities                                      |                                                                          |                                                   | 5,495   |                  |       |      | (9,946  | )      
|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |        
|Effect of exchange rate on cash and cash equivalents                                     |                                                                          |                                                   | 1,998   |                  |       |      | 526     |        
|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |        
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                         |                                                                          |                                                   | 55,120  |                  |       |      | (17,429 | )      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Cash and cash equivalents at beginning of period                                         |                                                                          |                                                   | 232,904 |                  |       |      | 262,408 |        
|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                               |                                                                          | $                                                 | 288,024 |                  |       | $    | 244,979 |        
|                                                                                         |                                                                          |                                                   |         |                  |       |      |         |        
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                         |                                                                          |                                                   |         |                  |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Cash paid during the year for:                                           |                                                   |         |                  |       |      |         |         |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                          | Income taxes                                      |         | $                | 4,873 |      |         | $       | 1,109 | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                          | Interest                                          |         |                  | 2,082 |      |         |         | 2,483 | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Non-cash operating and financing activity:                               |                                                   |         |                  |       |      |         |         |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                          | Income tax benefit from exercise of stock options |         | $                | 387   |      |         | $       | 1,087 | 

See accompanying notes to condensed consolidated financial statements.





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##### Table of Contents






HYPERION SOLUTIONS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2001

1.     Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Accordingly, they
do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. However, management
believes that the disclosures are adequate to make the information presented
not misleading. In the opinion of management, all adjustments, consisting only
of normal recurring accruals, considered necessary for a fair presentation have
been included in the accompanying unaudited financial statements. Operating
results for the three and six month periods ended December 31, 2001 are not
necessarily indicative of the results that may be expected for the full year
ending June 30, 2002. For further information, refer to the consolidated
financial statements and accompanying notes for the year ended June 30, 2001
included in the Hyperion Solutions Corporation (Hyperion) report on Form
10-K.

Certain prior period amounts have been reclassified to conform to the current
period presentation.

2.     Revenue Recognition

Hyperion derives revenues from licensing its software products and providing
related maintenance and support, product installation and implementation, and
training services. Hyperion records revenue from licensing of software
products to end-users when there is persuasive evidence of an arrangement, the
fee is fixed and determinable, collection is reasonably assured and delivery of
the product (FOB shipping point or electronic distribution) has occurred as
prescribed by Statement of Position (SOP) No. 97-2, Software Revenue
Recognition. When contracts contain multiple elements, and for which vendor
specific objective evidence (VSOE) of fair value exists for the undelivered
elements, Hyperion recognizes revenue for the delivered elements based upon the
residual method, in accordance with SOP No. 98-9, Modifications of SOP No.
97-2 with Respect to Certain Transactions. Undelivered elements consist
primarily of maintenance and support and other services such as consulting and
training. VSOE of fair value for annual maintenance and support contracts is
established with the optional stated future renewal rates included in the
contracts. VSOE of fair value for the services element is based upon the
standard hourly rates Hyperion charges for services when such services are sold
separately. Services are generally not considered essential to the
functionality of the software. Hyperion recognizes revenue allocated to
maintenance and support ratably over the period of the maintenance and support
contracts, which is generally twelve months. For revenue related to consulting
and training services, Hyperion recognizes revenue as the related services are
performed. In instances where services are deemed essential to the software,
both the software license fee and consulting fees are recognized using the
percentage-of-completion method of contract accounting in accordance with SOP
No. 81, Accounting for Performance of Construction-Type and Certain
Product-Type Contracts and Accounting Research Bulletin (ARB) No. 45,
Long-Term Construction-Type Contracts.

Revenues from reseller arrangements are recognized on the sell-through
method, when the reseller reports to Hyperion the sale of Hyperions software
products to end-users. Hyperions agreements with its customers and resellers
do not contain product return rights.

3.     Earnings Per Share

Earnings per share (EPS) is computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Basic
EPS is computed by dividing net income (loss) available to common stockholders
by the weighted average number of common shares outstanding during the period.
Diluted EPS is computed using the weighted average number of shares of common
stock and potentially dilutive securities outstanding during the period.
Potentially dilutive securities consist of stock options (using the treasury
stock method) and shares issuable upon conversion of the convertible
subordinated notes (using the if-converted method). Potentially dilutive
securities are excluded from the computation if the effect is antidilutive.





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##### Table of Contents



The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands, except per share data):

|                                                                                       |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |       |  
|-------------------------------------------------------------------------------------- | ----------------------------------------- | - | ------------------ | ---- | ---------------- | - | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ----- | -
|                                                                                       |                                           |   | Three Months Ended |      | Six Months Ended
|                                                                                       |                                           |   | December 31,       |      | December 31,    
|                                                                                       |                                           |   |                    |      |                 
|                                                                                       |                                           |   | 2001               |      | 2000             |   | 2001   |      | 2000
|                                                                                       |                                           |   |                    |      |                  |   |        |      |     
|Numerator  net income (loss) before extraordinary item                                |                                           | $ | 3,729              |      |                  | $ | 806    |      |      | $ | 5,675  |      |  | $ | (3,287 | )    
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Numerator  extraordinary item  gain on redemption of debt,
net of income tax of $898 |                                           |   |                   |      |                  |   | 1,464  |      |      |   |       |      |  |   | 1,464  |      
|                                                                                       |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      
|Numerator  net income (loss)                                                          |                                           | $ | 3,729              |      |                  | $ | 2,270  |      |      | $ | 5,675  |      |  | $ | (1,823 | )    
|                                                                                       |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      
|Denominator for basic EPS  weighted-average shares                                    |                                           |   | 32,724             |      |                  |   | 33,107 |      |      |   | 32,584 |      |  |   | 32,960 |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Effect of dilutive securities:                                                         |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Stock option rights                                                                    |                                           |   | 404                |      |                  |   | 130    |      |      |   | 251    |      |  |   |       |      
|                                                                                       |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      
|Denominator for diluted EPS  adjusted
weighted-average shares and assumed conversions |                                           |   | 33,128             |      |                  |   | 33,237 |      |      |   | 32,835 |      |  |   | 32,960 |      
|                                                                                       |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      
|Basic                                                                                 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Earnings (loss) before extraordinary item |   | $                  | 0.11 |                  |   | $      | 0.02 |      |   | $      | 0.17 |  |   | $      | (0.10 | )
|                                                                                       | Extraordinary gain                        |   |                    |     |                  |   |        | 0.05 |      |   |        |     |  |   |        | 0.04  |  
|                                                                                       |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|
|                                                                                       | Basic earnings (loss) per share           |   | $                  | 0.11 |                  |   | $      | 0.07 |      |   | $      | 0.17 |  |   | $      | (0.06 | )
|                                                                                       |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Earnings (loss) before extraordinary item |   | $                  | 0.11 |                  |   | $      | 0.02 |      |   | $      | 0.17 |  |   | $      | (0.10 | )
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Extraordinary gain                        |   |                    |     |                  |   |        | 0.05 |      |   |        |     |  |   |        | 0.04  |  
|                                                                                       |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Diluted earnings (loss) per share         |   | $                  | 0.11 |                  |   | $      | 0.07 |      |   | $      | 0.17 |  |   | $      | (0.06 | )
|                                                                                       |                                           |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      

For the three-month period ended December 31, 2001 and 2000, certain stock
option rights of 5.4 million and 6.8 million common shares were excluded from
the diluted EPS calculation because their effect would be antidilutive. For the
six-month period ended December 31, 2001, certain stock option rights totaling
5.7 million were excluded from the diluted EPS calculation for the above
reason. For the six-month period ending December 31, 2000, all stock option
rights of 7.9 million were excluded because their effect would be antidilutive
as a result of the net loss. Similarly, 1.6 million shares of common stock
issuable upon conversion of the convertible subordinated notes due 2005 have
been excluded from the diluted EPS calculation for all periods presented.

