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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

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

For the quarterly period ended March 31, 2002

OR

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

For the transition period from ____________ to _____________.



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Commission File Number 0-26934

Hyperion Solutions Corporation

(Exact name of registrant as specified in its charter)


|                                |  |                    
|------------------------------- |  | -------------------
|Delaware                        |  | 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 (XBOX) No(BOX)

As of May 10, 2002, there were 33,299,262 shares of the Registrants
common stock, $0.001 par value, outstanding.



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TABLE OF CONTENTS



|                                                                                                                   |                                                                             |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                                                                                   | Condensed Consolidated Balance Sheets                                      
|                                                                                                                   | Condensed Consolidated Statements of Income and Comprehensive Income (Loss)
|                                                                                                                   | Condensed Consolidated Statements of Cash Flows                            
|                                                                                                                   | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)           
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                      OPERATIONS
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                
|PART II. OTHER INFORMATION                                                                                        
|ITEM 1. LEGAL PROCEEDINGS                                                                                         
|SIGNATURES                                                                                                        



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##### Table of Contents



Hyperion Solutions Corporation

Form 10-Q

Contents

|                                                                                              |                                                                                           |                                                     |    |   |      |  | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------- | -- | - | ---- |  | 
|                                                                                              |                                                                                           |                                                     |    |   | Page
|                                                                                              |                                                                                           |                                                     |    |   |     
|Part I. Financial Information                                                                 |                                                                                           |                                                     |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           |                                                     |    |  
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|                                                                                             
|Item 1. Financial Statements                                                                  |                                                                                           |                                                     |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           |                                                     |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets  March 31, 2002 (unaudited) and June 30, 2001      |                                                     |    | 2 |     
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           |                                                     |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (unaudited)  |                                                     |    |   |     
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           | Three and Nine Months Ended March 31, 2002 and 2001 |    |   | 3    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           |                                                     |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows (unaudited)                              |                                                     |    |   |     
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           | Nine Months Ended March 31, 2002 and 2001           |    |   | 4    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           |                                                     |    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Condensed Consolidated Financial Statements (unaudited)  March 31, 2002         |                                                     |    | 5 |     
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           |                                                     |    |  
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|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                           |                                                     | 10 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           |                                                     |    |  
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|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                           |                                                     | 17 |  
|                                                                                             
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|                                                                                              |                                                                                           |                                                     |    |  
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|                                                                                             
|                                                                                             
|Part II. Other Information                                                                    |                                                                                           |                                                     |    |  
|                                                                                             
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|                                                                                             
|                                                                                             
|                                                                                              |                                                                                           |                                                     |    |  
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|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |                                                                                           |                                                     | 17 |  
|                                                                                             
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|                                                                                              |                                                                                           |                                                     |    |  
|                                                                                             
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|                                                                                             
|                                                                                             
|Signatures                                                                                    |                                                                                           |                                                     | 19 |  

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

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





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##### Table of Contents






Hyperion Solutions Corporation
Condensed Consolidated Balance Sheets
(in thousands)

|                                                                            |                                                                                                            |   |             |         |          |   |         |         |  
|--------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | - | ----------- | ------- | -------- | - | ------- | ------- | -
|                                                                            |                                                                                                            |   | March 31,   |         | June 30,
|                                                                            |                                                                                                            |   | 2002        |         | 2001    
|                                                                            |                                                                                                            |   | (unaudited) |         |         
|ASSETS                                                                      |                                                                                                            |   |             |         |          |   |         |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Current assets:                                                             |                                                                                                            |   |             |         |          |   |         |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Cash and cash equivalents                                                                                  |   | $           | 299,702 |          |   | $       | 232,904 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Short-term investments                                                                                     |   |             | 12,934  |          |   |         | 22,462  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accounts receivable  net of allowances of $12,839 and $12,476                                             |   |             | 99,021  |          |   |         | 156,835 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Deferred income taxes                                                                                      |   |             | 18,128  |          |   |         | 19,175  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Prepaid expenses and other current assets                                                                  |   |             | 23,155  |          |   |         | 20,491  |  
|                                                                            |                                                                                                            |   |             |         |          |   |         |         |  
|TOTAL CURRENT ASSETS                                                        |                                                                                                            |   | 452,940     |         |          |   | 451,867 |        
|                                                                           
|Property and equipment  at cost, less accumulated depreciation and         |                                                                                                            |   |             |         |          |   |         |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | amortization of $117,410 and $102,124                                                                      |   |             | 70,995  |          |   |         | 80,752  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Acquired technologies, goodwill and other intangible assets  at cost, less |                                                                                                            |   |             |         |          |   |         |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | accumulated amortization of $31,804 and $28,865                                                            |   |             | 18,023  |          |   |         | 16,472  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Deferred income taxes                                                       |                                                                                                            |   | 14,072      |         |          |   | 13,294  |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Other assets                                                                |                                                                                                            |   | 5,841       |         |          |   | 8,008   |        
|                                                                            |                                                                                                            |   |             |         |          |   |         |         |  
|TOTAL ASSETS                                                                |                                                                                                            | $ | 561,871     |         |          | $ | 570,393 |        
|                                                                            |                                                                                                            |   |             |         |          |   |         |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                        |                                                                                                            |   |             |         |          |   |         |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Current liabilities:                                                        |                                                                                                            |   |             |         |          |   |         |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accounts payable and accrued expenses                                                                      |   | $           | 47,168  |          |   | $       | 52,211  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accrued employee compensation and benefits                                                                 |   |             | 30,758  |          |   |         | 31,554  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Deferred revenue                                                                                           |   |             | 87,830  |          |   |         | 100,234 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Other liabilities                                                                                          |   |             | 6,947   |          |   |         | 13,727  |  
|                                                                            |                                                                                                            |   |             |         |          |   |         |         |  
|TOTAL CURRENT LIABILITIES                                                   |                                                                                                            |   | 172,703     |         |          |   | 197,726 |        
|                                                                           
|Long-term debt                                                              |                                                                                                            |   | 90,864      |         |          |   | 91,045  |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Other long-term liabilities                                                 |                                                                                                            |   | 12,137      |         |          |   | 14,303  |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                                                                            |   |             |         |          |   |         |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Stockholders equity:                                                       |                                                                                                            |   |             |         |          |   |         |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Preferred
stock  $0.001 par value; 5,000 shares authorized;none issued                                    |   |             |        |          |   |         |        |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Common
stock  $0.001 par value; 300,000 shares authorized;34,329 and 33,715 shares issued and outstanding |   |             | 34      |          |   |         | 34      |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Additional paid-in capital                                                                                 |   |             | 222,699 |          |   |         | 212,952 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Less treasury stock, at cost: 1,344 and 1,355 common shares                                                |   |             | (23,097 | )        |   |         | (23,270 | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Retained earnings                                                                                          |   |             | 97,251  |          |   |         | 88,599  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accumulated other comprehensive loss                                                                       |   |             | (10,720 | )        |   |         | (10,996 | )
|                                                                            |                                                                                                            |   |             |         |          |   |         |         |  
|TOTAL STOCKHOLDERS EQUITY                                                  |                                                                                                            |   | 286,167     |         |          |   | 267,319 |        
|                                                                            |                                                                                                            |   |             |         |          |   |         |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                  |                                                                                                            | $ | 561,871     |         |          | $ | 570,393 |        
|                                                                            |                                                                                                            |   |             |         |          |   |         |         |  

See accompanying notes to condensed consolidated financial statements.

