##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 
 Commission File Number 000-26934
 Hyperion Solutions Corporation
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    77-0277772
(I.R.S. Employer
Identification No.)
 5450 Great America Parkway, Santa Clara, California 95054
 (408) 744-9500
 þ o
  þ o o
 o þ




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##### 



Hyperion Solutions Corporation
 Form 10-Q
 PAGEPART I. FINANCIAL INFORMATIONItem 1 Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of December 31, 2005 and June 30, 2005
    
    
    3Condensed Consolidated Statements of Income and Comprehensive Income for the three
and six months ended December 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended December
31, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4 Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    30Item 2 Unregistered Sales of Existing Securities and Use of Proceeds
    
    
    38Item 3 Defaults
    
    
    38Item 4 Submission of Matters to a Vote of Security Holders
    
    
    39Item 5 Other Information
    
    
    39Item 6 Exhibits
    
    
    40Signatures
    
    
    41Exhibit IndexEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 HYPERION SOLUTIONS CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    June 30,2005
    
    
    2005 (*)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    154,372
    
    
    $
    170,740Short-term investments
    
    
    270,996
    
    
    
    270,008Accounts receivable, net of allowances of $10,765 and $10,053
    
    
    144,358
    
    
    
    141,045Deferred income taxes
    
    
    10,657
    
    
    
    10,976Prepaid expenses and other current assets
    
    
    26,725
    
    
    
    28,157TOTAL CURRENT ASSETS
    
    
    607,108
    
    
    
    620,926Property and equipment, net
    
    
    74,721
    
    
    
    74,911Goodwill
    
    
    137,752
    
    
    
    137,898Intangible assets, net
    
    
    24,036
    
    
    
    29,811Deferred income taxes
    
    
    35,558
    
    
    
    30,287Other assets
    
    
    6,473
    
    
    
    5,603TOTAL ASSETS
    
    $
    885,648
    
    
    $
    899,436LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    59,367
    
    
    $
    56,657Accrued employee compensation and benefits
    
    
    49,708
    
    
    
    53,298Income taxes payable
    
    
    40,764
    
    
    
    32,703Deferred revenue
    
    
    124,824
    
    
    
    140,772Restructuring liabilities
    
    
    6,367
    
    
    
    7,276TOTAL CURRENT LIABILITIES
    
    
    281,030
    
    
    
    290,706Long-term restructuring liabilities and other
    
    
    21,816
    
    
    
    24,830TOTAL LIABILITIES
    
    
    302,846
    
    
    
    315,536Commitments and contingencies (Note 3)Stockholders equity:Preferred stock  $0.001 par value; 5,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock  $0.001 par value; 300,000 shares authorized;
59,496 and 60,153 shares issued and outstanding
    
    
    59
    
    
    
    60Additional paid-in capital
    
    
    516,121
    
    
    
    489,137Deferred stock-based compensation
    
    
    
    
    
    
    (4,393
    )Retained earnings
    
    
    69,812
    
    
    
    100,491Accumulated other comprehensive loss
    
    
    (3,190
    )
    
    
    (1,395
    )TOTAL STOCKHOLDERS EQUITY
    
    
    582,802
    
    
    
    583,900TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    885,648
    
    
    $
    899,436
  
 (*)The condensed consolidated balance sheet at June 30, 2005 has been derived from the audited
financial statements at that date but does not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete
financial statements. This condensed consolidated balance sheet should be read in conjunction with
the annual report on Form 10-K for the fiscal year ended June 30, 2005. 3




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HYPERION SOLUTIONS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004REVENUESSoftware licenses
    
    $
    74,445
    
    
    $
    68,524
    
    
    $
    134,969
    
    
    $
    125,948Maintenance and services
    
    
    111,049
    
    
    
    108,454
    
    
    
    220,750
    
    
    
    210,568TOTAL REVENUES
    
    
    185,494
    
    
    
    176,978
    
    
    
    355,719
    
    
    
    336,516COSTS AND EXPENSESCost of revenues:Software licenses
    
    
    4,626
    
    
    
    4,063
    
    
    
    8,465
    
    
    
    7,355Maintenance and services
    
    
    42,845
    
    
    
    39,877
    
    
    
    80,799
    
    
    
    77,218Sales and marketing
    
    
    69,807
    
    
    
    64,644
    
    
    
    136,455
    
    
    
    123,377Research and development
    
    
    28,360
    
    
    
    25,645
    
    
    
    56,241
    
    
    
    51,359General and administrative
    
    
    17,385
    
    
    
    15,526
    
    
    
    33,514
    
    
    
    30,395Restructuring charges
    
    
    446
    
    
    
    5,008
    
    
    
    346
    
    
    
    8,077TOTAL COSTS AND EXPENSES
    
    
    163,469
    
    
    
    154,763
    
    
    
    315,820
    
    
    
    297,781OPERATING INCOME
    
    
    22,025
    
    
    
    22,215
    
    
    
    39,899
    
    
    
    38,735Interest and other income, net
    
    
    2,809
    
    
    
    1,708
    
    
    
    5,385
    
    
    
    3,053INCOME BEFORE INCOME TAXES
    
    
    24,834
    
    
    
    23,923
    
    
    
    45,284
    
    
    
    41,788Income tax provision
    
    
    9,312
    
    
    
    8,373
    
    
    
    16,470
    
    
    
    14,625NET INCOME
    
    $
    15,522
    
    
    $
    15,550
    
    
    $
    28,814
    
    
    $
    27,163Other comprehensive income (loss)
    
