##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to


Commission File Number 000-26934


Hyperion Solutions Corporation




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


5450 Great America Parkway, Santa Clara, California 95054


(408) 744-9500


Yes þ No o




Yes þ No o




Yes o No þ












---



Hyperion Solutions Corporation
 Form 10-Q
 PAGEPART I. FINANCIAL INFORMATION
    
    
    3Item 1 Financial Statements (Unaudited):
    
    
    3Condensed Consolidated Balance Sheets as of September 30, 2005 and June 30, 2005
    
    
    3Condensed Consolidated Statements of Income and Comprehensive Income for the three
months ended September 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended September
30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4 Controls and Procedures
    
    
    33PART II. OTHER INFORMATION
    
    
    34Item 1 Legal Proceedings
    
    
    34Item 2 Unregistered Sales of Existing Securities and Use of Proceeds
    
    
    34Item 3 Defaults
    
    
    35Item 4 Submission of Matters to a Vote of Security Holders
    
    
    35Item 5 Other Information
    
    
    35Item 6 Exhibits
    
    
    35Signatures
    
    
    36EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
   2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 HYPERION SOLUTIONS CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
   September 30,
    
    
    June 30,2005
    
    
    2005 (*)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    138,973
    
    
    $
    170,740Short-term investments
    
    
    297,495
    
    
    
    270,008Accounts receivable, net of allowances of $10,709 and $10,053
    
    
    119,072
    
    
    
    141,045Deferred income taxes
    
    
    10,185
    
    
    
    10,976Prepaid expenses and other current assets
    
    
    29,459
    
    
    
    28,157TOTAL CURRENT ASSETS
    
    
    595,184
    
    
    
    620,926Property and equipment, net
    
    
    73,435
    
    
    
    74,911Goodwill
    
    
    137,792
    
    
    
    137,898Intangible assets, net
    
    
    26,627
    
    
    
    29,811Deferred income taxes
    
    
    32,517
    
    
    
    30,287Other assets
    
    
    6,587
    
    
    
    5,603TOTAL ASSETS
    
    $
    872,142
    
    
    $
    899,436LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    53,157
    
    
    $
    56,657Accrued employee compensation and benefits
    
    
    43,669
    
    
    
    53,298Income taxes payable
    
    
    36,153
    
    
    
    32,703Deferred revenue
    
    
    140,995
    
    
    
    140,772Restructuring liabilities
    
    
    5,590
    
    
    
    7,276TOTAL CURRENT LIABILITIES
    
    
    279,564
    
    
    
    290,706Long-term restructuring liabilities and other
    
    
    23,330
    
    
    
    24,830TOTAL LIABILITIES
    
    
    302,894
    
    
    
    315,536Commitments and contingencies (Note 3)Stockholders equity:Preferred stock  $0.001 par value; 5,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock  $0.001 par value; 300,000 shares authorized;
39,499 and 40,102 shares issued and outstanding
    
    
    39
    
    
    
    40Additional paid-in capital
    
    
    490,883
    
    
    
    489,157Deferred stock-based compensation
    
    
    
    
    
    
    (4,393
    )Retained earnings
    
    
    80,514
    
    
    
    100,491Accumulated other comprehensive loss
    
    
    (2,188
    )
    
    
    (1,395
    )TOTAL STOCKHOLDERS EQUITY
    
    
    569,248
    
    
    
    583,900TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    872,142
    
    
    $
    899,436
 
 
 (*)
    
    The condensed consolidated balance sheet at June 30, 2005 has been derived from the audited
financial statements at that date but does not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete
financial statements. 3




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HYPERION SOLUTIONS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
   Three Months EndedSeptember 30,2005
    
    
    2004REVENUESSoftware licenses
    
    $
    60,524
    
    
    $
    57,424Maintenance and services
    
    
    109,701
    
    
    
    102,114TOTAL REVENUES
    
    
    170,225
    
    
    