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##### Table of Contents






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

|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |       |  
|------------------------------------------------- | ------------------------- | ----------------------------------------- | ------- | ------------------ | ---- | ----------------- | ------- | ------ | ----- | ---- | ------- | ------- | ---- | - | ------- | ------- | ----- | -
|                                                  |                           |                                           |         | Three Months Ended |      | Nine Months Ended
|                                                  |                           |                                           |         | March 31,          |      | March 31,        
|                                                  |                           |                                           |         | 2002               |      | 2001              |         | 2002   |       | 2001
|REVENUES                                          |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Software licenses         |                                           | $       | 49,979             |      |                   | $       | 55,092 |       |      | $       | 134,977 |      |   | $       | 164,445 |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Maintenance and services  |                                           |         | 69,980             |      |                   |         | 77,570 |       |      |         | 221,221 |      |   |         | 223,553 |      
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|TOTAL REVENUES                                    |                           |                                           | 119,959 |                    |      |                   | 132,662 |        |       |      | 356,198 |         |      |   | 387,998 |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|COSTS AND EXPENSES                                |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |        
|                                                 
|                                                 
|                                                 
|                                                 
|Cost of revenues:                                 |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Software licenses         |                                           |         | 4,256              |      |                   |         | 4,441  |       |      |         | 10,823  |      |   |         | 13,410  |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Maintenance and services  |                                           |         | 32,529             |      |                   |         | 42,256 |       |      |         | 103,205 |      |   |         | 118,606 |      
|                                                 
|                                                 
|                                                 
|                                                 
|Sales and marketing                               |                           |                                           | 44,604  |                    |      |                   | 52,873  |        |       |      | 129,661 |         |      |   | 154,186 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Research and development                          |                           |                                           | 18,124  |                    |      |                   | 18,911  |        |       |      | 53,743  |         |      |   | 61,192  |        
|                                                 
|                                                 
|                                                 
|                                                 
|General and administrative                        |                           |                                           | 16,279  |                    |      |                   | 17,839  |        |       |      | 47,008  |         |      |   | 54,472  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Restructuring and non-recurring charges (credits) |                           |                                           | (418    | )                  |      |                   |        |        |       |      | 44      |         |      |   |        |        
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|TOTAL COSTS AND EXPENSES                          |                           |                                           | 115,374 |                    |      |                   | 136,320 |        |       |      | 344,484 |         |      |   | 401,866 |        
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|OPERATING INCOME (LOSS)                           |                           |                                           | 4,585   |                    |      |                   | (3,658  | )      |       |      | 11,714  |         |      |   | (13,868 | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Interest income                                   |                           |                                           | 1,437   |                    |      |                   | 2,915   |        |       |      | 5,504   |         |      |   | 10,478  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Interest expense                                  |                           |                                           | (1,202  | )                  |      |                   | (1,387  | )      |       |      | (3,531  | )       |      |   | (4,043  | )      
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|INCOME (LOSS) BEFORE INCOME TAXES                 |                           |                                           | 4,820   |                    |      |                   | (2,130  | )      |       |      | 13,687  |         |      |   | (7,433  | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Provision for (benefit from) income taxes         |                           |                                           | 1,735   |                    |      |                   | (809    | )      |       |      | 4,927   |         |      |   | (2,825  | )      
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|INCOME (LOSS) BEFORE EXTRAORDINARY ITEM           |                           |                                           | 3,085   |                    |      |                   | (1,321  | )      |       |      | 8,760   |         |      |   | (4,608  | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Extraordinary item  gain on redemption of debt,  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | net of income tax of $898 |                                           |         |                   |      |                   |         |       |       |      |         |        |      |   |         | 1,464   |      
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|NET INCOME (LOSS)                                 |                           | $                                         | 3,085   |                    |      | $                 | (1,321  | )      |       | $    | 8,760   |         |      | $ | (3,144  | )      
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|Other comprehensive income (loss)                 |                           |                                           | (1,067  | )                  |      |                   | (3,288  | )      |       |      | 276     |         |      |   | (2,762  | )      
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|COMPREHENSIVE INCOME (LOSS)                       |                           | $                                         | 2,018   |                    |      | $                 | (4,609  | )      |       | $    | 9,036   |         |      | $ | (5,906  | )      
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|EARNINGS (LOSS) PER SHARE                         |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Basic                     |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                           | Earnings (loss) before extraordinary item |         | $                  | 0.09 |                   |         | $      | (0.04 | )    |         | $       | 0.27 |   |         | $       | (0.14 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                           | Extraordinary gain                        |         |                    |     |                   |         |        |      |      |         |         |     |   |         |         | 0.04  |  
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|                                                  |                           | Earnings (loss) per share                 |         | $                  | 0.09 |                   |         | $      | (0.04 | )    |         | $       | 0.27 |   |         | $       | (0.10 | )
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|                                                  | Diluted                   |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                           | Earnings (loss) before extraordinary item |         | $                  | 0.09 |                   |         | $      | (0.04 | )    |         | $       | 0.26 |   |         | $       | (0.14 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                           | Extraordinary gain                        |         |                    |     |                   |         |        |      |      |         |         |     |   |         |         | 0.04  |  
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|                                                  |                           | Earnings (loss) per share                 |         | $                  | 0.09 |                   |         | $      | (0.04 | )    |         | $       | 0.26 |   |         | $       | (0.10 | )
|                                                  |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |         |      
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING     |                           |                                           |         |                    |      |                   |         |        |       |      |         |         |      |   |         |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Basic                     |                                           |         | 32,918             |      |                   |         | 32,154 |       |      |         | 32,694  |      |   |         | 32,695  |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Diluted                   |                                           |         | 34,107             |      |                   |         | 32,154 |       |      |         | 33,259  |      |   |         | 32,695  |      

See accompanying notes to condensed consolidated financial statements.

3



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##### Table of Contents






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

|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |         |       | 
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------------- | ------- | ----------------- | ----- | ---- | ------- | ------- | ----- | 
|                                                                                         |                                                                          |                                                   |         | Nine Months Ended
|                                                                                         |                                                                          |                                                   |         | March 31,        
|                                                                                         |                                                                          |                                                   |         | 2002              |       | 2001
|                                                                                         |                                                                          |                                                   |         |                   |       |     
|CASH FLOWS FROM OPERATING ACTIVITIES                                                     |                                                                          |                                                   |         |                   |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Net income (loss)                                                                        |                                                                          | $                                                 | 8,760   |                   |       | $    | (3,144  | )      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                          |                                                   |         |                   |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Gain on redemption of debt                                               |                                                   |         |                  |       |      |         | (2,362  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Depreciation and amortization                                            |                                                   |         | 24,067            |       |      |         | 29,260  |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Provision for accounts receivable allowance and returns                  |                                                   |         | 14,358            |       |      |         | 16,671  |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deferred income taxes                                                    |                                                   |         | 314               |       |      |         | (1,784  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Changes in assets and liabilities:                                                       |                                                                          |                                                   |         |                   |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accounts receivable                                                      |                                                   |         | 46,290            |       |      |         | (10,151 | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Prepaid expenses and other current assets                                |                                                   |         | 694               |       |      |         | (10,078 | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other assets                                                             |                                                   |         | (304              | )     |      |         | 207     |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accounts payable and accrued expenses                                    |                                                   |         | (7,592            | )     |      |         | 2,979   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accrued employee compensation and benefits                               |                                                   |         | (903              | )     |      |         | (4,504  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Income taxes payable                                                     |                                                   |         | (2,128            | )     |      |         | (4,315  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deferred revenue                                                         |                                                   |         | (13,107           | )     |      |         | 5,545   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other liabilities                                                        |                                                   |         | (6,780            | )     |      |         |        |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other long-term liabilities                                              |                                                   |         | (2,166            | )     |      |         |        |      
|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |        
|Net cash provided by operating activities                                                |                                                                          |                                                   | 61,503  |                   |       |      | 18,324  |        
|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                     |                                                                          |                                                   |         |                   |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Proceeds from maturity of investments, net                               |                                                   |         | 11,546            |       |      |         | 8,811   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Purchases of property and equipment, net                                 |                                                   |         | (10,740           | )     |      |         | (36,931 | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Purchases of intangible and other assets, net                            |                                                   |         | (4,935            | )     |      |         | (3,534  | )    
|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |        
|Net cash used in investing activities                                                    |                                                                          |                                                   | (4,129  | )                 |       |      | (31,654 | )      
|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                     |                                                                          |                                                   |         |                   |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Principal payments on notes payable                                      |                                                   |         | (180              | )     |      |         | (152    | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Redemption of debt                                                       |                                                   |         |                  |       |      |         | (8,652  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Treasury stock transactions                                              |                                                   |         | 64                |       |      |         | (23,764 | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Proceeds from exercise of stock options and employee stock purchase plan |                                                   |         | 8,629             |       |      |         | 8,574   |      
|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |        
|Net cash provided by (used in) financing activities                                      |                                                                          |                                                   | 8,513   |                   |       |      | (23,994 | )      
|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |        
|Effect of exchange rate on cash and cash equivalents                                     |                                                                          |                                                   | 911     |                   |       |      | (2,762  | )      
|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |        
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                         |                                                                          |                                                   | 66,798  |                   |       |      | (40,086 | )      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Cash and cash equivalents at beginning of period                                         |                                                                          |                                                   | 232,904 |                   |       |      | 262,408 |        
|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                               |                                                                          | $                                                 | 299,702 |                   |       | $    | 222,322 |        
|                                                                                         |                                                                          |                                                   |         |                   |       |      |         |        
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                         |                                                                          |                                                   |         |                   |       |      |         |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Cash paid during the period for:                                         |                                                   |         |                   |       |      |         |         |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                          | Income taxes                                      |         | $                 | 6,062 |      |         | $       | 3,716 | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                          | Interest                                          |         |                   | 4,129 |      |         |         | 4,520 | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Non-cash operating and financing activity:                               |                                                   |         |                   |       |      |         |         |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                          | Income tax benefit from exercise of stock options |         | $                 | 974   |      |         | $       | 1,274 | 

See accompanying notes to condensed consolidated financial statements.