    
    (1,002
    )
    
    
    2,036
    
    
    
    (1,795
    )
    
    
    2,294COMPREHENSIVE INCOME
    
    $
    14,520
    
    
    $
    17,586
    
    
    $
    27,019
    
    
    $
    29,457Basic net income per share
    
    $
    0.26
    
    
    $
    0.26
    
    
    $
    0.49
    
    
    $
    0.46Diluted net income per share
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.47
    
    
    $
    0.44Shares used in computing basic
net income per share
    
    
    59,102
    
    
    
    58,905
    
    
    
    59,176
    
    
    
    58,764Shares used in computing diluted
net income per share
    
    
    60,930
    
    
    
    61,347
    
    
    
    60,834
    
    
    
    61,136
  4




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HYPERION SOLUTIONS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedDecember 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    28,814
    
    
    $
    27,163Adjustments to reconcile net income to net cash provided by operating
activities:Loss on sale of assets
    
    
    
    
    
    
    21Depreciation and amortization
    
    
    16,430
    
    
    
    17,708Stock-based compensation
    
    
    14,807
    
    
    
    1,358Provision for accounts receivable allowances
    
    
    2,660
    
    
    
    2,090Deferred income taxes
    
    
    (4,236
    )
    
    
    (2,568
    )Income tax benefit from exercise of stock options
    
    
    
    
    
    
    9,977Changes in operating assets and liabilities, net of the effect of acquisitions:Accounts receivable
    
    
    (7,316
    )
    
    
    2,988Prepaid expenses and other current assets
    
    
    1,277
    
    
    
    2,599Other assets
    
    
    221
    
    
    
    473Accounts payable and accrued liabilities
    
    
    2,927
    
    
    
    3,739Accrued employee compensation and benefits
    
    
    (3,182
    )
    
    
    (3,927
    )Income taxes payable
    
    
    8,234
    
    
    
    3,097Deferred revenue
    
    
    (14,894
    )
    
    
    (12,720
    )Restructuring liabilities
    
    
    (894
    )
    
    
    9,239Long-term restructuring liabilities and other
    
    
    (3,077
    )
    
    
    (1,258
    )Net cash provided by operating activities
    
    
    41,771
    
    
    
    59,979CASH FLOWS FROM INVESTING ACTIVITIESPurchases of investments
    
    
    (184,661
    )
    
    
    (30,325
    )Proceeds from sales and maturities of investments
    
    
    182,058
    
    
    
    83,050Purchases of property and equipment
    
    
    (10,216
    )
    
    
    (14,749
    )Purchases of intangible assets
    
    
    (637
    )
    
    
    (2,647
    )Payments for acquisitions, net of cash acquired
    
    
    
    
    
    
    (3,104
    )Net cash provided by (used in) investing activities
    
    
    (13,456
    )
    
    
    32,225CASH FLOWS FROM FINANCING ACTIVITIESPurchases of common stock
    
    
    (80,081
    )
    
    
    (37,470
    )Proceeds from issuance of common stock
    
    
    30,406
    
    
    
    32,139Income tax benefit from exercise of stock options
    
    
    6,761
    
    
    
    Net cash used in financing activities
    
    
    (42,914
    )
    
    
    (5,331
    )Effect of exchange rate on cash and cash equivalents
    
    
    (1,769
    )
    
    
    2,631INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (16,368
    )
    
    
    89,504Cash and cash equivalents at beginning of period
    
    
    170,740
    
    
    
    172,261CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    154,372
    
    
    $
    261,765SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest
    
    $
    153
    
    
    $
    17Cash paid for income taxes
    
    $
    4,980
    
    
    $
    2,886
  5




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HYPERION SOLUTIONS CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2005
 1. Basis of Presentation
  2. Significant Accounting Policies
 Stock Dividend
  Revenue Recognition
     6




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Accounts Receivable Allowances
   Net Income Per Share
   7




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Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    15,522
    
    
    $
    15,550
    
    
    $
    28,814
    
    
    $
    27,163Shares used in computing basic net income
per share
    
    
    59,102
    
    
    
    58,905
    
    
    
    59,176
    
    
    
    58,764Effect of potentially dilutive securities
    
    
    1,828
    
    
    
    2,442
    
    
    
    1,658
    
    
    
    2,372Shares used in computing diluted net income
per share
    
    
    60,930
    
    
    
    61,347
    
    
    
    60,834
    
    
    
    61,136Basic net income per share
    
    $
    0.26
    
    
    $
    0.26
    
    
    $
    0.49
    
    
    $
    0.46Diluted net income per share
    
    $
    0.25
    
    
    $
    0.25
    
    
    $
    0.47
    
    
    $
    0.44
  Stock-Based Compensation
    8




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Three Months
    
    
    Six MonthsEnded
    
    
    EndedDecember 31,
    
    
    December 31,2004
    
    
    2004Net income, as reported
    
    $
    15,550
    
    
    $
    27,163Add: stock-based compensation expense
included in reported net income, net of tax
    
    
    276
    
    
    
    882Deduct: stock-based compensation expense
determined under fair value method, net of tax
    
    
    (3,850
    )
    
    
    (8,303
    )Net income, pro forma
    
    $
    11,976
    
    
    $
    19,742Net income per share:Basic  as reported
    
    $
    0.26
    
    
    $
    0.46Basic  pro forma
    
    $
    0.20
    
    
    $
    0.34Diluted  as reported
    
    $
    0.25
    
    
    $
    0.44Diluted  pro forma
    
    $
    0.20
    
    
    $
    0.32
   Three Months Ended
    
    
    Six Months EndedDecember 31, 2005
    
    
    December 31, 2005Using
    
    
    