    159,538COSTS AND EXPENSESCost of revenues:Software licenses
    
    
    3,839
    
    
    
    3,292Maintenance and services
    
    
    37,954
    
    
    
    37,341Sales and marketing
    
    
    66,648
    
    
    
    58,733Research and development
    
    
    27,881
    
    
    
    25,714General and administrative
    
    
    16,129
    
    
    
    14,869Restructuring charges (credits)
    
    
    (100
    )
    
    
    3,069TOTAL COSTS AND EXPENSES
    
    
    152,351
    
    
    
    143,018OPERATING INCOME
    
    
    17,874
    
    
    
    16,520Interest and other income, net
    
    
    2,576
    
    
    
    1,345INCOME BEFORE INCOME TAXES
    
    
    20,450
    
    
    
    17,865Income tax provision
    
    
    7,158
    
    
    
    6,252NET INCOME
    
    $
    13,292
    
    
    $
    11,613Other comprehensive income (loss)
    
    
    (793
    )
    
    
    258COMPREHENSIVE INCOME
    
    $
    12,499
    
    
    $
    11,871Basic net income per share
    
    $
    0.34
    
    
    $
    0.30Diluted net income per share
    
    $
    0.33
    
    
    $
    0.29Shares used in computing basic
net income per share
    
    
    39,516
    
    
    
    39,073Shares used in computing diluted
net income per share
    
    
    40,713
    
    
    
    40,603
  4




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HYPERION SOLUTIONS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three Months EndedSeptember 30,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    13,292
    
    
    $
    11,613Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    8,100
    
    
    
    8,642Stock-based compensation
    
    
    7,785
    
    
    
    933Provision for accounts receivable allowances
    
    
    1,292
    
    
    
    1,367Deferred income taxes
    
    
    (997
    )
    
    
    (826
    )Income tax benefit from exercise of stock options
    
    
    
    
    
    
    3,119Changes in operating assets and liabilities, net of the effect of acquisitions:Accounts receivable
    
    
    20,533
    
    
    
    19,888Prepaid expenses and other current assets
    
    
    (1,288
    )
    
    
    308Other assets
    
    
    (11
    )
    
    
    465Accounts payable and accrued liabilities
    
    
    (3,612
    )
    
    
    (206
    )Accrued employee compensation and benefits
    
    
    (9,552
    )
    
    
    (9,472
    )Income taxes payable
    
    
    3,542
    
    
    
    1,409Deferred revenue
    
    
    496
    
    
    
    (6,779
    )Restructuring liabilities
    
    
    (1,684
    )
    
    
    1,543Long-term restructuring liabilities and other
    
    
    (1,501
    )
    
    
    (1,684
    )Net cash provided by operating activities
    
    
    36,395
    
    
    
    30,320CASH FLOWS FROM INVESTING ACTIVITIESPurchases of investments
    
    
    (122,918
    )
    
    
    (6,750
    )Proceeds from sales and maturities of investments
    
    
    94,095
    
    
    
    81,850Purchases of property and equipment
    
    
    (3,467
    )
    
    
    (4,697
    )Purchases of intangible assets
    
    
    (37
    )
    
    
    (1,773
    )Payments for acquisitions, net of cash acquired
    
    
    
    
    
    
    (2,838
    )Net cash provided by (used in) investing activities
    
    
    (32,327
    )
    
    
    65,792CASH FLOWS FROM FINANCING ACTIVITIESPurchases of common stock
    
    
    (45,860
    )
    
    
    (35,183
    )Proceeds from issuance of common stock
    
    
    8,643
    
    
    
    8,475Income tax benefit from exercise of stock options
    
    
    2,276
    
    
    
    Net cash used in financing activities
    
    
    (34,941
    )
    
    
    (26,708
    )Effect of exchange rate on cash and cash equivalents
    
    
    (894
    )
    
    
    45INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (31,767
    )
    
    
    69,449Cash and cash equivalents at beginning of period
    
    
    170,740
    
    
    