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##### Table of Contents






HYPERION SOLUTIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2002

1. Basis of Presentation

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

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

2. Significant Accounting Policies

Revenue Recognition

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

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

Foreign Currency

The accounting policy in the Annual Report on Form 10-K for the year ended June
30, 2001, has been superseded by the new policy that follows. This policy was
impacted by managements decision in March 2002 to begin settlement of its
intercompany balances with certain of its international subsidiaries.

The functional currency of Hyperions international subsidiaries is the local
currency. The financial statements of these subsidiaries are translated to
United States dollars using the period-end rates of exchange for assets and
liabilities, and average rates of exchange for the period for revenues and
expenses. Translation gains and losses that Hyperion considers to be of a
long-term-investment nature are recorded and accumulated in other comprehensive
income as a separate component of shareholders equity. Translation gains and
losses for those international subsidiaries which Hyperion anticipates
settlement in the foreseeable future are recorded in the condensed consolidated
statements of income. Net gains and losses resulting from foreign exchange
transactions are included in the condensed consolidated statements of income.
The net gains and losses were not significant during the periods presented.

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##### Table of Contents



Comprehensive Income

Comprehensive income includes foreign currency translation gains and losses and
unrealized gains and losses on debt securities that are reflected in
stockholders equity instead of net income. The net unrealized losses on debt
securities for the three and nine months ended March 31, 2002 are not material.

Stock Repurchase Program

In November 2000, the Board of Directors authorized the repurchase of up to
$100 million of Hyperions outstanding common stock at market prices over a
twelve-month period. During the three and nine months ended March 31, 2001,
Hyperion repurchased 811,500 and 1,389,000 shares at a cost of approximately
$15.1 and $23.8 million, respectively, under this program. These repurchased
shares are classified as treasury stock on the accompanying balance sheet.
There were no such transactions recorded in the first nine months of fiscal
2002.

Earnings Per Share

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

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

|                                                             |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |        |  
|------------------------------------------------------------ | ----------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | -
|                                                             |                                           |   | Three Months Ended |        | Nine Months Ended
|                                                             |                                           |   | March 31,          |        | March 31,        
|                                                             |                                           |   | 2002               |        | 2001              |   | 2002   |        | 2001
|                                                             |                                           |   |                    |        |                   |   |        |        |     
|Numerator  net income (loss) before extraordinary item      |                                           | $ | 3,085              |        |                   | $ | (1,321 | )      |      | $ | 8,760  |        |  | $ | (4,608 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|Numerator  extraordinary item  gain on redemption of debt, |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | net of income tax of $898                 |   |                    |       |                   |   |        |       |      |   |        |       |  |   |        | 1,464  |  
|                                                             |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Numerator  net income (loss)                                |                                           | $ | 3,085              |        |                   | $ | (1,321 | )      |      | $ | 8,760  |        |  | $ | (3,144 | )     
|                                                             |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|Denominator for basic EPS  weighted-average shares          |                                           |   | 32,918             |        |                   |   | 32,154 |        |      |   | 32,694 |        |  |   | 32,695 |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Effect of dilutive securities:            |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |        |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Stock option rights                       |   |                    | 1,189  |                   |   |        |       |      |   |        | 565    |  |   |        |       |  
|                                                             |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Denominator for diluted EPS  adjusted                       |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | weighted-average shares                   |   |                    | 34,107 |                   |   |        | 32,154 |      |   |        | 33,259 |  |   |        | 32,695 |  
|                                                             |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Basic                                                        |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Earnings (loss) before extraordinary item |   | $                  | 0.09   |                   |   | $      | (0.04  | )    |   | $      | 0.27   |  |   | $      | (0.14  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Extraordinary gain                        |   |                    |       |                   |   |        |       |      |   |        |       |  |   |        | 0.04   |  
|                                                             |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Earnings (loss) per share                 |   | $                  | 0.09   |                   |   | $      | (0.04  | )    |   | $      | 0.27   |  |   | $      | (0.10  | )
|                                                             |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Diluted                                                      |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Earnings (loss) before extraordinary item |   | $                  | 0.09   |                   |   | $      | (0.04  | )    |   | $      | 0.26   |  |   | $      | (0.14  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Extraordinary gain                        |   |                    |       |                   |   |        |       |      |   |        |       |  |   |        | 0.04   |  
|                                                             |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Earnings (loss) per share                 |   | $                  | 0.09   |                   |   | $      | (0.04  | )    |   | $      | 0.26   |  |   | $      | (0.10  | )
|                                                             |                                           |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       

For the three and nine month periods ended March 31, 2002, certain stock option
rights of 2.6 million and 5.6 million common shares were excluded from the
diluted EPS calculation because their effect would be antidilutive. For the
three and nine month periods ending March 31, 2001, all stock option rights
totaling 9.5 million were excluded because their effect would be

6



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##### Table of Contents



antidilutive. In addition, 1.6 million shares of common stock issuable upon
conversion of the convertible subordinated notes due 2005 have been excluded
from the diluted EPS calculation for all periods presented.

Recent Accounting Pronouncements

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

In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 supersedes APB Opinion No. 17, Intangible Assets, and
requires, among other things, the discontinuance of amortization related to
goodwill and indefinite lived intangible assets. In addition, the standard
includes provisions upon adoption for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles and reclassification of certain intangibles out
of previously reported goodwill. Beginning July 1, 2001, goodwill will be
tested for impairment annually, and will be tested for impairment between
annual tests whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Impairment testing for goodwill is
done at a reporting unit level. Currently Hyperion has identified one
reporting unit under the criteria set forth by SFAS No. 142. An impairment
loss would generally be recognized when the carrying amount of the reporting
units net assets exceeds the estimated fair value of the reporting unit.
Hyperion adopted SFAS No. 142 effective July 1, 2001, which resulted in
Hyperion no longer amortizing its existing net goodwill balance of approximately
$8.6 million. A preliminary assessment of any potential impairment indicated
that no impairment existed at July 1, 2001. With the adoption of SFAS No. 142,
intangible assets with a definite life are amortized on a straight-line basis
over periods ranging from 3 to 7 years. Intangible assets with a definite life
are tested for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when the carrying amount of an asset exceeds the estimated
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition. The amount of the impairment loss is calculated as the
excess of the assets carrying value over its fair value. Fair value is
generally determined using a discounted cash flow analysis. The impact of SFAS
No. 142 on previously reported results would have increased income (loss)
before extraordinary item and net income (loss) by approximately $1.5 million
and $2.6 million, for the three and nine months ended March 31, 2001,
respectively. Reported diluted earnings (loss) per share for the three and
nine months ended March 31, 2001 would have increased by approximately $0.05
and $0.08 per share, respectively.

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

In November 2001, the FASB issued a Staff Announcement that requires
classification of reimbursements for out-of-pocket expenses incurred as
revenue in the income statement. This Announcement was effective for reporting
periods beginning after December 15, 2001. Hyperion adopted this Announcement
effective January 1, 2002. As a result of this Announcement, Hyperion no longer
records out-of-pocket expense reimbursements as a reduction of costs incurred
and comparative financial statements from prior periods have been reclassified.
For the six months ended December 31, 2001, $4.9 million has been primarily
reclassified from cost of maintenance and services to maintenance and services
revenues to conform to our current period presentation. For the three and nine
months ended March 31, 2001, $2.4 million and $8.3 million was reclassified,
respectively.

