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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-Q

[ü]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2002

OR

[    ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
          to          .



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Commission File Number 000-26934

Hyperion Solutions Corporation

(Exact name of registrant as specified in its charter)


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

1344 Crossman Avenue, Sunnyvale, California 94089

(Address of principal executive offices, including zip code)


(408) 744-9500

(Registrants telephone number, including area code)


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

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

As of February 3, 2003, there were 34,877,906 shares of the
Registrants common stock, $0.001 par value, outstanding.



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TABLE OF CONTENTS



|                                      |                                                                                               |                                                                      |  |  |  |  |  | 
|------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION        
|                                      | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                      |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                               
|                                      |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|                                      |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                                      |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)    
|                                      | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                      | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                      | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION           
|                                      | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                                      | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                      | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                           
|CHIEF EXECUTIVE OFFICER CERTIFICATION
|CHIEF FINANCIAL OFFICER CERTIFICATION
|EXHIBIT INDEX                        
|EXHIBIT 99.1                         
|EXHIBIT 99.2                         



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Hyperion Solutions Corporation

Form 10-Q

|                                                                                                        |  |                                                                                                                                    |    |      |   | 
|------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                                                                                                        |  |                                                                                                                                    |    | PAGE
|                                                                                                        |  |                                                                                                                                    |    |     
|PART I.   FINANCIAL INFORMATION                                                                         |  |                                                                                                                                    |    |     
|Item 1            Financial Statements (Unaudited):                                                     |  |                                                                                                                                    |    |     
|                                                                                                        |  | Condensed Consolidated Balance Sheets at December 31, 2002 and June 30, 2002                                                       |    |      | 2 | 
|                                                                                                        |  | Condensed Consolidated Statements of Income and Comprehensive Income for the three and six
months ended December 31, 2002 and 2001 |    |      | 3 | 
|                                                                                                        |  | Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2002
and 2001                                |    |      | 4 | 
|                                                                                                        |  | Notes to Condensed Consolidated Financial Statements                                                                               |    |      | 5 | 
|Item 2            Managements Discussion and Analysis of Financial Condition and Results of Operations |  |                                                                                                                                    | 9  |     
|Item 3            Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                                                    | 16 |     
|Item 4            Controls and Procedures                                                               |  |                                                                                                                                    | 17 |     
|PART II.   OTHER INFORMATION                                                                            |  |                                                                                                                                    |    |     
|Item 1            Legal Proceedings                                                                     |  |                                                                                                                                    | 18 |     
|Item 4            Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                                    | 18 |     
|Item 6            Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                                    | 19 |     
|Signatures                                                                                              |  |                                                                                                                                    | 20 |     
|Certifications                                                                                          |  |                                                                                                                                    | 21 |     

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

1



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

HYPERION SOLUTIONS CORPORATION




CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands, except par value)


|                                           |                                                                                                             |   |              |         |          |   |         |         |  
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------- | - | ------------ | ------- | -------- | - | ------- | ------- | -
|                                           |                                                                                                             |   | December 31, |         | June 30,
|                                           |                                                                                                             |   | 2002         |         | 2002    
|                                           |                                                                                                             |   |              |         |         
|                                           |                                                                                                             |   | (Unaudited)  |         |          |   |        
|ASSETS                                     |                                                                                                             |   |              |         |          |   |         |        
|Current assets:                            |                                                                                                             |   |              |         |          |   |         |        
|                                           | Cash and cash equivalents                                                                                   |   | $            | 334,174 |          |   | $       | 311,130 |  
|                                           | Short-term investments                                                                                      |   |              | 18,108  |          |   |         | 19,128  |  
|                                           | Accounts receivable, net of allowances of $11,534 and $10,660                                               |   |              | 86,492  |          |   |         | 110,196 |  
|                                           | Deferred income taxes                                                                                       |   |              | 14,940  |          |   |         | 15,495  |  
|                                           | Prepaid expenses and other current assets                                                                   |   |              | 15,677  |          |   |         | 17,240  |  
|                                           |                                                                                                             |   |              |         |          |   |         |         |  
|TOTAL CURRENT ASSETS                       |                                                                                                             |   | 469,391      |         |          |   | 473,189 |        
|Property and equipment, net                |                                                                                                             |   | 67,632       |         |          |   | 69,866  |        
|Goodwill                                   |                                                                                                             |   | 8,067        |         |          |   | 8,171   |        
|Intangible assets, net                     |                                                                                                             |   | 8,380        |         |          |   | 8,493   |        
|Deferred income taxes                      |                                                                                                             |   | 18,312       |         |          |   | 17,993  |        
|Other assets                               |                                                                                                             |   | 6,545        |         |          |   | 6,178   |        
|                                           |                                                                                                             |   |              |         |          |   |         |         |  
|TOTAL ASSETS                               |                                                                                                             | $ | 578,327      |         |          | $ | 583,890 |        
|                                           |                                                                                                             |   |              |         |          |   |         |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                             |   |              |         |          |   |         |        
|Current liabilities:                       |                                                                                                             |   |              |         |          |   |         |        
|                                           | Accounts payable and accrued expenses                                                                       |   | $            | 41,741  |          |   | $       | 50,858  |  
|                                           | Accrued employee compensation and benefits                                                                  |   |              | 36,984  |          |   |         | 39,005  |  
|                                           | Income taxes payable                                                                                        |   |              | 883     |          |   |         |        |  
|                                           | Deferred revenue                                                                                            |   |              | 89,326  |          |   |         | 94,910  |  
|                                           | Other current liabilities                                                                                   |   |              | 5,859   |          |   |         | 6,915   |  
|                                           |                                                                                                             |   |              |         |          |   |         |         |  
|TOTAL CURRENT LIABILITIES                  |                                                                                                             |   | 174,793      |         |          |   | 191,688 |        
|Long-term debt                             |                                                                                                             |   | 50,040       |         |          |   | 80,802  |        
|Other liabilities                          |                                                                                                             |   | 11,874       |         |          |   | 11,743  |        
|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;
35,851 and 34,662 shares issued and outstanding |   |              | 36      |          |   |         | 35      |  
|                                           | Additional paid-in capital                                                                                  |   |              | 252,186 |          |   |         | 227,563 |  
|                                           | Treasury stock, at cost: 1,344 and 1,344 common shares                                                      |   |              | (23,097 | )        |   |         | (23,097 | )
|                                           | Retained earnings                                                                                           |   |              | 120,153 |          |   |         | 103,472 |  
|                                           | Accumulated other comprehensive loss                                                                        |   |              | (7,658  | )        |   |         | (8,316  | )
|                                           |                                                                                                             |   |              |         |          |   |         |         |  
|TOTAL STOCKHOLDERS EQUITY                 |                                                                                                             |   | 341,620      |         |          |   | 299,657 |        
|                                           |                                                                                                             |   |              |         |          |   |         |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                             | $ | 578,327      |         |          | $ | 583,890 |        
|                                           |                                                                                                             |   |              |         |          |   |         |         |  

See accompanying notes to condensed consolidated financial statements.

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HYPERION SOLUTIONS CORPORATION




CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(In thousands, except per share amounts)
(Unaudited)