    172,261CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    138,973
    
    
    $
    241,710SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest
    
    $
    
    
    
    $
    8Cash paid for income taxes
    
    $
    2,809
    
    
    $
    1,970
  5




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HYPERION SOLUTIONS CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 SEPTEMBER 30, 2005
 1. Basis of Presentation
   2. Significant Accounting Policies
 Revenue Recognition
     6




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Accounts Receivable Allowances
   Net Income Per Share
   Three Months EndedSeptember 30,2005
    
    
    2004Net income
    
    $
    13,292
    
    
    $
    11,613Shares used in computing basic net income
per share
    
    
    39,516
    
    
    
    39,073Effect of potentially dilutive securities
    
    
    1,197
    
    
    
    1,530Shares used in computing diluted net income
per share
    
    
    40,713
    
    
    
    40,603Basic net income per share
    
    $
    0.34
    
    
    
    0.30Diluted net income per share
    
    $
    0.33
    
    
    
    0.29
  7




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Stock-Based Compensation
    Three MonthsEndedSeptember 30,2004Net income, as reported
    
    $
    11,613Add: stock-based compensation expense
included in reported net income, net of tax
    
    
    606Deduct: stock-based compensation expense
determined under fair value method, net of tax
    
    
    (4,453
    )Net income, pro forma
    
    $
    7,766Net income per share:Basic  as reported
    
    $
    0.30Basic  pro forma
    
    $
    0.20Diluted  as reported
    
    $
    0.29Diluted  pro forma
    
    $
    0.19
 8




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Three Months EndedSeptember 30, 2005UsingPrevious
    
    SFAS 123R
    
    AsAccounting
    
    Adjustments
    
    ReportedIncome from operations
    
    $
    24,066
    
    
    $
    (6,192
    )
    
    $
    17,874Income before income taxes
    
    
    26,642
    
    
    
    (6,192
    )
    
    
    20,450Net income
    
    
    17,069
    
    
    
    (3,777
    )
    
    
    13,292Basic earnings per share
    
    
    0.43
    
    
    
    (0.09
    )
    
    
    0.34Diluted earnings per share
    
    
    0.42
    
    
    
    (0.09
    )
    
    
    0.33Cash flows from operating
activities
    
    
    38,671
    
    
    
    (2,276
    )
    
    
    36,395Cash flows from financing
activities
    
    
    (37,217
    )
    
    
    2,276
    
    
    
    (34,941
    )
   September 30,
    
    September 30,2005
    
    2004Stock option plans:Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    46
    %
    
    
    45
    %Risk free interest rate
    
    
    4.22
    %
    
    
    3.51
    %Average expected life (in years)
    
    
    4.1
    
    
    
    5.0Stock purchase plans:Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    47
    %
    
    
    50
    %Risk free interest rate
    
    
    3.14
    %
    
    
    1.11
    %Average expected life (in years)
    
    
    0.5
    
    
    
    0.5
 9




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Other Comprehensive Income
  Three Months EndedSeptember 30,2005
    
    
    2004Net income
    
    $
    13,292
    
    
    $
    11,613Translation adjustments
    
    
    (471
    )
    
    
    224Unrealized gains (losses) on available-for-sale
securities, net of tax
    
    
    (322
    )
    
    
    34Comprehensive income
    
    $
    12,499
    
    
    $
    11,871
 Recent Accounting Pronouncements
   Income Taxes
   10




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Valuation of Goodwill, Intangibles, and Long-Lived Assets
   Balance at June 30, 2005
    
    $
    137,898Goodwill from acquisitions
    
    
    165Adjustment of income tax benefits received in connection with Brio acquisition
    
    
    (454
    )Effect of foreign currency translation
    
    
    183Balance at September 30, 2005
    
    $
    137,792
  September 30, 2005
    
    
    June 30, 2005Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueProduct development costs
    
    $
    12,508
    
    
    $
    (6,816
    )
    
    $
    5,692
    
    
    $
    12,471
    
    
    $
    (6,013
    )
    
