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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-Q

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

For the quarterly period ended September 30, 2003

OR

|  |  |                                                  
|- |  | -------------------------------------------------
|o |  | 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 000-26934

Hyperion Solutions Corporation

(Exact name of registrant as specified in its charter)


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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes þ   No o

As of October 31, 2003, there were 40,100,153 shares of the
Registrants common stock, $0.001 par value, outstanding.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                    
|EXHIBIT INDEX                
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 
|EXHIBIT 32.2                 



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Hyperion Solutions Corporation

Form 10-Q

|                              |                                                                                       |                                                                                                                             |  |    |   |      |  | 
|----------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- |  | -- | - | ---- |  | 
|                              |                                                                                       |                                                                                                                             |  |    |   | PAGE
|PART I. FINANCIAL INFORMATION |                                                                                       |                                                                                                                             |  |   
|Item 1                        | Financial Statements (Unaudited):                                                     |                                                                                                                             |  |    |  
|                              |                                                                                       | Condensed Consolidated Balance Sheets as of September 30, 2003 and June 30, 2003                                            |  |    | 2 |     
|                              |                                                                                       | Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended September 30, 2003 and 2002 |  |    | 3 |     
|                              |                                                                                       | Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2003 and 2002                      |  |    | 4 |     
|                              |                                                                                       | Notes to Condensed Consolidated Financial Statements                                                                        |  |    | 5 |     
|Item 2                        | Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                             |  | 11 |  
|Item 3                        | Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                             |  | 20 |  
|Item 4                        | Controls and Procedures                                                               |                                                                                                                             |  | 21 |  
|PART II. OTHER INFORMATION    |                                                                                       |                                                                                                                             |  |   
|Item 1                        | Legal Proceedings                                                                     |                                                                                                                             |  | 22 |  
|Item 6                        | Exhibits and Reports on Form 8-K                                                      |                                                                                                                             |  | 22 |  
|                              | Signature                                                                             |                                                                                                                             |  | 23 |  
|                              | Exhibit Index                                                                         |                                                                                                                             |  | 24 |  

Hyperion, the Hyperion H logo, Essbase, Hyperion Essbase XTD, Hyperion
Planning, Hyperion Financial Management, Hyperion Performance Scorecard,
Hyperion Business Modeling, Hyperion Pillar, and Hyperion Enterprise are
registered trademarks or trademarks of Hyperion Solutions Corporation. All
other trademarks and company names mentioned are the property of their
respective owners. All rights reserved.





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PART I. FINANCIAL INFORMATION




|        |  |                     
|------- |  | --------------------
|ITEM 1. |  | FINANCIAL STATEMENTS




HYPERION SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

|                                           |                                                                                                                                   |   |               |         |          |   |         |         |  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ------- | -------- | - | ------- | ------- | -
|                                           |                                                                                                                                   |   | September 30, |         | June 30,
|                                           |                                                                                                                                   |   | 2003          |         | 2003    
|                                           |                                                                                                                                   |   |               |         |         
|                                           |                                                                                                                                   |   | (Unaudited)   |         |          |   |        
|ASSETS                                     |                                                                                                                                   |   |               |         |          |   |         |        
|Current assets:                            |                                                                                                                                   |   |               |         |          |   |         |        
|                                           | Cash and cash equivalents                                                                                                         |   | $             | 396,142 |          |   | $       | 398,040 |  
|                                           | Short-term investments                                                                                                            |   |               | 12,380  |          |   |         | 18,514  |  
|                                           | Accounts receivable, net of allowances of $8,579 and $8,231                                                                       |   |               | 87,376  |          |   |         | 98,774  |  
|                                           | Deferred income taxes                                                                                                             |   |               | 12,331  |          |   |         | 12,890  |  
|                                           | Prepaid expenses and other current assets                                                                                         |   |               | 16,316  |          |   |         | 18,498  |  
|                                           |                                                                                                                                   |   |               |         |          |   |         |         |  
|TOTAL CURRENT ASSETS                       |                                                                                                                                   |   | 524,545       |         |          |   | 546,716 |        
|Property and equipment, net                |                                                                                                                                   |   | 66,048        |         |          |   | 67,533  |        
|Goodwill                                   |                                                                                                                                   |   | 12,872        |         |          |   | 12,774  |        
|Intangible assets, net                     |                                                                                                                                   |   | 7,479         |         |          |   | 8,120   |        
|Deferred income taxes                      |                                                                                                                                   |   | 15,661        |         |          |   | 13,633  |        
|Other assets                               |                                                                                                                                   |   | 5,017         |         |          |   | 5,982   |        
|                                           |                                                                                                                                   |   |               |         |          |   |         |         |  
|TOTAL ASSETS                               |                                                                                                                                   | $ | 631,622       |         |          | $ | 654,758 |        
|                                           |                                                                                                                                   |   |               |         |          |   |         |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                   |   |               |         |          |   |         |        
|Current liabilities:                       |                                                                                                                                   |   |               |         |          |   |         |        
|                                           | Accounts payable and accrued expenses                                                                                             |   | $             | 40,959  |          |   | $       | 45,631  |  
|                                           | Accrued employee compensation and benefits                                                                                        |   |               | 31,253  |          |   |         | 41,637  |  
|                                           | Deferred revenue                                                                                                                  |   |               | 104,136 |          |   |         | 104,868 |  
|                                           | Other current liabilities                                                                                                         |   |               | 3,987   |          |   |         | 3,931   |  
|                                           |                                                                                                                                   |   |               |         |          |   |         |         |  
|TOTAL CURRENT LIABILITIES                  |                                                                                                                                   |   | 180,335       |         |          |   | 196,067 |        
|Long-term debt                             |                                                                                                                                   |   | 50,040        |         |          |   | 50,040  |        
|Other liabilities                          |                                                                                                                                   |   | 10,699        |         |          |   | 11,326  |        
|Commitments and contingencies (Note 3)     |                                                                                                                                   |   |               |         |          |   |         |        
|Stockholders equity:                      |                                                                                                                                   |   |               |         |          |   |         |        
|                                           | Preferred stock - $0.001 par value; 5,000 shares authorized; none issued                                                          |   |               |        |          |   |         |        |  
|                                           | Common stock - $0.001 par value; 300,000 shares authorized;
36,168 and 36,654 shares issued; 35,685 and 36,105 shares outstanding |   |               | 36      |          |   |         | 37      |  
|                                           | Additional paid-in capital                                                                                                        |   |               | 274,936 |          |   |         | 278,339 |  
|                                           | Treasury stock, at cost: 483 and 549 common shares                                                                                |   |               | (9,500  | )        |   |         | (10,847 | )
|                                           | Deferred stock-based compensation                                                                                                 |   |               | (2,696  | )        |   |         | (2,893  | )
|                                           | Retained earnings                                                                                                                 |   |               | 132,290 |          |   |         | 137,582 |  
|                                           | Accumulated other comprehensive loss                                                                                              |   |               | (4,518  | )        |   |         | (4,893  | )
|                                           |                                                                                                                                   |   |               |         |          |   |         |         |  
|TOTAL STOCKHOLDERS EQUITY                 |                                                                                                                                   |   | 390,548       |         |          |   | 397,325 |        
|                                           |                                                                                                                                   |   |               |         |          |   |         |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                   | $ | 631,622       |         |          | $ | 654,758 |        
|                                           |                                                                                                                                   |   |               |         |          |   |         |         |  

See accompanying notes to condensed consolidated financial statements.

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HYPERION SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
(In thousands, except per share data)
(Unaudited)

|                                                      |                          |   |                    |        |      |   |         |        | 
|----------------------------------------------------- | ------------------------ | - | ------------------ | ------ | ---- | - | ------- | ------ | 
|                                                      |                          |   | Three Months Ended
|                                                      |                          |   | September 30,     
|                                                      |                          |   | 2003               |        | 2002
|                                                      |                          |   |                    |        |     
|REVENUES                                              |                          |   |                    |        |      |   |         |       
|                                                      | Software licenses        |   | $                  | 43,045 |      |   | $       | 44,591 | 
|                                                      | Maintenance and services |   |                    | 80,507 |      |   |         | 75,288 | 
|                                                      |                          |   |                    |        |      |   |         |        | 
|TOTAL REVENUES                                        |                          |   | 123,552            |        |      |   | 119,879 |       
|COSTS AND EXPENSES                                    |                          |   |                    |        |      |   |         |       
|Cost of revenues:                                     |                          |   |                    |        |      |   |         |       
|                                                      | Software licenses        |   |                    | 3,059  |      |   |         | 3,050  | 
|                                                      | Maintenance and services |   |                    | 30,461 |      |   |         | 32,379 | 
|Sales and marketing                                   |                          |   | 42,442             |        |      |   | 41,078  |       
|Research and development                              |                          |   | 19,784             |        |      |   | 17,872  |       
|General and administrative                            |                          |   | 12,920             |        |      |   | 11,966  |       
|                                                      |                          |   |                    |        |      |   |         |        | 
|TOTAL COSTS AND EXPENSES                              |                          |   | 108,666            |        |      |   | 106,345 |       
|                                                      |                          |   |                    |        |      |   |         |        | 
|OPERATING INCOME                                      |                          |   | 14,886             |        |      |   | 13,534  |       
|Interest and other income                             |                          |   | 1,140              |        |      |   | 1,459   |       
|Interest and other expense                            |                          |   | (652               | )      |      |   | (782    | )     
|Gain on redemption of debt                            |                          |   |                   |        |      |   | 252     |       
|                                                      |                          |   |                    |        |      |   |         |        | 
|INCOME BEFORE INCOME TAXES                            |                          |   | 15,374             |        |      |   | 14,463  |       
|Income tax provision                                  |                          |   | 5,687              |        |      |   | 5,351   |       
|                                                      |                          |   |                    |        |      |   |         |        | 
|NET INCOME                                            |                          | $ | 9,687              |        |      | $ | 9,112   |       
|                                                      |                          |   |                    |        |      |   |         |        | 
|Other comprehensive income (loss)                     |                          |   | 375                |        |      |   | (831    | )     
|                                                      |                          |   |                    |        |      |   |         |        | 
|COMPREHENSIVE INCOME                                  |                          | $ | 10,062             |        |      | $ | 8,281   |       
|                                                      |                          |   |                    |        |      |   |         |        | 
|Basic net income per share                            |                          | $ | 0.27               |        |      | $ | 0.27    |       
|Diluted net income per share                          |                          | $ | 0.26               |        |      | $ | 0.27    |       
|Shares used in computing basic net income
per share   |                          |   | 35,898             |        |      |   | 33,435  |       
|Shares used in computing diluted net income
per share |                          |   | 37,365             |        |      |   | 34,141  |       

See accompanying notes to condensed consolidated financial statements.