    
    
    
    
    
    
    
    UsingPrevious
    
    
    SFAS 123(R)
    
    
    
    
    
    
    Previous
    
    
    SFAS 123(R)Accounting
    
    
    Adjustments
    
    
    As Reported
    
    
    Accounting
    
    
    Adjustments
    
    
    As ReportedIncome from operations
    
    $
    28,296
    
    
    $
    (6,271
    )
    
    $
    22,025
    
    
    $
    52,362
    
    
    $
    (12,463
    )
    
    $
    39,899Income before income taxes
    
    
    31,105
    
    
    
    (6,271
    )
    
    
    24,834
    
    
    
    57,747
    
    
    
    (12,463
    )
    
    
    45,284Net income
    
    
    20,001
    
    
    
    (4,479
    )
    
    
    15,522
    
    
    
    37,070
    
    
    
    (8,256
    )
    
    
    28,814Basic earnings per share
    
    
    0.34
    
    
    
    (0.08
    )
    
    
    0.26
    
    
    
    0.63
    
    
    
    (0.14
    )
    
    
    0.49Diluted earnings per share
    
    
    0.33
    
    
    
    (0.08
    )
    
    
    0.25
    
    
    
    0.61
    
    
    
    (0.14
    )
    
    
    0.47Cash flows from operating
activities
    
    
    9,861
    
    
    
    (4,485
    )
    
    
    5,376
    
    
    
    48,532
    
    
    
    (6,761
    )
    
    
    41,771Cash flows from financing
activities
    
    
    (12,458
    )
    
    
    4,485
    
    
    
    (7,973
    )
    
    
    (49,675
    )
    
    
    6,761
    
    
    
    (42,914
    )
 9




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December 31,2005
    
    
    2004Stock option plans:Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    45
    %
    
    
    43
    %Risk-free interest rate
    
    
    4.29
    %
    
    
    3.49
    %Average expected life (in years)
    
    
    4.1
    
    
    
    5.0Stock purchase plans:Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    45
    %
    
    
    43
    %Risk-free interest rate
    
    
    4.13
    %
    
    
    2.05
    %Average expected life (in years)
    
    
    0.5
    
    
    
    0.5
  10




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Other Comprehensive Income
   Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    15,522
    
    
    $
    15,550
    
    
    $
    28,814
    
    
    $
    27,163Translation adjustments
    
    
    (723
    )
    
    
    1,990
    
    
    
    (1,194
    )
    
    
    2,214Unrealized gains
(losses) on
available-for-sale
securities, net of tax
    
    
    (279
    )
    
    
    46
    
    
    
    (601
    )
    
    
    80Comprehensive income
    
    $
    14,520
    
    
    $
    17,586
    
    
    $
    27,019
    
    
    $
    29,457
 Recent Accounting Pronouncements
     11




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Income Taxes
     Valuation of Goodwill, Intangibles, and Long-Lived Assets
   Balance at June 30, 2005
    
    $
    137,898Goodwill from acquisitions
    
    
    390Adjustment of income tax benefits received in connection with Brio acquisition
    
    
    (746
    )Effect of foreign currency translation
    
    
    210Balance at December 31, 2005
    
    $
    137,752
 12




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December 31, 2005
    
    
    June 30, 2005Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueProduct development costs
    
    $
    12,516
    
    
    $
    (6,996
    )
    
    $
    5,520
    
    
    $
    12,471
    
    
    $
    (6,013
    )
    
    $
    6,458Acquired technologies
    
    
    31,190
    
    
    
    (17,834
    )
    
    
    13,356
    
    
    
    31,340
    
    
    
    (14,348
    )
    
    
    16,992Other intangibles
    
    
    10,587
    
    
    
    (5,427
    )
    
    
    5,160
    
    
    
    10,616
    
    
    
    (4,255
    )
    
    
    6,361$
    54,293
    
    
    $
    (30,257
    )
    
    $
    24,036
    
    
    $
    54,427
    
    
    $
    (24,616
    )
    
    $
    29,811
  EstimatedAmortizationFiscal Year
    
    ExpenseRemainder of 2006
    
    $
    6,2072007
    
    
    11,4902008
    
    
    5,1142009
    
    
    1,0312010
    
    
    194$
    24,036
  13




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3. Commitments and Contingencies
 Guarantees and Indemnifications
  Contingencies
   4. Business Combinations
   14




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5. Restructuring Liabilities
      15




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Severance
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual balance at June 30, 2005
    
    $
    95
    
    
    $
    9,239
    
    
    $
    1,750
    
    
    $
    11,084Restructuring credits
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )Non-cash items
    
    
    
    
    
    
    
    
    
    
    (1,532
    )
    
    
    (1,532
    )Cash payments
    
    
    
    
    
    
    (460
    )
    
    
    
    
    
    
    (460
    )Accrual balance at September 30, 2005
    
    $
    44
    
    
    $
    8,779
    
    
    $
    218
    
    
    $
    9,041Restructuring charges
    
    
    444
    
    
    
    
    
    
    
    
    
    
    
    444Non-cash items
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Cash payments
    
    
    
    
    
    
    (467
    )
    
    
    
    
    
    
    (467
    )Accrual balance at December 31, 2005
    
    $
    487
    
    
    $
    8,312
    
    
    $
    218
    
    
    $
    9,017
  Severance
    
    
    Facilities
    
    
    TotalBalance at June 30, 2005
    
    $
    361
    
    
    $
    15,348
    
    
    $
    15,709Restructuring credits
    
    
    (49
    )
    