3. Related Party Transactions

In March 2002, Siebel Systems, Inc. (Siebel), purchased several products from
Hyperion for approximately $0.9 million for purposes of
implementing an enterprise-wide financial planning system. In addition, Siebel has a future
option to purchase the same products in accordance with normal contractual
terms and conditions. The CFO of Siebel is on the board of directors of
Hyperion.

In March 2002, Hyperion purchased approximately $3.0 million of software,
maintenance and services from Siebel Systems, Inc. for the purpose of
implementing a worldwide customer relationship management system and
integrating it with Hyperions Business Performance Management Suite. At
March 31, 2002, $2.6 million related to software license is recorded in
property

7



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##### Table of Contents



and equipment and the remaining $0.4 million has been recorded as a prepaid
expense and will be amortized as the services are provided.

4. Contingencies

From time to time, in the normal course of business, various claims are made
against Hyperion. At this time, in the opinion of management, there are no
pending claims the outcome of which is expected to result in a material adverse
effect on the financial position, results of operations and cash flows of
Hyperion.

5. Restructuring and Non-Recurring Charges (Credits)

In June 2001, Hyperion announced a corporate restructuring plan, which is
discussed in Hyperions 2001 Annual Report on Form 10-K. The restructuring plan
included a company-wide initiative to align personnel with Hyperions new
strategy, which resulted in a reduction of the workforce of approximately 300
employees, or 12% of the worldwide headcount. The workforce reduction was
complete as of September 30, 2001. Employee groups impacted by the
restructuring included personnel involved in corporate services, product
business units, sales and customer support. In addition, Hyperion has
consolidated certain facilities and exited other facilities.

In the third quarter of fiscal 2002, Hyperion recorded a net credit related to
this restructuring plan, which increased operating income by $418 thousand and
net income by $267 thousand. This net restructuring credit was primarily
comprised of reductions in professional services and occupancy costs of
approximately $86 thousand and $445 thousand, respectively, as well as an
additional charge of approximately $107 thousand for further employee
separation benefits. The reduction in professional services and occupancy
costs in the third quarter resulted from circumstances occurring subsequent to
the original announcement, thus requiring changes to managements original
estimates. In the nine months ended March 31, 2002, the net restructuring
charge of approximately $44 thousand was primarily comprised of the above
mentioned $418 thousand net credit recorded in the third quarter of fiscal year
2002, as well as accelerated depreciation charges of approximately $382
thousand recorded in the first half of fiscal 2002, which related to assets
disposed of in connection with our original restructuring plan.

Additionally, the restructuring reserve balance declined due to cash paid for
severance and employee costs of approximately $1.0 million and $4.9 million,
real estate exit costs of $0.7 million and $1.9 million, and other payments of
$1.2 million and $1.4 million for the three and nine months ended March 31,
2002, respectively. The balance at March 31, 2002 of $19.0 million relates
primarily to future lease obligations of $15.3 million, employee separation
payments of $0.8 million, and other non-recurring charges of $2.9 million and
is included in Other liabilities and Other long-term liabilities in the
accompanying condensed consolidated balance sheets.

6. Segment and Geographical Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, established standards for reporting information about operating
segments in 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 four geographic regions: North America, Europe, Asia
Pacific and Latin America. Hyperions products are marketed internationally
through Hyperions direct sales force, independent distributors and application
resellers.

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

8



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##### Table of Contents



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

|                                  |  |         |         |        |  |         |         |         |  |       |        |  |  |   |       |  |  |   |         | 
|--------------------------------- |  | ------- | ------- | ------ |  | ------- | ------- | ------- |  | ----- | ------ |  |  | - | ----- |  |  | - | ------- | 
|                                  |  | North   |         |        |  |         |         | Asia    |  | Latin |        |  |  |  
|                                  |  | America |         | Europe |  | Pacific |         | America |  | Total
|                                  |  |         |         |        |  |         |         |         |  |      
|Three Months Ended March 31, 2002 |  |         |         |        |  |         |         |         |  |       |        |  |  |   |       |  |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|Total revenues                    |  | $       | 79,999  |        |  | $       | 34,069  |         |  | $     | 4,715  |  |  | $ | 1,176 |  |  | $ | 119,959 | 
|                                 
|                                 
|                                 
|                                 
|Long-lived assets                 |  |         | 61,827  |        |  |         | 7,788   |         |  |       | 1,173  |  |  |   | 207   |  |  |   | 70,995  | 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|Three Months Ended March 31, 2001 |  |         |         |        |  |         |         |         |  |       |        |  |  |   |       |  |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|Total revenues                    |  | $       | 87,084  |        |  | $       | 36,085  |         |  | $     | 8,127  |  |  | $ | 1,366 |  |  | $ | 132,662 | 
|                                 
|                                 
|                                 
|                                 
|Long-lived assets                 |  |         | 77,815  |        |  |         | 8,390   |         |  |       | 1,316  |  |  |   |      |  |  |   | 87,521  | 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|Nine Months Ended March 31, 2002  |  |         |         |        |  |         |         |         |  |       |        |  |  |   |       |  |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|Total revenues                    |  | $       | 232,493 |        |  | $       | 100,910 |         |  | $     | 18,381 |  |  | $ | 4,414 |  |  | $ | 356,198 | 
|                                 
|                                 
|                                 
|                                 
|Long-lived assets                 |  |         | 61,827  |        |  |         | 7,788   |         |  |       | 1,173  |  |  |   | 207   |  |  |   | 70,995  | 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|Nine Months Ended March 31, 2001  |  |         |         |        |  |         |         |         |  |       |        |  |  |   |       |  |  |   |         | 
|                                 
|                                 
|                                 
|                                 
|Total revenues                    |  | $       | 264,315 |        |  | $       | 97,187  |         |  | $     | 23,139 |  |  | $ | 3,357 |  |  | $ | 387,998 | 
|                                 
|                                 
|                                 
|                                 
|Long-lived assets                 |  |         | 77,815  |        |  |         | 8,390   |         |  |       | 1,316  |  |  |   |      |  |  |   | 87,521  | 



---

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

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

|                                       |                                |   |                              |        |                             |   |         |        |      |   |         |         |  |   |         |         | 
|-------------------------------------- | ------------------------------ | - | ---------------------------- | ------ | --------------------------- | - | ------- | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                       |                                |   | Three Months Ended March 31, |        | Nine Months Ended March 31,
|                                       |                                |   | 2002                         |        | 2001                        |   | 2002    |        | 2001
|                                       |                                |   |                              |        |                             |   |         |        |     
|Software licenses                      |                                |   |                              |        |                             |   |         |        |      |   |         |         |  |   |         |        
|                                      
|                                      
|                                      
|                                      
|                                       | Financial application products |   | $                            | 21,466 |                             |   | $       | 25,733 |      |   | $       | 60,769  |  |   | $       | 74,417  | 
|                                      
|                                      
|                                      
|                                      
|                                       | Technology products            |   |                              | 28,513 |                             |   |         | 29,359 |      |   |         | 74,208  |  |   |         | 90,028  | 
|                                       |                                |   |                              |        |                             |   |         |        |      |   |         |         |  |   |         |         | 
|Total software license revenue         |                                |   | 49,979                       |        |                             |   | 55,092  |        |      |   | 134,977 |         |  |   | 164,445 |        
|                                      
|                                      
|                                      
|                                      
|Maintenance and services               |                                |   |                              |        |                             |   |         |        |      |   |         |         |  |   |         |        
|                                      
|                                      
|                                      
|                                      
|                                       | Maintenance                    |   |                              | 46,699 |                             |   |         | 45,443 |      |   |         | 135,459 |  |   |         | 129,777 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Consulting and training        |   |                              | 23,281 |                             |   |         | 32,127 |      |   |         | 85,762  |  |   |         | 93,776  | 
|                                       |                                |   |                              |        |                             |   |         |        |      |   |         |         |  |   |         |         | 
|Total maintenance and services revenue |                                |   | 69,980                       |        |                             |   | 77,570  |        |      |   | 221,221 |         |  |   | 223,553 |        
|                                       |                                |   |                              |        |                             |   |         |        |      |   |         |         |  |   |         |         | 
|                                      
|                                      
|                                      
|                                      
|Total Revenues                         |                                | $ | 119,959                      |        |                             | $ | 132,662 |        |      | $ | 356,198 |         |  | $ | 387,998 |        
|                                       |                                |   |                              |        |                             |   |         |        |      |   |         |         |  |   |         |         | 

9



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HYPERION SOLUTIONS CORPORATION




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

FORWARD-LOOKING STATEMENTS




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

OVERVIEW

Hyperion develops, markets and supports business performance management
solutions that help companies measure performance and drive profitability.
Hyperions solutions enable companies to set goals, model and plan performance,
monitor and report key results, analyze underlying business drivers and
anticipate future performance of core business activities.