|                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|----------------------------------- | ------------------------ | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                    |                          |   | Three Months Ended |        | Six Months Ended
|                                    |                          |   | December 31,       |        | December 31,    
|                                    |                          |   |                    |        |                 
|                                    |                          |   | 2002               |        | 2001             |   | 2002    |        | 2001
|                                    |                          |   |                    |        |                  |   |         |        |     
|REVENUES                            |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|                                    | Software licenses        |   | $                  | 51,136 |                  |   | $       | 46,190 |      |   | $       | 95,727  |  |   | $       | 84,998  | 
|                                    | Maintenance and services |   |                    | 74,901 |                  |   |         | 72,713 |      |   |         | 150,189 |  |   |         | 151,241 | 
|                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|TOTAL REVENUES                      |                          |   | 126,037            |        |                  |   | 118,903 |        |      |   | 245,916 |         |  |   | 236,239 |        
|COSTS AND EXPENSES                  |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|Cost of revenues                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|                                    | Software licenses        |   |                    | 3,596  |                  |   |         | 3,572  |      |   |         | 6,646   |  |   |         | 6,567   | 
|                                    | Maintenance and services |   |                    | 32,156 |                  |   |         | 34,343 |      |   |         | 64,535  |  |   |         | 70,676  | 
|Sales and marketing                 |                          |   | 48,662             |        |                  |   | 43,610  |        |      |   | 89,740  |         |  |   | 85,057  |        
|Research and development            |                          |   | 18,107             |        |                  |   | 16,723  |        |      |   | 35,979  |         |  |   | 35,619  |        
|General and administrative          |                          |   | 11,853             |        |                  |   | 15,405  |        |      |   | 23,819  |         |  |   | 30,729  |        
|Restructuring charges               |                          |   | 596                |        |                  |   | 180     |        |      |   | 596     |         |  |   | 462     |        
|                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|TOTAL COSTS AND EXPENSES            |                          |   | 114,970            |        |                  |   | 113,833 |        |      |   | 221,315 |         |  |   | 229,110 |        
|                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|OPERATING INCOME                    |                          |   | 11,067             |        |                  |   | 5,070   |        |      |   | 24,601  |         |  |   | 7,129   |        
|Interest income                     |                          |   | 1,574              |        |                  |   | 1,925   |        |      |   | 3,033   |         |  |   | 4,067   |        
|Interest expense                    |                          |   | (852               | )      |                  |   | (1,168  | )      |      |   | (1,634  | )       |  |   | (2,329  | )      
|Gain on redemption of debt          |                          |   | 226                |        |                  |   |        |        |      |   | 478     |         |  |   |        |        
|                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|INCOME BEFORE INCOME TAXES          |                          |   | 12,015             |        |                  |   | 5,827   |        |      |   | 26,478  |         |  |   | 8,867   |        
|Provision for income taxes          |                          |   | 4,446              |        |                  |   | 2,098   |        |      |   | 9,797   |         |  |   | 3,192   |        
|                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|NET INCOME                          |                          | $ | 7,569              |        |                  | $ | 3,729   |        |      | $ | 16,681  |         |  | $ | 5,675   |        
|                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|Other comprehensive income (loss)   |                          |   | 1,489              |        |                  |   | (1,226  | )      |      |   | 658     |         |  |   | 1,343   |        
|                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|COMPREHENSIVE INCOME                |                          | $ | 9,058              |        |                  | $ | 2,503   |        |      | $ | 17,339  |         |  | $ | 7,018   |        
|                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|EARNINGS PER SHARE                  |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|                                    | Basic                    |   | $                  | 0.22   |                  |   | $       | 0.11   |      |   | $       | 0.49    |  |   | $       | 0.17    | 
|                                    | Diluted                  |   | $                  | 0.21   |                  |   | $       | 0.11   |      |   | $       | 0.48    |  |   | $       | 0.17    | 
|WEIGHTED AVERAGE SHARES OUTSTANDING |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|                                    | Basic                    |   |                    | 34,173 |                  |   |         | 32,724 |      |   |         | 34,056  |  |   |         | 32,584  | 
|                                    | Diluted                  |   |                    | 35,448 |                  |   |         | 33,128 |      |   |         | 35,069  |  |   |         | 32,835  | 

See accompanying notes to condensed consolidated financial statements.

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HYPERION SOLUTIONS CORPORATION




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)
(Unaudited)


|                                                                                  |                                                                          |                            |         |                  |       |      |         |         |       | 
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -------------------------- | ------- | ---------------- | ----- | ---- | ------- | ------- | ----- | 
|                                                                                  |                                                                          |                            |         | Six Months Ended
|                                                                                  |                                                                          |                            |         | December 31,    
|                                                                                  |                                                                          |                            |         | 2002             |       | 2001
|                                                                                  |                                                                          |                            |         |                  |       |     
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |                                                                          |                            |         |                  |       |      |         |        
|Net income                                                                        |                                                                          | $                          | 16,681  |                  |       | $    | 5,675   |        
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                          |                            |         |                  |       |      |         |        
|                                                                                  | Gain on redemption of debt                                               |                            |         | (478             | )     |      |         |        |      
|                                                                                  | Gain on sale of assets                                                   |                            |         | (8               | )     |      |         |        |      
|                                                                                  | Depreciation and amortization                                            |                            |         | 14,395           |       |      |         | 16,482  |      
|                                                                                  | Provision for accounts receivable allowances                             |                            |         | 5,376            |       |      |         | 7,279   |      
|                                                                                  | Deferred income taxes                                                    |                            |         | 249              |       |      |         | (2,166  | )    
|                                                                                  | Income tax benefit from exercise of stock options                        |                            |         | 3,148            |       |      |         | 387     |      
|Changes in operating assets and liabilities:                                      |                                                                          |                            |         |                  |       |      |         |        
|                                                                                  | Accounts receivable                                                      |                            |         | 19,324           |       |      |         | 47,603  |      
|                                                                                  | Prepaid expenses and other current assets                                |                            |         | (1,875           | )     |      |         | 3,010   |      
|                                                                                  | Other assets                                                             |                            |         | (731             | )     |      |         | (265    | )    
|                                                                                  | Accounts payable and accrued expenses                                    |                            |         | (9,062           | )     |      |         | (8,901  | )    
|                                                                                  | Accrued employee compensation and benefits                               |                            |         | (2,410           | )     |      |         | 1,400   |      
|                                                                                  | Income taxes payable                                                     |                            |         | 4,590            |       |      |         | 263     |      
|                                                                                  | Deferred revenue                                                         |                            |         | (6,790           | )     |      |         | (21,741 | )    
|                                                                                  | Other current liabilities                                                |                            |         | (1,489           | )     |      |         | (2,626  | )    
|                                                                                  | Other liabilities                                                        |                            |         | (240             | )     |      |         | (2,827  | )    
|                                                                                  |                                                                          |                            |         |                  |       |      |         |        
|Net cash provided by operating activities                                         |                                                                          |                            | 40,680  |                  |       |      | 43,573  |        
|                                                                                  |                                                                          |                            |         |                  |       |      |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |                                                                          |                            |         |                  |       |      |         |        
|                                                                                  | Purchases of investments                                                 |                            |         | (10,093          | )     |      |         | (23,684 | )    
|                                                                                  | Proceeds from maturities of investments                                  |                            |         | 11,114           |       |      |         | 35,203  |      
|                                                                                  | Purchases of property and equipment                                      |                            |         | (10,668          | )     |      |         | (2,647  | )    
|                                                                                  | Proceeds from disposal of property and equipment                         |                            |         | 285              |       |      |         |        |      
|                                                                                  | Purchases of intangible assets                                           |                            |         | (1,190           | )     |      |         | (3,818  | )    
|                                                                                  | Payments for acquisitions                                                |                            |         |                 |       |      |         | (1,000  | )    
|                                                                                  |                                                                          |                            |         |                  |       |      |         |        
|Net cash provided by (used in) investing activities                               |                                                                          |                            | (10,552 | )                |       |      | 4,054   |        
|                                                                                  |                                                                          |                            |         |                  |       |      |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |                                                                          |                            |         |                  |       |      |         |        
|                                                                                  | Principal payments on mortgage loan                                      |                            |         | (2,298           | )     |      |         | (119    | )    
|                                                                                  | Redemption of debt                                                       |                            |         | (27,930          | )     |      |         |        |      
|                                                                                  | Treasury stock transactions, net                                         |                            |         |                 |       |      |         | 64      |      
|                                                                                  | Proceeds from exercise of stock options and employee stock purchase plan |                            |         | 21,476           |       |      |         | 5,550   |      
|                                                                                  |                                                                          |                            |         |                  |       |      |         |        
|Net cash provided by (used in) financing activities                               |                                                                          |                            | (8,752  | )                |       |      | 5,495   |        
|Effect of exchange rate on cash and cash equivalents                              |                                                                          |                            | 1,668   |                  |       |      | 1,998   |        
|                                                                                  |                                                                          |                            |         |                  |       |      |         |        
|INCREASE IN CASH AND CASH EQUIVALENTS                                             |                                                                          |                            | 23,044  |                  |       |      | 55,120  |        
|Cash and cash equivalents at beginning of period                                  |                                                                          |                            | 311,130 |                  |       |      | 232,904 |        
|                                                                                  |                                                                          |                            |         |                  |       |      |         |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        |                                                                          | $                          | 334,174 |                  |       | $    | 288,024 |        
|                                                                                  |                                                                          |                            |         |                  |       |      |         |        
|SUPPLEMENTAL CASH FLOW INFORMATION:                                               |                                                                          |                            |         |                  |       |      |         |        
|                                                                                  |                                                                          | Cash paid for income taxes |         | $                | 1,843 |      |         | $       | 4,873 | 
|                                                                                  |                                                                          | Cash paid for interest     |         | $                | 1,949 |      |         | $       | 2,082 | 

See accompanying notes to condensed consolidated financial statements.