4.     Contingencies

From time to time, in the normal course of business, various claims are made
against Hyperion. 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, results of operations and cash flows of
Hyperion.

5.    Restructuring

In June 2001, Hyperion announced a corporate restructuring plan designed to
bring costs more in line with revenues and strengthen the financial performance
of the business. The restructuring plan included a company-wide initiative to
align personnel with Hyperions new strategy, which resulted in a reduction of
the workforce by approximately 300 or 12% of the worldwide headcount which was
complete as of September 30, 2001. Employee groups impacted by the
restructuring included personnel involved in corporate services, product
business units, sales and customer support. In addition, Hyperion has
consolidated certain facilities and exited other facilities.

The restructuring reserve balance declined by $2.0 million and $5.5 million in
the three and six months ended December 31, 2001. The decrease was primarily
due to cash paid for severance and employee costs of $1.1 million and $3.9
million and real estate exit costs of $0.8 million and $1.2 million for the
three and six months ended December 31, 2001, respectively.
The





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##### Table of Contents



balance at December 31, 2001, of $22.5 million, relates primarily to future
lease obligations of $16.6 million and employee separation payments of $1.9
million, is included in Other liabilities and Other long-term liabilities in
the accompanying condensed consolidated balance sheets.

6.    Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations which supercedes Accounting Principles Board
(APB) Opinion No. 16, Business Combinations. SFAS No. 141 requires the
purchase method of accounting for business combinations initiated after June
30, 2001 and eliminates the pooling-of-interests method. In addition, SFAS No.
141 establishes specific criteria for the recognition of intangible assets
separately from goodwill and requires unallocated negative goodwill to be
written off immediately as an extraordinary gain. The adoption of the
provisions of SFAS No. 141, effective July 1, 2001, did not have a material
impact on Hyperions financial position, results of operations or cash flows.

In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 supercedes APB Opinion No. 17 Intangible Assets and
requires, among other things, the discontinuance of amortization related to
goodwill and indefinite lived intangible assets. These assets will then be
subject to an impairment test at least annually. In addition, the standard
includes provisions upon adoption for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles and reclassification of certain intangibles out
of previously reported goodwill. Hyperion adopted SFAS No. 142 effective July
1, 2001, which resulted in Hyperion no longer amortizing its existing goodwill
balance of $10.5 million.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of. Although retaining many of the fundamental recognition and
measurement provisions of SFAS No. 121, the new rules significantly change the
criteria that would have to be met to classify an asset as held-for-sale. The
statement also supersedes certain provisions of APB Opinion No. 30, Reporting
the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, and will require expected future operating losses from
discontinued operations to be displayed in discontinued operations in the
period(s) in which the losses are incurred rather than as of the measurement
date, as presently required. As required by SFAS No. 144, Hyperion will adopt
this new statement on July 1, 2002. Hyperion is currently evaluating this
statement but does not expect that it will have a material impact on our
financial position, results of operations or cash flows.

In November 2001, the FASB issued a Staff Announcement that will require
classification of reimbursements for out-of-pocket expenses incurred as
revenue in the income statement. This Announcement will be effective for
reporting periods beginning after December 15, 2001. Upon application of this
Announcement, Hyperion will no longer record out-of-pocket
expense reimbursements as a reduction of costs incurred and comparative financial
statements from prior periods will be reclassified. Hyperion adopted this
Announcement effective January 1, 2002.

7.     Segment and Geographical Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information established standards for reporting information about operating
segments in Hyperions financial statements. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance. Hyperion has identified one industry segment: the development and
marketing of enterprise analytic application software and related services.
This segment operates in four geographic regions: North America, Europe, Asia
Pacific and Latin America. Hyperions products are marketed internationally
through Hyperions direct sales force, independent distributors and application
resellers.

Enterprise-wide information is provided in accordance with SFAS No. 131.
Geographic sales information is primarily based on the ordering location of the
customer. Long-lived asset information is based on the physical location of
the assets.

The significant accounting policies of the reportable segments are the same as
those summarized in Hyperions annual report on Form 10-K filed on September
14, 2001.





---



##### Table of Contents



The following table is a breakdown of financial information by geographic area
(in thousands): (1)

|                                     |  |         |         |        |  |         |        |         |  |       |        |  |  |   |       |  |  |   |         |  
|------------------------------------ |  | ------- | ------- | ------ |  | ------- | ------ | ------- |  | ----- | ------ |  |  | - | ----- |  |  | - | ------- | -
|                                     |  | North   |         |        |  |         |        | Asia    |  | Latin |        |  |  |  
|                                     |  | America |         | Europe |  | Pacific |        | America |  | Total
|                                     |  |         |         |        |  |         |        |         |  |      
|Three Months Ended December 31, 2001 |  |         |         |        |  |         |        |         |  |       |        |  |  |   |       |  |  |   |         |  
|                                    
|                                    
|                                    
|                                    
|Total revenues                       |  | $       | 71,629  |        |  | $       | 35,807 |         |  | $     | 7,231  |  |  | $ | 1,970 |  |  | $ | 116,637 |  
|                                    
|                                    
|                                    
|                                    
|Operating income (loss)              |  |         | (10,536 | )      |  |         | 11,063 |         |  |       | 3,394  |  |  |   | 1,149 |  |  |   | 5,070   |  
|                                    
|                                    
|                                    
|                                    
|Long-lived assets                    |  |         | 60,548  |        |  |         | 7,690  |         |  |       | 1,201  |  |  |   | 206   |  |  |   | 69,645  |  
|                                    
|                                    
|                                    
|                                    
|Three Months Ended December 31, 2000 |  |         |         |        |  |         |        |         |  |       |        |  |  |   |       |  |  |   |         |  
|                                    
|                                    
|                                    
|                                    
|Total revenues                       |  | $       | 93,907  |        |  | $       | 32,192 |         |  | $     | 7,509  |  |  | $ | 850   |  |  | $ | 134,458 |  
|                                    
|                                    
|                                    
|                                    
|Operating income (loss)              |  |         | (13,851 | )      |  |         | 9,405  |         |  |       | 2,845  |  |  |   | 396   |  |  |   | (1,205  | )
|                                    
|                                    
|                                    
|                                    
|Long-lived assets                    |  |         | 77,717  |        |  |         | 7,693  |         |  |       | 1,420  |  |  |   |      |  |  |   | 86,830  |  
|                                    
|                                    
|                                    
|                                    
|Six Months Ended December 31, 2001   |  |         |         |        |  |         |        |         |  |       |        |  |  |   |       |  |  |   |         |  
|                                    
|                                    
|                                    
|                                    
|Total revenues                       |  | $       | 147,920 |        |  | $       | 66,405 |         |  | $     | 13,644 |  |  | $ | 3,327 |  |  | $ | 231,296 |  
|                                    
|                                    
|                                    
|                                    
|Operating income (loss)              |  |         | (19,854 | )      |  |         | 19,028 |         |  |       | 5,939  |  |  |   | 2,016 |  |  |   | 7,129   |  
|                                    
|                                    
|                                    
|                                    
|Long-lived assets                    |  |         | 60,548  |        |  |         | 7,690  |         |  |       | 1,201  |  |  |   | 206   |  |  |   | 69,645  |  
|                                    
|                                    
|                                    
|                                    
|Six Months Ended December 31, 2000   |  |         |         |        |  |         |        |         |  |       |        |  |  |   |       |  |  |   |         |  
|                                    
|                                    
|                                    
|                                    
|Total revenues                       |  | $       | 171,891 |        |  | $       | 60,661 |         |  | $     | 14,969 |  |  | $ | 1,991 |  |  | $ | 249,512 |  
|                                    
|                                    
|                                    
|                                    
|Operating income (loss)              |  |         | (35,281 | )      |  |         | 17,949 |         |  |       | 5,920  |  |  |   | 1,202 |  |  |   | (10,210 | )
|                                    
|                                    
|                                    
|                                    
|Long-lived assets                    |  |         | 77,717  |        |  |         | 7,693  |         |  |       | 1,420  |  |  |   |      |  |  |   | 86,830  |  