    
    
    
    
    
    (49
    )Cash payments
    
    
    
    
    
    
    (1,117
    )
    
    
    (1,117
    )Balance at September 30, 2005
    
    $
    312
    
    
    $
    14,231
    
    
    $
    14,543Restructuring charges
    
    
    
    
    
    
    2
    
    
    
    2Non-cash items
    
    
    4
    
    
    
    (16
    )
    
    
    (12
    )Cash payments
    
    
    
    
    
    
    (751
    )
    
    
    (751
    )Balance at December 31, 2005
    
    $
    316
    
    
    $
    13,466
    
    
    $
    13,782
  6. Stock Option, Restricted Stock, and Employee Stock Purchase Plans
 Stock Options
   16




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##### Table of Contents



WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicExercise
    
    
    Term
    
    
    ValueShares
    
    
    Price
    
    
    (Years)
    
    
    ($000s)Outstanding at September 30, 2005
    
    
    9,283
    
    
    $
    22.62Granted
    
    
    411
    
    
    
    33.38Exercised
    
    
    (973
    )
    
    
    17.09Forfeited
    
    
    (115
    )
    
    
    26.29Outstanding at December 31, 2005
    
    
    8,606
    
    
    $
    23.71
    
    
    
    4.58
    
    
    $
    105,150Exercisable at December 31, 2005
    
    
    3,685
    
    
    $
    19.30
    
    
    
    4.23
    
    
    $
    61,836
   Restricted Stock
   WeightedAverageGrant-DateShares
    
    
    Fair PriceNonvested shares at September 30, 2005
    
    
    286
    
    
    $
    26.26Granted
    
    
    15
    
    
    
    31.94Vested
    
    
    (2
    )
    
    
    27.65Nonvested shares at December 31, 2005
    
    
    299
    
    
    $
    26.53
  17




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##### Table of Contents



Employee Stock Purchase Plan
  7. Stock Repurchases
  8. Segment and Geographic Information
   Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Americas
    
    $
    111,368
    
    
    $
    106,652
    
    
    $
    219,402
    
    
    $
    203,737EMEA
    
    
    59,456
    
    
    
    57,910
    
    
    
    108,788
    
    
    
    110,238APAC
    
    
    14,670
    
    
    
    12,416
    
    
    
    27,529
    
    
    
    22,541$
    185,494
    
    
    $
    176,978
    
    
    $
    355,719
    
    
    $
    336,516
  18




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##### Table of Contents



December 31,
    
    
    June 30,2005
    
    
    2005Long-lived assets:Americas
    
    $
    68,828
    
    
    $
    68,041EMEA
    
    
    4,323
    
    
    
    5,046APAC
    
    
    1,570
    
    
    
    1,824$
    74,721
    
    
    $
    74,911
   Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Software licenses
    
    $
    74,445
    
    
    $
    68,524
    
    
    $
    134,969
    
    
    $
    125,948Maintenance and services:Maintenance
    
    
    81,396
    
    
    
    75,183
    
    
    
    159,336
    
    
    
    146,613Consulting and training
    
    
    29,653
    
    
    
    33,271
    
    
    
    61,414
    
    
    
    63,955111,049
    
    
    
    108,454
    
    
    
    220,750
    
    
    
    210,568Total revenues
    
    $
    185,494
    
    
    $
    176,978
    
    
    $
    355,719
    
    
    $
    336,516
 19




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  OVERVIEW
  CRITICAL ACCOUNTING ESTIMATES
 Stock-Based Compensation
   Three Months
    
    
    Percent of
    
    
    Six Months
    
    
    Percent ofEnded
    
    
    Total
    
    
    Ended
    
    
    Total(In thousands)
    
    December 31, 2005
    
    
    Expense
    
    
    December 31, 2005
    
    
    ExpenseCost of revenues:Software licenses
    
    $
    7
    
    
    
    
    
    
    $
    13
    
    
    
    Maintenance and services
    
    
    830
    
    
    
    12
    %
    
    
    1,587
    
    
    
    11
    %Sales and marketing
    
    
    3,167
    
    
    
    45
    %
    
    
    6,464
    
    
    
    44
    %Research and development
    
    
    1,625
    
    
    
    23
    %
    
    
    3,321
    
    
    
    22
    %General and administrative
    
    
    1,401
    
    
    
    20
    %
    
    
    3,434
    
    
    
    23
    %Total stock-based compensation
    
    $
    7,030
    
    
    
    100
    %
    
    $
    14,819
    
    
    
    100
    %
 20




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##### Table of Contents



RESULTS OF OPERATIONS
 REVENUES
 Three Months Ended December 31,
    
    
    Six Months Ended December 31,Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total(In thousands)
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    Revenue
    
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    RevenueSoftware licenses
    
    $
    74,445
    
    
    
    40
    %
    
    $
    68,524
    
    
    
    39
    %
    
    $
    134,969
    
    
    
    38
    %
    
    $
    125,948
    
    
    
    37
    %Maintenance and
services:Maintenance
    
    
    81,396
    
    
    
    44
    %
    
    
    75,183
    
    
    
    42
    %
    
    
    159,336
    
    
    
    45
    %
    
    
    146,613
    
    
    
    44
    %Consulting and
training
    
    
    29,653
    
    
    
    16
    %
    
    
    33,271
    
    
    
    19
    %
    
    
    61,414
    
    
    