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HYPERION SOLUTIONS CORPORATION




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2002


1. Basis of Presentation

The accompanying condensed consolidated financial statements have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to these rules and regulations.
However, management believes that the disclosures are adequate to ensure the
information presented is not misleading. The balance sheet at June 30, 2002
has been derived from the audited financial statements, but does not include
all disclosures required by generally accepted accounting principles. These
unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and the notes thereto
included in our annual report on Form 10-K for the fiscal year ended June 30,
2002.

In the opinion of management, all adjustments, consisting only of normal
recurring items, considered necessary for a fair presentation have been
included in the accompanying unaudited financial statements. The results of
operations for the interim periods presented are not necessarily indicative of
the operating results to be expected for any subsequent interim period or for
our fiscal year ending June 30, 2003. Certain prior period balances 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
maintenance and professional services. Hyperions standard software license
agreement is a perpetual license to use its products on an end user, concurrent
user or central processing unit basis. Hyperion records revenue from
licensing of software products to end users provided there is persuasive
evidence of an arrangement, the fee is fixed or determinable, collection is
reasonably assured and delivery of the product has occurred as prescribed by
Statement of Position (SOP) No. 97-2, Software Revenue Recognition, issued
by the American Institute of Certified Public Accountants. For arrangements
with multiple elements, and for which vendor specific objective evidence
(VSOE) of fair value exists for the undelivered elements, revenue is
recognized for the delivered elements based upon the residual method in
accordance with SOP No. 98-9, Modifications of SOP 97-2 with Respect to
Certain Transactions. VSOE of fair value for all elements of an arrangement
is based upon the normal pricing and discounting practices for those products
and services when sold separately. VSOE of fair value for services is based
upon the standard hourly rate Hyperion charges for such services when sold
separately. VSOE of fair value for maintenance is measured by the stated
renewal rates included in the contracts. If the fair value of any undelivered
element included in a multiple-element arrangement cannot be objectively
determined, revenue is deferred until all elements are delivered, services have
been performed or until fair value can be objectively determined. License
revenue from resellers or distributors is recognized upon sell-through to the
end customer. Amounts billed or payments received in advance of revenue
recognition are recorded as deferred revenue.

Maintenance agreements are generally a twelve-month prepaid contract that is
recognized ratably over the period. Customers may also enter into professional
services arrangements that are typically on a time and materials basis and
include consulting and training services. Consulting and training revenues are
typically recognized as earned. Consulting revenues are generated primarily
from implementation services related to the installation of Hyperions
products. These arrangements are generally accounted for separately from the
license revenue because the arrangements qualify as service transactions as
defined in SOP No. 97-2. Hyperions services are generally not essential to
the functionality of the software. Hyperions products are fully functional
upon delivery of the product and implementation does not require any
significant modification or alteration. Hyperions services often include
assistance with product adoption. Other significant factors considered in
determining whether the revenue should be accounted for separately
include degree of risk, availability of services from other vendors, timing of
payments and impact of milestones or acceptance criteria on the realizability
of the software license fee. Customers generally purchase these services to
facilitate the adoption of Hyperions products and obtain dedicated personnel
to participate in the services being performed, but they may also decide to use
their own internal resources or appoint other professional service
organizations to provide these services. Payments related to the software
product to which the services relate are typically billed independently from
the services and, therefore, are not coincident with performance of such
services. License agreements generally do not include acceptance provisions.
If an arrangement does not qualify for separate accounting of the license and
service elements, license revenue is generally recognized together with the
consulting services using the percentage-of-completion method of contract
accounting in accordance with SOP No. 81-1, Accounting for Performance of
Construction-Type and Certain Product-Type Contracts and Accounting Research
Bulletin No. 45, Long-Term Construction-Type Contracts.

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Allowance for Doubtful Accounts

Hyperion makes judgments as to its ability to collect outstanding receivables
and provides allowances for a portion of receivables when collection becomes
doubtful. Provisions are made based upon a specific review of all significant
outstanding invoices. For those invoices not specifically reviewed, provisions
are made at differing rates, based upon the age of the receivable. In
determining these percentages, Hyperion analyzes its historical collection
experience, customer concentrations, customer credit-worthiness and current
economic trends. If the historical data used to calculate the allowance
provided for doubtful accounts does not reflect the future ability to collect
outstanding receivables, additional provisions for doubtful accounts may be
needed.

Comprehensive Income

Comprehensive income includes foreign currency translation gains and losses and
unrealized gains and losses on available-for-sale securities. The net
unrealized gains and losses on available-for-sale securities for the three and
six months ended December 31, 2002 and 2001 were not material.

Earnings Per Share

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

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

|                                     |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|------------------------------------ |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                     |  | Three Months Ended |        | Six Months Ended
|                                     |  | December 31,       |        | December 31,    
|                                     |  | 2002               |        | 2001             |  | 2002 |        | 2001
|                                     |  |                    |        |                  |  |      |        |     
|Net income                           |  | $                  | 7,569  |                  |  | $    | 3,729  |      |  | $ | 16,681 |  |  | $ | 5,675  | 
|Shares used in computing basic EPS   |  |                    | 34,173 |                  |  |      | 32,724 |      |  |   | 34,056 |  |  |   | 32,584 | 
|Dilutive effect of stock options     |  |                    | 1,275  |                  |  |      | 404    |      |  |   | 1,013  |  |  |   | 251    | 
|                                     |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Shares used in computing diluted EPS |  |                    | 35,448 |                  |  |      | 33,128 |      |  |   | 35,069 |  |  |   | 32,835 | 
|                                     |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Basic EPS                            |  | $                  | 0.22   |                  |  | $    | 0.11   |      |  | $ | 0.49   |  |  | $ | 0.17   | 
|Diluted EPS                          |  | $                  | 0.21   |                  |  | $    | 0.11   |      |  | $ | 0.48   |  |  | $ | 0.17   | 

For the three and six months ended December 31, 2002, stock option rights
totaling 2.2 million shares and 2.7 million shares, respectively, have been
excluded from the diluted EPS calculations because their effect would have been
antidilutive. For the three and six months ended December 31, 2001, stock
option rights totaling 5.4 million shares and 5.7 million shares, respectively,
have been excluded from the diluted EPS calculations because their effect would
have been antidilutive.

For the three and six months ended December 31, 2002, 1.2 million and 1.3
million shares of common stock, respectively, issuable upon conversion of the
convertible subordinated notes have been excluded from the diluted EPS
calculations because their effect would have been antidilutive. For the three
and six months ended December 31, 2001, 1.6 million shares of common stock
issuable upon conversion of the convertible subordinated notes have been
excluded from the diluted EPS calculations because their effect would have been
antidilutive.

Recent Accounting Pronouncements

In January 2002, the Emerging Issues Task Force (EITF) issued EITF Issue No.
01-14 Income Statement Characterization of Reimbursements Received for Out of
Pocket Expenses Incurred, which requires that reimbursements received for
out-of-pocket expenses be reflected as revenues in the statement of income.
EITF No. 01-14 is effective for financial reporting periods beginning after
December 15, 2001. Hyperion adopted EITF No. 01-14 on January 1, 2002 and
reclassified the statements of income for the three and six months ended
December 31, 2001 to conform to the current presentation. As a result,
approximately $2.3 million and $4.9 million have been reclassified primarily
from cost of maintenance and services into maintenance and services revenue for
the three and six months ended December 31, 2001, respectively.

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In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities, which
nullifies EITF Issue No. 94-3. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred, whereas EITF No. 94-3 had required recognition of the
liability as of the commitment date of an exit plan. This statement is
effective for exit or disposal activities initiated after December 31, 2002.
Hyperion is currently assessing the impact of SFAS No. 146 on its financial
position and results of operations.

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

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 also requires
that disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more prominently
and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the
pro forma effect in interim financial statements. The transition and annual
disclosure requirements of SFAS No. 148 are effective for fiscal years ended
after December 15, 2002. The interim disclosure requirements are effective for
interim periods ending after December 15, 2002. Hyperion will adopt the
disclosure requirements of SFAS No. 148 in its March 31, 2003 quarterly
financial statements.