---

|(1) |  | Certain segment data related to prior periods has been reclassified to
conform to the current year presentation.
|--- |  | ----------------------------------------------------------------------------------------------------------------

The following table presents revenues for groups of similar products and
services (in thousands):

|                                       |                                |   |                    |        |                  |   |         |        |      |   |         |        |  |   |         |        | 
|-------------------------------------- | ------------------------------ | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                                       |                                |   | Three Months Ended |        | Six Months Ended
|                                       |                                |   | December 31,       |        | December 31,    
|                                       |                                |   |                    |        |                 
|                                       |                                |   | 2001               |        | 2000             |   | 2001    |        | 2000
|                                       |                                |   |                    |        |                  |   |         |        |     
|Software Licenses                      |                                |   |                    |        |                  |   |         |        |      |   |         |        |  |   |         |       
|                                      
|                                      
|                                      
|                                      
|                                       | Technology Products            |   | $                  | 22,598 |                  |   | $       | 35,043 |      |   | $       | 45,695 |  |   | $       | 60,669 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Financial Application Products |   |                    | 23,592 |                  |   |         | 29,287 |      |   |         | 39,303 |  |   |         | 48,684 | 
|                                       |                                |   |                    |        |                  |   |         |        |      |   |         |        |  |   |         |       
|Total Software License Revenue         |                                |   | 46,190             |        |                  |   | 64,330  |        |      |   | 84,998  |        |  |   | 109,353 |       
|                                      
|Maintenance and Services               |                                |   |                    |        |                  |   |         |        |      |   |         |        |  |   |         |       
|                                      
|                                      
|                                      
|                                      
|                                       | Maintenance                    |   | 44,884             |        |                  |   | 39,276  |        |      |   | 88,760  |        |  |   | 79,334  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Consulting and training        |   |                    | 25,563 |                  |   |         | 30,852 |      |   |         | 57,538 |  |   |         | 60,825 | 
|                                       |                                |   |                    |        |                  |   |         |        |      |   |         |        |  |   |         |       
|Total Maintenance and Services Revenue |                                |   | 70,447             |        |                  |   | 70,128  |        |      |   | 146,298 |        |  |   | 140,159 |       
|                                       |                                |   |                    |        |                  |   |         |        |      |   |         |        |  |   |         |       
|                                      
|                                      
|                                      
|                                      
|Total Revenues                         |                                | $ | 116,637            |        |                  | $ | 134,458 |        |      | $ | 231,296 |        |  | $ | 249,512 |       
|                                       |                                |   |                    |        |                  |   |         |        |      |   |         |        |  |   |         |        | 





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##### Table of Contents



HYPERION SOLUTIONS CORPORATION




ITEM 2.     MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain information contained in this Quarterly Report on Form 10-Q is
forward-looking in nature. All statements included in this Quarterly Report on
Form 10-Q or made by management of Hyperion Solutions Corporation and its
subsidiaries (Hyperion), other than statements of historical fact, are
forward-looking statements. Examples of forward-looking statements include
statements regarding Hyperions future financial results, operating results,
business strategies, projected costs, products, competitive positions and plans
and objectives of management for future operations. In some cases,
forward-looking statements can be identified by terminology such as may,
will, should, would, expects, plans, anticipates, intends,
believes, estimates, predicts, potential, continue, or the negative
of these terms or other comparable terminology. Any expectations based on these
forward-looking statements are subject to risks and uncertainties and other
important factors, including those discussed in the section below entitled
Risk Factors. Other risks and uncertainties are disclosed in Hyperions
prior SEC filings, including its Annual Report on Form 10-K for the fiscal year
ended June 30, 2001. These and many other factors could affect Hyperions
future financial and operating results, and could cause actual results to
differ materially from expectations based on forward-looking statements made in
this document or elsewhere by Hyperion or on its behalf. Hyperion does not
undertake an obligation to update its forward-looking statements to reflect
future events or circumstances.

OVERVIEW

Hyperion develops, markets and supports business intelligence software, which
helps turn raw data into business information. Hyperions products and services
enable companies and their employees to plan, manage and execute business
strategies to measure performance and drive profitability, and ultimately
create value for their shareholders.

Hyperions products analyze the raw data captured in operational systems, which
improves the return on investment that organizations have made in enterprise
resource planning (ERP), supply chain management (SCM), customer
relationship management (CRM), marketing automation, Web and e-commerce
systems and data warehouses.

Hyperion offers customers an open, scalable, flexible and integrated business
intelligence platform which consists of technology products and financial
applications. Technology products include: Hyperion online analytical
processing (OLAP) Essbase server (its OLAP server technology), Hyperion
tools, incorporating domain-specific business rules, data storage, integration,
interoperability and visualization capabilities. Financial applications
include financial and business performance management products that provide
customers the opportunity to strategize, model, plan and measure performance.
Taken together, Hyperion and its more than 400 partners offer a suite of
business intelligence solutions that are compelling in the industry and help
customers measure performance and drive profitability.