    17
    %
    
    
    63,955
    
    
    
    19
    %111,049
    
    
    
    60
    %
    
    
    108,454
    
    
    
    61
    %
    
    
    220,750
    
    
    
    62
    %
    
    
    210,568
    
    
    
    63
    %Total revenues
    
    $
    185,494
    
    
    
    100
    %
    
    $
    176,978
    
    
    
    100
    %
    
    $
    355,719
    
    
    
    100
    %
    
    $
    336,516
    
    
    
    100
    %
 Three Months Ended December 31,
    
    
    Six Months Ended December 31,Variance
    
    
    Variance
    
    
    
    
    
    
    
    
    
    
    Variance
    
    
    Variancein
    
    
    in
    
    
    
    
    
    
    
    
    
    
    in
    
    
    in(In thousands)
    
    2005
    
    
    2004
    
    
    Dollars
    
    
    Percent
    
    
    2005
    
    
    2004
    
    
    Dollars
    
    
    PercentSoftware licenses
    
    $
    74,445
    
    
    $
    68,524
    
    
    $
    5,921
    
    
    
    9
    %
    
    $
    134,969
    
    
    $
    125,948
    
    
    $
    9,021
    
    
    
    7
    %Maintenance and
services:Maintenance
    
    
    81,396
    
    
    
    75,183
    
    
    
    6,213
    
    
    
    8
    %
    
    
    159,336
    
    
    
    146,613
    
    
    
    12,723
    
    
    
    9
    %Consulting and
training
    
    
    29,653
    
    
    
    33,271
    
    
    
    (3,618
    )
    
    
    (11
    %)
    
    
    61,414
    
    
    
    63,955
    
    
    
    (2,541
    )
    
    
    (4
    %)111,049
    
    
    
    108,454
    
    
    
    2,595
    
    
    
    2
    %
    
    
    220,750
    
    
    
    210,568
    
    
    
    10,182
    
    
    
    5
    %Total revenues
    
    $
    185,494
    
    
    $
    176,978
    
    
    $
    8,516
    
    
    
    5
    %
    
    $
    355,719
    
    
    $
    336,516
    
    
    $
    19,203
    
    
    
    6
    %
  Software licenses.
  Maintenance and services.
 21




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##### Table of Contents



COST OF REVENUES
 Three Months Ended December 31,
    
    
    Six Months Ended December 31,Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofRelated
    
    
    
    
    
    
    Related
    
    
    
    
    
    
    Related
    
    
    
    
    
    
    Related(In thousands)
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    Revenue
    
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    RevenueSoftware licenses
    
    $
    4,626
    
    
    
    6
    %
    
    $
    4,063
    
    
    
    6
    %
    
    $
    8,465
    
    
    
    6
    %
    
    $
    7,355
    
    
    
    6
    %Maintenance and services
    
    
    42,845
    
    
    
    39
    %
    
    
    39,877
    
    
    
    37
    %
    
    
    80,799
    
    
    
    37
    %
    
    
    77,218
    
    
    
    37
    %
 Three Months Ended December 31,
    
    
    Six Months Ended December 31,Variance
    
    
    Variance
    
    
    
    
    
    
    
    
    
    
    Variance
    
    
    Variancein
    
    
    in
    
    
    
    
    
    
    
    
    
    
    in
    
    
    in(In thousands)
    
    2005
    
    
    2004
    
    
    Dollars
    
    
    Percent
    
    
    2005
    
    
    2004
    
    
    Dollars
    
    
    PercentSoftware licenses
    
    $
    4,626
    
    
    $
    4,063
    
    
    $
    563
    
    
    
    14
    %
    
    $
    8,465
    
    
    $
    7,355
    
    
    $
    1,110
    
    
    
    15
    %Maintenance and services
    
    
    42,845
    
    
    
    39,877
    
    
    
    2,968
    
    
    
    7
    %
    
    
    80,799
    
    
    
    77,218
    
    
    
    3,581
    
    
    
    5
    %
 Cost of software license revenue.
   Cost of maintenance and services revenue.
  22




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OPERATING EXPENSES
 Three Months Ended December 31,
    
    
    Six Months Ended December 31,Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total(In thousands)
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    Revenue
    
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    RevenueSales and marketing
    
    $
    69,807
    
    
    
    38
    %
    
    $
    64,644
    
    
    
    37
    %
    
    $
    136,455
    
    
    
    38
    %
    
    $
    123,377
    
    
    
    37
    %Research and development
    
    
    28,360
    
    
    
    15
    %
    
    
    25,645
    
    
    
    14
    %
    
    
    56,241
    
    
    
    16
    %
    
    
    51,359
    
    
    
    15
    %General and administrative
    
    
    17,385
    
    
    
    9
    %
    
    
    15,526
    
    
    
    9
    %
    
    
    33,514
    
    
    
    9
    %
    
    
    30,395
    
    
    
    9
    %Restructuring charges
    
    
    446
    
    
    
    0
    %
    
    
    5,008
    
    
    
    3
    %
    
    
    346
    
    
    
    0
    %
    
    
    8,077
    
    
    
    2
    %Total
    
    $
    115,998
    
    
    
    
    
    
    $
    110,823
    
    
    
    
    
    
    $
    226,556
    
    
    
    
    
    
    $
    213,208
 Three Months Ended December 31,
    
    
    Six Months Ended December 31,Variance
    
    
    Variance
    
    
    
    
    
    
    
    
    
    
    Variance
    
    
    Variancein
    
    
    in
    
    
    
    
    
    
    