    $
    6,458Acquired technologies
    
    
    31,340
    
    
    
    (16,166
    )
    
    
    15,174
    
    
    
    31,340
    
    
    
    (14,348
    )
    
    
    16,992Other intangibles
    
    
    10,616
    
    
    
    (4,855
    )
    
    
    5,761
    
    
    
    10,616
    
    
    
    (4,255
    )
    
    
    6,361$
    54,464
    
    
    $
    (27,837
    )
    
    $
    26,627
    
    
    $
    54,427
    
    
    $
    (24,616
    )
    
    $
    29,811
  11




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EstimatedAmortizationFiscal Year
    
    ExpenseRemainder of 2006
    
    $
    9,2982007
    
    
    11,2892008
    
    
    4,9132009
    
    
    9292010
    
    
    198$
    26,627
  3. Commitments and Contingencies
 Guarantees and Indemnifications
  Contingencies
   12




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4. Business Combinations
   5. Restructuring Liabilities
    13




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Severance
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual balance at June 30, 2005
    
    $
    95
    
    
    $
    9,239
    
    
    $
    1,750
    
    
    $
    11,084Restructuring credits
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )Non-cash items
    
    
    
    
    
    
    
    
    
    
    (1,532
    )
    
    
    (1,532
    )Cash payments
    
    
    
    
    
    
    (460
    )
    
    
    
    
    
    
    (460
    )Accrual balance at September 30, 2005
    
    $
    44
    
    
    $
    8,779
    
    
    $
    218
    
    
    $
    9,041
  Severance
    
    
    Facilities
    
    
    TotalBalance at June 30, 2005
    
    $
    361
    
    
    $
    15,348
    
    
    $
    15,709Restructuring credits
    
    
    (49
    )
    
    
    
    
    
    
    (49
    )Cash payments
    
    
    
    
    
    
    (1,117
    )
    
    
    (1,117
    )Balance at September 30, 2005
    
    $
    312
    
    
    $
    14,231
    
    
    $
    14,543
  6. Stock Option, Restricted Stock, and Employee Stock Purchase Plans
 Stock Options
   14




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WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicExercise
    
    
    Term
    
    
    ValueShares
    
    
    Price
    
    
    (Years)
    
    
    ($000s)Outstanding at July 1, 2005
    
    
    6,273
    
    
    $
    32.97Granted
    
    
    372
    
    
    
    43.25Exercised
    
    
    (344
    )
    
    
    25.16Forfeited
    
    
    (112
    )
    
    
    37.85Outstanding at September 30, 2005
    
    
    6,189
    
    
    $
    33.93
    
    
    
    4.78
    
    
    $
    91,126Exercisable at September 30, 2005
    
    
    2,812
    
    
    $
    28.07
    
    
    
    4.51
    
    
    $
    57,864
   Restricted Stock
   WeightedAverageGrant-DateShares
    
    
    Fair PriceNonvested shares at July 1, 2005
    
    
    152
    
    
    $
    33.71Granted
    
    
    87
    
    
    
    42.99Vested
    
    
    (49
    )
    
    
    28.12Nonvested shares at September 30, 2005
    
    
    190
    
    
    $
    39.39
  15




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Employee Stock Purchase Plan
  7. Stock Repurchases
  8. Segment and Geographic Information
   Three Months EndedSeptember 30,2005
    
    
    2004Revenues:Americas
    
    $
    108,034
    
    
    $
    97,085EMEA
    
    
    49,332
    
    
    
    52,328APAC
    
    
    12,859
    
    
    
    10,125$
    170,225
    
    
    $
    159,538
  16




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September 30,
    
    
    June 30,2005
    
    
    2005Long-lived assets:Americas
    
    $
    66,985
    
    
    $
    68,041EMEA
    
    
    4,810
    
    
    
    5,046APAC
    
    
    1,640
    
    
    