Hyperion derives revenues from licensing its software products and providing
related maintenance and support, product installation and implementation and
training services. Customers are billed an initial license fee for the software
upon delivery. An optional maintenance and support fee entitling customers to
routine support and product updates is billed annually. Services revenues
consist of product installation, implementation and training services and are
generally billed on a time-and-materials basis.

RESULTS OF OPERATIONS

REVENUES

|                                             |                       |      |              |          |              |      |                    |          |   |      |         |          |      |      |     |          |                  |   |         |        |  |  |     |    |      |   |         |        |  |  |     |    |  
|-------------------------------------------- | --------------------- | ---- | ------------ | -------- | ------------ | ---- | ------------------ | -------- | - | ---- | ------- | -------- | ---- | ---- | --- | -------- | ---------------- | - | ------- | ------ |  |  | --- | -- | ---- | - | ------- | ------ |  |  | --- | -- | -
|                                             |                       |      |              |          |              |      | Three Months Ended |          |   |      |         |          |      |      |     |          | Six Months Ended |   |         |        | 
|                                             |                       |      | December 31, |          | December 31,
|                                             |                       |      |              |          |             
|                                             |                       |      |              |          |              |      | % of               |          |   |      |         |          | % of |      |     |          |                  |   | % of    |        |  |  |     |    | % of
|(in thousands)                               |                       | 2001 |              | revenues |              | 2000 |                    | revenues |   | 2001 |         | revenues |      | 2000 |     | revenues
|                                             |                       |      |              |          |              |      |                    |          |   |      |         |          |      |      |     |         
|Software licenses                            |                       | $    | 46,190       |          |              |      | 40                 | %        |   | $    | 64,330  |          |      |      | 48  | %        |                  | $ | 84,998  |        |  |  | 37  | %  |      | $ | 109,353 |        |  |  | 44  | % 
|                                            
|                                            
|                                            
|                                            
|Maintenance and services
Maintenance revenue |                       |      | 44,884       |          |              |      | 38                 | %        |   |      | 39,276  |          |      |      | 29  | %        |                  |   | 88,760  |        |  |  | 38  | %  |      |   | 79,334  |        |  |  | 32  | % 
|                                            
|                                            
|                                            
|                                            
|                                             | Consulting & training |      |              | 25,563   |              |      |                    | 22       | % |      |         | 30,852   |      |      |     | 23       | %                |   |         | 57,538 |  |  |     | 25 | %    |   |         | 60,825 |  |  |     | 24 | %
|                                             |                       |      |              |          |              |      |                    |          |   |      |         |          |      |      |     |          |                  |   |         |        |  |  |     |    |      |   |         |        |  |  |     |   
|                                             |                       |      | 70,447       |          |              |      | 60                 | %        |   |      | 70,128  |          |      |      | 52  | %        |                  |   | 146,298 |        |  |  | 63  | %  |      |   | 140,159 |        |  |  | 56  | % 
|                                             |                       |      |              |          |              |      |                    |          |   |      |         |          |      |      |     |          |                  |   |         |        |  |  |     |    |      |   |         |        |  |  |     |   
|                                            
|                                            
|                                            
|                                            
|Total Revenues                               |                       | $    | 116,637      |          |              |      | 100                | %        |   | $    | 134,458 |          |      |      | 100 | %        |                  | $ | 231,296 |        |  |  | 100 | %  |      | $ | 249,512 |        |  |  | 100 | % 
|                                             |                       |      |              |          |              |      |                    |          |   |      |         |          |      |      |     |          |                  |   |         |        |  |  |     |    |      |   |         |        |  |  |     |   





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##### Table of Contents



Total revenues declined by 13% and 7% for the three and six months ended
December 31, 2001 over the corresponding prior period. We expect that total
revenues for the third quarter of fiscal 2002 will be relatively flat as
compared to the second quarter as a result of the seasonal nature of our
business and the impact on technology spending given the continued weakened
economy.

Software license revenues declined by 28% and 22% in the second quarter and
first half of fiscal 2002 compared to the corresponding prior year periods.
This decline was primarily attributable to continued economic uncertainty in
North America and delays in the acceptance of our newest products, thus resulting in a reduction in the number of units sold and a
slightly lower average transaction size for the quarter ($106
thousand for fiscal 2002
vs. $110 thousand for fiscal 2001). The split between technology products and
financial application revenues was 49% - 51% and 55% - 45% in the second quarter of fiscal
2002 and 2001, respectively. The six-month split was 54% - 46% and 56% -
44% for December 31, 2001 and 2000, respectively.  While technology license revenue is generated from Hyperion
Essbase and related tools, financial application
revenue is generated from our packaged financial and business performance
applications. The shift in revenue mix is primarily due to improved sales growth of our financial application products. We continue to
work with our customers to gain acceptance for our newest financial application
products.

We market our products through our direct sales force and indirect
channel partners. Historically, we have generated the majority of our revenue
from the direct sales force. We continue to focus on complementing the
direct sales force with indirect channel partners, which consist of Original
Equipment Manufacturers (OEMs), Value Added Resellers (VARs), independent
distributors and sales agents. Revenue from all indirect channel partners
comprised 24% and 19% of license revenue in the second quarter of fiscal 2002
and 2001, respectively. For the six months ended December 31, 2001 and 2000,
the indirect channel partner revenues were 26% and 23% of license
revenue, respectively. The
increase in the percentage of total license revenue derived through our channel
partners quarter over quarter and year over year was primarily due to a greater
emphasis on effectively leveraging our channel partners and the relative
weakness in direct sales for the first quarter of fiscal 2002. This increase
continues to bring us closer to the direct sales force and indirect channel
partners revenue split percentage of 66% - 33% which we believe would be
optimal. No single partner represented more than 10 percent of total revenue
during the quarter, which is consistent with fiscal 2001.

Maintenance and services revenue remained relatively flat on a
quarter-to-quarter basis, and increased by 4% year over year. Maintenance revenues for the three and six months ended December
31, 2001 increased 14% and 12%, respectively, over the corresponding
prior year periods. The increase in maintenance revenue is mainly
attributable to the year-to-year growth of Hyperions installed customer base. Consulting and
training revenues decreased by 17% for the three months ended December 31, 2001
as compared to the corresponding prior period, which is primarily related to
low first quarter license revenues which impacts the second quarter maintenance
and services revenues, customers reducing discretionary spending due to the
continued economic slowdown and the emphasis on strengthening our partner
relationships.

North America revenues decreased by 24% and 14% during the three and six month
periods ended December 31, 2001,
respectively, from the corresponding prior year periods due to continued weakening economic conditions in the United
States. Total revenues generated from markets outside North America, including
export sales, for the second quarter of fiscal 2002 and 2001 were $45.0 million
and $40.6 million, or 39% and 30% of total revenues, respectively. For the
six months ended December 31, 2001 and 2000, international revenues were $83.4
million and $77.6 million, or 36% and 31% of total revenues, respectively.
This increase in international revenues in absolute dollars and as a percentage
of total revenues is primarily attributable to our operations in Europe and to
a lesser extent in Latin America.

