##### 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, 2006
 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(Address of principal executive offices)
    
    (zip code)
 (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, 2006 and June 30, 2006
    
    
    3Condensed Consolidated Statements of Income and Comprehensive Income for the three
and six months ended December 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended December
31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2
Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3
Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4
Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1
Legal Proceedings
    
    
    27Item 1A
Risk Factors
    
    
    27Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3
Defaults
    
    
    34Item 4
Submission of Matters to a Vote of Security Holders
    
    
    35Item 5
Other Information
    
    
    35Item 6
Exhibits
    
    
    35Signatures
    
    36Exhibit Index
    
    37EXHIBIT 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 30,2006
    
    
    2006 (*)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    209,877
    
    
    $
    166,055Short-term investments
    
    
    276,557
    
    
    
    271,228Accounts receivable, net of allowances of $10,000 and $10,370
    
    
    142,526
    
    
    
    180,384Deferred tax assets
    
    
    11,103
    
    
    
    10,869Prepaid expenses and other current assets
    
    
    32,297
    
    
    
    35,205TOTAL CURRENT ASSETS
    
    
    672,360
    
    
    
    663,741Property and equipment, net
    
    
    73,478
    
    
    
    76,221Goodwill
    
    
    161,238
    
    
    
    157,208Other intangible assets, net
    
    
    31,972
    
    
    
    38,525Deferred tax assets
    
    
    46,254
    
    
    
    40,956Other assets
    
    
    12,247
    
    
    
    5,669TOTAL ASSETS
    
    $
    997,549
    
    
    $
    982,320LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    73,269
    
    
    $
    78,014Accrued employee compensation and benefits
    
    
    54,912
    
    
    
    68,243Income taxes payable
    
    
    46,771
    
    
    
    47,009Deferred revenue
    
    
    158,733
    
    
    
    171,142Restructuring liabilities
    
    
    6,832
    
    
    
    6,943TOTAL CURRENT LIABILITIES
    
    
    340,517
    
    
    
    371,351Long-term restructuring liabilities and other
    
    
    17,896
    
    
    
    21,384TOTAL LIABILITIES
    
    
    358,413
    
    
    
    392,735Commitments 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;
58,528 and 58,301 shares issued and outstanding
    
    
    59
    
    
    
    58Additional paid-in capital
    
    
    572,302
    
    
    
    534,716Retained earnings
    
    
    67,184
    
    
    
    57,142Accumulated other comprehensive loss
    
    
    (409
    )
    
    
    (2,331
    )TOTAL STOCKHOLDERS EQUITY
    
    
    639,136
    
    
    
    589,585TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    997,549
    
    
    $
    982,320
  
 (*)
    
    The condensed consolidated balance sheet at June 30, 2006 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, 2006.
 3




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HYPERION SOLUTIONS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
   Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUESSoftware licenses
    
    $
    84,879
    
    
    $
    74,445
    
    
    $
    153,009
    
    
    $
    134,969Maintenance and services
    
    
    138,031
    
    
    
    111,049
    
    
    
    268,404
    
    
    
    220,750TOTAL REVENUES
    
    
    222,910
    
    
    
    185,494
    
    
    
    421,413
    
    
    
    355,719COSTS AND EXPENSESCost of revenues:Software licenses
    
    
    5,522
    
    
    
    4,626
    
    
    
    11,395
    
    
    
    8,465Maintenance and services
    
    
    53,169
    
    
    
    42,845
    
    
    
    103,142
    
    
    
    80,799Sales and marketing
    
    
    82,644
    
    
    
    69,807
    
    
    
    155,803
    
    
    
    136,455Research and development
    
    
    32,149
    
    
    
    28,360
    
    
    
    62,345
    
    
    
    56,241General and administrative
    
    
    19,325
    
    
    
    17,385
    
    
    
    42,368
    
    
    
    33,514Restructuring charge (credits)
    
    
    
    
    
    
    446
    
    
    
    (26
    )
    
    
    346TOTAL COSTS AND EXPENSES
    
    
    192,809
    
    
    
    163,469
    
    
    
    375,027
    
    
    
    315,820OPERATING INCOME
    
    
    30,101
    
    
    