    
    
    
    in
    
    
    in(In thousands)
    
    2005
    
    
    2004
    
    
    Dollars
    
    
    Percent
    
    
    2005
    
    
    2004
    
    
    Dollars
    
    
    PercentSales and marketing
    
    $
    69,807
    
    
    $
    64,644
    
    
    $
    5,163
    
    
    
    8
    %
    
    $
    136,455
    
    
    $
    123,377
    
    
    $
    13,078
    
    
    
    11
    %Research and development
    
    
    28,360
    
    
    
    25,645
    
    
    
    2,715
    
    
    
    11
    %
    
    
    56,241
    
    
    
    51,359
    
    
    
    4,882
    
    
    
    10
    %General and administrative
    
    
    17,385
    
    
    
    15,526
    
    
    
    1,859
    
    
    
    12
    %
    
    
    33,514
    
    
    
    30,395
    
    
    
    3,119
    
    
    
    10
    %Restructuring charges
    
    
    446
    
    
    
    5,008
    
    
    
    (4,562
    )
    
    
    (91
    %)
    
    
    346
    
    
    
    8,077
    
    
    
    (7,731
    )
    
    
    (96
    %)Total
    
    $
    115,998
    
    
    $
    110,823
    
    
    $
    5,175
    
    
    
    5
    %
    
    $
    226,556
    
    
    $
    213,208
    
    
    $
    13,348
    
    
    
    6
    %
 Sales and marketing.
  Research and development.
  23




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##### Table of Contents



General and administrative.
  Restructuring charges
     24




---



##### Table of Contents



Severance
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual balance at June 30, 2005
    
    $
    95
    
    
    $
    9,239
    
    
    $
    1,750
    
    
    $
    11,084Restructuring credits
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )Non-cash items
    
    
    
    
    
    
    
    
    
    
    (1,532
    )
    
    
    (1,532
    )Cash payments
    
    
    
    
    
    
    (460
    )
    
    
    
    
    
    
    (460
    )Accrual balance at September 30, 2005
    
    $
    44
    
    
    $
    8,779
    
    
    $
    218
    
    
    $
    9,041Restructuring charges
    
    
    444
    
    
    
    
    
    
    
    
    
    
    
    444Non-cash items
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Cash payments
    
    
    
    
    
    
    (467
    )
    
    
    
    
    
    
    (467
    )Accrual balance at December 31, 2005
    
    $
    487
    
    
    $
    8,312
    
    
    $
    218
    
    
    $
    9,017
  Severance
    
    
    Facilities
    
    
    TotalBalance at June 30, 2005
    
    $
    361
    
    
    $
    15,348
    
    
    $
    15,709Restructuring credits
    
    
    (49
    )
    
    
    
    
    
    
    (49
    )Cash payments
    
    
    
    
    
    
    (1,117
    )
    
    
    (1,117
    )Balance at September 30, 2005
    
    $
    312
    
    
    $
    14,231
    
    
    $
    14,543Restructuring charges
    
    
    
    
    
    
    2
    
    
    
    2Non-cash items
    
    
    4
    
    
    
    (16
    )
    
    
    (12
    )Cash payments
    
    
    
    
    
    
    (751
    )
    
    
    (751
    )Balance at December 31, 2005
    
    $
    316
    
    
    $
    13,466
    
    
    $
    13,782
  INTEREST AND OTHER INCOME, NET
  25




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##### Table of Contents



INCOME TAX PROVISION
  NET INCOME
  LIQUIDITY AND CAPITAL RESOURCES
  December 31,
    
    
    December 31, 2004(In thousands)
    
    2005
    
    
    As Reported
    
    
    As ReclassifiedCash and cash equivalents
    
    $
    154,372
    
    
    $
    401,960
    
    
    $
    261,765Short-term investments
    
    
    270,996
    
    
    
    3,021
    
    
    
    143,216Working capital
    
    
    326,078
    
    
    
    303,636
    
    
    
    303,636
 Six Months EndedDecember 31,2004(In thousands)
    
        2005
    
    
    
    As Reported
    
    
    As ReclassifiedNet cash provided by operating activities
    
    $
    41,771
    
    
    $
    59,979
    
    
    $
    59,979Net cash provided by (used in) investing activities
    
    
    (13,456
    )
    
    
    (20,500
    )
    
    
    32,225Net cash used in financing activities
    
    
    (42,914
    )
    
    
    (5,331
    )
    
    
    (5,331
    )
    26




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##### Table of Contents



Payments Due InTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal 2011Payments
    
    
    Rest of
    
    
    Fiscal 2007
    
    
    Fiscal 2009
    
    
    andDue
    
    
    Fiscal 2006
    
    
    and 2008
    
    
    and 2010
    
    
    ThereafterNon-cancelable operating leases
    
    $
    111,003
    
    
    $
    11,479
    
    
    $
    41,251
    
    
    $
    26,320
    
    
    $
    31,953Future sublease income
    
    
    (14,460
    )
    
    
    (2,420
    )
    
    
    (7,246
    )
    
    
    (4,538
    )
    
    
    (256
    )$
    96,543
    
    
    $
    9,059
    
    
    $
    34,005
    
    
    $
    21,782
    
    
    $
    31,697
 OFF-BALANCE SHEET ARRANGEMENTS
  27




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##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS
     RELATED PARTY TRANSACTIONS
  28




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 FOREIGN CURRENCY EXCHANGE RATE RISK
   INTEREST RATE RISK
 
 ITEM 4. CONTROLS AND PROCEDURES
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
 29




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   ITEM 1A. RISK FACTORS
 FACTORS THAT MAY AFFECT FUTURE RESULTS
  Product enhancement and new product introductions involve inherent risks.
  