COST OF REVENUES

|                         |  |                    |        |                  |  |       |    |          |  |      |        |          |  |      |    |          |  |       |        |  |  |  |    |       |  |   |        |  |  |  |    |  
|------------------------ |  | ------------------ | ------ | ---------------- |  | ----- | -- | -------- |  | ---- | ------ | -------- |  | ---- | -- | -------- |  | ----- | ------ |  |  |  | -- | ----- |  | - | ------ |  |  |  | -- | -
|                         |  | Three Months Ended |        | Six Months Ended
|                         |  | December 31,       |        | December 31,    
|                         |  |                    |        |                 
|                         |  |                    |        |                  |  | Gross |    |          |  |      |        | Gross    |  |      |    |          |  | Gross |        |  |  |  |    | Gross
|(in thousands)           |  | 2001               |        | Profit %         |  | 2000  |    | Profit % |  | 2001 |        | Profit % |  | 2000 |    | Profit %
|                         |  |                    |        |                  |  |       |    |          |  |      |        |          |  |      |    |         
|Software licenses        |  | $                  | 3,572  |                  |  |       | 92 | %        |  | $    | 5,178  |          |  |      | 92 | %        |  | $     | 6,567  |  |  |  | 92 | %     |  | $ | 8,969  |  |  |  | 92 | %
|                        
|                        
|                        
|                        
|Maintenance and services |  |                    | 32,173 |                  |  |       | 54 | %        |  |      | 34,885 |          |  |      | 50 | %        |  |       | 66,021 |  |  |  | 55 | %     |  |   | 70,581 |  |  |  | 50 | %

Software Licenses. Cost of software license revenues consists primarily of
royalty expenses, cost of product packaging and documentation materials,
amortization of capitalized software costs and amortization of certain
intangible assets related to business acquisitions. The amortization of
capitalized software costs begins upon the general release of the software to
customers. The decrease in the cost of software licenses in fiscal 2002 quarter
over quarter and year over year principally reflects a decrease in royalty
payments to third parties for software supplied by them and distributed by
Hyperion as a result of lower sales volume. The cost as a percentage of software revenues
was 8% for the second quarter and first half of fiscal 2002 and 2001.

In the first half of fiscal 2002 and 2001, Hyperion capitalized $0.3 million
and $1.0 million of software development costs, respectively, in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.
The amounts capitalized relate to Hyperions development and





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##### Table of Contents



localization of its OLAP server technology, tools and analytic application
solutions. Capitalized software costs are amortized over the estimated economic
life of the product, but generally not for more than three years.

Maintenance and Services. The decrease of 8% and 6% in the cost of maintenance
and service revenues for the three and six months ended
December 31, 2001 over the corresponding prior periods, was due
to a decrease in the utilization of independent contractors and
a decrease of employee and related expenses primarily as a result of our restructuring in
the fourth quarter of fiscal 2001. The continued gross margin improvement on
maintenance and services is a direct reflection of our focus on margin
improvement and the results of rebalancing our cost structure.

OPERATING EXPENSES

|                           |  |              |        |              |  |                    |    |          |  |      |        |          |  |      |    |                  |  |      |         |  |  |  |    |      |  |   |         |  |  |  |    |  
|-------------------------- |  | ------------ | ------ | ------------ |  | ------------------ | -- | -------- |  | ---- | ------ | -------- |  | ---- | -- | ---------------- |  | ---- | ------- |  |  |  | -- | ---- |  | - | ------- |  |  |  | -- | -
|                           |  |              |        |              |  | Three Months Ended |    |          |  |      |        |          |  |      |    | Six Months Ended |  |      |         | 
|                           |  | December 31, |        | December 31,
|                           |  |              |        |             
|                           |  |              |        |              |  | % of               |    |          |  |      |        | % of     |  |      |    |                  |  | % of |         |  |  |  |    | % of
|(in thousands)             |  | 2001         |        | revenues     |  | 2000               |    | revenues |  | 2001 |        | revenues |  | 2000 |    | revenues        
|                           |  |              |        |              |  |                    |    |          |  |      |        |          |  |      |    |                 
|Sales and marketing        |  | $            | 43,528 |              |  |                    | 37 | %        |  | $    | 52,763 |          |  |      | 39 | %                |  | $    | 84,795  |  |  |  | 37 | %    |  | $ | 101,303 |  |  |  | 41 | %
|                          
|                          
|                          
|                          
|Research and development   |  |              | 16,723 |              |  |                    | 14 | %        |  |      | 22,865 |          |  |      | 17 | %                |  |      | 35,615  |  |  |  | 15 | %    |  |   | 42,291  |  |  |  | 17 | %
|                          
|                          
|                          
|                          
|General and administrative |  |              | 15,571 |              |  |                    | 13 | %        |  |      | 19,972 |          |  |      | 15 | %                |  |      | 31,169  |  |  |  | 13 | %    |  |   | 36,578  |  |  |  | 15 | %
|                           |  |              |        |              |  |                    |    |          |  |      |        |          |  |      |    |                  |  |      |         |  |  |  |    |      |  |   |         |  |  |  |    |  
|Total operating expenses   |  | $            | 75,822 |              |  |                    |    |          |  | $    | 95,600 |          |  |      |    |                  |  | $    | 151,579 |  |  |  |    |      |  | $ | 180,172 |  |  |  |    |  
|                           |  |              |        |              |  |                    |    |          |  |      |        |          |  |      |    |                  |  |      |         |  |  |  |    |      |  |   |         |  |  |  |    |  

Total operating expenses declined 21% and 16% in
absolute dollars for the three and six months
ending December 31, 2001 over the corresponding prior periods, reflecting the strong focus on
controlling our costs. Operating expenses may increase in the third quarter of
fiscal 2002 as compared to the second quarter due to the payroll and related
social costs that commence on January 1 and increased marketing spending.

Sales and Marketing. The decrease in
absolute dollars of 18% in the three months ended December
31, 2001, over the corresponding prior period, was primarily attributable to
decreased marketing expense of $3.5 million, reduced sales commissions of $4.3
million due to lower software revenues as discussed above and decreased
business travel and related expenditures of $2.0 million as a result of our
efforts to control costs. The decrease in absolute dollars of 16% in the six months ended December
31, 2001, over the corresponding prior period, was primarily attributable to
decreased marketing expense of $7.3 million and reduced sales commissions of
$4.8 million due to lower software revenues.

Research and Development. The decrease of 27% and 16% in absolute dollars for
the three and six months ended December 31, 2001, over the corresponding prior
periods, is primarily due to a decrease in the utilization of independent
contractors of $3.1 million and $4.5 million, respectively. We have focused
our efforts in research and development on our core products, thereby reducing
our reliance on independent contractors and reducing operating costs.

General and administrative. The decrease in absolute dollars of 22% for the
three months ended December 31, 2001, over the corresponding prior period, was
due primarily to a decrease in bad debt expense of $1.3 million, decreased
professional services of $2.1 million and a decrease of $0.9 million in
independent contractor expenditures. The decrease in absolute dollars of 15%
for the six months ended December 31, 2001, over the corresponding prior
period, was due primarily to a decrease in bad debt expense of $2.1 million,
decreased professional services of $2.2 million and a decrease of $1.2 million
in independent contractor expenditures. Such decreases are the direct
result of our reduction in discretionary spending, as well as our
focus on invoicing and collection process improvements.