    22,025
    
    
    
    46,386
    
    
    
    39,899Interest and other income, net
    
    
    3,909
    
    
    
    2,809
    
    
    
    7,461
    
    
    
    5,385INCOME BEFORE INCOME TAXES
    
    
    34,010
    
    
    
    24,834
    
    
    
    53,847
    
    
    
    45,284Income tax provision
    
    
    12,482
    
    
    
    9,312
    
    
    
    20,383
    
    
    
    16,470NET INCOME
    
    $
    21,528
    
    
    $
    15,522
    
    
    $
    33,464
    
    
    $
    28,814Other comprehensive income (loss)
    
    
    611
    
    
    
    (1,002
    )
    
    
    1,922
    
    
    
    (1,795
    )COMPREHENSIVE INCOME
    
    $
    22,139
    
    
    $
    14,520
    
    
    $
    35,386
    
    
    $
    27,019Basic net income per share
    
    $
    0.37
    
    
    $
    0.26
    
    
    $
    0.58
    
    
    $
    0.49Diluted net income per share
    
    $
    0.36
    
    
    $
    0.25
    
    
    $
    0.56
    
    
    $
    0.47Shares used in computing basic
net income per share
    
    
    58,068
    
    
    
    59,102
    
    
    
    57,784
    
    
    
    59,176Shares used in computing diluted
net income per share
    
    
    59,721
    
    
    
    60,930
    
    
    
    59,341
    
    
    
    60,834
  4




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##### Table of Contents



HYPERION SOLUTIONS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Six Months EndedDecember 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    33,464
    
    
    $
    28,814Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    19,857
    
    
    
    16,430Stock-based compensation
    
    
    18,284
    
    
    
    14,807Provision for accounts receivable allowances
    
    
    2,707
    
    
    
    2,660Deferred tax assets
    
    
    (3,217
    )
    
    
    (4,236
    )Income tax benefit from exercise of stock options
    
    
    803
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    38,092
    
    
    
    (7,316
    )Prepaid expenses and other current assets
    
    
    3,249
    
    
    
    1,277Other assets
    
    
    285
    
    
    
    221Accounts payable and accrued liabilities
    
    
    (8,631
    )
    
    
    2,927Accrued employee compensation and benefits
    
    
    (14,284
    )
    
    
    (3,182
    )Income taxes payable
    
    
    (387
    )
    
    
    8,234Deferred revenue
    
    
    (14,799
    )
    
    
    (14,894
    )Restructuring liabilities
    
    
    (207
    )
    
    
    (894
    )Long-term restructuring liabilities and other
    
    
    (3,419
    )
    
    
    (3,077
    )Net cash provided by operating activities
    
    
    71,797
    
    
    
    41,771CASH FLOWS FROM INVESTING ACTIVITIESPurchases of available-for-sale and other investments
    
    
    (150,689
    )
    
    
    (184,661
    )Proceeds from sales and maturities of investments
    
    
    139,139
    
    
    
    182,058Purchases of property and equipment
    
    
    (8,107
    )
    
    
    (10,216
    )Purchases of other intangible assets
    
    
    (205
    )
    
    
    (637
    )Payment for acquisitions, net of cash acquired
    
    
    (5,992
    )
    
    
    Net cash used in investing activities
    
    
    (25,854
    )
    
    
    (13,456
    )CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on capital leases
    
    
    (126
    )
    
    
    Purchases of common stock
    
    
    (32,460
    )
    
    
    (80,081
    )Proceeds from issuance of common stock
    
    
    25,136
    
    
    
    30,406Income tax benefit from exercise of stock options
    
    
    2,401
    
    
    
    6,761Net cash used in financing activities
    
    
    (5,049
    )
    
    
    (42,914
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    2,928
    
    
    
    (1,769
    )INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    43,822
    
    
    
    (16,368
    )Cash and cash equivalents at beginning of period
    
    
    166,055
    
    
    
    170,740CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    209,877
    
    
    $
    154,372SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest
    
    $
    44
    
    
    $
    153Cash paid for income taxes
    
    $
    19,376
    
    
    $
    4,980
  5




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HYPERION SOLUTIONS CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 DECEMBER 31, 2006
 1. Basis of Presentation
  2. Significant Accounting Policies
 Revenue Recognition
      6