The Hyperion Business Performance Management Suite is a set of packaged
applications, performance management frameworks and an integrating, open
business intelligence platform which consists of technology products and
financial applications. Technology products include: Hyperion online
analytical processing (OLAP) Essbase server (its OLAP server technology),
Hyperion tools, incorporating domain-specific business rules, data storage,
integration, interoperability and visualization capabilities. Financial
applications include financial and business performance management products
that provide customers the opportunity to strategize, model, plan and measure
performance.

Taken together, Hyperion and its more than 400 partners provide innovative and
specialized business performance management solutions and services that are
compelling in the industry and help customers measure performance and drive
profitability.

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

RESULTS OF OPERATIONS

OVERVIEW

Hyperion reported net income of $3.1 million, or $0.09 per share, for the third
quarter of fiscal 2002, which includes the positive effect of a $0.4 million,
or $0.01 per share, credit related to Hyperions adjustment to the
restructuring charge recorded in June 2001. These results compare to a net loss
of $1.3 million, or $0.04 per share, for the third quarter of fiscal 2001.

10



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##### Table of Contents



REVENUES

|                                     |                       |      |                              |                             |  |      |      |          |   |      |         |          |      |      |     |          |   |   |         |        |  |  |     |    |      |   |         |        |  |  |     |    |  
|------------------------------------ | --------------------- | ---- | ---------------------------- | --------------------------- |  | ---- | ---- | -------- | - | ---- | ------- | -------- | ---- | ---- | --- | -------- | - | - | ------- | ------ |  |  | --- | -- | ---- | - | ------- | ------ |  |  | --- | -- | -
|                                     |                       |      | Three Months Ended March 31, | Nine Months Ended March 31,
|                                     |                       |      |                              |                            
|                                     |                       |      |                              |                             |  |      | % of |          |   |      |         |          | % of |      |     |          |   |   | % of    |        |  |  |     |    | % of
|(in thousands)                       |                       | 2002 |                              | revenues                    |  | 2001 |      | revenues |   | 2002 |         | revenues |      | 2001 |     | revenues
|                                     |                       |      |                              |                             |  |      |      |          |   |      |         |          |      |      |     |         
|Software licenses                    |                       | $    | 49,979                       |                             |  |      | 42   | %        |   | $    | 55,092  |          |      |      | 42  | %        |   | $ | 134,977 |        |  |  | 38  | %  |      | $ | 164,445 |        |  |  | 42  | % 
|                                    
|                                    
|                                    
|                                    
|Maintenance and services
Maintenance |                       |      | 46,699                       |                             |  |      | 39   | %        |   |      | 45,443  |          |      |      | 34  | %        |   |   | 135,459 |        |  |  | 38  | %  |      |   | 129,777 |        |  |  | 34  | % 
|                                    
|                                    
|                                    
|                                    
|                                     | Consulting & training |      |                              | 23,281                      |  |      |      | 19       | % |      |         | 32,127   |      |      |     | 24       | % |   |         | 85,762 |  |  |     | 24 | %    |   |         | 93,776 |  |  |     | 24 | %
|                                     |                       |      |                              |                             |  |      |      |          |   |      |         |          |      |      |     |          |   |   |         |        |  |  |     |    |      |   |         |        |  |  |     |   
|                                     |                       |      | 69,980                       |                             |  |      | 58   | %        |   |      | 77,570  |          |      |      | 58  | %        |   |   | 221,221 |        |  |  | 62  | %  |      |   | 223,553 |        |  |  | 58  | % 
|                                     |                       |      |                              |                             |  |      |      |          |   |      |         |          |      |      |     |          |   |   |         |        |  |  |     |    |      |   |         |        |  |  |     |   
|Total Revenues                       |                       | $    | 119,959                      |                             |  |      | 100  | %        |   | $    | 132,662 |          |      |      | 100 | %        |   | $ | 356,198 |        |  |  | 100 | %  |      | $ | 387,998 |        |  |  | 100 | % 
|                                     |                       |      |                              |                             |  |      |      |          |   |      |         |          |      |      |     |          |   |   |         |        |  |  |     |    |      |   |         |        |  |  |     |   

Total revenues declined by 10% and 8% for the three and nine months ended March
31, 2002 from the corresponding prior year periods. The decrease was primarily
attributable to lower license, consulting and training revenues as a result of
continued cutbacks in technology spending amid a generally weak worldwide
economy and our increased emphasis on the use of our indirect channel partners
to provide consulting services. We expect that total revenues for the fourth
quarter of fiscal 2002 will increase slightly as compared to the third quarter
due to the new enhancements to our web-based financial applications during the
past quarter and the seasonal nature of our business.

For the quarter ended March 31, 2002, software license revenues in absolute
dollars increased 8% over second quarter fiscal 2002. Software license
revenues, in absolute dollars, decreased by 9% and 18% in the three and nine
months ended March 31, 2002, compared to the corresponding prior year periods.
While our average transaction size for the quarter increased 16% to $128
thousand for the third quarter of fiscal 2002 from $110 thousand for the third
quarter of fiscal 2001, we had a reduction in the total number of deals, thus
resulting in lower revenue. This decline was primarily attributable to
continuing weak economic conditions both domestically and internationally,
which has caused delays in our customers capital spending.

The split between financial application and technology products revenues was
43%-57% and 47%-53% in the third quarter of fiscal 2002 and 2001,
respectively. The nine-month split was 45%-55% for March 31, 2002 and 2001.
Financial application revenue is generated from our packaged financial and
business performance management applications and our technology product license
revenue is generated from Hyperion Essbase and related tools. Increasingly,
we are leading and winning deals with our financial applications and pulling
additional technology license revenue, as part of an integrated business
performance management suite of products. In the March 2002 quarter, eight of
our top ten deals were financial application deals, of which seven also
included Essbase. With respect to our two new financial applications products,
Hyperion Planning has achieved market acceptance and Hyperion Financial
Management is making continued progress in the marketplace. We expect
the revenue
contribution from Financial Management to lag the Planning product by about
6 to 9 months.

We market our products through our direct sales force and indirect channel
partners. Historically, we have generated the majority of our revenue from the
direct sales force. We continue to focus on complementing the direct sales
force with indirect channel partners, which consist of Original Equipment
Manufacturers (OEMs), Value Added Resellers (VARs), independent
distributors and sales agents. Revenue from all indirect channel partners
comprised 26% and 19% of license revenue in the third quarter of fiscal 2002
and 2001, respectively. For the nine months ended March 31, 2002 and 2001, the
indirect channel partner revenues were 26% and 22% of license revenue,
respectively. The increase in the percentage of total license revenue derived
through our channel partners quarter over quarter and year over year was
primarily due to a greater emphasis on effectively leveraging our channel
partners. This increase continues to bring us closer to our direct sales force
and indirect channel partners target revenue split percentage of 67%-33%. No
single partner represented more than 10 percent of total revenue during the
three and nine months ended March 31, 2002, which is consistent with fiscal
2001.

Maintenance and services revenue decreased by 10% on a quarter over quarter
basis, and decreased by 1% year over year. Maintenance revenues for the three
and nine months ended March 31, 2002 increased by 3% and 4%, respectively, over
the corresponding prior year periods. The increase in maintenance revenue is
mainly attributable to the year-to-year growth of Hyperions installed customer
base. Consulting and training revenues decreased by 28% and 9%, respectively,
for the three and nine months ended March 31, 2002 as compared to the
corresponding prior periods. There are two primary factors for this decrease
in consulting revenue: increased use of our indirect channel partners to
provide consulting services, which we believe will strengthen our partner
relationships and our license revenue in the future and general economic
weakness.

North America revenues decreased by 8% and 12% during the three and nine-month
periods ended March 31, 2002, respectively, from the corresponding prior year
periods due to continued weakening economic conditions in the United States.
Total revenues generated from markets outside North America, including export
sales, for the third quarter of fiscal 2002 and 2001 were $40.0 million and
$45.6 million, or 33% and 34% of total revenues, respectively. For the nine
months ended March 31, 2002 and 2001, international revenues were $123.7
million and $123.7 million, or 35% and 32% of total revenues, respectively.
The decline in international revenues in the third quarter of fiscal 2002 was
due to slower economic conditions overseas, particularly in Asia.