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HYPERION SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|                                                                                  |                                                   |                            |         |                    |       |      |         |         |       | 
|--------------------------------------------------------------------------------- | ------------------------------------------------- | -------------------------- | ------- | ------------------ | ----- | ---- | ------- | ------- | ----- | 
|                                                                                  |                                                   |                            |         | Three Months Ended
|                                                                                  |                                                   |                            |         | September 30,     
|                                                                                  |                                                   |                            |         | 2003               |       | 2002
|                                                                                  |                                                   |                            |         |                    |       |     
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |                                                   |                            |         |                    |       |      |         |        
|Net income                                                                        |                                                   | $                          | 9,687   |                    |       | $    | 9,112   |        
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                   |                            |         |                    |       |      |         |        
|                                                                                  | Gain on redemption of debt                        |                            |         |                   |       |      |         | (252    | )    
|                                                                                  | (Gain) loss on sale of assets                     |                            |         | 105                |       |      |         | (17     | )    
|                                                                                  | Depreciation and amortization                     |                            |         | 6,471              |       |      |         | 7,635   |      
|                                                                                  | Provision for accounts receivable allowances      |                            |         | 2,159              |       |      |         | 1,648   |      
|                                                                                  | Deferred income taxes                             |                            |         | (1,469             | )     |      |         | 795     |      
|                                                                                  | Income tax benefit from exercise of stock options |                            |         | 1,655              |       |      |         | 902     |      
|Changes in operating assets and liabilities:                                      |                                                   |                            |         |                    |       |      |         |        
|                                                                                  | Accounts receivable                               |                            |         | 9,485              |       |      |         | 27,072  |      
|                                                                                  | Prepaid expenses and other current assets         |                            |         | (1,640             | )     |      |         | (1,051  | )    
|                                                                                  | Other assets                                      |                            |         | 974                |       |      |         | (19     | )    
|                                                                                  | Accounts payable and accrued expenses             |                            |         | (4,762             | )     |      |         | (10,056 | )    
|                                                                                  | Accrued employee compensation and benefits        |                            |         | (10,447            | )     |      |         | (10,848 | )    
|                                                                                  | Income taxes payable                              |                            |         | 3,929              |       |      |         | 2,707   |      
|                                                                                  | Deferred revenue                                  |                            |         | (849               | )     |      |         | (672    | )    
|                                                                                  | Other current liabilities                         |                            |         | 56                 |       |      |         | (433    | )    
|                                                                                  | Other liabilities                                 |                            |         | (627               | )     |      |         | (370    | )    
|                                                                                  |                                                   |                            |         |                    |       |      |         |        
|Net cash provided by operating activities                                         |                                                   |                            | 14,727  |                    |       |      | 26,153  |        
|                                                                                  |                                                   |                            |         |                    |       |      |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |                                                   |                            |         |                    |       |      |         |        
|                                                                                  | Purchases of investments                          |                            |         |                   |       |      |         | (8,029  | )    
|                                                                                  | Proceeds from maturities of investments           |                            |         | 6,133              |       |      |         | 7,040   |      
|                                                                                  | Purchases of property and equipment               |                            |         | (3,732             | )     |      |         | (6,046  | )    
|                                                                                  | Proceeds from sale of property and equipment      |                            |         | 23                 |       |      |         | 148     |      
|                                                                                  | Purchases of intangible assets                    |                            |         | (540               | )     |      |         | (718    | )    
|                                                                                  |                                                   |                            |         |                    |       |      |         |        
|Net cash provided by (used in) investing activities                               |                                                   |                            | 1,884   |                    |       |      | (7,605  | )      
|                                                                                  |                                                   |                            |         |                    |       |      |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |                                                   |                            |         |                    |       |      |         |        
|                                                                                  | Principal payments on mortgage loan               |                            |         |                   |       |      |         | (2,298  | )    
|                                                                                  | Redemption of debt                                |                            |         |                   |       |      |         | (4,692  | )    
|                                                                                  | Purchases of common stock                         |                            |         | (26,027            | )     |      |         |        |      
|                                                                                  | Proceeds from issuance of common stock            |                            |         | 7,337              |       |      |         | 3,579   |      
|                                                                                  |                                                   |                            |         |                    |       |      |         |        
|Net cash used in financing activities                                             |                                                   |                            | (18,690 | )                  |       |      | (3,411  | )      
|Effect of exchange rate on cash and cash equivalents                              |                                                   |                            | 181     |                    |       |      | (374    | )      
|                                                                                  |                                                   |                            |         |                    |       |      |         |        
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  |                                                   |                            | (1,898  | )                  |       |      | 14,763  |        
|Cash and cash equivalents at beginning of period                                  |                                                   |                            | 398,040 |                    |       |      | 311,130 |        
|                                                                                  |                                                   |                            |         |                    |       |      |         |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        |                                                   | $                          | 396,142 |                    |       | $    | 325,893 |        
|                                                                                  |                                                   |                            |         |                    |       |      |         |        
|SUPPLEMENTAL CASH FLOW INFORMATION:                                               |                                                   |                            |         |                    |       |      |         |        
|                                                                                  |                                                   | Cash paid for interest     |         | $                  | 1,270 |      |         | $       | 1,805 | 
|                                                                                  |                                                   | Cash paid for income taxes |         | $                  | 1,267 |      |         | $       | 668   | 

See accompanying notes to condensed consolidated financial statements.

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HYPERION SOLUTIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to these rules and regulations. However,
management believes that the disclosures are adequate to ensure the information
presented is not misleading. The balance sheet at June 30, 2003 has been
derived from the audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. These
unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
our annual report on Form 10-K for the fiscal year ended June 30, 2003.

In the opinion of management, all adjustments, consisting only of normal
recurring items, considered necessary for a fair presentation have been
included in the accompanying unaudited financial statements. The results of
operations for the interim periods presented are not necessarily indicative of
the operating results to be expected for any subsequent interim period or for
the fiscal year ending June 30, 2004.

2. Significant Accounting Policies

Revenue Recognition

Hyperion derives revenues from licensing its software products and providing
maintenance, consulting and training services. Hyperions standard software
license agreement is a perpetual license to use its products on an end user,
concurrent user or central processing unit basis.

Hyperion records revenue from licensing its software products to end users
provided there is persuasive evidence of an arrangement, the fee is fixed or
determinable, collection is reasonably assured and delivery of the product has
occurred, as prescribed by Statement of Position (SOP) No. 97-2, Software
Revenue Recognition, issued by the American Institute of Certified Public
Accountants. For arrangements with multiple elements, and for which vendor
specific objective evidence (VSOE) of fair value exists for the undelivered
elements, revenue is recognized for the delivered elements based upon the
residual method in accordance with SOP 98-9, Modifications of SOP 97-2 with
Respect to Certain Transactions. Amounts billed or payments received in
advance of revenue recognition are recorded as deferred revenue.

Maintenance agreements are generally twelve-month prepaid contracts that are
recognized ratably over the service period. VSOE of fair value for maintenance
is measured by the stated renewal rates included in the agreements.

Customers may also enter into arrangements that are typically on a time and
materials basis for consulting and training services. VSOE of fair value for
consulting and training services is based upon the standard hourly rate
Hyperion charges for such services when sold separately. Training services are
generally prepaid prior to rendering the service. Consulting and training
revenues are typically recognized as earned. Consulting revenues are generated
primarily from implementation services related to the installation of
Hyperions products. These arrangements are generally accounted for separately
from the license revenue because the arrangements qualify as service
transactions as defined in SOP 97-2. Hyperions services are generally not
essential to the functionality of the software. Hyperions products are fully
functional upon delivery of the product and implementation does not require
significant modification or alteration. Factors considered in determining
whether the revenue should be accounted for separately include, but are not
limited to: degree of risk, availability of services from other vendors, timing
of payments and impact of milestones or acceptance criteria on the
realizability of the software license fee. Payments related to the software
product to which the services relate are typically billed independently from
the services and, therefore, are not coincident with performance of such
services. License agreements generally do not include acceptance provisions.
In the infrequent circumstance where an arrangement does not qualify for
separate accounting of the license and service elements, license revenue is
generally recognized together with the consulting services using the
percentage-of-completion method of contract accounting in accordance with SOP
81-1, Accounting for Performance of Construction-Type and Certain Product-Type
Contracts and Accounting Research Bulletin No. 45, Long-Term
Construction-Type Contracts.

If the fair value of any undelivered element included in a multiple-element
arrangement cannot be objectively determined, revenue is deferred until all
elements are delivered, services have been performed or until fair value can be
objectively determined. License revenue from resellers or distributors is
recognized upon sell-through to the end customer. If Hyperion determines that
collection of a license fee is not reasonably assured, the fee is deferred and
revenue is recognized at the time collection becomes reasonably assured, which
is generally upon receipt of cash.