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

3. Contingencies

On July 11, 1997, Gentia Software filed a request for reexamination of
Hyperions U.S. Patent No. 5,359,724 (724 patent) with the United States
Patent and Trademark Office (PTO) arguing that the 724 patent was anticipated
and obvious in light of certain prior art
references. On September 11, 1997, the PTO granted the request for
reexamination. On February 27, 1998, Gentia Software filed with the PTO a
request for a second reexamination of the 724 patent based on additional prior
art references. On May 22, 1998, the PTO granted that request for
reexamination, which was later consolidated with the first reexamination. On
March 31, 1999, the PTO issued a non-final office action rejecting the claims
of the 724 patent. Hyperion filed its response to the office action on May
31, 1999. No final office action has been issued by the PTO. Hyperion
believes that the outcome of such action will not have a material adverse
effect on its financial position, results of operations or cash flows.

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

4. Segment and Geographic 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 three geographic regions: the Americas (United States,
Canada and Latin America), EMEA (Europe, Middle East and Africa) and APAC (Asia
Pacific). Hyperions products are marketed internationally through Hyperions
direct sales force, independent distributors and application resellers.

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

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The following table presents revenues and long-lived assets by geographic region (in thousands):

|          |          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|--------- | -------- | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|          |          |   | Three Months Ended |        | Six Months Ended
|          |          |   | December 31,       |        | December 31,    
|          |          |   |                    |        |                 
|          |          |   | 2002               |        | 2001             |   | 2002    |        | 2001
|          |          |   |                    |        |                  |   |         |        |     
|Revenues: |          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|          | Americas |   | $                  | 77,320 |                  |   | $       | 75,625 |      |   | $       | 154,198 |  |   | $       | 155,731 | 
|          | EMEA     |   |                    | 41,760 |                  |   |         | 36,041 |      |   |         | 77,594  |  |   |         | 66,842  | 
|          | APAC     |   |                    | 6,957  |                  |   |         | 7,237  |      |   |         | 14,124  |  |   |         | 13,666  | 
|          |          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|Total     |          | $ | 126,037            |        |                  | $ | 118,903 |        |      | $ | 245,916 |         |  | $ | 236,239 |        
|          |          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 

|                   |          |   |              |        |          |   |        |        | 
|------------------ | -------- | - | ------------ | ------ | -------- | - | ------ | ------ | 
|                   |          |   | December 31, |        | June 30,
|                   |          |   | 2002         |        | 2002    
|                   |          |   |              |        |         
|Long-lived assets: |          |   |              |        |          |   |        |       
|                   | Americas |   | $            | 59,439 |          |   | $      | 60,809 | 
|                   | EMEA     |   |              | 6,992  |          |   |        | 7,834  | 
|                   | APAC     |   |              | 1,201  |          |   |        | 1,223  | 
|                   |          |   |              |        |          |   |        |        | 
|Total              |          | $ | 67,632       |        |          | $ | 69,866 |       
|                   |          |   |              |        |          |   |        |        | 

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

|                                        |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        | 
|--------------------------------------- | ----------------------- | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------- |  | - | ------- | ------ | 
|                                        |                         |   | Three Months Ended |        | Six Months Ended
|                                        |                         |   | December 31,       |        | December 31,    
|                                        |                         |   |                    |        |                 
|                                        |                         |   | 2002               |        | 2001             |   | 2002    |        | 2001
|                                        |                         |   |                    |        |                  |   |         |        |     
|Software licenses:                      |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |       
|                                        | Application products    |   | $                  | 23,167 |                  |   | $       | 23,592 |      |   | $       | 46,828  |  |   | $       | 39,303 | 
|                                        | Platform products       |   |                    | 27,969 |                  |   |         | 22,598 |      |   |         | 48,899  |  |   |         | 45,695 | 
|                                        |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        | 
|Total software license revenues         |                         |   | 51,136             |        |                  |   | 46,190  |        |      |   | 95,727  |         |  |   | 84,998  |       
|Maintenance and services:               |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |       
|                                        | Maintenance             |   |                    | 52,405 |                  |   |         | 44,883 |      |   |         | 103,983 |  |   |         | 88,759 | 
|                                        | Consulting and training |   |                    | 22,496 |                  |   |         | 27,830 |      |   |         | 46,206  |  |   |         | 62,482 | 
|                                        |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        | 
|Total maintenance and services revenues |                         |   | 74,901             |        |                  |   | 72,713  |        |      |   | 150,189 |         |  |   | 151,241 |       
|                                        |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        | 
|Total revenues                          |                         | $ | 126,037            |        |                  | $ | 118,903 |        |      | $ | 245,916 |         |  | $ | 236,239 |       
|                                        |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        | 

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

FORWARD-LOOKING STATEMENTS

Certain information contained in this report on Form 10-Q is forward-looking in
nature. All statements included in this report on Form 10-Q or made by
management of Hyperion Solutions Corporation and its subsidiaries, other than
statements of historical fact, are forward-looking statements. Examples of
forward-looking statements include statements regarding Hyperions future
financial results, operating results, business strategies, projected costs,
products, competitive positions and plans and objectives of management for
future operations. In some cases, forward-looking statements can be identified
by terminology such as may, will, should, would, expect, plan,
anticipate, intend, believe, estimate, predict, potential,
continue, or the negative of these terms or other comparable terminology.
Any expectations based on these forward-looking statements are subject to risks
and uncertainties and other important factors, including those discussed in the
section entitled Factors That May Affect Future Results. These and many
other factors could affect Hyperions future financial and operating results,
and could cause actual results to differ materially from expectations based on
forward-looking statements made in this document or elsewhere by Hyperion or on
its behalf. Hyperion does not undertake an obligation to update its
forward-looking statements to reflect future events or circumstances.

OVERVIEW

Hyperion delivers business performance management software solutions that
enable companies to continually measure performance, anticipate results and
drive profitability across key business activities. Our customers use our
products to help them collaborate enterprise-wide, focus resources, improve
operational efficiencies and leverage opportunities for growth.

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

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

RESULTS OF OPERATIONS

REVENUES

|                                     |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |   |   |            |        |  |  |     |    |            |   |         |        |  |  |     |    |  
|------------------------------------ | ----------------------- | ---- | ------------------------------- | ------- | ----------------------------- | ---- | ---------- | ------- | - | ---- | ------- | ------- | ---------- | ---- | --- | ------- | - | - | ---------- | ------ |  |  | --- | -- | ---------- | - | ------- | ------ |  |  | --- | -- | -
|                                     |                         |      | Three Months Ended December 31, |         | Six Months Ended December 31,
|                                     |                         |      |                                 |         |                              
|                                     |                         |      |                                 |         |                               |      | Percent of |         |   |      |         |         | Percent of |      |     |         |   |   | Percent of |        |  |  |     |    | Percent of
|(In thousands)                       |                         | 2002 |                                 | Revenue |                               | 2001 |            | Revenue |   | 2002 |         | Revenue |            | 2001 |     | Revenue
|                                     |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |  
|Software licenses                    |                         | $    | 51,136                          |         |                               |      | 41         | %       |   | $    | 46,190  |         |            |      | 39  | %       |   | $ | 95,727     |        |  |  | 39  | %  |            | $ | 84,998  |        |  |  | 36  | % 
|Maintenance and services
Maintenance |                         |      | 52,405                          |         |                               |      | 41         | %       |   |      | 44,883  |         |            |      | 38  | %       |   |   | 103,983    |        |  |  | 42  | %  |            |   | 88,759  |        |  |  | 38  | % 
|                                     | Consulting and training |      |                                 | 22,496  |                               |      |            | 18      | % |      |         | 27,830  |            |      |     | 23      | % |   |            | 46,206 |  |  |     | 19 | %          |   |         | 62,482 |  |  |     | 26 | %
|                                     |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |   |   |            |        |  |  |     |    |            |   |         |        |  |  |     |   
|                                     |                         |      | 74,901                          |         |                               |      | 59         | %       |   |      | 72,713  |         |            |      | 61  | %       |   |   | 150,189    |        |  |  | 61  | %  |            |   | 151,241 |        |  |  | 64  | % 
|                                     |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |   |   |            |        |  |  |     |    |            |   |         |        |  |  |     |   
|Total revenues                       |                         | $    | 126,037                         |         |                               |      | 100        | %       |   | $    | 118,903 |         |            |      | 100 | %       |   | $ | 245,916    |        |  |  | 100 | %  |            | $ | 236,239 |        |  |  | 100 | % 
|                                     |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |   |   |            |        |  |  |     |    |            |   |         |        |  |  |     |   

Software licenses.Software license revenues increased 11% in the three months
ended December 31, 2002 compared to the three months ended December 31, 2001
and increased 13% in the six months ended December 31, 2002 compared to the six
months ended December 31, 2001. The increase in license revenue in the second
quarter and first half of fiscal 2003 was primarily due to increased revenues
from two of our newer suite-based application products, Hyperion Planning and
Hyperion Financial Management, in the first half of fiscal 2003 as well as
several significant Essbase XTD platform sales in the second quarter of fiscal
2003. However, these factors were offset to some extent by declines in revenue
from our older, standalone application products, Hyperion Pillar and Hyperion
Enterprise.