11



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COST OF REVENUES

|                         |  |                              |        |                             |  |       |    |          |  |      |        |          |  |      |    |          |  |       |         |  |  |  |    |       |  |   |         |  |  |  |    |  
|------------------------ |  | ---------------------------- | ------ | --------------------------- |  | ----- | -- | -------- |  | ---- | ------ | -------- |  | ---- | -- | -------- |  | ----- | ------- |  |  |  | -- | ----- |  | - | ------- |  |  |  | -- | -
|                         |  | Three Months Ended March 31, |        | Nine Months Ended March 31,
|                         |  |                              |        |                            
|                         |  |                              |        |                             |  | Gross |    |          |  |      |        | Gross    |  |      |    |          |  | Gross |         |  |  |  |    | Gross
|(in thousands)           |  | 2002                         |        | profit %                    |  | 2001  |    | profit % |  | 2002 |        | profit % |  | 2001 |    | profit %
|                         |  |                              |        |                             |  |       |    |          |  |      |        |          |  |      |    |         
|Software licenses        |  | $                            | 4,256  |                             |  |       | 91 | %        |  | $    | 4,441  |          |  |      | 92 | %        |  | $     | 10,823  |  |  |  | 92 | %     |  | $ | 13,410  |  |  |  | 92 | %
|                        
|                        
|                        
|                        
|Maintenance and services |  |                              | 32,529 |                             |  |       | 54 | %        |  |      | 42,256 |          |  |      | 46 | %        |  |       | 103,205 |  |  |  | 53 | %     |  |   | 118,606 |  |  |  | 47 | %

Software Licenses. Cost of software license revenues consists primarily of
royalty expenses, cost of product packaging and documentation materials,
amortization of capitalized software costs and amortization of certain
intangible assets related to business acquisitions. The amortization of
capitalized software costs begins upon the general release of the software to
customers. The decrease in the cost of software licenses in fiscal 2002 quarter
over quarter and year over year principally reflects a decrease in royalty
payments to third parties for software supplied by them and distributed by
Hyperion as a result of lower sales volume. The cost as a percentage of
software revenues increased to 9% for the third quarter ended March 31, 2002,
from 8% for the corresponding quarter in fiscal 2001 and nine months ended
March 31, 2002 and 2001.

In the nine months ended March 31, 2002 and 2001, Hyperion capitalized $0.6
million and $1.4 million of software development costs, respectively, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. The amounts capitalized relate to Hyperions development and
localization of its Essbase XTD and financial and business performance
management products. Capitalized software costs are amortized over the
estimated economic life of the product, but generally not for more than three
years.

Maintenance and Services. The cost of providing services consists largely of
consulting, education and support personnel compensation and benefits. Cost of
maintenance and services revenue decreased 23% and 13% for the three and nine
months ended March 31, 2002 over the corresponding prior year periods. The cost
of services decrease was primarily due to controls over headcount and employee
related expenses, mainly as a result of our restructuring in the fourth quarter
of fiscal 2001. The decrease was also due in part to the reduction of variable
pay as a result of lower consulting revenues. The continued gross margin
improvement on maintenance and services is a direct reflection of our focus on
margin improvement and the results of rebalancing our cost structure.

OPERATING EXPENSES

|                           |  |                              |        |                             |  |      |    |          |  |      |        |          |  |      |    |          |  |      |         |  |  |  |    |      |  |   |         |  |  |  |    |  
|-------------------------- |  | ---------------------------- | ------ | --------------------------- |  | ---- | -- | -------- |  | ---- | ------ | -------- |  | ---- | -- | -------- |  | ---- | ------- |  |  |  | -- | ---- |  | - | ------- |  |  |  | -- | -
|                           |  | Three Months Ended March 31, |        | Nine Months Ended March 31,
|                           |  |                              |        |                            
|                           |  |                              |        |                             |  | % of |    |          |  |      |        | % of     |  |      |    |          |  | % of |         |  |  |  |    | % of
|(in thousands)             |  | 2002                         |        | revenues                    |  | 2001 |    | revenues |  | 2002 |        | revenues |  | 2001 |    | revenues
|                           |  |                              |        |                             |  |      |    |          |  |      |        |          |  |      |    |         
|Sales and marketing        |  | $                            | 44,604 |                             |  |      | 37 | %        |  | $    | 52,873 |          |  |      | 40 | %        |  | $    | 129,661 |  |  |  | 36 | %    |  | $ | 154,186 |  |  |  | 40 | %
|                          
|                          
|                          
|                          
|Research and development   |  |                              | 18,124 |                             |  |      | 15 | %        |  |      | 18,911 |          |  |      | 14 | %        |  |      | 53,743  |  |  |  | 15 | %    |  |   | 61,192  |  |  |  | 16 | %
|                          
|                          
|                          
|                          
|General and administrative |  |                              | 16,279 |                             |  |      | 14 | %        |  |      | 17,839 |          |  |      | 13 | %        |  |      | 47,008  |  |  |  | 13 | %    |  |   | 54,472  |  |  |  | 14 | %
|                           |  |                              |        |                             |  |      |    |          |  |      |        |          |  |      |    |          |  |      |         |  |  |  |    |      |  |   |         |  |  |  |    |  
|Total operating expenses   |  | $                            | 79,007 |                             |  |      |    |          |  | $    | 89,623 |          |  |      |    |          |  | $    | 230,412 |  |  |  |    |      |  | $ | 269,850 |  |  |  |    |  
|                           |  |                              |        |                             |  |      |    |          |  |      |        |          |  |      |    |          |  |      |         |  |  |  |    |      |  |   |         |  |  |  |    |  

Total operating expenses declined 12% and 15% in absolute dollars for the three
and nine months ended March 31, 2002 over the corresponding prior year periods,
reflecting the strong focus on controlling our costs. Operating expenses were
favorably affected during the three and nine-month periods ended March 31, 2002
as a result of the U.S. dollar strengthening against certain major
international currencies. Total operating expenses for the three and
nine-month periods ended March 31, 2002 were favorably impacted by reduced
compensation expense as a result of lower variable pay and commission related
expenses for operations due to lower than planned financial performance.
Operating expenses may increase in the fourth quarter due to expanded marketing
programs and the inclusion of our worldwide sales meeting and user conference.

Sales and Marketing. As discussed above, Hyperion continues to place
significant emphasis, both domestically and internationally, on direct sales
through its own sales force. In addition, we also continue to market our
products through indirect channels. The 16% decrease in sales and marketing
expense in the three months ended March 31, 2002, over the corresponding prior
year period, was primarily attributable to decreased marketing expense of $0.9
million, reduced sales commissions of $3.4 million due to lower software
revenues as discussed above and decreased business travel and related
expenditures of $2.0 million as a result of our efforts to control costs. The
16% decrease in sales and marketing expense in the nine months ended March 31,
2002, over the corresponding prior year period, was primarily attributable to
decreased marketing expense of $8.2 million, reduced sales commissions of $8.2
million due to lower software revenues and decreased business travel and
related expenditures of $1.3 million.

12



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##### Table of Contents



Research and Development. The decrease in research and development expense of
4% and 12% for the three and nine months ended March 31, 2002, over the
corresponding prior year periods, is primarily due to a decrease in the
utilization of independent contractors and temporary staffing of $0.2 million
and $4.8 million, respectively. We have focused our efforts in research and
development on our core products, thereby reducing our reliance on independent
contractors and reducing operating costs.

General and Administrative. The decrease in general and administrative expense
of 9% for the three months ended March 31, 2002, over the corresponding prior
year period, was due primarily to a decrease in independent contractors and
professional services of $2.4 million, offset by an increase in bad debt
expense of $0.9 million. The decrease in general and administrative expense of
14% for the nine months ended March 31, 2002, over the corresponding prior year
period, was due primarily to a decrease in bad debt expense of $1.2 million,
and decreased professional services and independent contractor expenditures of
$5.8 million. Such decreases are the direct result of our reduction in
discretionary spending, as well as our focus on invoicing and collection
process improvements.