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Accounts Receivable Allowances

Hyperion makes judgments as to its ability to collect outstanding receivables
and provides allowances for a portion of receivables when collection becomes
doubtful. Provisions are made based upon a specific review of all significant
outstanding invoices. For those invoices not specifically reviewed, provisions
are made at differing rates, based upon the age of the receivable. In
determining these provisions, Hyperion analyzes several factors, including: its
historical collection experience, customer concentrations, customer
credit-worthiness and current economic trends. If the historical data used to
calculate the accounts receivable allowances does not reflect Hyperions future
ability to collect outstanding receivables, Hyperion may record additional
provisions for accounts receivable allowances. Hyperion records the provision
for accounts receivable allowances in general and administrative expense and as
a reduction of revenue in order to match the underlying cause of the provision
to the appropriate classification in Hyperions statement of operations.

Hyperions accounts receivable allowance was $8.6 million at September 30, 2003
and $8.2 million at June 30, 2003. The total provision for accounts receivable
allowances was $2.2 million and $1.6 million for the three months ended
September 30, 2003 and 2002, respectively. Of these provisions, $0.5 million
and $0.4 million were recorded in general and administrative expense for the
three months ended September 30, 2003 and 2002, respectively, and $1.7 million
and $1.2 million were recorded as a reduction of revenue for the three months
ended September 30, 2003 and 2002, respectively.

Net Income Per Share

Net income per share, which is also referred to as earnings per share (EPS),
is computed in accordance with Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share. Basic net income per share is computed
by dividing net income available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted net income per
share is computed by dividing net income available to common stockholders by
the weighted average number of common shares outstanding and potentially
dilutive securities outstanding during the period. Potentially dilutive
securities include stock options, unvested restricted shares and shares
issuable upon conversion of Hyperions convertible subordinated notes.
Potentially dilutive securities are excluded from the computations of diluted
net income per share if their effect would be antidilutive.

The following table sets forth the computations of basic and diluted net income
per share (in thousands, except per share data):

|                                                      |  |                    |        |      |  |   |        | 
|----------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | 
|                                                      |  | Three Months Ended
|                                                      |  | September 30,     
|                                                      |  | 2003               |        | 2002
|                                                      |  |                    |        |     
|Net income                                            |  | $                  | 9,687  |      |  | $ | 9,112  | 
|Shares used in computing basic net income
per share   |  |                    | 35,898 |      |  |   | 33,435 | 
|Effect of potentially dilutive securities             |  |                    | 1,467  |      |  |   | 706    | 
|                                                      |  |                    |        |      |  |   |        | 
|Shares used in computing diluted net income
per share |  |                    | 37,365 |      |  |   | 34,141 | 
|                                                      |  |                    |        |      |  |   |        | 
|Basic net income per share                            |  | $                  | 0.27   |      |  | $ | 0.27   | 
|Diluted net income per share                          |  | $                  | 0.26   |      |  | $ | 0.27   | 

For the three months ended September 30, 2003 and 2002, stock option rights
totaling 1.0 million shares and 4.6 million shares of common stock,
respectively, have been excluded from the diluted EPS calculations because
their effect would have been antidilutive. For the three months ended
September 30, 2003 and 2002, 0.9 million shares and 1.4 million shares of
common stock, respectively, issuable upon conversion of the convertible
subordinated notes due March 2005 have been excluded from the diluted EPS
calculations because their effect would have been antidilutive.

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Stock-Based Compensation

Hyperion has adopted the disclosure requirements of SFAS 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. SFAS 148 amends SFAS
123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based compensation and also amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both annual and
interim financial statements about the methods of accounting for stock-based
employee compensation and the effect of the method used on reported results.
As permitted by SFAS 148 and SFAS 123, Hyperion continues to apply the
accounting provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. Hyperion generally grants its stock
options at exercise prices equal to the fair market value of the underlying
stock on the date of grant and, therefore, under APB 25, no compensation
expense is recognized in the statements of operations.

Had Hyperion recorded compensation expense based on the estimated grant date
fair values, as defined by SFAS 123, for awards granted under its stock option
plans and stock purchase plan, Hyperions net income and net income per share
would have been adjusted to the following pro forma amounts (in thousands,
except per share data):

|                                                                                            |                       |   |                    |      |      |   |        |      | 
|------------------------------------------------------------------------------------------- | --------------------- | - | ------------------ | ---- | ---- | - | ------ | ---- | 
|                                                                                            |                       |   | Three Months Ended
|                                                                                            |                       |   | September 30,     
|                                                                                            |                       |   | 2003               |      | 2002
|                                                                                            |                       |   |                    |      |     
|Net income, as reported                                                                     |                       | $ | 9,687              |      |      | $ | 9,112  |     
|Deduct: stock-based compensation expense
determined under the fair value method,
net of tax |                       |   | (4,431             | )    |      |   | (4,009 | )   
|                                                                                            |                       |   |                    |      |      |   |        |     
|Net income, pro forma                                                                       |                       | $ | 5,256              |      |      | $ | 5,103  |     
|                                                                                            |                       |   |                    |      |      |   |        |     
|Net income per share:                                                                       |                       |   |                    |      |      |   |        |     
|                                                                                            | Basic  as reported   |   | $                  | 0.27 |      |   | $      | 0.27 | 
|                                                                                            | Basic  pro forma     |   | $                  | 0.15 |      |   | $      | 0.15 | 
|                                                                                            | Diluted  as reported |   | $                  | 0.26 |      |   | $      | 0.27 | 
|                                                                                            | Diluted  pro forma   |   | $                  | 0.14 |      |   | $      | 0.15 | 

These pro forma amounts may not be representative of the effects for future
periods as options vest over several years and additional awards are generally
granted each year.

Comprehensive Income

Comprehensive income includes foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities. The components
of accumulated other comprehensive loss are as follows (in thousands):

|                                                  |  |               |        |          |  |   |        |  
|------------------------------------------------- |  | ------------- | ------ | -------- |  | - | ------ | -
|                                                  |  | September 30, |        | June 30,
|                                                  |  | 2003          |        | 2003    
|                                                  |  |               |        |         
|Cumulative translation adjustment                 |  | $             | (4,590 | )        |  | $ | (4,967 | )
|Unrealized gains on available-for-sale securities |  |               | 72     |          |  |   | 74     |  
|                                                  |  |               |        |          |  |   |        |  
|                                                  |  | $             | (4,518 | )        |  | $ | (4,893 | )
|                                                  |  |               |        |          |  |   |        |  

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after December 15, 2003. Hyperion adopted
FIN 46 on February 1, 2003 for new entities, and the adoption did not have a
material impact on its financial position or results of operations. Hyperion
is currently assessing the impact of adopting FIN 46 for pre-existing entities
but does not expect it will have a material impact on its financial position or
results of operations.

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In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is
generally effective for derivative instruments, including derivative
instruments embedded in certain contracts, entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003.
Hyperion adopted SFAS 149 on July 1, 2003, and the adoption did not have a
material impact on its financial position or results of operations.

3. Commitments and Contingencies

Guarantees and Indemnifications

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a
guarantor recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee or indemnification.
FIN 45 also requires additional disclosure by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees and
indemnifications. The initial recognition and measurement provisions of FIN 45
are applicable for guarantees issued or modified after December 31, 2002. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. Hyperion adopted the
recognition and measurement provisions of FIN 45 prospectively to guarantees
issued or modified after December 31, 2002, and the adoption did not have a
material impact on its financial position or results of operations. The
following is a summary of the agreements that Hyperion has determined are
within the scope of FIN 45:

As permitted under Delaware law, Hyperion has agreements whereby it indemnifies
its officers and directors for certain events or occurrences while the officer
or director is or was serving at Hyperions request in such capacity. The term
of the indemnification period is for the officers or directors lifetime. The
maximum potential amount of future payments Hyperion could be required to make
under these indemnification agreements is unlimited; however, Hyperion has a
director and officer insurance policy that limits its exposure and enables it
to recover a portion of any future amounts paid. As a result of the insurance
policy coverage, Hyperion believes the estimated fair value of these
indemnification agreements is minimal. Hyperion has no liabilities recorded
for these agreements as of September 30, 2003.

Hyperion includes standard intellectual property indemnification clauses in its
software license agreements. Pursuant to these clauses, Hyperion holds
harmless and agrees to defend the indemnified party, generally Hyperions
business partners and customers, in connection with certain patent, copyright
or trade secret infringement claims by third parties with respect to Hyperions
products. The term of the indemnification clauses is generally perpetual any
time after execution of the software license agreement. In the event an
infringement claim against Hyperion or an indemnified party is successful,
Hyperion, at its sole option, agrees to do one of the following: (i) procure
for the indemnified party the right to continue use of the software; (ii)
provide a modification to the software so that its use becomes non-infringing;
(iii) replace the software with software which is substantially similar in
functionality and performance; or (iv) refund the residual value of the
software license fees paid by the indemnified party for the infringing
software. Hyperion believes the estimated fair value of these agreements is
minimal. Hyperion has no liabilities recorded for these agreements as of
September 30, 2003.

Hyperion generally warrants that its software products will perform in all
material respects in accordance with its standard published specifications in
effect at the time of delivery of the licensed products to the customer for a
period of ninety days following delivery. If necessary, Hyperion would provide
for the estimated cost of product warranties based on specific warranty claims
and claim history. Hyperion has not incurred significant expense under its
product warranties to date and, as a result, Hyperion believes the estimated
fair value of these warranties is minimal. Hyperion has no liabilities
recorded for these warranties as of September 30, 2003.

Contingencies

On July 11, 1997, Gentia Software filed a request for reexamination of
Hyperions U.S. Patent No. 5,359,724 (724 patent) with the United States
Patent and Trademark Office (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 its financial position, results of operations or
cash flows.

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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 or cash flows of
Hyperion.

4. Stock Repurchase Program

In July 2003, Hyperions board of directors authorized the company to
repurchase up to $125.0 million of its common stock. Hyperion will determine
the timing and amount of shares to be repurchased based upon market conditions
and other factors, and will use existing cash and short-term investments to
finance the transactions. During the three months ended September 30, 2003,
Hyperion repurchased and retired 805,000 shares of its common stock for a total
cost of $26.0 million. Of this amount, $11.0 million was recorded as a
reduction of additional paid-in capital and the remaining $15.0 million was
recorded as a reduction of retained earnings.