Operating Margin.We achieved a 4% and 3% operating margin for the three and
six months ended December 31, 2001, as compared to (1%) and (4%) for the three
and six months ended December 31, 2000. For the first quarter of fiscal 2002
our operating margin was 2%. This increase is bringing us closer to our goal
of 10% and is primarily due to our increased focus on controlling costs,
increased efficiency, cost savings from our restructuring in the fourth quarter
of fiscal 2001 and gross margin improvement on maintenance and
services as noted above.

PROVISION FOR INCOME TAXES

Hyperions effective income tax rate was 36% for the first and second quarters
ended December 31, 2001 as compared to 38% for the first and second quarters
ended December 31, 2000. The decrease in the effective income tax rate is
attributable to the elimination of a permanent difference related to the
amortization of goodwill, and a change in the geographical mix of income.
Hyperions expected effective tax rate for the remainder of fiscal 2002 is 36%.





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##### Table of Contents



EXTRAORDINARY GAIN

During the quarter ended December 31, 2000, Hyperion repurchased convertible
long-term notes with a face value of $11.3 million at a total cost of $8.7
million resulting in an extraordinary gain of approximately $1.5 million, after
income taxes, or approximately $.05 per share. There was no such transaction
for the second quarter of fiscal 2002.

NET INCOME (LOSS)

As a result of the above factors, Hyperion had net income of $3.7 million or
$0.11 cents per diluted share for the three-month period ended December 31,
2001, compared to net income of $2.3 million or $0.07 cents per diluted share
for the corresponding prior year period. For the six-month period ended December
31, 2001 and 2000, Hyperion had net income of $5.7 million and a net loss of
$1.8 million, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations which supercedes Accounting Principles Board
(APB) Opinion No. 16, Business Combinations. SFAS No. 141 requires the
purchase method of accounting for business combinations initiated after June
30, 2001 and eliminates the pooling-of-interests method. In addition, SFAS No.
141 establishes specific criteria for the recognition of intangible assets
separately from goodwill and requires unallocated negative goodwill to be
written off immediately as an extraordinary gain. The adoption of the
provisions of SFAS No. 141, effective July 1, 2001, did not have a material
impact on Hyperions financial position, results of operations or cash flows.

In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 supercedes APB Opinion No. 17 Intangible Assets and
requires, among other things, the discontinuance of amortization related to
goodwill and indefinite lived intangible assets. These assets will then be
subject to an impairment test at least annually. In addition, the standard
includes provisions upon adoption for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles and reclassification of certain intangibles out
of previously reported goodwill. Hyperion adopted SFAS No. 142 effective July
1, 2001, which resulted in Hyperion no longer amortizing its existing goodwill
balance of $10.5 million.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of. Although retaining many of the fundamental recognition and
measurement provisions of SFAS No. 121, the new rules significantly change the
criteria that would have to be met to classify an asset as held-for-sale. The
statement also supersedes certain provisions of APB Opinion No. 30, Reporting
the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, and will require expected future operating losses from
discontinued operations to be displayed in discontinued operations in the
period(s) in which the losses are incurred rather than as of the measurement
date, as presently required. As required by SFAS No. 144, Hyperion will adopt
this new statement on July 1, 2002. Hyperion is currently evaluating this
statement but does not expect that it will have a material impact on our
financial position, results of operations or cash flows.

In November 2001, the FASB issued a Staff Announcement that will require
classification of reimbursements for out-of-pocket expenses incurred as
revenue in the income statement. This Announcement will be effective for
reporting periods beginning after December 15, 2001. Upon application of this
Announcement, Hyperion will no longer record out-of-pocket expense
reimbursements as a reduction of costs incurred and comparative financial
statements from prior periods will be reclassified. Hyperion adopted this
Announcement effective January 1, 2002.

LIQUIDITY AND CAPITAL RESOURCES

|                                                    |  |              |         |        |  |                  |     |   |  |   |         |  
|--------------------------------------------------- |  | ------------ | ------- | ------ |  | ---------------- | --- | - |  | - | ------- | -
|                                                    |  |              |         |        |  | Six Months Ended |     |   |  |  
|                                                    |  | December 31,
|                                                    |  |             
|                                                    |  |              |         |        |  | %                |     |   |  |  
|(in thousands)                                      |  | 2001         |         | change |  | 2000            
|                                                    |  |              |         |        |  |                 
|Working capital                                     |  | $            | 274,416 |        |  |                  | 2   | % |  | $ | 270,161 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Cash
and cash equivalents                           |  |              | 288,024 |        |  |                  | 18  | % |  |   | 244,979 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net cash provided by operating activities           |  |              | 43,573  |        |  |                  | 142 | % |  |   | 17,983  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net cash provided by (used in) investing activities |  |              | 4,054   |        |  |                  | 116 | % |  |   | (25,992 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Net cash provided by (used in) financing activities |  |              | 5,495   |        |  |                  | 155 | % |  |   | (9,946  | )





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##### Table of Contents



To date, Hyperion has financed its business through positive cash flow from
operations and, to a lesser extent, through the issuance of its capital stock
and convertible subordinated notes. During the second quarter of fiscal 2002
and 2001 we invested our cash primarily in state and municipal
bonds, U.S. government and agency obligations, corporate notes and other highly
liquid securities with maturities of three months or less.

The positive cash flows generated from operations during the first six months
of fiscal 2002 were primarily attributable to the net income for the period and
a significant decrease in accounts receivable, partially offset by the decrease
in deferred revenues. The decreases in accounts receivable and deferred
revenues were due in large part to our focus on driving process improvements in
connection with invoicing and collections and to a lesser extent to the
seasonal nature of our maintenance billing practices in certain European
countries which are based predominately on a calendar year.

Net cash provided by (used in) investing activities amounted to $4.1 million
for the first half of fiscal 2002, and $(26.0) million for the first half of
fiscal 2001. In the first half of fiscal 2002, the activity in the portfolio
of our investment in marketable securities generated net cash proceeds of $11.5
million. These proceeds were offset somewhat by our net capital expenditures
of $7.5 million. The reduction in capital expenditures over the corresponding
prior period is a result of our focus on capital investments and management of
expenses.

Financing activities in the first half of fiscal 2002, including stock options
exercised by employees and payments of indebtedness, generated cash of $5.5
million, as compared to net cash used of $9.9 million for the first half of
fiscal 2001. The negative cash flows from financing activities experienced in
the first half of fiscal 2001 resulted from $8.6 million of cash used
to repurchase 577,500 common shares and $8.7 million of cash used for the
redemption of debt, as discussed above. These negative cash flows
were offset by the exercise of stock options and the
employee stock purchases which resulted in cash generated of $7.4 million for the same
period in 2001. In connection with the stock options exercised by certain of
its employees, Hyperion recognized (as a credit to additional paid-in capital)
an income tax benefit of $0.4 million for the six months ended December 31,
2001, and $1.1 million for the six months ended December 31, 2000.