    
    Product quality, including the possibility of software defects;
    
    Delays in releasing new products;
    
    Customers delaying purchase decisions in anticipation of new products to be released;
    
    Customer confusion and extended evaluation and negotiation time;
    
    The fit of the new products and features with the customers needs;
    
    The successful adaptation of third-party technology into Hyperions products;
    
    Educating Hyperions sales, marketing, and consulting personnel to work with the new
products and features;
    
    Competition from earlier and more established entrants;
    
    Market acceptance of initial product releases;
 30




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##### Table of Contents




    
    Technological challenges involved in integrating Hyperion products into cohesive
business performance management systems offerings;
    
    Marketing effectiveness, including challenges in distribution; and
    
    The accuracy of assumptions about the nature of customer demand.
  Fluctuations in our quarterly operating results may not be predictable and may result in
significant volatility in our stock price.
  Hyperion operates in a very competitive environment.
    31




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##### Table of Contents



If Hyperion is unable to develop or acquire new and enhanced products that achieve widespread
market acceptance, we may be unable to recoup product development costs and our earnings and
revenue may decline.
  Failure to support older products will adversely affect sales.
  Hyperion typically has back-ended quarters which may cause its actual revenues in a quarter to vary
from sales forecasts.
  A change in pricing or marketing could adversely affect Hyperions business.
  32




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##### Table of Contents



Employee turnover could adversely impact revenue, costs, and productivity.
  Exchange rate fluctuations may adversely affect results.
  Hyperion may not be able to continue its operational improvements.
  Reorganizations may adversely affect productivity.
  We are required to evaluate our internal control over financial reporting under Section 404 of the
Sarbanes Oxley Act of 2002 and are exposed to future risks of non-compliance
  33




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##### Table of Contents



Hyperions international operations are subject to significant risks.
  
    
    Fluctuations in currency exchange rates and economic instability such as higher interest
rates and inflation, which could reduce Hyperions customers ability to obtain financing
for software products or which could make Hyperions products more expensive in those
countries;
    
    Difficulties in hedging foreign currency transaction exposures;
    
    Potential loss of proprietary information due to piracy, misappropriation, or weaker
laws regarding intellectual property protection;
    
    Imposition of foreign laws and other governmental controls, including trade and employment restrictions;
    
    Longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;
    
    Difficulties in staffing and managing our international operations, including increased
turnover as economic opportunities increase in countries such as India and difficulties
related to administering Hyperions stock option plan in some foreign countries;
    
    Difficulties in coordinating the activities of Hyperions geographically dispersed and
culturally diverse operations;
    
    Competition from local suppliers;
    
    Costs and delays associated with developing software in multiple languages; and
    
    Political unrest, war, or terrorism, particularly in areas in which Hyperion has facilities.
  Hyperion faces significant challenges and risks associated with compliance.
  34




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##### Table of Contents



There are significant risks related to any business combination and investment.
  
    
    The possibility that Hyperion pays more than the value it derives from the acquisition;
    
    The difficulty of integrating the products, operations, and personnel of the acquired businesses;
    
    The possibility that all aspects of the integration are not completed or that all of the
anticipated synergies of the acquisition are not realized;
    
    Difficulties in managing software development activities to define a combined product
roadmap, ensuring timely development of new products, timely release of new products to
market, and the development of efficient integration and migration processes and tools;
    
    The difficulty of retaining key alliances on attractive terms with partners and suppliers;
    
    The difficulty in retaining customers and protecting maintenance revenues;
    
    The difficulty of retaining and recruiting key personnel and maintaining employee morale;
    
    The potential product liability associated with selling the acquired companys products;
    
    The potential that we do not detect a significant liability
of the acquired business during the pre-acquisition due diligence
process;
    
    The possibility that businesses in which Hyperion invests ultimately fail, rendering our investment worthless;
    
    The potential disruption of Hyperions ongoing business and the distraction of
management from Hyperions business; and
    
    The potential write-down of impaired goodwill, intangible assets, fixed assets, and
other assets. In particular, Hyperion recorded approximately $120.4 million of goodwill
related to the acquisition of Brio that will not be amortized in the ordinary course of
business. To the extent that the business acquired in that transaction (primarily the
Performance Suite products) does not remain competitive, some or all of the goodwill
related to that acquisition could be charged against future earnings.
  Hyperion is subject to the possibility of infringement claims.
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Enforcement of Hyperions intellectual property rights may be difficult.
    Hyperions stock price is volatile.
  Hyperion is dependent upon indirect channel partners.
  
    
    Hyperions lack of control over the delivery of its products to end-users;
    
    Hyperions resellers and distributors may terminate their relationship with Hyperion on short notice; and
    
    Hyperions resellers and distributors may market and distribute competing products.
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Hyperion is exposed to product liability claims.
  Defects in Hyperions products could increase its costs, adversely affect its reputation, diminish
demand for its products, and hurt its operating results.
  Some provisions in Hyperions charter documents and its stockholder rights plan may prevent or
deter an acquisition of Hyperion.
  