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We separate license revenue into two main components- application license
revenue and platform license revenue. Application license revenue is generated
from our packaged business performance management applications, and platform
license revenue is generated from our Hyperion Essbase XTD platform and its
component products. In the second quarter of fiscal 2003, application revenue
represented 45% of license revenue and platform revenue represented 55% of
license revenue, compared to 51% application revenue and 49% platform revenue
in the second quarter of fiscal 2002. A 33% increase in suite-based
application sales, which include Hyperion Planning and Hyperion Financial
Management, combined with a 50% decrease in standalone application sales, which
include Hyperion Pillar and Hyperion Enterprise, resulted in an overall 2%
decrease in total application license revenue for the second quarter of fiscal
2003 compared to the second quarter of fiscal 2002. However, platform sales
increased 24% in the second quarter of fiscal 2003 compared to the second
quarter of fiscal 2002 as a result of several large Essbase XTD platform sales
during the second quarter of fiscal 2003. The slight decrease in application
license revenue and the substantial increase in platform license revenue
resulted in the decrease in the ratio of application license revenue to
platform license revenue in the second quarter of fiscal 2003.

For the first half of fiscal 2003, license revenue was comprised of 49%
application revenue and 51% platform revenue, compared to 46% application
revenue and 54% platform revenue for the first half of fiscal 2002. A 103%
increase in suite-based application sales, partially offset by a 53% decrease
in standalone application sales, resulted in an overall 19% increase in total
application license revenue for the first half of fiscal 2003 compared to the
first half of fiscal 2002. Two of our newer suite-based application products,
Hyperion Planning and Hyperion Financial Management, were still in the early
stages of their product life cycles in the first half of fiscal 2002, but these
products began making significant contributions to total license revenue later
in fiscal 2002 and into fiscal 2003. The 19% increase in application license
revenue, compared with a 7% increase in platform license revenue, resulted in
the increase in the ratio of application license revenue to platform license
revenue in the first half of fiscal 2003.

We market our products through our direct sales force and through channel
partners. To date, we have generated the majority of our license revenue
through our direct sales force, but we continue to focus on complementing our
direct sales force with channel partners, which include original equipment
manufacturers, value added resellers, system integrators, independent
distributors and sales agents. License revenue from channel partners comprised
27% of total license revenue in the second quarter of fiscal 2003 compared to
24% in the second quarter of fiscal 2002. For the first half of fiscal 2003
and 2002, license revenue from channel partners comprised 26% of total license
revenue. Effectively leveraging our channel partners continues to be one of
our key strategies, and our goal is to derive 33% of our license revenue
through our channel partners. Consistent with fiscal 2002, no single channel
partner represented more than 10% of total revenue during the second quarter or
first half of fiscal 2003.

Maintenance and services.Maintenance and services revenue increased 3% in the
three months ended December 31, 2002 compared to the three months ended
December 31, 2001. This increase was due to a 17% increase in maintenance
revenue, which was caused by year-over-year growth of our installed customer
base. Partially offsetting this increase in maintenance revenue was a 19%
decrease in consulting and training revenue, which resulted from our increased
use of channel partners to provide consulting services to our customers. In
the six months ended December 31, 2002, maintenance and services revenue
decreased 1% compared to the six months ended December 31, 2001. The slight
decrease in maintenance and services revenue was due to a 26% decrease in
consulting and training revenue, which was partially offset by a 17% increase
in maintenance revenue.

COST OF REVENUES

|                         |  |                                 |        |                               |  |       |    |        |  |      |        |        |  |      |    |        |  |       |        |  |  |  |    |       |  |   |        |  |  |  |    |  
|------------------------ |  | ------------------------------- | ------ | ----------------------------- |  | ----- | -- | ------ |  | ---- | ------ | ------ |  | ---- | -- | ------ |  | ----- | ------ |  |  |  | -- | ----- |  | - | ------ |  |  |  | -- | -
|                         |  | Three Months Ended December 31, |        | Six Months Ended December 31,
|                         |  |                                 |        |                              
|                         |  |                                 |        |                               |  | Gross |    |        |  |      |        | Gross  |  |      |    |        |  | Gross |        |  |  |  |    | Gross
|(In thousands)           |  | 2002                            |        | Margin                        |  | 2001  |    | Margin |  | 2002 |        | Margin |  | 2001 |    | Margin
|                         |  |                                 |        |                               |  |       |    |        |  |      |        |        |  |      |    |       
|Software licenses        |  | $                               | 3,596  |                               |  |       | 93 | %      |  | $    | 3,572  |        |  |      | 92 | %      |  | $     | 6,646  |  |  |  | 93 | %     |  | $ | 6,567  |  |  |  | 92 | %
|Maintenance and services |  |                                 | 32,156 |                               |  |       | 57 | %      |  |      | 34,343 |        |  |      | 53 | %      |  |       | 64,535 |  |  |  | 57 | %     |  |   | 70,676 |  |  |  | 53 | %

Cost of software license revenue.Cost of software license revenue consists
primarily of royalty expenses, amortization of capitalized software development
costs, amortization of acquired technologies and the cost of product packaging
and documentation materials. Cost of software license revenue in the three and
six months ended December 31, 2002 remained relatively flat compared to the
three and six months ended December 31, 2001 despite the respective increases
in software license revenue. This was partially attributable to different
product mixes in the second quarter and first half of fiscal 2003, which
resulted in lower third-party royalty expenses as a percentage of software
license revenue. For the three and six months ended December 31, 2002, the
total cost of software license revenue as a percentage of total license revenue
was 7%. For the three and six months ended December 31, 2001, the total cost
of software license revenue as a percentage of total license revenue was 8%.

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In the first half of fiscal 2003 and 2002, we capitalized $0.7 million and $0.3
million of software product development costs, respectively, in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. The
amounts capitalized relate to localization costs for our software products.
Capitalized software product development costs are amortized over the estimated
economic life of the products, which is generally three years. The
amortization of capitalized software product development costs begins upon the
general release of the software to customers.

Cost of maintenance and services revenue.Cost of maintenance and services
revenue consists largely of compensation and benefits for consulting, training
and support personnel. Cost of maintenance and services revenue decreased 6%
in the three months ended December 31, 2002 compared to the three months ended
December 31, 2001 and decreased 9% in the six months ended December 31, 2002
compared to the six months ended December 31, 2001. The decrease in cost of
maintenance and services revenue is primarily attributable to our continued
focus on leveraging our channel partners to perform consulting services for our
customers. As a result of this effort, we reduced headcount in our North
American consulting organization by approximately 75 employees in the fourth
quarter of fiscal 2002. This reduction in headcount contributed to a $2.2
million decrease in employee expenses for maintenance and services personnel in
the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002
and a $3.8 million decrease in employee expenses in the first half of fiscal
2003 compared to the first half of fiscal 2002. Further, independent
contractor and temporary staffing expenses decreased $0.3 million and $1.2
million in the three and six months ended December 31, 2002 compared to the
three and six months ended December 31, 2001 due to our decreased use of
external personnel for product implementations.

Gross margin on maintenance and services revenue increased to 57% in the second
quarter and first half of fiscal 2003 compared to 53% in the second quarter and
first half of fiscal 2002. These increases in gross margin on maintenance and
services revenue are primarily due to the increases in maintenance revenue as a
percentage of total maintenance and services revenue, as margins on the
maintenance revenue stream are higher than margins on the services revenue
stream.