Hyperion believes that its current cash and short-term investment balances, and
the funds generated from its operations, if any, will be sufficient to finance
Hyperions business for at least the next year.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 2001, Hyperions investment portfolio consisted of
investment-grade debt securities, excluding those classified as cash
equivalents, of $13.0 million. The portfolio is invested predominantly in
short-term securities to minimize interest rate risk and for liquidity purposes
in the event of immediate cash needs. Accordingly, if market interest rates
were to increase immediately and uniformly by 10% from levels as of December
31, 2001, the decline in the fair value of the portfolio would not be material.

Hyperions long-term debt bears interest, for the most part, at a fixed rate.
Therefore, relative to its long-term debt, an immediate 10% change in market
interest rates would not materially impact Hyperions financial statements.

RISK FACTORS

FACTORS THAT MAY AFFECT FUTURE RESULTS

Hyperion operates in a very competitive and rapidly changing environment that
involves numerous risks, some of which are beyond Hyperions control. The
following discussion highlights some of these risks.

GENERAL ECONOMIC CONDITIONS. The revenue growth and profitability of Hyperion
depends on the overall demand for computer software and services, which in turn
depends on general economic and business conditions. Going forward, the nature
and extent of the effect of the current economic climate on Hyperions ability
to sell its products is uncertain. Continued weakness of the economy may
result in decreased revenues or lower growth rates. There can be no assurance
that Hyperion will be able to effectively promote revenue growth rates in all
economic conditions.

PRODUCT ENHANCEMENT AND NEW PRODUCT INTRODUCTIONS.Hyperion competes in a
market characterized by rapid technological advances in hardware and software
development, evolving standards in computer hardware and software technology
and frequent new product introductions and enhancements. Hyperion has recently
expanded and refreshed its product offerings to include newer features or
products, and entered into agreements allowing integration of third-party
technology into Hyperion products. The introduction of new products has
inherent risks, including, but not limited to, product quality, the fit of the
new products with the customers needs, the successful adaptation of third
party technology into Hyperion products, educating Hyperions sales, marketing,
and consulting personnel to work with the new products, competition from
earlier and more established entrants, general economic conditions, market
acceptance of initial product releases, marketing effectiveness and the
accuracy of assumptions about the nature of customer demand. Hyperions failure
to successfully introduce, market and sell new





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products and technologies or enhance and improve its existing products in a
timely manner, and position and/or price its products, undetected errors or
delays in new products or new versions of a product and/or the failure of
anticipated market growth could have a material adverse effect on Hyperions
business, results of operations or financial position.

COMPETITIVE ENVIRONMENT.The markets in which Hyperion competes are intensely
competitive, highly fragmented and characterized by rapidly changing technology
and evolving standards. Hyperion has experienced, and expects that it will
continue to experience, vigorous competition from both current and new
competitors, some of whom may have significantly greater financial, technical,
marketing and other resources than Hyperion. Hyperion expects additional
competition as other established and emerging companies enter into both the
OLAP and application parts of the enterprise business analysis software market.
This competition could result in price reductions, fewer customer orders,
reduced gross margins and loss of market share, any of which would materially
adversely affect Hyperions business, operating results and financial
condition.

PRICING.Intense competition in the various markets in which Hyperion competes
may put pressure on Hyperion to reduce prices on certain products, particularly
in the markets where certain vendors offer deep discounts in an effort to
recapture or gain market share or to sell other software or hardware products.
Moreover, any broadly based changes to Hyperions or its competitors pricing,
packaging or distribution models could lead to a decline or delay in sales as
Hyperions sales force and its customers adjust to the new models. Any such
price reductions and resulting lower license revenues could have a material
adverse effect on Hyperions business, results of operations or financial
position if Hyperion cannot offset these price reductions with a corresponding
increase in sales volumes or lower spending.

CONTINUED OPERATIONAL IMPROVEMENTS.As part of Hyperions focus on improving
its operating margins, it is driving toward continued efficiencies in not only
its sales force, but also its product development, finance, and other
administrative processes. The ability to continue to realize current
efficiencies, and find ways to improve on past performance is crucial to the
improvement of operating margins. Any increase in the relative cost of these
functions, or failure to continue to realize current efficiencies, could have a
material adverse effect on Hyperions profits.

BACK-ENDED QUARTERS.Quarterly revenues and operating results are highly
dependent on the volume and timing of the signing of licensing agreements and
product deliveries during the quarter, which are difficult to forecast.
Significant portions of Hyperions quarterly software licensing agreements are
concluded in the last month of the fiscal quarter, generally with a
concentration of such revenues earned in the final ten business days of that
month. Due to the relatively fixed nature of certain costs, including personnel
and facilities expenses, a decline or shortfall in quarterly and/or annual
revenues typically results in lower profitability or may result in losses.
Prior to the very end of any quarter, Hyperion must rely on its forecasts of
revenue for planning, modeling and other purposes. Forecasts are only estimates
and may not correlate to revenues in a particular quarter or over a longer
period of time. A significant discrepancy between actual results and sales
forecasts could cause Hyperion to improperly plan or budget and thereby
adversely affect its business or results of operations. Any publicly stated
revenue or earnings projections by Hyperion are especially subject to this
risk.

SALES FORCE TRANSITION.Hyperion has restructured and made other adjustments to
its sales force operations in the past and may do so in the future. These
changes have historically resulted in temporary sales productivity issues in
the short term. The restructured sales force must deliver significantly greater
dollars of revenue per dollar of cost than it has in the recent past in order
to provide adequate operating margins to Hyperion. Failure of the organization
to make this improvement could materially impact Hyperions ability to improve
operating margins.

INTERNATIONAL OPERATIONS.A substantial portion of Hyperions revenues is
derived from international sales and is therefore subject to the related risks,
including the general economic conditions in each country, the overlap of
different tax structures, the difficulty of managing an organization spread
over various countries, changes in regulatory requirements, compliance with a
variety of foreign laws and regulations, longer payment cycles, volatilities of
exchange rates, import and export licensing requirements, trade restrictions
and changes in tariff rates. There can be no assurances that Hyperion will be
able to successfully address each of these challenges.

HIRING AND RETENTION OF EMPLOYEES.Hyperions future operating results depend
significantly upon the retention and hiring of technical and management
personnel. Competition for such personnel is intense, and there can be no
assurance that Hyperion will retain its key managerial or technical personnel
or attract such personnel in the future. Hyperion, either directly or through
personnel search firms, actively recruits qualified research and development,
financial and sales and marketing personnel. Hyperion has at times experienced
difficulty recruiting or retaining qualified personnel and there can be no
assurance that Hyperion will not experience such difficulties in the future,
which could have a material adverse effect on Hyperions business, operating
results and financial condition.