    
    Hyperions Board of Directors is authorized to issue preferred stock with any rights it
may determine. Consequently, without shareholder approval, Hyperions Board of Directors
may issue preferred stock that has rights superior to the outstanding Hyperion common
stock;
    
    Hyperions Board of Directors is classified into three groups, with each group of
directors holding office for three years. The effect of this classified board is that two
annual meetings, not one, are required to replace a majority of the Board of Directors;
    
    Hyperion stockholders are not entitled to cumulate votes for directors; and
    
    Special meetings of Hyperion stockholders may not be called by Hyperions stockholders.
   The accounting treatment for employee stock options has changed and has impacted Hyperions
earnings for the second quarter and first six months of fiscal 2006.
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Failure to obtain approval for additional shares of common stock to be granted as employee stock
options or restricted stock could adversely affect our ability to attract and retain employees.
  We are incurring substantial costs and devoting more management resources to comply with increasing
regulation of corporate governance and disclosure.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    
    ApproximateTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    
    Dollar Value ofShares of
    
    
    Average Price
    
    
    Part of Publicly
    
    
    Shares that MayPurchased
    
    
    Paid
    
    
    Announced Plans
    
    
    Yet Be PurchasedPeriod
    
    [1]
    
    
    per Share
    
    
    [2]
    
    
    Under the lans(In thousands, except per share data)October 1, 2005  October 31, 2005
    
    
    390
    
    
    $
    31.82
    
    
    
    390
    
    
    $
    51,593November 1, 2005  November 30,
2005
    
    
    426
    
    
    $
    32.76
    
    
    
    426
    
    
    
    37,635December 1, 2005  December 31,
2005
    
    
    225
    
    
    $
    34.90
    
    
    
    225
    
    
    
    29,782
 
 [1]
    
    All stock repurchases during the three months ended December 31, 2005, were made in
open-market transactions as part of our publicly announced plans.[2]
    
    On May 20, 2004, we announced that our Board of Directors had authorized a plan to
repurchase up to $75.0 million of our common stock. No authorized funds remain under this
repurchase program. On May 16, 2005, we announced that our Board of Directors had authorized an
additional plan to repurchase up to $125.0 million of our common stock.
In the second quarter of fiscal 2006, a total of 1,041,000 shares were purchased under this plan,
and the remaining authorized amount for stock repurchases under the program was $29.8 million as of
December 2005. 
 ITEM 3. DEFAULTS
  38




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    To elect three Class I directors to serve on our board of directors for a three-year term.
 For
    
    
    WithheldGodfrey Sullivan
    
    
    36,231,344
    
    
    
    1,366,631John Riccitiello
    
    
    14,850,266
    
    
    
    22,747,709Gary Greenfield
    
    
    36,218,634
    
    
    
    1,379,341
  2.
    
    To approve amendment of our 2004 Equity Incentive Plan.
 For
    
    
    25,681,948Against
    
    
    8,607,166Abstain
    
    
    22,951No vote
    
    
    3,285,910
 3.
    
    To approve a new 2005 Employee Stock Purchase Plan.
 For
    
    
    29,762,500Against
    
    
    4,540,562Abstain
    
    
    9,003No vote
    
    
    3,285,910
 4.
    
    To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the fiscal year ending June 30, 2006.
 For
    
    
    37,066,707Against
    
    
    526,915Abstain
    
    
    4,353Broker non-votes
    
    
    
 
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Bylaws (filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed on November 21, 2005 and incorporated
herein by reference).10.1
    
    2004 Equity Incentive Plan, as amended (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on November 21, 2005 and
incorporated herein by reference).10.2
    
    2005 Employee Stock Purchase Plan (filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on November 21, 2005 and
incorporated herein by reference).10.3
    
    Amendment, dated November 16, 2005, of Employment Agreement between the
Company and Burton Goldfield (filed as Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on November 21, 2005 and incorporated
herein by reference).10.4
    
    Letter Agreement, dated December 12, 2005, between the Company and
David Odell (filed as Exhibit 10.1 to the Companys Current Report on
Form 8-K filed on December 12, 2005 and incorporated herein by
reference).31.1
    
    Certification of Godfrey R. Sullivan pursuant to Rule 13a-14(a).31.2
    
    Certification of Robin L. Washington pursuant to Rule 13a-14(a).32.1
    
    Certification of Godfrey R. Sullivan pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of Robin L. Washington pursuant to 18 U.S.C. Section 1350.
 40




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##### Table of Contents



SIGNATURES
  Date:  February 8, 2006
    Hyperion Solutions Corporation
(Registrant)By:
    /s/ ROBIN L. WASHINGTONRobin L. WashingtonChief Financial OfficerBy:
    /s/ WILLIAM B. DEWESWilliam B. DewesGlobal Controller(Principal Accounting Officer) 41




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Bylaws (filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed on November 21, 2005 and incorporated
herein by reference).10.1
    
    2004 Equity Incentive Plan, as amended (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on November 21, 2005 and
incorporated herein by reference).10.2
    
    2005 Employee Stock Purchase Plan (filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on November 21, 2005 and
incorporated herein by reference).10.3
    
    Amendment, dated November 16, 2005, of Employment Agreement between the
Company and Burton Goldfield (filed as Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on November 21, 2005 and incorporated
herein by reference).10.4
    
    Letter Agreement, dated December 12, 2005, between the Company and
David Odell (filed as Exhibit 10.1 to the Companys Current Report on
Form 8-K filed on December 12, 2005 and incorporated herein by
reference).31.1
    
    Certification of Godfrey R. Sullivan pursuant to Rule 13a-14(a).31.2
    
    Certification of Robin L. Washington pursuant to Rule 13a-14(a).32.1
    
    Certification of Godfrey R. Sullivan pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of Robin L. Washington pursuant to 18 U.S.C. Section 1350.