OPERATING EXPENSES

|                           |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |         |  |            |         |  |  |  |    |            |  |   |         |  |  |  |    |  
|-------------------------- |  | ------------------------------- | ------ | ----------------------------- |  | ---------- | -- | ------- |  | ---- | ------ | ---------- |  | ---- | -- | ------- |  | ---------- | ------- |  |  |  | -- | ---------- |  | - | ------- |  |  |  | -- | -
|                           |  | Three Months Ended December 31, |        | Six Months Ended December 31,
|                           |  |                                 |        |                              
|                           |  |                                 |        |                               |  | Percent of |    |         |  |      |        | Percent of |  |      |    |         |  | Percent of |         |  |  |  |    | Percent of
|(In thousands)             |  | 2002                            |        | Revenue                       |  | 2001       |    | Revenue |  | 2002 |        | Revenue    |  | 2001 |    | Revenue
|                           |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |        
|Sales and marketing        |  | $                               | 48,662 |                               |  |            | 39 | %       |  | $    | 43,610 |            |  |      | 37 | %       |  | $          | 89,740  |  |  |  | 36 | %          |  | $ | 85,057  |  |  |  | 36 | %
|Research and development   |  |                                 | 18,107 |                               |  |            | 14 | %       |  |      | 16,723 |            |  |      | 14 | %       |  |            | 35,979  |  |  |  | 15 | %          |  |   | 35,619  |  |  |  | 15 | %
|General and administrative |  |                                 | 11,853 |                               |  |            | 9  | %       |  |      | 15,405 |            |  |      | 13 | %       |  |            | 23,819  |  |  |  | 10 | %          |  |   | 30,729  |  |  |  | 13 | %
|                           |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |         |  |            |         |  |  |  |    |            |  |   |         |  |  |  |    |  
|Total operating expenses   |  | $                               | 78,622 |                               |  |            |    |         |  | $    | 75,738 |            |  |      |    |         |  | $          | 149,538 |  |  |  |    |            |  | $ | 151,405 |  |  |  |    |  
|                           |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |         |  |            |         |  |  |  |    |            |  |   |         |  |  |  |    |  

Sales and marketing.Sales and marketing expense increased 12% in the three
months ended December 31, 2002 compared to the three months ended December 31,
2001. This increase was due in part to a $2.5 million increase in marketing
expenses, which resulted from increased advertising and tradeshow activities
during the quarter, and a $2.1 million increase in employee expenses, primarily
due to increased commissions resulting from the increase in license revenue.
Sales and marketing expense increased 6% in the six months ended December 31,
2002 compared to the six months ended December 31, 2001 primarily due to a $4.1
million increase in marketing expenses resulting from increased advertising and
tradeshow activities.

Research and development.Research and development expense increased 8% in the
three months ended December 31, 2002 compared to the three months ended
December 31, 2001. This increase was primarily due to a $0.5 million increase
in employee expenses. In the six months ended December 31, 2002, research and
development expense increased 1% compared to the six months ended December 31,
2001.

General and administrative.General and administrative expense decreased 23%
in the three months ended December 31, 2002 compared to the three months ended
December 31, 2001 due in part to a $1.4 million decrease in outsourcing costs,
as we ended the outsourcing of our North American accounting department in the
fourth quarter of fiscal 2002, and a $1.2 million decrease in occupancy and
equipment costs primarily due to a decrease in depreciation and amortization
expense, as many fixed assets have become fully depreciated in the past year.
These decreases were partially offset by a $0.8 million increase in employee
expenses resulting primarily from headcount increases as we brought our North
American accounting function in-house. General and administrative expense
decreased 22% in the first half of fiscal 2003 compared to the first half of
fiscal 2002 primary due to a $2.4 million decrease in outsourcing costs, a $3.0
million decrease in occupancy and equipment costs, and a $1.5 million decrease
in charges related to property and sales tax audits. These decreases were
partially offset by a $1.4 million increase in employee expenses resulting from
the headcount increases discussed above.

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RESTRUCTURING CHARGES

Restructuring charges totaled $0.6 million and $0.2 million in the three months
ended December 31, 2002 and 2001, respectively, and totaled $0.6 million and
$0.5 million in the six months ended December 31, 2002 and 2001, respectively.
These restructuring charges resulted from adjustments made to the restructuring
charge we recorded in the fourth quarter of fiscal 2001.

INTEREST INCOME AND EXPENSE

|                 |  |                                 |       |                              |  |         |     |      |  |        |        |      |  |   |        |         |  |  |     |   |  |   |        |  
|---------------- |  | ------------------------------- | ----- | ---------------------------- |  | ------- | --- | ---- |  | ------ | ------ | ---- |  | - | ------ | ------- |  |  | --- | - |  | - | ------ | -
|                 |  | Three Months Ended December 31, |       | Six Months Ended December 31
|                 |  |                                 |       |                             
|                 |  |                                 |       |                              |  | Percent |     |      |  |        |        |      |  |   |        | Percent |  |  |     |  
|(In thousands)   |  | 2002                            |       | Change                       |  | 2001    |     | 2002 |  | Change |        | 2001
|                 |  |                                 |       |                              |  |         |     |      |  |        |        |     
|Interest income  |  | $                               | 1,574 |                              |  |         | -18 | %    |  | $      | 1,925  |      |  | $ | 3,033  |         |  |  | -25 | % |  | $ | 4,067  |  
|Interest expense |  |                                 | (852  | )                            |  |         | -27 | %    |  |        | (1,168 | )    |  |   | (1,634 | )       |  |  | -30 | % |  |   | (2,329 | )

Interest income consists of interest earned on cash, cash equivalent and
short-term investment balances. Although we had higher average cash and
investment balances during the three and six months ended December 31, 2002
compared to the three and six months ended December 31, 2001, interest income
decreased due to declines in short-term interest rates during fiscal 2002 and
2003.

Interest expense consists primarily of interest paid and amortization of
deferred issuance costs related to our convertible subordinated notes. During
the three and six months ended December 31, 2002, we repurchased convertible
subordinated notes with face values totaling $23.7 million and $28.7 million,
respectively, which resulted in the decreases in interest expense compared to
the three and six months ended December 31, 2001.

GAIN ON REDEMPTION OF DEBT

During the three months ended December 31, 2002, we repurchased convertible
subordinated notes with face value of $23.7 million for a total cost of
approximately $23.2 million, resulting in a net gain of approximately $0.2
million. During the six months ended December 31, 2002, we repurchased
convertible subordinated notes with face value of $28.7 million for a total
cost of approximately $27.9 million, resulting in a net gain of approximately
$0.5 million. Any further purchases of our convertible notes will be
determined based on an evaluation of market conditions and other factors.

PROVISION FOR INCOME TAXES

Our effective income tax rate for the three and six months ended December 31,
2002 was 37% compared to an effective income tax rate of 36% for the three and
six months ended December 31, 2001. We expect our effective tax rate to remain
at 37% for the remainder of fiscal 2003.

NET INCOME

As a result of the above factors, we generated net income of $7.6 million, or
$0.21 per diluted share, for the three months ended December 31, 2002 compared
to net income of $3.7 million, or $0.11 per diluted share, for the three months
ended December 31, 2001. For the six months ended December 31, 2002, our net
income was $16.7 million, or 0.48 per diluted share, compared to net income of
$5.7 million, or $0.17 per diluted share, for the six months ended December 31,
2001.

LIQUIDITY AND CAPITAL RESOURCES

|                                                    |  |                               |         |        |  |         |      |   |  |   |         | 
|--------------------------------------------------- |  | ----------------------------- | ------- | ------ |  | ------- | ---- | - |  | - | ------- | 
|                                                    |  | Six Months Ended December 31,
|                                                    |  |                              
|                                                    |  |                               |         |        |  | Percent |      |   |  |  
|(In thousands)                                      |  | 2002                          |         | Change |  | 2001   
|                                                    |  |                               |         |        |  |        
|Cash, cash equivalents and short-term investments   |  | $                             | 352,282 |        |  |         | 17   | % |  | $ | 301,002 | 
|Working capital                                     |  |                               | 294,598 |        |  |         | 7    | % |  |   | 274,416 | 
|Net cash provided by operating activities           |  |                               | 40,680  |        |  |         | -7   | % |  |   | 43,573  | 
|Net cash provided by (used in) investing activities |  |                               | (10,552 | )      |  |         | -360 | % |  |   | 4,054   | 
|Net cash provided by (used in) financing activities |  |                               | (8,752  | )      |  |         | -259 | % |  |   | 5,495   | 

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To date, we have financed our business through positive cash flow from
operations and, to a lesser extent, through the issuance of capital stock and
convertible subordinated notes. As of December 31, 2002, our cash is invested
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.

In the six months ended December 31, 2002 and 2001, we generated positive cash
flow from operations of $40.7 million and $43.6 million, respectively. Our
operating cash flows during these periods were primarily due to the net income
generated during the periods and the significant decreases in our accounts
receivable balances, partially offset by decreases in accounts payable, accrued
expenses and deferred revenue. For the six months ended December 31, 2002 and
2001, a significant portion of our operating cash flows were attributable to
the substantial decreases in our accounts receivable balances, resulting from
our focus on invoicing and collection process improvements. Given the
decreases in accounts receivable we have achieved over the past several
quarters as a result of these process improvements, we expect that our
operating cash flow attributable to changes in our accounts receivable balances
will decrease in future periods.