ORGANIZATIONAL AND PRODUCT INTEGRATION RELATED TO BUSINESS COMBINATIONS.
Hyperion has made and may in the future make acquisitions of, mergers with, or
significant investments in, businesses that offer complementary products,
services and technologies. There are risks involved in business combinations,
including but not limited to: the possibility that Hyperion pays more than the
value it derives from the acquisition; the difficulty of integrating the
operations and personnel of the acquired businesses; the possibility that all
aspects of the integration are not completed or that all
Table of Contentsof the anticipated synergies of the acquisition are not realized; the potential
product liability associated with selling the acquired companys products; the
potential disruption of Hyperions ongoing business and the distraction of
management from Hyperions business. These factors could have a material
adverse effect on Hyperions business, results of operations or financial
position, especially in the case of a large acquisition.POSSIBILITY OF INFRINGEMENT CLAIMS.Hyperion expects that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in Hyperions industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert managements attention and resources, cause product
shipment delays or require Hyperion to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to Hyperion, if at all. In the event of a
successful claim of product infringement against Hyperion and failure or
inability of Hyperion to license the infringed or similar technology,
Hyperions business, operating results and financial condition would be
materially adversely affected.ENFORCEMENT OF HYPERIONS INTELLECTUAL PROPERTY RIGHTS.Hyperion relies
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. There can be no assurance that Hyperions means of
protecting its proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar technology.POSSIBLE VOLATILITY OF STOCK PRICE.The market price of Hyperions Common Stock
has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly
affected by factors, including but not limited to, the announcement of new
products, product enhancements or technological innovation by Hyperion or its
competitors, changes in Hyperions or its competitors results of operations,
changes in revenue, revenue growth rates and revenue mix for Hyperion as a
whole or for specific geographic areas or business units, changes in earnings
estimates by market analysts and general market conditions or market conditions
specific to particular industries. Technology stocks have experienced wide
fluctuations in prices, which sometimes have been unrelated to their operating
performance. The market price of Hyperions Common Stock could be adversely
affected by such fluctuations.
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThis item is incorporated by reference to
Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations  Quantitative and
Qualitative Disclosures About Market Risk.
HYPERION SOLUTIONS CORPORATION
PART II. OTHER INFORMATION
Item 1.    Legal ProceedingsOn June 27, 2001, Timeline, Inc. filed a complaint against Hyperion in the
United States District Court for the Western District of Washington alleging
that Hyperion infringes U.S. Patent Nos. 5,802,511; 6,023,694; and 6,026,392
(the Timeline patents), and seeking a permanent injunction and monetary
damages, including treble damages. On September 25, 2001, Timeline served its
complaint on Hyperion. On October 25, 2001, Hyperion filed its answer,
including a counterclaim seeking a declaratory judgment that the Timeline
patents are invalid and not infringed by Hyperion. While patent litigation can
be costly, and the outcome is inherently unpredictable, Hyperion believes that
Timelines complaint will not have a material adverse effect on the financial
position, results of operations and cash flows of Hyperion.On July 11, 1997, Gentia Software filed a request for reexamination of
Hyperions U.S. Patent No. 5,359,724 with the United States Patent and
Trademark Office (the PTO) arguing that the 724 patent was anticipated and
obvious in light of certain prior art references. On September 11, 1997, the
PTO granted the request for reexamination. On February 27, 1998, Gentia
Software filed with the PTO a request for a second reexamination of the 724
patent based on additional prior art references. On May 22, 1998, the PTO
granted that request for reexamination, which was later consolidated with the
first reexamination. On March 31, 1999, the PTO issued a non-final office
action rejecting the claims of the 724 patent. Hyperion filed its response to
the office action on May 31, 1999. No final office action has been issued by
the PTO. Hyperion believes that the outcome of such action will not have a
material adverse effect on the financial position, results of operations and
cash flows of Hyperion.From time to time, in the normal course of business, various claims are made
against Hyperion. 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, results of operations and cash flows of
Hyperion.Table of Contents
Item 4.    Submission of Matters to a Vote of Security HoldersThe following is a tabulation of the votes on proposals considered at
Hyperions Annual Meeting of Stockholders held on November 14, 2001, and
reconvened on November 21, 2001:1.
        
        To elect a member of the Board of Directors to serve a three-year term as a
Class III director.

|                   |  |                  |            |          |  |  |           | 
|------------------ |  | ---------------- | ---------- | -------- |  |  | --------- | 
|                   |  | Number of Shares
|                   |  | For              |            | Withheld
|                   |  |                  |            |         
|Henry R. Autry     |  |                  | 29,997,010 |          |  |  | 2,188,976 | 
|                  
|                  
|                  
|                  
|Kenneth A. Goldman |  |                  | 25,995,187 |          |  |  | 2,190,799 | 



| | 2. |  | To approve an amendment to Hyperions 1995 Stock Option/Stock Issuance
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 1,500,000 shares.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |  |            | 
|------- |  |  | ---------- | 
|For     |  |  | 11,819,261 | 
|       
|       
|       
|       
|Against |  |  | 13,068,037 | 
|       
|       
|       
|       
|Abstain |  |  | 66,949     | 



| | 3. |  | To approve an amendment to Hyperions Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,200,000 shares.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |  |            | 
|------- |  |  | ---------- | 
|For     |  |  | 21,992,278 | 
|       
|       
|       
|       
|Against |  |  | 2,600,815  | 
|       
|       
|       
|       
|Abstain |  |  | 58,696     | 



| | 4. |  | To ratify the Hyperions appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending June 30,
2002.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |  |            | 
|------- |  |  | ---------- | 
|For     |  |  | 26,394,928 | 
|       
|       
|       
|       
|Against |  |  | 1,729,620  | 
|       
|       
|       
|       
|Abstain |  |  | 61,438     | 




Item 6.    Exhibits and Reports on Form 8-K

(a) Exhibits

|     |  |   |  |                                                                                                              
|---- |  | - |  | -------------------------------------------------------------------------------------------------------------
|10.1 |  | - |  | Hyperion Solutions Corporation Employee Stock Purchase Plan
(as amended and restated as of November 14, 2001)

(b) Reports on Form 8-K

None





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##### Table of Contents



HYPERION SOLUTIONS CORPORATION




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: February 13, 2001 |  | Hyperion Solutions Corporation (Registrant)
|                       
|                       
|                       
|                       
|                        |  |                                             |  |                                             
|                       
|                       
|                       
|                       
|                        |  | By:                                         |  | /s/ David W. Odell                          
|                        |  |                                             |  |                                             
|                        |  |                                             |  | David W. Odell
Chief Financial Officer      
|                       
|                        |  | By:                                         |  | /s/ Nolene P. Fabre                         
|                        |  |                                             |  |                                             
|                        |  |                                             |  | Nolene P. Fabre
Principal Accounting Officer





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##### Table of Contents



INDEX TO EXHIBITS

|            |  |             |  |                                                                                                              
|----------- |  | ----------- |  | -------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description
|            |  |            
|10.1        |  | -           |  | Hyperion Solutions Corporation Employee Stock Purchase Plan
(as amended and restated as of November 14, 2001)