5. Segment and Geographic Information

SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, established standards for reporting information about operating
segments in a company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 business performance management software and related services.
This segment operates in three geographic regions: the Americas (United States,
Canada and Latin America), EMEA (Europe, Middle East and Africa) and APAC (Asia
Pacific). 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 131.
Geographic revenue information is primarily based on the ordering location of
the customer, and long-lived asset information is based on the physical
location of the assets. The following table presents revenues and long-lived
assets by geographic region (in thousands):

|          |          |   |                    |        |      |   |         |        | 
|--------- | -------- | - | ------------------ | ------ | ---- | - | ------- | ------ | 
|          |          |   | Three Months Ended
|          |          |   | September 30,     
|          |          |   | 2003               |        | 2002
|          |          |   |                    |        |     
|Revenues: |          |   |                    |        |      |   |         |       
|          | Americas |   | $                  | 74,942 |      |   | $       | 76,878 | 
|          | EMEA     |   |                    | 41,836 |      |   |         | 35,834 | 
|          | APAC     |   |                    | 6,774  |      |   |         | 7,167  | 
|          |          |   |                    |        |      |   |         |       
|          |          | $ | 123,552            |        |      | $ | 119,879 |       
|          |          |   |                    |        |      |   |         |       

|                   |          |   |               |        |          |   |        |        | 
|------------------ | -------- | - | ------------- | ------ | -------- | - | ------ | ------ | 
|                   |          |   | September 30, |        | June 30,
|                   |          |   | 2003          |        | 2003    
|                   |          |   |               |        |         
|Long-lived assets: |          |   |               |        |          |   |        |       
|                   | Americas |   | $             | 58,953 |          |   | $      | 59,857 | 
|                   | EMEA     |   |               | 5,840  |          |   |        | 6,360  | 
|                   | APAC     |   |               | 1,255  |          |   |        | 1,316  | 
|                   |          |   |               |        |          |   |        |        | 
|                   |          | $ | 66,048        |        |          | $ | 67,533 |       
|                   |          |   |               |        |          |   |        |       

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

|                          |                         |   |                    |        |      |   |         |        | 
|------------------------- | ----------------------- | - | ------------------ | ------ | ---- | - | ------- | ------ | 
|                          |                         |   | Three Months Ended
|                          |                         |   | September 30,     
|                          |                         |   | 2003               |        | 2002
|                          |                         |   |                    |        |     
|Software licenses:        |                         |   |                    |        |      |   |         |       
|                          | Application products    |   | $                  | 25,424 |      |   | $       | 23,661 | 
|                          | Platform products       |   |                    | 17,621 |      |   |         | 20,930 | 
|                          |                         |   |                    |        |      |   |         |       
|                          |                         |   | 43,045             |        |      |   | 44,591  |       
|Maintenance and services: |                         |   |                    |        |      |   |         |       
|                          | Maintenance             |   |                    | 55,310 |      |   |         | 51,578 | 
|                          | Consulting and training |   |                    | 25,197 |      |   |         | 23,710 | 
|                          |                         |   |                    |        |      |   |         |       
|                          |                         |   | 80,507             |        |      |   | 75,288  |       
|                          |                         |   |                    |        |      |   |         |        | 
|Total revenues            |                         | $ | 123,552            |        |      | $ | 119,879 |       
|                          |                         |   |                    |        |      |   |         |       

6. Subsequent Events

Acquisition of Brio Software, Inc.

In October 2003, Hyperion completed its acquisition of Brio Software, Inc., a
business intelligence software provider based in Santa Clara, California.
Under the terms of the acquisition, Brio stockholders received a combination of
0.109 of a share of Hyperion common stock and $0.363 in cash in exchange for
each share of Brio common stock, which resulted in the issuance of 4.2 million
shares of Hyperion common stock and $14.0 million in cash. Additionally,
Hyperion reserved 1.1 million shares of its common stock for issuance in
connection with the Brio stock options assumed in the transaction.

Redemption of Debt

In October 2003, Hyperions board of directors authorized the redemption of its
outstanding convertible subordinated notes of $50.0 million. The redemption is
expected to occur during the second quarter of fiscal 2004 and will result in a
slight reduction in interest expense in the second quarter of fiscal 2004 and a
substantial reduction in interest expense in subsequent quarters. The debt
redemption is also expected to result in the recognition of a loss on
redemption of debt, which includes the redemption premium and the write-off of
associated deferred issuance costs, of approximately $0.9 million in the second
quarter of fiscal 2004.

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

FORWARD-LOOKING STATEMENTS

Certain information contained in this report on Form 10-Q is forward-looking in
nature. All statements included in this report on Form 10-Q or made by
management of Hyperion Solutions Corporation and its subsidiaries, 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, expect, plan,
anticipate, intend, believe, estimate, predict, potential,
project, 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 entitled Factors That May Affect Future Results.
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 delivers business performance management software solutions that
enable companies to continually measure performance, anticipate results and
drive profitability across key business activities. Our customers use our
products to help them collaborate enterprise-wide, focus resources, improve
operational efficiencies and leverage opportunities for growth.

Our business performance management solutions provide comprehensive support for
the entire process of goal setting, business modeling, planning, budgeting,
performance monitoring, analyzing and reporting throughout organizations. Our
products complement existing enterprise resource planning, customer
relationship management, supply chain management and transaction systems by
integrating data from multiple sources, providing a common view across the
enterprise and enabling an integrated business performance management process
that aligns individual goals with corporate objectives.

We provide applications along with a development and deployment platform to
enable business performance management across a wide variety of functional and
business activity areas. We use our online analytical processing technology,
Hyperion Essbase, as the foundation for our platform, Hyperion Essbase XTD.
Components within Hyperion Essbase XTD can be used individually to create
tailored applications or in conjunction with our packaged applications to
support the entire business performance management process. In addition, we
offer support and services from offices in 20 countries and work with over 330
partners to provide solutions to more than 6,000 customer organizations
worldwide. Hyperion was formed in August 1998 when Arbor Software, founded in
1991, acquired Hyperion Software, founded in 1981.

RESULTS OF OPERATIONS

We completed our acquisition of Brio Software, Inc. on October 16, 2003 and
will report combined results beginning in the quarter ending December 31, 2003.
While we expect to report incremental revenues from the additional products and
services, our ability to successfully integrate the additional personnel and
products could impact the level of those revenue streams. The acquisition will
also increase our overall costs and expenses as we are adding approximately 500
employees to our worldwide headcount. In addition, our effective tax rate may
increase in future periods as a result of the write-off of in-process research
and development. The following discussion regarding our results of operations
for the quarter ending September 30, 2003 does not reflect any combined results
of operations.

REVENUES

|                         |                         |      |                                  |         |  |      |            |         |   |   |         |        |            |  |     |    |  
|------------------------ | ----------------------- | ---- | -------------------------------- | ------- |  | ---- | ---------- | ------- | - | - | ------- | ------ | ---------- |  | --- | -- | -
|                         |                         |      | Three Months Ended September 30,
|                         |                         |      |                                 
|                         |                         |      |                                  |         |  |      | Percent of |         |   |   |         |        | Percent of
|(In thousands)           |                         | 2003 |                                  | Revenue |  | 2002 |            | Revenue
|                         |                         |      |                                  |         |  |      |            |        
|Software licenses        |                         | $    | 43,045                           |         |  |      | 35         | %       |   | $ | 44,591  |        |            |  | 37  | % 
|Maintenance and services |                         |      |                                  |         |  |      |            |         |   |   |         |        |            |  |     |   
|                         | Maintenance             |      |                                  | 55,310  |  |      |            | 45      | % |   |         | 51,578 |            |  |     | 43 | %
|                         | Consulting and training |      |                                  | 25,197  |  |      |            | 20      | % |   |         | 23,710 |            |  |     | 20 | %
|                         |                         |      |                                  |         |  |      |            |         |   |   |         |        |            |  |     |   
|                         |                         |      | 80,507                           |         |  |      | 65         | %       |   |   | 75,288  |        |            |  | 63  | % 
|                         |                         |      |                                  |         |  |      |            |         |   |   |         |        |            |  |     |   
|Total revenues           |                         | $    | 123,552                          |         |  |      | 100        | %       |   | $ | 119,879 |        |            |  | 100 | % 
|                         |                         |      |                                  |         |  |      |            |         |   |   |         |        |            |  |     |   

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Total revenues increased 3% in the first quarter of fiscal 2004 compared to the
first quarter of fiscal 2003. Total revenues generated from markets outside of
North America, including export sales, were $50.8 million and $45.0 million in
the first quarter of fiscal 2004 and 2003, respectively, which represented 41%
and 38% of total revenues, respectively. The change in foreign currency
exchange rates from the first quarter of fiscal 2003 to the first quarter of
fiscal 2004 positively impacted total revenues in the first quarter of fiscal
2004 by approximately $3.8 million, or 3% of total revenues, primarily due to
the strength of the Euro against the U.S. dollar.

Software licenses.Software license revenues decreased 3% in the first quarter
of fiscal 2004 compared to the first quarter of fiscal 2003. This decrease in
license revenue was due to a 20% decrease in license revenue in North America,
which was largely offset by a 22% increase in license revenue internationally.
License revenue in North America decreased across all major product lines and
was the result of a weak sales pipeline leading into the first quarter of
fiscal 2004. The increase in license revenues internationally resulted
primarily from several large customer wins in Europe, as well as a positive
impact from foreign currency exchange rate changes.