    1,824$
    73,435
    
    
    $
    74,911
   Three Months EndedSeptember 30,2005
    
    
    2004Software licenses
    
    $
    60,524
    
    
    $
    57,424Maintenance and services:Maintenance
    
    
    77,940
    
    
    
    71,430Consulting and training
    
    
    31,761
    
    
    
    30,684109,701
    
    
    
    102,114Total revenues
    
    $
    170,225
    
    
    $
    159,538
 17




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  OVERVIEW
  CRITICAL ACCOUNTING ESTIMATES
 Stock-Based Compensation
   Three Months EndedSeptember 30,Percent ofTotal(In thousands)
    
    2005
    
    
    ExpenseSoftware license
    
    $
    6
    
    
    
    Maintenance and services
    
    
    757
    
    
    
    10
    %Sales and marketing
    
    
    3,297
    
    
    
    42
    %Research and development
    
    
    1,696
    
    
    
    22
    %General and administrative
    
    
    2,033
    
    
    
    26
    %Total stock-based compensation
    
    $
    7,789
    
    
    
    100
    %
 18




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RESULTS OF OPERATIONS
 REVENUES
 Three Months Ended September 30,Percent of
    
    
    
    
    
    
    Percent ofTotal
    
    
    
    
    
    
    Total(In thousands)
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    RevenueSoftware licenses
    
    $
    60,524
    
    
    
    35
    %
    
    $
    57,424
    
    
    
    36
    %Maintenance and
services:Maintenance
    
    
    77,940
    
    
    
    46
    %
    
    
    71,430
    
    
    
    45
    %Consulting and
training
    
    
    31,761
    
    
    
    19
    %
    
    
    30,684
    
    
    
    19
    %109,701
    
    
    
    65
    %
    
    
    102,114
    
    
    
    64
    %Total revenues
    
    $
    170,225
    
    
    
    100
    %
    
    $
    159,538
    
    
    
    100
    %
 Three Months Ended September 30,Variance
    
    
    Variancein
    
    
    in(In thousands)
    
    2005
    
    
    2004
    
    
    Dollars
    
    
    PercentSoftware licenses
    
    $
    60,524
    
    
    $
    57,424
    
    
    $
    3,100
    
    
    
    5
    %Maintenance and
services:Maintenance
    
    
    77,940
    
    
    
    71,430
    
    
    
    6,510
    
    
    
    9
    %Consulting and
training
    
    
    31,761
    
    
    
    30,684
    
    
    
    1,077
    
    
    
    4
    %109,701
    
    
    
    102,114
    
    
    
    7,587
    
    
    
    7
    %Total revenues
    
    $
    170,225
    
    
    $
    159,538
    
    
    $
    10,687
    
    
    
    7
    %
  Software licenses.
  Maintenance and services.
 19




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COST OF REVENUES
 Three Months Ended September 30,Percent of
    
    
    
    
    
    Percent ofRelated
    
    
    
    
    
    Related(In thousands)
    
    2005
    
    Revenue
    
    2004
    
    RevenueSoftware licenses
    
    $
    3,839
    
    
    
    6
    %
    
    $
    3,292
    
    
    
    6
    %Maintenance and services
    
    
    37,954
    
    
    
    35
    %
    
    
    37,341
    
    
    
    37
    %
 Three Months Ended September 30,Variance
    
    Variancein
    
    in(In thousands)
    
    2005
    
    2004
    
    Dollars
    
    PercentSoftware licenses
    
    $
    3,839
    
    
    $
    3,292
    
    
    $
    547
    
    
    
    17
    %Maintenance and services
    
    
    37,954
    
    
    
    37,341
    
    
    
    613
    
    
    
    2
    %
 Cost of software license revenue.
   Cost of maintenance and services revenue.
  OPERATING EXPENSES
 Three Months Ended September 30,Percent of
    
    
    
    
    
    
    Percent ofTotal
    
    
    
    
    
    
    Total(In thousands)
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    RevenueSales and marketing
    
    $
    66,648
    
    
    
    39
    %
    
    $
    58,733
    
    
    