Net cash used in investing activities amounted to $10.6 million in the six
months ended December 31, 2002 compared to net cash provided by investing
activities of $4.1 million in the six months ended December 31, 2001. The net
cash used in investing activities in the first half of fiscal 2003 resulted
from purchases of property, equipment and intangible assets of $11.9 million,
partially offset by proceeds from maturities of investments, net of purchases,
of $1.0 million. The net cash provided by investing activities in the first
half of fiscal 2002 resulted from proceeds from maturities of investments, net
of purchases, of $11.5 million, partially offset by purchases of property,
equipment and intangible assets of $7.5 million. The increase in capital
expenditures in fiscal 2003 primarily relates to the purchase and
implementation of our worldwide customer relationship management system, as
well as purchases of other systems.

Net cash used in financing activities was $8.8 million in the six months ended
December 31 2002 compared to net cash provided by financing activities of $5.5
million in the six months ended December 31, 2001. The net cash used in
financing activities in the first half of fiscal 2003 was due to the repurchase
of our convertible subordinated notes with a face value of $28.7 million for a
total cost of approximately $27.9 million and the repayment of the $2.3 million
mortgage loan on our Connecticut facility, partially offset by $21.5 million of
proceeds from the sale of shares through our employee stock option and stock
purchase plans during the period. The net cash provided by financing
activities in the first half of fiscal 2002 primarily resulted from $5.6
million of proceeds from the sale of shares through our employee stock option
and stock purchase plans during the period.

We intend to fund our capital requirements, as well as our liquidity needs,
with existing cash, cash equivalent and short-term investment balances as well
as cash generated from future operations, if any. However, capital
requirements will depend on many factors, including our rate of revenue growth,
market acceptance of our products, the timing and extent of development
projects and increases in operating expenses, all of which are subject to
uncertainty. We believe that our existing cash, cash equivalent and short-term
investment balances, and cash generated from our future operations, if any,
will be sufficient to finance our business through at least December 31, 2003.
However, to the extent that existing cash, cash equivalent and short-term
investment balances and cash generated by operations are insufficient to fund
future activities, we may need to raise additional funds through public or
private debt or equity financing. Additional funds may not be available on
terms favorable to us or at all.

There has been no significant change in the amount of our contractual
obligations as of December 31, 2002 compared to those disclosed in our annual
report on Form 10-K for the fiscal year ending June 30, 2002, except for the
effects of the repurchase of convertible subordinated notes and repayment of
the mortgage loan discussed above.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2002, the Emerging Issues Task Force (EITF) issued EITF Issue No.
01-14 Income Statement Characterization of Reimbursements Received for Out of
Pocket Expenses Incurred, which requires that reimbursements received for
out-of-pocket expenses be reflected as revenues in the statement of income.
EITF No. 01-14 is effective for financial reporting periods beginning after
December 15, 2001. We adopted EITF No. 01-14 on January 1, 2002 and
reclassified the statements of income for the three and six months ended
December 31, 2001 to conform to the current presentation. As a result,
approximately $2.3 million and $4.9 million have been reclassified primarily
from cost of maintenance and services into maintenance and services revenue for
the three and six months ended December 31, 2001, respectively.

In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities, which
nullifies EITF Issue No. 94-3. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred, whereas EITF No. 94-3 had required recognition of the
liability as of the commitment date of an exit plan. This statement is
effective for exit or disposal activities initiated after December 31, 2002.
We are currently assessing the impact of SFAS No. 146 on our financial position
and results of operations.

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

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 also requires
that disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more prominently
and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the
pro forma effect in interim financial statements. The transition and annual
disclosure requirements of SFAS No. 148 are effective for fiscal years ended
after December 15, 2002. The interim disclosure requirements are effective for
interim periods ending after December 15, 2002. We will adopt the disclosure
requirements of SFAS No. 148 in our March 31, 2003 quarterly financial
statements.

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

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

PRODUCT ENHANCEMENT AND NEW PRODUCT INTRODUCTIONS INVOLVE INHERENT RISKS. We
compete 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. We
continually seek to expand and refresh our product offerings to include newer
features or products, and enter into agreements allowing integration of
third-party technology into our 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 our
products, educating our 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. Our failure to successfully introduce, market and
sell new products and technologies or enhance and improve existing products in
a timely manner, and position and/or price our 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 our business,
results of operations or financial position. These risks tend to be greater
when newer products, such as Hyperion Financial Management and Hyperion
Planning, make up a larger portion of the overall product mix. As more and
more of these newer products are deployed, our service and maintenance
organizations, along with our partners, will have to rapidly increase their
ability to install and service these products, and we must rapidly improve
their ease-of-implementation and ease-of-use. The failure to successfully
increase these capacities and make these improvements could result in
significantly lower customer satisfaction, which could lead to lower license
revenue.

FAILURE TO UPGRADE OLDER PRODUCTS WILL ADVERSELY AFFECT REVENUE. As newer
products are introduced by us, or by our competition, the markets demand for
our older products declines. Declining demand reduces revenue from additional
licenses, and reduces maintenance revenue from past purchasers of our software.
We must continually upgrade our older products, so our customers continue to
see value in our maintenance services. If we are unable to provide continued
improvements in functionality, or, alternatively, move customers with our older
products to our newer products, declining maintenance and new license revenue
from older products could have a material adverse effect on our business.

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GENERAL ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR BUSINESS. Our revenue
growth and profitability depend on the overall demand for computer software and
services, which in turn depend on general economic and business conditions.
While we have been able to increase revenues in the past, continued weakness in
the economy could result in decreased revenues or lower growth rates. There can
be no assurance that we will be able to effectively promote revenue growth in
all economic conditions.

WE OPERATE IN A VERY COMPETITIVE ENVIRONMENT. The markets in which we compete
are intensely competitive, highly fragmented and characterized by rapidly
changing technology and evolving standards. We have experienced, and expect
that we will continue to experience, vigorous competition from current
competitors, new competitors, and from mergers of two or more competitors, some
of whom may have significantly greater financial, technical, marketing and
other resources than we do. We expect additional competition as other
established and emerging companies enter into both the platform 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 our
business, operating results and financial condition.

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 our 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, we must rely on our 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
us to improperly plan or budget and thereby adversely affect our business or
results of operations. Any publicly stated revenue or earnings projections by
us are especially subject to this risk.

CHANGING OUR PRICING OR MARKETING COULD ADVERSELY AFFECT OUR BUSINESS. In an
effort to simplify and clarify our product positioning and marketing, we
periodically make changes to our product pricing or product descriptions. While
we do not believe these pricing and marketing changes will have a material
impact on license revenue, broadly based changes to pricing or marketing
messages could cause customers to change or delay their purchasing decisions in
response to such revisions. Additional risks of such changes include delays in
transactions as our sales force learns how to deploy the new pricing or convey
our new marketing messages and delay or loss of revenues as the competition
reacts to the pricing and marketing changes, any of which could have a material
adverse effect on our business, results of operations or financial position.

WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONAL IMPROVEMENTS. As part of our
focus on improving our operating margins, we are driving toward increased
efficiencies in our sales force, as well as our services, product development,
product marketing, finance, and other administrative processes. The ability to
continue to realize current efficiencies, and find ways to improve on past
performance is crucial to the improvement of operating margins. Any increase in
the relative cost of these functions, or failure to continue to realize current
efficiencies, could have a material adverse effect on our profits.

REORGANIZATION MAY ADVERSELY AFFECT PRODUCTIVITY. We have continued to make
adjustments to our operations and organization. These changes have historically
resulted in productivity issues in the short term. The revised operations
and/or organization must keep improving over past performance in order to
provide better operating margins and efficiencies. Failure to maintain or
improve momentum and productivity could materially impact our revenue and
profits.

INTERNATIONAL OPERATIONS ARE SUBJECT TO SIGNIFICANT RISKS. A substantial
portion of our revenue 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 we will be able to successfully address each of these
challenges.

INABILITY TO HIRE AND RETAIN EMPLOYEES COULD HARM OUR BUSINESS. Our future
operating results depend significantly upon the retention and hiring of
technical and management personnel. There can be no assurance that we will
retain our key managerial or technical personnel or attract such personnel in
the future. Either directly or through personnel search firms, we actively
recruit qualified development, sales and marketing personnel. We have at times
experienced difficulty recruiting or retaining qualified personnel and there
can be no assurance that we will not experience such difficulties in the
future, which could have a material adverse effect on our business, operating
results and financial condition.