We separate license revenue into two main components- application license
revenue and platform license revenue. Application license revenue is generated
from our packaged business performance management applications, and platform
license revenue is generated from our Hyperion Essbase XTD platform and its
component products. In the first quarter of fiscal 2004, application revenue
represented 59% of total license revenue and platform revenue represented 41%
of total license revenue, compared to 53% application revenue and 47% platform
revenue in the first quarter of fiscal 2003. A 19% increase in suite-based
application sales in the first quarter of fiscal 2004, which include Hyperion
Planning and Hyperion Financial Management, combined with a 34% decrease in
standalone application sales, which include Hyperion Pillar and Hyperion
Enterprise, resulted in an overall 7% increase in total application license
revenue in the first quarter of fiscal 2004 compared to the first quarter of
fiscal 2003. However, platform sales decreased 16% in the first quarter of
fiscal 2004 compared to the same period in fiscal 2003.

We market our products through our direct sales force and through channel
partners. To date, we have generated the majority of our license revenue
through our direct sales force, but we continue to focus on complementing our
direct sales force with channel partners, which include original equipment
manufacturers, value added resellers, system integrators and independent
distributors. License revenue from channel partners comprised 24% of total
license revenue in the first quarter of fiscal 2004 compared to 25% in the
first quarter of fiscal 2003. No single channel partner represented more than
10% of total revenue during the first quarter of fiscal 2004 or 2003.

Maintenance and services.Maintenance and services revenue increased 7% in the
first quarter of fiscal 2004 compared to the first quarter of fiscal 2003,
which was comprised of a 7% increase in maintenance revenue and a 6% increase
in consulting and training services revenue. The 7% increase in maintenance
revenue was primarily attributable to additional sales of software to our
customers and improvements in our invoicing and collecting procedures for
maintenance renewals, offset slightly by cancelled maintenance contracts.

The 6% increase in consulting and training services revenue was principally due
to increased utilization rates in our consulting organization. Although our
total consulting headcount has been reduced from the first quarter of fiscal
2003 to the first quarter of fiscal 2004 in order to better align our
organizational structure with our focus on leveraging our channel partners to
perform consulting services for our customers, our overall utilization rates
were higher in the first quarter of fiscal 2004 than they were in the first
quarter of fiscal 2003.

COST OF REVENUES

|                         |  |                                  |        |        |  |       |    |        |  |   |        |       |  |  |    |  
|------------------------ |  | -------------------------------- | ------ | ------ |  | ----- | -- | ------ |  | - | ------ | ----- |  |  | -- | -
|                         |  | Three Months Ended September 30,
|                         |  |                                 
|                         |  |                                  |        |        |  | Gross |    |        |  |   |        | Gross
|(In thousands)           |  | 2003                             |        | Margin |  | 2002  |    | Margin
|                         |  |                                  |        |        |  |       |    |       
|Software licenses        |  | $                                | 3,059  |        |  |       | 93 | %      |  | $ | 3,050  |       |  |  | 93 | %
|Maintenance and services |  |                                  | 30,461 |        |  |       | 62 | %      |  |   | 32,379 |       |  |  | 57 | %

Cost of software license revenue.Cost of software license revenue consists
primarily of royalty expenses, amortization of capitalized software development
costs, amortization of acquired technologies, and the cost of product packaging
and documentation materials. Cost of software license revenue in the first
quarter of fiscal 2004 remained relatively flat compared to the first quarter
of fiscal 2003 while software license revenue decreased 3%. This was primarily
due to a $0.8 million increase in royalty expenses due to a different mix of
product sales. This increase was partially offset by a $0.3 million decrease in
amortization of acquired technologies and a $0.2 million decrease in
amortization of capitalized software development costs. The total cost of
software license revenues as a percentage of total license revenues was 7% for
the first quarter of fiscal 2004 and 2003.

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In the first quarter of fiscal 2004 and 2003, we capitalized $0.4 million and
$0.4 million of software product 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 localization costs for our software products.
Capitalized software product development costs are amortized over the
estimated economic life of the products, which is generally three years. The
amortization of capitalized product development costs begins upon the general
release of the software to customers.

Cost of maintenance and services revenue.Cost of maintenance and services
revenue consists largely of compensation and benefits for support, consulting
and training personnel. Cost of maintenance and services revenue decreased 6%
in the first quarter of fiscal 2004 compared to the first quarter of fiscal
2003. The decrease in cost of maintenance and services revenue is primarily
attributable to a reduction in headcount in our North American consulting
organization of approximately 25 employees during fiscal 2003. This reduction
in headcount contributed to a $0.7 million decrease in employee compensation
expenses and $0.3 million decrease in travel expenses for maintenance and
services personnel in the first quarter of fiscal 2004 compared to the first
quarter of fiscal 2003. Further, occupancy and equipment costs decreased $0.8
million in the first quarter of fiscal 2004 compared to the first quarter of
fiscal 2003 primarily due to the reductions in services headcount and, to a
lesser extent, due to a decrease in number of dedicated training facilities.

Gross margin on maintenance and services revenue was 62% in first quarter of
fiscal 2004 compared to 57% in the first quarter of fiscal 2003. The increase
in gross margin on maintenance and services revenue is primarily due to the
consulting headcount reductions and related decreases in expenses discussed
above, combined with increases in maintenance and services revenues.

OPERATING EXPENSES

|                           |  |                                  |        |         |  |            |    |         |  |   |        |            |  |  |    |  
|-------------------------- |  | -------------------------------- | ------ | ------- |  | ---------- | -- | ------- |  | - | ------ | ---------- |  |  | -- | -
|                           |  | Three Months Ended September 30,
|                           |  |                                 
|                           |  |                                  |        |         |  | Percent of |    |         |  |   |        | Percent of
|(In thousands)             |  | 2003                             |        | Revenue |  | 2002       |    | Revenue
|                           |  |                                  |        |         |  |            |    |        
|Sales and marketing        |  | $                                | 42,442 |         |  |            | 34 | %       |  | $ | 41,078 |            |  |  | 34 | %
|Research and development   |  |                                  | 19,784 |         |  |            | 16 | %       |  |   | 17,872 |            |  |  | 15 | %
|General and administrative |  |                                  | 12,920 |         |  |            | 10 | %       |  |   | 11,966 |            |  |  | 10 | %
|                           |  |                                  |        |         |  |            |    |         |  |   |        |            |  |  |    |  
|Total operating expenses   |  | $                                | 75,146 |         |  |            |    |         |  | $ | 70,916 |            |  |  |    |  
|                           |  |                                  |        |         |  |            |    |         |  |   |        |            |  |  |    |  

Sales and marketing.Sales and marketing expense increased 3% in the first
quarter of fiscal 2004 compared to the first quarter of fiscal 2003. This
increase was mainly due to a $2.0 million increase in employee expenses that
resulted primarily from a higher effective commission rate in the first quarter
of fiscal 2004 compared to the first quarter of fiscal 2003. This increase was
partially offset by a $0.9 million decrease in occupancy and equipment costs,
which was primarily attributable to the elimination of several dedicated sales
facilities (executive offices) and a decrease in total sales and marketing
headcount in the first quarter of fiscal 2004 compared to the first quarter of
fiscal 2003.

Research and development.Research and development expense increased 11% in
the first quarter of fiscal 2004 compared to the first quarter of fiscal 2003.
This increase was primarily attributable to $1.7 million increase in employee
expenses due to annual salary increases as well as an increase in total
research and development headcount in the first quarter of fiscal 2004 compared
to the first quarter of fiscal 2003.

General and administrative.General and administrative expense increased 8% in
the first quarter of fiscal 2004 compared to the first quarter of fiscal 2003.
This increase is due to $0.7 million increase in employee expenses primarily
due to annual salary increases.

INTEREST AND OTHER INCOME

Interest and other income consists primarily of interest earned on cash, cash
equivalent and short-term investment balances. Although we had higher average
cash and investment balances during first quarter of fiscal 2004 compared to
the first quarter of fiscal 2003, interest and other income decreased 22% to
$1.1 million in the first quarter of fiscal 2004 from $1.5 million in the first
quarter of fiscal 2003 due to declines in short-term interest rates.

INTEREST AND OTHER EXPENSE

Interest and other expense consists primarily of interest paid and amortization
of deferred issuance costs related to our convertible subordinated notes due
March 2005. Interest and other expense decreased 17% to $0.7 million in the
first quarter of fiscal 2004 from $0.8 million in the first quarter of fiscal
2003. During the first and second quarters of fiscal 2003, we repurchased
convertible subordinated notes with face values totaling $28.7 million. These
repurchases significantly contributed to the decrease in interest and other
expense in the first quarter of fiscal 2004 compared to the first quarter of
fiscal 2003.

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In October 2003, our board of directors authorized the redemption of our
outstanding convertible subordinated notes of $50.0 million. The redemption is
expected to occur during the second quarter of fiscal 2004 and will result in a
slight reduction in interest expense in the second quarter of fiscal 2004 and a
substantial reduction in interest expense in subsequent quarters.

GAIN ON REDEMPTION OF DEBT

During the first quarter of fiscal 2003, we repurchased convertible
subordinated notes with a face value of $5.0 million for a total cost of
approximately $4.7 million, which resulted in a gain, net of the write-off of
associated deferred issuance costs, of approximately $0.3 million.

As a result of the debt redemption approved by our board of directors in
October 2003, we expect to recognize a loss on redemption of debt, which
includes the redemption premium and the write-off of associated deferred
issuance costs, of approximately $0.9 million in the second quarter of fiscal
2004.

INCOME TAX PROVISION

Our effective income tax rate was 37% for the first quarter of fiscal 2004 and
2003.

NET INCOME

As a result of the above factors, we generated net income of $9.7 million, or
$0.26 per diluted share, in the first quarter of fiscal 2004 compared to net
income of $9.1 million, or $0.27 per diluted share, in the first quarter of
fiscal 2003.