    37
    %Research and development
    
    
    27,881
    
    
    
    16
    %
    
    
    25,714
    
    
    
    16
    %General and administrative
    
    
    16,129
    
    
    
    10
    %
    
    
    14,869
    
    
    
    9
    %Restructuring charges
(credits)
    
    
    (100
    )
    
    
    0
    %
    
    
    3,069
    
    
    
    2
    %Total
    
    $
    110,558
    
    
    
    65
    %
    
    $
    102,385
    
    
    
    64
    %
 20




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##### Table of Contents



Three Months Ended September 30,Variance
    
    Variancein
    
    in(In thousands)
    
    2005
    
    
    2004
    
    
    Dollars
    
    PercentSales and marketing
    
    $
    66,648
    
    
    $
    58,733
    
    
    $
    7,915
    
    
    
    13
    %Research and development
    
    
    27,881
    
    
    
    25,714
    
    
    
    2,167
    
    
    
    8
    %General and administrative
    
    
    16,129
    
    
    
    14,869
    
    
    
    1,260
    
    
    
    8
    %Restructuring charges
(credits)
    
    
    (100
    )
    
    
    3,069
    
    
    
    (3,169
    )
    
    
    (103
    %)Total
    
    $
    110,558
    
    
    $
    102,385
    
    
    $
    8,173
    
    
    
    8
    %
 Sales and marketing.
 Research and development.
 General and administrative.
 Restructuring charges (credits)
    21




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##### Table of Contents



Severance
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual balance at June 30, 2005
    
    $
    95
    
    
    $
    9,239
    
    
    $
    1,750
    
    
    $
    11,084Restructuring credits
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )Non-cash items
    
    
    
    
    
    
    
    
    
    
    (1,532
    )
    
    
    (1,532
    )Cash payments
    
    
    
    
    
    
    (460
    )
    
    
    
    
    
    
    (460
    )Accrual balance at September 30, 2005
    
    $
    44
    
    
    $
    8,779
    
    
    $
    218
    
    
    $
    9,041
  Severance
    
    
    Facilities
    
    
    TotalBalance at June 30, 2005
    
    $
    361
    
    
    $
    15,348
    
    
    $
    15,709Restructuring credits
    
    
    (49
    )
    
    
    
    
    
    
    (49
    )Cash payments
    
    
    
    
    
    
    (1,117
    )
    
    
    (1,117
    )Balance at September 30, 2005
    
    $
    312
    
    
    $
    14,231
    
    
    $
    14,543
  INTEREST AND OTHER INCOME, NET
  22




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##### Table of Contents



INCOME TAX PROVISION
  NET INCOME
  LIQUIDITY AND CAPITAL RESOURCES
  September 30,September 30,
    
    
    2004(In thousands)
    
    2005
    
    
As Reported
    
    
    As ReclassifiedCash and cash equivalents
    
    $
    138,973
    
    
    $
    359,530
    
    
    $
    241,710Short-term investments
    
    
    297,495
    
    
    
    3,021
    
    
    
    120,841Working capital
    
    
    315,620
    
    
    
    260,596
    
    
    
    260,596
 Three Months
    
    

Three MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30, 2004(In thousands)
    
    2005
    
    

As Reported
    
    
    As ReclassifiedNet cash provided
by operating
activities
    
    $
    36,395
    
    
    $
    30,320
    
    
    $
    30,320Net cash provided
by (used in)
investing
activities
    
    
    (32,327
    )
    
    
    (9,308
    )
    
    
    65,792Net cash (used in)
financing
activities
    
    
    (34,941
    )
    
    
    (26,708
    )
    
    
    (26,708
    )
    23




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##### Table of Contents













Payments Due InTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal 2011Payments
    
    
    Rest of
    
    
    Fiscal 2007
    
    
    Fiscal 2009
    
    
    andDue
    
    
    Fiscal 2006
    
    
    and 2008
    
    
    and 2010
    
    
    ThereafterNon-cancelable operating leases
    
    $
    114,082
    
    
    $
    17,387
    
    
    $
    39,224
    
    
    $
    25,221
    
    
    $
    32,250Future sublease income
    
    
    (15,826
    )
    