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THERE ARE SIGNIFICANT ORGANIZATIONAL AND PRODUCT INTEGRATION RISKS RELATED TO
BUSINESS COMBINATIONS. We have made and may in the future make acquisitions
of, mergers with, or significant investments in, businesses that offer
complementary products, services and technologies. There are risks involved in
these activities, including but not limited to: the possibility that we pay
more than the value we derive 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 our ongoing business and the distraction of management
from our business. These factors could have a material adverse effect on our
business, results of operations or financial position, especially in the case
of a large acquisition.

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

ENFORCEMENT OF OUR INTELLECTUAL PROPERTY RIGHTS MAY BE DIFFICULT. We rely
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. There can be no assurance that our means of protecting its
proprietary rights in the United States or abroad will be adequate.

OUR STOCK PRICE MAY BE VOLATILE. The market price of our common stock is
subject to significant fluctuations. The market price of our common stock may
be significantly affected by factors, including but not limited to, the
announcement of new products, product enhancements or technological innovation
by us or our competitors, changes in our or our competitors results of
operations, changes in revenue, revenue growth rates and revenue mix for us 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 our common stock could be adversely affected
by such fluctuations.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK. The primary objective of our investment activities is to
preserve principal while maximizing yields, without significantly increasing
risk. To achieve this objective, we maintain our portfolio of cash equivalents
and short-term investments in a variety of securities, including government and
corporate obligations, certificates of deposit and money market funds. At
December 31, 2002, our investment portfolio consisted of investment-grade debt
securities, excluding those classified as cash equivalents, with a fair value
of $18.1 million. The portfolio is invested in short-term securities to
minimize interest rate risk and for liquidity purposes in the event of
immediate cash needs. Due to the short duration of our investment portfolio,
an immediate 10% change in market interest rates would not have a material
impact on our investment portfolio.

As of December 31, 2002, our long-term debt consists of 4.5% convertible
subordinated notes due March 2005 with a face value of $50.0 million. Because
our long-term debt bears interest at a fixed interest rate, an immediate 10%
change in market interest rates would not have a material impact on our
interest expense.

FOREIGN CURRENCY EXCHANGE RATE RISK. We transact business in various foreign
currencies. Our exposure to foreign currency exchange rate fluctuations arises
in part from intercompany accounts in which costs incurred in the United States
are charged to our foreign sales subsidiaries. Additionally, intercompany
balances arise from software royalty fees that are charged to our foreign
subsidiaries. These intercompany accounts are typically denominated in the
functional currency of the foreign subsidiary, which is typically their local
currency. From time to time, we utilize foreign currency forward exchange
contracts to offset the risk associated with the effects of certain
intercompany balances for which we anticipate settlement in the foreseeable
future. As a result, increases or decreases in our intercompany accounts due
to foreign exchange rate changes are offset by gains and losses on the forward
contracts, so as to mitigate the possibility of foreign currency transaction
gains and losses. Our forward contracts generally have terms of 60 days or
less. We do not use forward contracts for trading purposes. All foreign
currency transactions and all outstanding forward contracts are marked to
market at the end of the period with unrealized gains and losses included in
our consolidated statements of income. Our ultimate realized gain or loss with
respect to currency fluctuations will depend on the currency exchange rates and
other factors in effect as the contracts mature. Net foreign exchange
transaction gains and losses were not material for the three and six months
ended December 31, 2002 and 2001. We had no open foreign currency forward
exchange contracts as of December 31, 2002 and 2001.

16



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We are also exposed to foreign currency exchange rate fluctuations as the
income statements of our foreign subsidiaries are translated into U.S. dollars
upon consolidation. As exchange rates vary, these results, when translated,
may vary from expectations and adversely impact overall expected profitability.
The effect of foreign exchange rate fluctuations on our consolidated statements
of income for the three and six months ended December 31, 2002 and 2001 was not
material.

ITEM 4. CONTROLS AND PROCEDURES




EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on their evaluation as
of a date within 90 days of the filing date of this quarterly report on Form
10-Q, our chief executive officer and chief financial officer have concluded
that our disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) of the Securities Exchange Act of 1934) are effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.

CHANGES IN INTERNAL CONTROLS. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in our internal controls.
Accordingly, no corrective actions were required or undertaken.

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PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

On June 27, 2001, Timeline, Inc. filed a complaint against us in the United
States District Court for the Western District of Washington alleging that we
infringe 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 August 29, 2002, we settled the lawsuit with Timeline, and
each company agreed to dismiss its claims with prejudice. Under the settlement
agreement, we obtained a fully paid-up license to the Timeline patents and
agreed to pay Timeline a settlement totaling $1.05 million, payable over four
months. In accordance with generally accepted accounting principles, this
settlement was recorded in fiscal 2002, and the resulting liability was
included in accounts payable and accrued expenses on our consolidated balance
sheet at June 30, 2002.

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

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




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The following is a tabulation of the votes on proposals considered at our
annual meeting of stockholders held on November 13, 2002:

1.     To elect two class I directors to serve on our board of directors for a
three-year term.

|                   |  |     |            |          |  |  |           | 
|------------------ |  | --- | ---------- | -------- |  |  | --------- | 
|                   |  | For |            | Withheld
|                   |  |     |            |         
|Gary G. Greenfield |  |     | 29,852,480 |          |  |  | 1,559,491 | 
|John Riccitiello   |  |     | 29,540,713 |          |  |  | 1,871,258 | 



2.     To approve amendments to our 1995 Stock Option/Stock Issuance Plan
(Option Plan) to modify certain provisions of the Option Plan and
increase the number of shares of common stock reserved for issuance under
the Option Plan by 1,200,000 shares.


|                    |  |  |                             | 
|------------------- |  |  | --------------------------- | 
|For
Against
Abstain |  |  | 22,407,679
8,966,181
38,111 | 

3.     To ratify the appointment of PricewaterhouseCoopers LLP as our
independent accountants for the fiscal year ending June 30, 2003.

|                    |  |  |                             | 
|------------------- |  |  | --------------------------- | 
|For
Against
Abstain |  |  | 29,959,645
1,362,790
89,536 | 

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

|           |  |                                                                                                                                              
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Description                                                                                                                                  
|           |  |                                                                                                                                              
|99.1       |  | - Certification of Jeffrey R. Rodek pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|99.2       |  | - Certification of David W. Odell pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.  

(b)  Reports on Form 8-K

None.

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##### Table of Contents






SIGNATURES

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

|                      |  |                                             |                                                                                                         
|--------------------- |  | ------------------------------------------- | --------------------------------------------------------------------------------------------------------
|Date:February 7, 2003 |  | Hyperion Solutions Corporation
(Registrant)
|                      |  |                                            
|                      |  | By:                                         | /s/ DAVID W. ODELL
David W. Odell
Chief Financial Officer                                               
|                     
|                      |  | By:                                         | /s/ NOLENE P. FABRE

Nolene P. Fabre
Vice President and Global Controller
(Principal Accounting Officer)

20



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CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Jeffrey R. Rodek, Chief Executive Officer of Hyperion Solutions Corporation,
certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Hyperion
Solutions Corporation (the Registrant);                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;                   
|  
|4. |  | The Registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the Registrants auditors and
the audit committee of the Registrants board of directors (or persons
performing the equivalent functions):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data
and have identified for the Registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrants internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: February 7, 2003

|                                                              
|--------------------------------------------------------------
|/s/ JEFFREY R. RODEK

Jeffrey R. Rodek
Chief Executive Officer

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CHIEF FINANCIAL OFFICER CERTIFICATION

I, David W. Odell, Chief Financial Officer of Hyperion Solutions Corporation,
certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Hyperion
Solutions Corporation (the Registrant);                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;                   
|  
|4. |  | The Registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the Registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The Registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the Registrants auditors and
the audit committee of the Registrants board of directors (or persons
performing the equivalent functions):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the Registrants
ability to record, process, summarize and report financial data
and have identified for the Registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrants internal controls; and                                                                                                                                        



|6. |  | The Registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Dated: February 7, 2003

|                                                          
|----------------------------------------------------------
|/s/ DAVID W. ODELL

David W. Odell
Chief Financial Officer

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EXHIBIT INDEX

|           |  |                                                                                                                                              
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Description                                                                                                                                  
|           |  |                                                                                                                                              
|99.1       |  | - Certification of Jeffrey R. Rodek pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|          
|99.2       |  | - Certification of David W. Odell pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.  

23