LIQUIDITY AND CAPITAL RESOURCES

|                                                    |  |                    |         |      |  |   |         |  
|--------------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | -
|                                                    |  | Three Months Ended
|                                                    |  | September 30,     
|(In thousands)                                      |  | 2003               |         | 2002
|                                                    |  |                    |         |     
|Working capital                                     |  | $                  | 344,210 |      |  | $ | 288,354 |  
|Cash, cash equivalents and short-term investments   |  |                    | 408,522 |      |  |   | 346,022 |  
|Net cash provided by operating activities           |  |                    | 14,727  |      |  |   | 26,153  |  
|Net cash provided by (used in) investing activities |  |                    | 1,884   |      |  |   | (7,605  | )
|Net cash used in financing activities               |  |                    | (18,690 | )    |  |   | (3,411  | )

To date, we have financed our business through positive cash flow from
operations and, to a lesser extent, through the issuance of capital stock. In
fiscal 1998, we also raised capital through the issuance of $100.0 million of
convertible subordinated notes. As of September 30, 2003, our cash is invested
primarily in state and municipal bonds, U.S. government and agency obligations,
corporate notes and other highly-liquid securities.

In the first quarter of fiscal 2004 and 2003, we generated positive cash flow
from operations of $14.7 million and $26.2 million, respectively. Our
operating cash flows during these periods were primarily due to the net income
generated and the considerable decreases in our accounts receivable balances
during the periods. We reduced our gross accounts receivable balance to $96.0
million at September 30, 2003 from $107.0 million at June 30, 2003 and reduced
our gross accounts receivable balance to $90.1 million at September 30, 2002
from $120.9 million at June 30, 2002, due in part to our focus on invoicing and
collection process improvements. These decreases are also due, to some extent,
to the seasonality of our sales transactions. Because billings and, thus,
accounts receivable, are generally highest in our fourth fiscal quarter, our
cash collections and the resulting decreases in accounts receivable tend to be
higher in our first fiscal quarter, as our invoices are generally due within 30
days of receipt. The positive operating cash flows resulting from net income
generated during the periods and decreases in accounts receivable were
partially offset by decreases in accounts payable, accrued expenses and accrued
employee compensation and benefits.

Net cash provided by investing activities amounted to $1.9 million in the first
quarter of fiscal 2004, compared to net cash used in investing activities of
$7.6 million in the first quarter of fiscal 2003. The cash provided by
investing activities in the first quarter of fiscal 2004 resulted primarily
from proceeds from maturities of investments of $6.1 million, partially offset
by purchases of property and equipment of $3.7 million. The cash used in
investing activities in the first quarter of fiscal 2003 was primarily due to
purchases of property and equipment of $6.0 million and purchases of
investments, net of proceeds from maturities, of $1.0 million. Our capital
expenditures in the first quarters of fiscal 2004 and 2003 consisted primarily
of purchases of resources to manage our operations, including computer hardware
and software and leasehold improvements. The higher level of capital
expenditures in the first quarter of fiscal 2003 primarily related to the
purchase and implementation of our worldwide customer relationship management
system, as well as purchases of other software products.

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Net cash used in financing activities was $18.7 million and $3.4 million in the
first quarters of fiscal 2004 and 2003, respectively. The cash used in
financing activities in the first quarter of fiscal 2004 resulted from $26.0
million of repurchases of Hyperion common stock, which was partially offset by
$7.3 million of proceeds from the issuance of common stock under our employee
stock option and stock purchase plans. The net cash used in financing
activities in the first quarter of fiscal 2003 was due to the repurchase of our
convertible subordinated notes with a face value of $5.0 million for a total
cost of approximately $4.7 million and the repayment of the $2.3 million
mortgage loan on our Connecticut facility, partially offset by $3.6 million of
proceeds from the issuance of common stock under our employee stock option and
stock purchase plans.

In July 2003, our board of directors authorized the company to repurchase up to
$125.0 million of our common stock. As discussed above, we repurchased $26.0
million of our common stock in the first quarter of fiscal 2004. We intend to
continue to repurchase our common stock, subject to the terms and conditions
set by our board of directors and general market conditions, until the stock
repurchase plan is complete. This will result in a cash outflow of an
additional $99.0 million, which will likely occur in the second and third
quarters of fiscal 2004.

In October 2003, our board of directors authorized the company to redeem our
outstanding convertible subordinated notes of $50.0 million. The redemption
premium is currently 1.286% and, thus, the redemption amount will be
approximately $50.7 million, plus accrued interest. The redemption is expected

to occur during the second quarter of fiscal 2004.

We intend to fund our capital requirements, as well as our liquidity needs,
with existing cash, cash equivalent and short-term investment balances as well
as cash generated from future operations, if any. However, capital
requirements will depend on many factors, including our rate of revenue growth,
market acceptance of our products, the timing and extent of development
projects and increases in operating expenses, all of which are subject to
uncertainty. We believe that our existing cash, cash equivalent and short-term
investment balances, and cash generated from our future operations, if any,
will be sufficient to finance our business through at least September 30, 2004.
To the extent that existing cash, cash equivalent and short-term investment
balances and cash generated by operations are insufficient to fund future
activities, we may need to raise additional funds through public or private
debt or equity financing. Additional funds may not be available on terms
favorable to us or at all. In addition, our ability to generate positive cash
flows from operations will be impacted by changes in customer demand and
acceptance of our products as well as our ability to manage operating expenses
and achieve further operational efficiencies.

The following table summarizes our contractual obligations as of September 30,
2003 and the effect such obligations are expected to have on our liquidity and
cash flow in future periods. For the year ended June 30, 2004, the table below
includes only those obligations to be settled between October 1, 2003 and June
30, 2004.

|                                    |  |                     |        |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |       |  |  |   |        |  |  |   |         | 
|----------------------------------- |  | ------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ------ |  |  | - | ----- |  |  | - | ------ |  |  | - | ------- | 
|                                    |  | Year Ended June 30, |        |      |  |      |        |      |  |     
|                                    |  |                     |        |      |  |      |        |      |  |     
|(In thousands)                      |  | 2004                |        | 2005 |  | 2006 |        | 2007 |  | 2008 |        | Thereafter |  | Total
|                                    |  |                     |        |      |  |      |        |      |  |      |        |            |  |      
|Non-cancellable operating leases    |  | $                   | 15,024 |      |  | $    | 16,414 |      |  | $    | 13,535 |            |  | $     | 12,100 |  |  | $ | 9,214 |  |  | $ | 21,923 |  |  | $ | 88,210  | 
|4.5% convertible subordinated notes |  |                     |       |      |  |      | 50,040 |      |  |      |       |            |  |       |       |  |  |   |      |  |  |   |       |  |  |   | 50,040  | 
|                                    |  |                     |        |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |       |  |  |   |        |  |  |   |         | 
|                                    |  | $                   | 15,024 |      |  | $    | 66,454 |      |  | $    | 13,535 |            |  | $     | 12,100 |  |  | $ | 9,214 |  |  | $ | 21,923 |  |  | $ | 138,250 | 
|                                    |  |                     |        |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |       |  |  |   |        |  |  |   |         | 

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after December 15, 2003. We adopted FIN 46
on February 1, 2003 for new entities, and the adoption did not have a material
impact on our financial position or results of operations. We are currently
assessing the impact of adopting FIN 46 for pre-existing entities but do not
expect it will have a material impact on our financial position or results of
operations.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is
generally effective for derivative instruments, including derivative
instruments embedded in certain contracts, entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003. We do
not expect the adoption of SFAS 149 to have a material impact on our financial
position or results of operations.

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FACTORS THAT MAY AFFECT FUTURE RESULTS

We operate in a very competitive and rapidly changing environment that involves
numerous risks, some of which are beyond our control. The following discussion
highlights some of these risks.

Product enhancement and new product introductions involve inherent risks.

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 continually seeks to expand and refresh its product offerings to
include newer features or products, and enter into agreements allowing
integration of third-party technology into Hyperions products. The
introduction of new products or updated versions of continuing products has
inherent risks, including, but not limited to:



| |  |  | product quality, including the possibility of software defects;                                           
| | - |  | ----------------------------------------------------------------------------------------------------------
|
| |  |  | the fit of the new products and features with the customers needs;                                       
|
| |  |  | the successful adaptation of third-party technology into Hyperions products;                             
|
| |  |  | educating Hyperions sales, marketing and consulting personnel to work with the new products and features;
|
| |  |  | competition from earlier and more established entrants;                                                   
|
| |  |  | 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 products and
technologies, enhance and improve existing products in a timely manner, and
properly position and/or price Hyperions products, and 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. These risks tend to be
greater when newer products, such as Hyperion Financial Management and Hyperion
Planning, make up a larger portion of the overall product mix. As more and
more of these newer products are deployed, Hyperions service and maintenance
organizations, along with its partners, will have to rapidly increase their
ability to install and service these products, and Hyperion must rapidly
improve their ease-of-implementation and ease-of-use. The failure to
successfully increase these capacities and make these improvements could result
in significantly lower customer satisfaction, which could lead to lower license
revenue.

Hyperion may face challenges in integrating Brio with Hyperion and, as a
result, may not realize the expected benefits of the acquisition and the price
of Hyperion common stock may be adversely affected.

Hyperion may not be successful in integrating Brios business. Achieving the
benefits of the acquisition will depend on many factors, including:



| |  |  | the successful and timely integration of the products, technology and
sales operations of the two companies following the completion of the
acquisition;                                                                                                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | managing software development activities to define a combined product
roadmap, ensure timely release of innovative products to market, and to
ensure timely development of product roadmaps, release of products to
market, and the development of efficient integration and migration
processes and tools;
|
| |  |  | combining product offerings, platforms and technologies quickly and
effectively;                                                                                                                                                                                                                           
|
| |  |  | demonstrating to our existing and potential customers that the
acquisition will not result in adverse changes in customer service
standards or business focus;                                                                                                                                             
|
| |  |  | retaining key alliances on attractive terms with partners and
suppliers;                                                                                                                                                                                                                                   
|
| |  |  | coordinating and integrating sales and marketing efforts to
effectively communicate the capabilities of the combined company, cross
selling related products to each others customers, and managing the
combined sales force and distribution channels to avoid channel
conflict;                         
|
| |  |  | maintaining employee morale, assimilating key employees and managing
an increased number of employees over large geographic distances;                                                                                                                                                                     
|
| |  |  | creating and effectively implementing uniform standards, controls, procedures, policies and information systems; or                                                                                                                                                                                        
|
| |  |  | retaining or recruiting key personnel.                                                                                                                                                                                                                                                                     

The successful execution of these tasks will involve considerable effort and
time, especially considering the highly technical and complex nature of each
companys products. Failure to achieve a successful and timely integration of
Hyperions and Brios respective businesses could result in the impairment of
relationships with employees, customers and business partners as a result of
the integration of management and other key personnel and the potential
disruption of the combined companys ongoing business and distraction of its
management.