    
    (3,671
    )
    
    
    (7,333
    )
    
    
    (4,559
    )
    
    
    (263
    )$
    98,256
    
    
    $
    13,716
    
    
    $
    31,891
    
    
    $
    20,662
    
    
    $
    31,987


RECENT ACCOUNTING PRONOUNCEMENTS


24




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##### Table of Contents







FACTORS THAT MAY AFFECT FUTURE RESULTS




Product enhancement and new product introductions involve inherent risks.





    
    Product quality, including the possibility of software defects;
    
    Delays in releasing new products;
    
    Customers delaying purchase decisions in anticipation of new products to be released;
    
    Customer confusion and extended evaluation and negotiation time;
    
    The fit of the new products and features with the customers needs;
    
    The successful adaptation of third-party technology into Hyperions products;
    
    Educating Hyperions sales, marketing, and consulting personnel to work with the new
products and features;
    
    Competition from earlier and more established entrants;
    
    Market acceptance of initial product releases;
    
    Technological challenges involved in integrating Hyperion products into cohesive
business performance management systems offerings;
    
    Marketing effectiveness, including challenges in distribution; and
    
    The accuracy of assumptions about the nature of customer demand.




Fluctuations in our quarterly operating results may not be predictable and may result in
significant volatility in our stock price.




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##### Table of Contents



Hyperion operates in a very competitive environment.
     If Hyperion is unable to develop or acquire new and enhanced products that achieve widespread
market acceptance, we may be unable to recoup product development costs, and our earnings and
revenue may decline.
  26




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##### Table of Contents





Failure to upgrade older products will adversely affect sales.




Hyperion typically has back-ended quarters which may cause its actual revenues in a quarter to vary
from sales forecasts.




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




Employee turnover could adversely impact revenue, costs, and productivity.




27




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##### Table of Contents





Exchange rate fluctuations may adversely affect results.




Hyperion may not be able to continue its operational improvements.




Reorganizations may adversely affect productivity.




We are required to evaluate our internal control over financial reporting under Section 404 of the
Sarbanes Oxley Act of 2002 and are exposed to future risks of
non-compliance.






28




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##### Table of Contents





Hyperions international operations are subject to significant risks.




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




Hyperion faces significant challenges and risks associated with compliance and internal governance.






There are significant risks related to any business combination and investment.





    
    The possibility that Hyperion pays more than the value it derives from the acquisition;
    
    The difficulty of integrating the products, 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;
    
    Difficulties in managing software development activities to define a combined product
roadmap, ensuring
timely development of new products, timely release of new products to market, and the
development of efficient integration and migration processes and tools;
    
    The difficulty of retaining key alliances on attractive terms with partners and suppliers;
    
    The difficulty in retaining customers and protecting maintenance revenues;
    
    The difficulty of retaining and recruiting key personnel and maintaining employee morale;
    
    The potential product liability associated with selling the acquired companys products;


29



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##### Table of Contents




    
    The possibility that businesses in which Hyperion invests ultimately fail, rendering our investment worthless;
    
    The potential disruption of Hyperions ongoing business and the distraction of
management from Hyperions business; and
    
    The potential write-down of impaired goodwill and intangible and other assets. In
particular, Hyperion recorded approximately $120.7 million of goodwill related to the
acquisition of Brio that will not be amortized in the ordinary course of business. To the
extent that the business acquired in that transaction (primarily the Performance Suite
products) does not remain competitive, some or all of the goodwill related to that
acquisition could be charged against future earnings.
  Hyperion is subject to the possibility of infringement claims.
    Enforcement of Hyperions intellectual property rights may be difficult.
   30




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##### Table of Contents



Hyperions stock price is volatile.
  Hyperion is dependent upon indirect channel partners.
  