Restructuring and Non-Recurring Charges (Credits).The results for the third
quarter of fiscal 2002 include a net credit related to our previous
restructuring plan of $418 thousand. This net restructuring credit was
primarily comprised of reductions in professional services and occupancy costs
of approximately $86 thousand and $445 thousand, respectively, as well as an
additional charge of approximately $107 thousand for further employee
separation benefits. The reduction in professional services and occupancy
costs in the third quarter resulted from circumstances occurring subsequent to
the original announcement, thus requiring changes to managements original
estimates. In the nine months ended March 31, 2002, the net restructuring
charge of approximately $44 thousand was primarily comprised of the above
mentioned $418 thousand net credit recorded in the third quarter of fiscal year
2002, as well as accelerated depreciation charges of approximately $382
thousand recorded in the first half of fiscal 2002, which related to assets
disposed of in connection with our original restructuring plan.

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

PROVISION FOR INCOME TAXES

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

EXTRAORDINARY GAIN

During the nine months ended March 31, 2001, Hyperion repurchased convertible
long-term notes with a face value of $11.3 million at a total cost of $8.7
million resulting in an extraordinary gain of approximately $1.5 million, after
income taxes, or approximately $0.04 per share. There were no such transactions
in the first nine months of fiscal year 2002.

LIQUIDITY AND CAPITAL RESOURCES

|                                                    |  |                             |         |        |  |      |     |   |  |   |         |  
|--------------------------------------------------- |  | --------------------------- | ------- | ------ |  | ---- | --- | - |  | - | ------- | -
|                                                    |  | Nine Months Ended March 31,
|                                                    |  |                            
|                                                    |  |                             |         |        |  | %    |     |   |  |  
|(in thousands)                                      |  | 2002                        |         | change |  | 2001
|                                                    |  |                             |         |        |  |     
|Working capital                                     |  | $                           | 280,237 |        |  |      | 10  | % |  | $ | 255,760 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Cash, cash equivalents and short-term investments   |  |                             | 312,636 |        |  |      | 27  | % |  |   | 246,262 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net cash provided by operating activities           |  |                             | 61,503  |        |  |      | 236 | % |  |   | 18,324  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net cash used in investing activities               |  |                             | (4,129  | )      |  |      | 87  | % |  |   | (31,654 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Net cash provided by (used in) financing activities |  |                             | 8,513   |        |  |      | 135 | % |  |   | (23,994 | )

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

The positive cash flows generated from operations during the first nine months
of fiscal 2002 were primarily attributable to the net income for the period and
a significant decrease in accounts receivable, partially offset by a decrease
in deferred revenues. The decrease in account receivables was due in large
part to our focus on driving process improvements in connection with

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invoicing and collections. The decrease in deferred revenues is attributable
to the seasonal nature of our maintenance billing practices.
Restructuringrelated cash payments totaled $8.2 million in the first nine
months of fiscal 2002, with approximately $6.9 million in additional cash
outflows expected for the next twelve months.

Net cash used in investing activities amounted to $4.1 million for the first
nine months of fiscal 2002, and $31.7 million for the first nine months of
fiscal 2001. In the first nine months of fiscal 2002, the activity in the
portfolio of our investment in marketable securities generated net cash
proceeds of $11.5 million. These proceeds were offset somewhat by our net
capital expenditures of $15.7 million. The reduction in capital expenditures
over the corresponding prior year period is a result of our focus on capital
investments and management of expenses.

Financing activities in the first nine months of fiscal 2002, including stock
options exercised by employees net of payments of indebtedness, generated cash
of $8.5 million, as compared to net cash used of $24.0 million for the first
nine months of fiscal 2001. The negative cash flows from financing activities
experienced in the first nine months of fiscal 2001 resulted from $23.8 million
of cash used to repurchase 1,389,000 common shares and $8.7 million of cash
used for the redemption of debt. These negative cash flows were offset by the
exercise of stock options and the employee stock purchases, which resulted in
cash generated of $8.6 million for the same period in 2001. In connection with
the stock options exercised by certain of its employees, Hyperion recognized
(as a credit to additional paid-in capital) an income tax benefit of $1.0
million for the nine months ended March 31, 2002, and $1.3 million for the nine
months ended March 31, 2001.

Hyperion believes that its current cash, cash equivalents and short-term
investment balances, and the funds generated from its operations, will be
sufficient to finance Hyperions business for at least the next year. However,
readers should refer to the Risk Factors disclosed below for a discussion of
the factors that may affect Hyperions future sources of liquidity and capital.

FUTURE OUTLOOK

While we are hopeful that the global economy will improve, we continue to take
a cautious approach to our business planning. We will continue to focus on our
four key financial metrics which are; software license revenue as a percentage
of total revenues, percentage of total license revenue derived from our
indirect channels, operating margin and days sales outstanding (DSO). Our
business model, coupled with continued good cost control, should enable us to
grow earnings and earnings per share, once we achieve higher license revenue
growth.

RECENT ACCOUNTING PRONOUNCEMENTS

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

In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 supersedes APB Opinion No. 17, Intangible Assets, and
requires, among other things, the discontinuance of amortization related to
goodwill and indefinite lived intangible assets. In addition, the standard
includes provisions upon adoption for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles and reclassification of certain intangibles out
of previously reported goodwill. Beginning July 1, 2001, goodwill will be
tested for impairment annually, and will be tested for impairment between
annual tests whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Impairment testing for goodwill is
done at a reporting unit level. Currently Hyperion has identified one
reporting unit under the criteria set forth by SFAS No. 142. An impairment
loss would generally be recognized when the carrying amount of the reporting
units net assets exceeds the estimated fair value of the reporting unit.
Hyperion adopted SFAS No. 142 effective July 1, 2001, which resulted in
Hyperion no longer amortizing its existing net goodwill balance of approximately
$8.6 million. A preliminary assessment of any potential impairment indicated
that no impairment existed at July 1, 2001. With the adoption of SFAS No. 142,
intangible assets with a definite life are amortized on a straight-line basis
over periods ranging from 3 to 7 years. Intangible assets with a definite life
are tested for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when the carrying amount of an asset exceeds the estimated
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition. The amount of the impairment loss is calculated as the
excess of the assets

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carrying value over its fair value. Fair value is generally determined using a
discounted cash flow analysis. The impact of SFAS No. 142 on previously
reported results would have increased income (loss) before extraordinary item
and net income (loss) by approximately $1.5 million and $2.6 million, for the
three and nine months ended March 31, 2001, respectively. Reported diluted
earnings (loss) per share for the three and nine months ended March 31, 2001
would have increased by approximately $0.05 and $0.08 per share, respectively.

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

In November 2001, the FASB issued a Staff Announcement that requires
classification of reimbursements for out-of-pocket expenses incurred as
revenue in the income statement. This Announcement was effective for reporting
periods beginning after December 15, 2001. Hyperion adopted this Announcement
effective January 1, 2002. As a result of this Announcement, Hyperion no longer
records out-of-pocket expense reimbursements as a reduction of costs incurred
and comparative financial statements from prior periods have been reclassified.
For the six months ended December 31, 2001, $4.9 million has been primarily
reclassified from cost of maintenance and services to maintenance and services
revenues to conform to our current period presentation. For the three and nine
months ended March 31, 2001, $2.4 million and $8.3 million was reclassified,
respectively.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At March 31, 2002, Hyperions investment portfolio consisted of
investment-grade debt securities, excluding those classified as cash
equivalents, of $12.9 million. The portfolio is invested predominantly in
short-term securities to minimize interest rate risk and for liquidity purposes
in the event of immediate cash needs. Accordingly, if market interest rates
were to increase immediately and uniformly by 10% from levels as of March 31,
2002, the decline in the fair value of the portfolio would not be material.

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

Hyperion transacts business in various foreign currencies. In connection with
managements decision in March 2002 to begin settlement of its intercompany
balances with certain of its international subsidiaries, translation gains and
losses on those balances are recorded in the condensed consolidated statements
of income. In April 2002, we established a foreign currency hedging program
that primarily utilizes foreign currency forward exchange contracts to hedge
the foreign currency transaction exposures related to these non-permanent
intercompany balances. Under this program, gains and losses on these foreign
currency transactions are offset by gains and losses on the forward contracts,
so as to mitigate the impact of foreign currency transaction gains and losses
on the results of operations and cash flows. Hyperion does not use forward
contracts for trading purposes. Hyperions 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.