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The combined company may not succeed in addressing integration issues or other
problems encountered in connection with the acquisition, which could have a
material adverse effect on the business, financial condition and results of
operations of Hyperion, and on the price of shares of Hyperion common stock.
The diversion of the attention of management and any difficulties encountered
in the process of combining the companies could cause the disruption of, or a
loss of momentum in, the activities of the combined companys business.

As a result of the acquisition of Brio, charges to earnings resulting from the
application of the purchase method of accounting may adversely affect the
market value of shares of Hyperion common stock.

In accordance with United States generally accepted accounting principles, the
combination of Brio with Hyperion will be accounted for using the purchase
method of accounting, which will result in charges to earnings that could have
a material adverse effect on the market value of shares of Hyperion common
stock. Under purchase accounting, Hyperion will record the market value of its
shares issued in connection with the acquisition, the fair market value of the
options to purchase Brio common stock that will be converted into options to
purchase Hyperion shares and the amount of direct transaction costs, as the
cost of acquiring the business of Brio. The combined company will allocate
these total costs to Brios net tangible assets, amortizable intangible assets,
intangible assets with indefinite lives and in-process research and development
based on their fair values as of the date of completion of the acquisition, and
record the excess of the purchase price over those fair values as goodwill.
The portion of the estimated purchase price allocated to in-process research
and development will be expensed by Hyperion in the quarter ending December 31,
2003. Hyperion will incur additional depreciation and amortization expense over
the useful lives of certain of the net tangible and intangible assets acquired
in connection with the acquisition. In addition, to the extent the value of
these assets, including goodwill or intangible assets with indefinite lives,
becomes impaired, Hyperion may be required to incur material charges relating
to the impairment of those assets. These depreciation, amortization,
in-process research and development and potential impairment charges will
decrease the net income of Hyperion in the foreseeable future, which could have
a material impact on Hyperions results of operations and the market value of
shares of Hyperion common stock following the acquisition.

Failure to upgrade older products will adversely affect revenue.

As newer products are introduced by Hyperion, or by its competition, the
markets demand for Hyperions older products declines. Declining demand
reduces revenue from additional licenses, and reduces maintenance revenue from
past purchasers of Hyperions software. We must continually upgrade Hyperions
older products in order for Hyperions customers to continue to see value in
Hyperions maintenance services. If Hyperion is unable to provide continued
improvements in functionality, or, alternatively, move customers from
Hyperions older products to Hyperions newer products, declining maintenance
and new license revenue from older products could have a material adverse
effect on Hyperions business.

If Hyperion is unable to develop new and enhanced products that achieve
widespread market acceptance, Hyperion may be unable to recoup product
development costs, and Hyperions earnings and revenue may decline.

Hyperions future success depends on its ability to address the rapidly
changing needs of its customers by developing and introducing new products,
product updates and services on a timely basis. Hyperion must also extend the
operation of its products to new platforms and keep pace with technological
developments and emerging industry standards. Hyperion commits substantial
resources to developing new software products and services. If the markets for
these new products do not develop as anticipated, or demand for Hyperions
products and services in these markets does not materialize or occurs more
slowly than Hyperion expects, Hyperion will have expended substantial resources
and capital without realizing sufficient revenue, and Hyperions business and
operating results could be adversely affected.

Hyperion operates in a very 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 it will continue to
experience, vigorous competition from current competitors and new competitors,
some of whom may have significantly greater financial, technical, marketing and
other resources than Hyperion does. Cognos competes with Hyperion across a
wide range of products, offering what they refer to as Corporate Performance
Management solutions, as do, generally, the major ERP vendors, including SAP,
Microsoft and Oracle. Many other companies compete in specific areas of
Hyperions business. SAS and Peoplesoft have OLAP products and analytic
applications, Business Objects (and Crystal) have query and reporting products,
and numerous smaller vendors offer specific applications that compete with a
single Hyperion product. Hyperion expects additional competition as other
established and emerging companies, including Microsoft and Peoplesoft, move
further into both the application and platform parts of the business
performance management 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.

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Hyperion typically has 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 in the final
week 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 Hyperions forecasts of revenue for planning, modeling and other purposes.
However, forecasts are only estimates and may not correlate to revenues in a
particular quarter or over a longer period of time. Consequently, a
significant discrepancy between actual results and sales forecasts could cause
Hyperion to improperly plan or budget and thereby adversely affect Hyperions
business or results of operations. Any publicly stated revenue or earnings
projections by Hyperion are especially subject to this risk.

A change in pricing or marketing could adversely affect Hyperions business.

In an effort to simplify and clarify Hyperions product positioning and
marketing, Hyperion periodically makes changes to Hyperions product pricing or
product descriptions. Broadly based changes to pricing or marketing messages
could cause customers to change or delay their purchasing decisions in response
to such revisions. Additional risks of such changes include delays in
transactions as Hyperions sales force learns how to deploy the new pricing or
convey Hyperions new marketing messages and delay or loss of revenues as the
competition reacts to the pricing and marketing changes, any of which could
have a material adverse effect on Hyperions business, results of operations or
financial position.

Hyperion may not be able to continue its operational improvements.

As part of Hyperions focus on improving its operating margins, Hyperion is
driving toward increased efficiencies in Hyperions sales force, as well as
Hyperions services, product development, product marketing, 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.

Reorganizations may adversely affect productivity.

Hyperion has continued to make adjustments to Hyperions operations and
organization. These changes have historically resulted in productivity issues
in the short term. The revised operations and/or organization must keep
improving over past performance in order to provide better operating margins
and efficiencies. Failure to maintain or improve momentum and productivity
could materially adversely impact Hyperions revenue and profits.

Hyperions international operations are subject to significant risks.

Hyperion derives a substantial portion of its revenue from customers located
outside of the United States. Hyperions international operations are subject
to risks, including:



| |  |  | potential loss of proprietary information due to piracy,
misappropriation or weaker laws regarding intellectual property
protection;                                                                                                                                               
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | imposition of foreign laws and other governmental controls, including
trade and employment restrictions;                                                                                                                                                                           
|
| |  |  | fluctuations in currency exchange rates and economic instability such
as higher interest rates and inflation, which could reduce Hyperions
customers ability to obtain financing for software products or which
could make Hyperions products more expensive in those countries;
|
| |  |  | difficulties in hedging foreign currency transaction exposures;                                                                                                                                                                                                                    
|
| |  |  | longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;                                                                                                                                                                           
|
| |  |  | difficulties in staffing and managing its international operations,
including difficulties related to administering Hyperions stock option
plan in some foreign countries;                                                                                                        
|
| |  |  | difficulties in coordinating the activities of Hyperions geographically dispersed and culturally diverse operations;                                                                                                                                                              
|
| |  |  | competition from local suppliers;                                                                                                                                                                                                                                                  
|
| |  |  | costs and delays associated with developing software in multiple languages; and                                                                                                                                                                                                    
|
| |  |  | political unrest, war or terrorism, particularly in areas in which Hyperion has facilities.                                                                                                                                                                                        

Hyperion may not be able to successfully address each of these challenges.

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Additionally, Hyperion conducts a significant portion of its business in
currencies other than the United States dollar. Hyperions operating results
are, therefore, subject to fluctuations in foreign currency exchange rates.
Hyperions revenues and operating results are adversely affected when the
United States dollar strengthens relative to other currencies and are
positively affected when the United States dollar weakens. Changes in the
value of major foreign currencies, particularly the Euro, relative to the value
of the United States dollar positively affected revenues and operating results
in the quarter. If the United States dollar strengthens relative to other
currencies in the future, our revenues and operating results will be adversely
affected.

There are significant organizational and product integration risks related to
any future business combination.

In addition to its acquisition of Brio, 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 these activities, 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 of the anticipated synergies of the acquisition are not
realized;
|
| |  |  | the potential product liability associated with selling the acquired
companys products; and                                                       
|
| |  |  | 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.

Hyperion is subject to the 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. Both Hyperion and Brio have in the past been subjected to
patent infringement claims. Any such claims, with or without merit, could be
time consuming and costly to defend, divert managements attention and
resources, cause product shipment delays or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to us, if at all, and may require the
payment of substantial amounts of money. In the event of a successful product
infringement claim against Hyperion, and Hyperions failure or inability to
license the infringed or similar technology, Hyperions business, operating
results and financial condition could be materially adversely affected.

Enforcement of Hyperions intellectual property rights may be difficult.

Hyperion relies primarily on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect Hyperions proprietary rights. Hyperions means of protecting its
proprietary rights in the United States or abroad may not be adequate.

Hyperions stock price may be volatile.

The market price of Hyperions common stock is subject to significant
fluctuations. The market price of Hyperions common stock may be significantly
affected by such factors as the announcement of new products, product
enhancements or technological innovation by Hyperion or Hyperions competitors,
announcements of acquisitions by Hyperion, changes in Hyperions or Hyperions
competitors results of operations, changes in revenue, revenue growth rates
and revenue mix, 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.

Hyperion is dependent upon indirect channel partners.

In addition to its direct sales force, Hyperion relies on indirect channel
partners such as OEMs, VARs and distributors for licensing and support of its
products in the United States and internationally. License revenue from
channel partners comprised 24% of Hyperions total license revenue for the
quarter ended September 30, 2003. This channel involves a number of special
risks, including:



| |  |  | Hyperions lack of control over the delivery of its products to end-users;                               
| | - |  | ---------------------------------------------------------------------------------------------------------
|
| |  |  | Hyperions resellers and distributors may terminate their relationship with Hyperion on short notice; and
|
| |  |  | Hyperions resellers and distributors may market and distribute competing products.                      