    
    Hyperions lack of control over the delivery of its products to end-users;
    
    Hyperions resellers and distributors may terminate their relationship with Hyperion on short notice; and
    
    Hyperions resellers and distributors may market and distribute competing products.
  Hyperion is exposed to product liability claims.
  Defects in Hyperions products could increase its costs, adversely affect its reputation, diminish
demand for its products, and hurt its operating results.
 31




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##### Table of Contents





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





    
    Hyperions Board of Directors is authorized to issue preferred stock with any rights it
may determine. Consequently, without shareholder approval, Hyperions Board of Directors
may issue preferred stock that has rights superior to the outstanding Hyperion common
stock;
    
    Hyperions Board of Directors is classified into three groups, with each group of
directors holding office for three years. The effect of this classified board is that two
annual meetings, not one, are required to replace a majority of the Board of Directors;
    
    Hyperion stockholders are not entitled to cumulate votes for directors; and
    
    Special meetings of Hyperion stockholders may not be called by Hyperions stockholders.






The accounting treatment for employee stock options has changed and has significantly impacted
Hyperions earnings for periods beginning with the first quarter of fiscal 2006.




Failure to obtain approval for additional shares of common stock to be granted as employee stock
options or restricted stock could adversely affect our ability to attract and retain employees.




We are incurring substantial costs and devoting more management resources to comply with increasing
regulation of corporate governance and disclosure.


32




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 FOREIGN CURRENCY EXCHANGE RATE RISK
   INTEREST RATE RISK
 
 ITEM 4. CONTROLS AND PROCEDURES
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
 33




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    
    ApproximateTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    
    Dollar Value ofof Shares
    
    
    Average Price
    
    
    Part of Publicly
    
    
    Shares that MayPurchased
    
    
    Paid per
    
    
    Announced Plans
    
    
    Yet Be PurchasedPeriod
    
    [1]
    
    
    Share
    
    
    [2]
    
    Under the Plans(In thousands, except per share data)July 1, 2005  July 31, 2005
    
    
    480
    
    
    $
    43.93
    
    
    
    480
    
    
    $
    88,756August 1, 2005  August 31, 2005
    
    
    553
    
    
    $
    44.78
    
    
    
    553
    
    
    
    64,004September 1, 2005  September
30, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    64,004
 
 [1]
    
    All stock repurchases during the three months ended September 30,
2005, were made in open-market transactions as part of our publicly
announced plans.[2]
    
    On May 20, 2004, we announced that our Board of Directors had
authorized a plan to repurchase up to $75.0 million of our common
stock. No authorized funds remain under this repurchase program. On
May 16, 2005, we announced that our Board of Directors had authorized
an additional plan to repurchase up to $125.0 million of our common
stock. In the first quarter of fiscal 2006, a total of 1,033,300
shares were purchased under this plan. At October 31, 2005, $51.6
million of the funds approved for repurchases under our plans were
available. 34




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##### Table of Contents



ITEM 3. DEFAULTS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Description31.1
    
    Certification of Godfrey R. Sullivan pursuant to Rule 13a-14(a).31.2
    
    Certification of David W. Odell pursuant to Rule 13a-14(a).32.1
    
    Certification of Godfrey R. Sullivan pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of David W. Odell pursuant to 18 U.S.C. Section 1350.
 35




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##### Table of Contents



SIGNATURES
  Date:  November 9, 2005
    Hyperion Solutions Corporation 
(Registrant)By:
    /s/ DAVID W. ODELLDavid W. OdellChief Financial OfficerBy:
    /s/ WILLIAM B. DEWESWilliam B. DewesGlobal Controller
(Principal Accounting Officer) 36




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    Certification of Godfrey R. Sullivan pursuant to Rule 13a-14(a).31.2
    
    Certification of David W. Odell pursuant to Rule 13a-14(a).32.1
    
    Certification of Godfrey R. Sullivan pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of David W. Odell pursuant to 18 U.S.C. Section 1350.