RISK FACTORS

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

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

PRODUCT ENHANCEMENT AND NEW PRODUCT INTRODUCTIONS.Hyperion competes in a
market characterized by rapid technological advances in hardware and software
development, evolving standards in computer hardware and software technology
and frequent new product introductions and enhancements. Hyperion continually
expands and refreshes its product

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offerings to include newer features or products, and entered into agreements
allowing integration of third-party technology into Hyperion products. The
introduction of new products or updated versions of continuing products has
inherent risks, including, but not limited to, product quality, the fit of the
new products and features with the customers needs, the successful adaptation
of third party technology into Hyperion products, educating Hyperions sales,
marketing, and consulting personnel to work with the new products and features,
competition from earlier and more established entrants, general economic
conditions, market acceptance of initial product releases, marketing
effectiveness and the accuracy of assumptions about the nature of customer
demand. Hyperions failure to successfully introduce, market and sell new
products and technologies or enhance and improve its existing products in a
timely manner, and position and/or price its products, undetected errors or
delays in new products or new versions of a product and/or the failure of
anticipated market growth could have a material adverse effect on Hyperions
business, results of operations or financial position.

COMPETITIVE ENVIRONMENT.The markets in which Hyperion competes are intensely
competitive, highly fragmented and characterized by rapidly changing technology
and evolving standards. Hyperion has experienced, and expects that it will
continue to experience, vigorous competition from both current and new
competitors, some of whom may have significantly greater financial, technical,
marketing and other resources than Hyperion. Hyperion expects additional
competition as other established and emerging companies enter into both the
OLAP and application parts of the 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.

PRICING.In an effort to simplify and clarify its product positioning and
marketing, Hyperion has recently introduced changes in its pricing. While
Hyperion does not believe these recent pricing changes will have a material
impact on license revenue, any such broadly based changes to pricing could have
a material adverse effect on Hyperions business, results of operations or
financial position as customers change or delay their purchasing decisions in
response to such pricing revisions. Additional risks of such pricing changes
include delays in transactions as the Hyperion sales force learns how to deploy
the new pricing, and delay or loss of revenues as the competition reacts to the
pricing changes. In the future, intense competition in the various markets in
which Hyperion competes may put pressure on Hyperion to reduce prices on
certain products, particularly in the markets where certain vendors offer deep
discounts in an effort to recapture or gain market share or to sell other
software or hardware products. Any such price reductions could have a material
adverse effect on Hyperions business, results of operations or financial
position.

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

BACK-ENDED QUARTERS.Quarterly revenues and operating results are highly
dependent on the volume and timing of the signing of licensing agreements and
product deliveries during the quarter, which are difficult to forecast.
Significant portions of Hyperions quarterly software licensing agreements are
concluded in the last month of the fiscal quarter, generally with a
concentration of such revenues earned in the final 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 its forecasts of revenue for
planning, modeling and other purposes. Forecasts are only estimates and may not
correlate to revenues in a particular quarter or over a longer period of time.
A significant discrepancy between actual results and sales forecasts could
cause Hyperion to improperly plan or budget and thereby adversely affect its
business or results of operations. Any publicly stated revenue or earnings
projections by Hyperion are especially subject to this risk.

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

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

HIRING AND RETENTION OF EMPLOYEES.Hyperions future operating results depend
significantly upon the retention and hiring of technical and management
personnel. Competition for such personnel is intense, and there can be no
assurance that Hyperion will retain its key managerial or technical personnel
or attract such personnel in the future. Hyperion, either directly or through
personnel search firms, actively recruits qualified research and development,
financial and sales and marketing personnel.

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Hyperion has at times experienced difficulty recruiting or retaining qualified
personnel and there can be no assurance that Hyperion will not experience such
difficulties in the future, which could have a material adverse effect on
Hyperions business, operating results and financial condition.

ORGANIZATIONAL AND PRODUCT INTEGRATION RELATED TO BUSINESS COMBINATIONS.
Hyperion has made and may in the future make acquisitions of, mergers with, or
significant investments in, businesses that offer complementary products,
services and technologies. There are risks involved in business combinations,
including but not limited to: the possibility that Hyperion pays more than the
value it derives from the acquisition; the difficulty of integrating the
operations and personnel of the acquired businesses; the possibility that all
aspects of the integration are not completed or that all of the anticipated
synergies of the acquisition are not realized; the potential product liability
associated with selling the acquired companys products; the potential
disruption of Hyperions ongoing business and the distraction of management
from Hyperions business. These factors could have a material adverse effect on
Hyperions business, results of operations or financial position, especially in
the case of a large acquisition.

POSSIBILITY OF INFRINGEMENT CLAIMS.Hyperion expects that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in Hyperions industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert managements attention and resources, cause product
shipment delays or require Hyperion to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to Hyperion, if at all. In the event of a
successful claim of product infringement against Hyperion and failure or
inability of Hyperion to license the infringed or similar technology,
Hyperions business, operating results and financial condition would be
materially adversely affected.

ENFORCEMENT OF HYPERIONS INTELLECTUAL PROPERTY RIGHTS.Hyperion relies
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. There can be no assurance that Hyperions means of
protecting its proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar technology.

POSSIBLE VOLATILITY OF STOCK PRICE.The market price of Hyperions Common Stock
has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly
affected by factors, including but not limited to, the announcement of new
products, product enhancements or technological innovation by Hyperion or its
competitors, changes in Hyperions or its competitors results of operations,
changes in revenue, revenue growth rates and revenue mix for Hyperion as a
whole or for specific geographic areas or business units, changes in earnings
estimates by market analysts and general market conditions or market conditions
specific to particular industries. Technology stocks have experienced wide
fluctuations in prices, which sometimes have been unrelated to their operating
performance. The market price of Hyperions Common Stock could be adversely
affected by such fluctuations.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is incorporated by reference to Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations  Quantitative and
Qualitative Disclosures About Market Risk.




HYPERION SOLUTIONS CORPORATION
PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

On June 27, 2001, Timeline, Inc. filed a complaint against Hyperion in the
United States District Court for the Western District of Washington alleging
that Hyperion infringes U.S. Patent Nos. 5,802,511; 6,023,694; and 6,026,392
(the Timeline patents), and seeking a permanent injunction and monetary
damages, including treble damages. On September 25, 2001, Timeline served its
complaint on Hyperion. On October 25, 2001, Hyperion filed its response,
including a counterclaim seeking a declaratory judgment that the Timeline
patents are invalid and not infringed by Hyperion. Both parties have filed
motions for summary judgment as to certain aspects of the case. While patent
litigation can be costly, and the outcome is inherently unpredictable, Hyperion
believes that Timelines complaint will not have a material adverse effect on
the financial position, results of operations and cash flows of Hyperion.

On July 11, 1997, Gentia Software filed a request for reexamination of
Hyperions U.S. Patent No. 5,359,724 with the United States Patent and
Trademark Office (the PTO) arguing that the 724 patent was anticipated and
obvious in light of certain prior art references. On September 11, 1997, the
PTO granted the request for reexamination. On February 27, 1998, Gentia
Software filed with the PTO a request for a second reexamination of the 724
patent based on additional prior art references. On May 22, 1998, the PTO
granted that request for reexamination, which was later consolidated with the
first reexamination. On March 31, 1999, the PTO issued a non-final office
action rejecting the claims of the 724 patent. Hyperion filed its response to
the office

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action on May 31, 1999. No final office action has been issued by the PTO.
Hyperion believes that the outcome of such action will not have a material
adverse effect on the financial position, results of operations and cash flows
of Hyperion.

From time to time, in the normal course of business, various claims are made
against Hyperion. At this time, in the opinion of management, there are no
pending claims the outcome of which is expected to result in a material adverse
effect on the financial position, results of operations and cash flows of
Hyperion.

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HYPERION SOLUTIONS CORPORATION




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|      |  |              |  |                                                                                     
|----- |  | ------------ |  | ------------------------------------------------------------------------------------
|Date: |  | May 14, 2002 |  | Hyperion Solutions Corporation
(Registrant)                                         
|     
|      |  |              |  |                                                                                     
|     
|      |  |              |  | By:   /s/ David W. Odell
       David W. Odell
       Chief Financial Officer       
|     
|      |  |              |  |                                                                                     
|     
|      |  |              |  | By:   /s/ Nolene P. Fabre
       Nolene P. Fabre
       Principal Accounting Officer

19