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Hyperions current indirect channel partners may not elect, or be able, to
market or support Hyperions products effectively or be able to release their
products embedded with Hyperion products in a timely manner. Hyperion may not
be able to effectively manage channel conflicts, and economic conditions or
industry demand may adversely affect these or other indirect channel partners
or these indirect channel partners may devote greater resources to marketing
and supporting the products of other companies. Revenues derived from indirect
channel partners may fluctuate significantly in subsequent periods.

Hyperion is exposed to product liability claims.

Hyperions license agreements with its customers typically contain provisions
designed to limit Hyperions exposure to potential product liability claims,
and Hyperion carries insurance to protect against such claims. It is possible,
however, that the limitation of liability provisions contained in Hyperions
license agreements may not be effective as a result of U.S. or foreign laws or
ordinances or because of judicial decisions, and that liability insurance may
not be available, or that coverage for specific claims may be denied. Although
Hyperion has not experienced any material product liability claims to date, the
sale and support of business performance management products by Hyperion
entails the risk of such claims. A successful product liability claim brought
against Hyperion could have a material adverse effect upon Hyperions business,
operating results and financial condition.

Defects in Hyperions products could increase its costs, adversely affect its
reputation, diminish demand for its products and hurt its operating results.

As a result of their complexity, Hyperions software products may contain
undetected errors or viruses. Errors in new products or product enhancements
might not be detected until after initiating commercial shipments, which could
result in additional costs, delays, possible damage to Hyperions reputation
and could cause diminished demand for Hyperions products. This could lead to
customer dissatisfaction and reduce the opportunity to renew maintenance or
sell new licenses.

Some provisions in Hyperions charter documents and its stockholder rights plan
may prevent or deter an acquisition of Hyperion.

Some of the provisions in Hyperions charter documents may deter or prevent
certain corporate actions, such as a merger, tender offer or proxy contest,
which could affect the market value of Hyperions securities. These provisions
include:



| |  |  | Hyperions board of directors is authorized to issue preferred stock
with any rights it may determine. Consequently, Hyperions board of
directors may issue preferred stock, without shareholder approval, that
has rights superior to the outstanding Hyperion common stock;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Hyperions board of directors is classified into three groups, with
each group of directors to hold office for three years, which has the
effect that two annual meetings, not one, are required to replace a
majority of Hyperions board of directors;                      
|
| |  |  | Hyperion stockholders are not entitled to cumulate votes for
directors; and                                                                                                                                                                                                   
|
| |  |  | special meetings of Hyperion stockholders may be called only by
Hyperions president or by the president or secretary upon written
request by a majority of the board of directors and may not be called by
Hyperions stockholders.                                          

Hyperion has in place a stockholder rights plan that is designed to discourage
coercive takeover offers. In general, Hyperions stockholder rights plan makes
it uneconomic for any person to acquire more than a 15% interest in Hyperion
without the consent of the Hyperion Board of Directors.

Hyperions board of directors could utilize the provisions of its charter
documents and stockholder rights plan to resist an offer from a third party to
acquire Hyperion, including an offer to acquire Hyperion common stock at a
premium to its trading price or an offer that is otherwise considered favorable
by Hyperion stockholders.




|        |  |                                                           
|------- |  | ----------------------------------------------------------
|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK. The primary objective of our investment activities is to
preserve principal while maximizing yields, without significantly increasing
risk. To achieve this objective, we maintain our portfolio of cash equivalents
and short-term investments in a variety of high-quality, liquid securities. At
September 30, 2003, our short-term investments consisted of investment-grade
debt securities with a fair value of $12.4 million. The portfolio is invested
in securities with relatively short maturities to minimize interest rate risk
and for liquidity purposes in the event of immediate cash needs. Due to the
short duration of our investment portfolio, an immediate 10% change in market
interest rates would not have a material impact on the value of our investment
portfolio.

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As of September 30, 2003, our long-term debt consists of 4.5% convertible
subordinated notes due March 2005 with a face value of $50.0 million. Because
our long-term debt bears interest at a fixed interest rate, an immediate 10%
change in market interest rates would not have a material impact on our
interest expense. In October 2003, our board of directors authorized the
redemption of our outstanding convertible subordinated notes. The redemption
is expected to occur during the second quarter of fiscal 2004 and will result
in a slight reduction in interest expense in the second quarter of fiscal 2004
and a substantial reduction in interest expense in subsequent quarters.

FOREIGN CURRENCY EXCHANGE RATE RISK. We transact business in various foreign
currencies. Our exposure to foreign currency exchange rate fluctuations arises
in part from non-functional currency denominated trade accounts receivable and
intercompany accounts receivable. Intercompany accounts receivable arise when
software royalty fees and certain other costs incurred in the United States are
charged to our foreign sales subsidiaries. These intercompany accounts are
typically denominated in the functional currency of the foreign subsidiary,
which is generally their local currency. From time to time, we utilize foreign
currency forward exchange contracts to offset the risk associated with the
effects of these trade receivables and the effects of certain intercompany
receivables for which we anticipate settlement in the foreseeable future. As a
result, increases or decreases in these accounts due to foreign exchange rate
changes are offset by gains and losses on the forward contracts, so as to
minimize foreign currency transaction gains and losses. Our forward contracts
generally have terms of 60 days or less. We do not use forward contracts for
trading purposes. All foreign currency balances and all outstanding forward
contracts are marked-to-market at the end of the period with unrealized gains
and losses included in our consolidated statements of operations. Our ultimate
realized gain or loss with respect to currency fluctuations will depend on the
currency exchange rates and other factors in effect as the contracts mature.

Net foreign exchange transaction gains and losses were not material for the
three months ended September 30, 2003 and 2002. As of September 30, 2003, we
had net forward contracts to sell U.S. dollar equivalent of $4.1 million in
foreign currency. An immediate 10% change in currency exchange rates affecting
these contracts would not have a material impact on our results of operations.




|        |  |                        
|------- |  | -----------------------
|ITEM 4. |  | CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on their evaluation as
of the end of the period covered by this Quarterly Report on Form 10-Q, our
chief executive officer and chief financial officer have concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934) are effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no
significant changes in our internal control over financial reporting identified
in connection with our evaluation that occurred during our first fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

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PART II. OTHER INFORMATION




|        |  |                  
|------- |  | -----------------
|ITEM 1. |  | LEGAL PROCEEDINGS

On July 11, 1997, Gentia Software filed a request for reexamination of our U.S.
Patent No. 5,359,724 (724 patent) with the United States Patent and
Trademark Office (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. We filed our response to the
office action on May 31, 1999. No final office action has been issued by the
PTO. We believe that the outcome of such action will not have a material
adverse effect on our financial position, results of operations or cash flows.

From time to time, in the normal course of business, various claims are made
against us. 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 our financial position, results of operations or cash flows.




|        |  |                                 
|------- |  | --------------------------------
|ITEM 6. |  | EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

|            |  |                                                                          
|----------- |  | -------------------------------------------------------------------------
|Exhibit No. |  | Description                                                              
|            |  |                                                                          
|31.1        |  | -    Certification of Jeffrey R. Rodek pursuant to Rule 13a-14(a).       
|            |  |                                                                          
|31.2        |  | -   Certification of David W. Odell pursuant to Rule 13a-14(a).          
|            |  |                                                                          
|32.1        |  | -   Certification of Jeffrey R. Rodek pursuant to 18 U.S.C. Section 1350.
|            |  |                                                                          
|32.2        |  | -   Certification of David W. Odell pursuant to 18 U.S.C. Section 1350.  

(b)  Reports on Form 8-K

On September 26, 2003, we filed a current report on Form 8-K in connection with
the issuance of a press release dated September 26, 2003 announcing that we
expect to continue our partnership with Lawson Software, Inc., following
Lawsons announcement that it is acquiring Closedloop Solutions, which sells a
product offering some capabilities that compete with Hyperion Planning.

On July 25, 2003, we filed a current report on Form 8-K in connection with our
conference call held July 23, 2003 regarding our earnings for the fourth fiscal
quarter and year ended June 30, 2003 and discussion of our agreement to acquire
Brio Software, Inc. The transcript of the conference call was furnished
pursuant to Item 12, Results of Operations and Financial Condition, of Form
8-K and was presented under Item 9 of Form 8-K in accordance with interim
guidance issued by the Securities and Exchange Commission in Release Nos.
33-8216 and 34-47583.

On July 23, 2003, we filed a current report on Form 8-K in connection with the
issuance of two press releases dated July 23, 2003 announcing Hyperions
financial results for the fourth quarter and fiscal year ended June 30, 2003
and announcing that Hyperion and Brio Software, Inc. had entered into an
Agreement and Plan of Merger and Reorganization, dated as of July 23, 2003.

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SIGNATURE

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: November 7, 2003 |  | Hyperion Solutions Corporation
(Registrant)
|                       |  |                                             |  |                                             
|                       |  | By:                                         |  | /s/ DAVID W. ODELL                          
|                       |  |                                             |  |                                             
|                       |  |                                             |  | David W. Odell                              
|                       |  |                                             |  | Chief Financial Officer                     
|                       |  |                                             |  | (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

|            |  |                                                                        
|----------- |  | -----------------------------------------------------------------------
|Exhibit No. |  | Description                                                            
|            |  |                                                                        
|31.1        |  | - Certification of Jeffrey R. Rodek pursuant to Rule 13a-14(a).        
|            |  |                                                                        
|31.2        |  | - Certification of David W. Odell pursuant to Rule 13a-14(a).          
|            |  |                                                                        
|32.1        |  | - Certification of Jeffrey R. Rodek pursuant to 18 U.S.C. Section 1350.
|            |  |                                                                        
|32.2        |  | - Certification of David W. Odell pursuant to 18 U.S.C. Section 1350.  

24