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##### Table of Contents



Accounts Receivable Allowances
   Net Income Per Share
   Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 312006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    21,528
    
    
    $
    15,522
    
    
    $
    33,464
    
    
    $
    28,814Shares used in computing basic net income
per share
    
    
    58,068
    
    
    
    59,102
    
    
    
    57,784
    
    
    
    59,176Effect of potentially dilutive securities
    
    
    1,653
    
    
    
    1,828
    
    
    
    1,557
    
    
    
    1,658Shares used in computing diluted net income
per share
    
    
    59,721
    
    
    
    60,930
    
    
    
    59,341
    
    
    
    60,834Basic net income per share
    
    $
    0.37
    
    
    $
    0.26
    
    
    $
    0.58
    
    
    $
    0.49Diluted net income per share
    
    $
    0.36
    
    
    $
    0.25
    
    
    $
    0.56
    
    
    $
    0.47
  7




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##### Table of Contents



Stock-Based Compensation
    Three Months EndedDecember 31,2006
    
    2005Stock option plans:Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    38
    %
    
    
    45
    %Risk-free interest rate
    
    
    4.52
    %
    
    
    4.29
    %Average expected life (in years)
    
    
    4.1
    
    
    
    4.1Stock purchase plans:Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    31
    %
    
    
    45
    %Risk-free interest rate
    
    
    5.10
    %
    
    
    4.13
    %Average expected life (in years)
    
    
    0.5
    
    
    
    0.5
  Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    21,528
    
    
    $
    15,522
    
    
    $
    33,464
    
    
    $
    28,814Other comprehensive income:Foreign currency translation adjustments
    
    
    573
    
    
    
    (723
    )
    
    
    1,324
    
    
    
    (1,194
    )Unrealized gains (losses) on
available-for-sale securities
    
    
    38
    
    
    
    (279
    )
    
    
    598
    
    
    
    (601
    )Comprehensive income
    
    $
    22,139
    
    
    $
    14,520
    
    
    $
    35,386
    
    
    $
    27,019
 8




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##### Table of Contents



Recent Accounting Pronouncements
     Income Taxes
    9




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##### Table of Contents



Valuation of Goodwill, Intangibles, and Long-Lived Assets
   Balance at June 30, 2006
    
    $
    157,208Goodwill from acquisitions
    
    
    4,756Tax benefits related to the Brio acquisition
    
    
    (591
    )Effect of foreign currency translation
    
    
    (135
    )Balance at December 31, 2006
    
    $
    161,238
   December 31, 2006
    
    
    June 30, 2006GrossGross Carrying
    
    
    Accumulated
    
    
    Book
    
    
    Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueProduct development costs
    
    $
    16,143
    
    
    $
    (8,378
    )
    
    $
    7,765
    
    
    $
    16,963
    
    
    $
    (6,912
    )
    
    $
    10,051Acquired technologies
    
    
    44,920
    
    
    
    (23,488
    )
    
    
    21,432
    
    
    
    46,390
    
    
    
    (21,879
    )
    
    
    24,511Other intangibles
    
    
    10,568
    
    
    
    (7,793
    )
    
    
    2,775
    
    
    
    10,564
    
    
    
    (6,601
    )
    
    
    3,963Total
    
    $
    71,631
    
    
    $
    (39,659
    )
    
    $
    31,972
    
    
    $
    73,917
    
    
    $
    (35,392
    )
    
    $
    38,525
 10




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##### Table of Contents



EstimatedAmortizationFiscal Year
    
    ExpenseRemainder of 2007
    
    $
    8,6782008
    
    
    11,7852009
    
    
    7,2182010
    
    
    3,5222011 and thereafter
    
    
    769Total
    
    $
    31,972
 3. Commitments and Contingencies
 Legal Proceedings
  Guarantees and Indemnifications
  4. Business Combinations
    11




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##### Table of Contents



5. Restructuring Liabilities
      Severance
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual balance at June 30, 2006
    
    $
    267
    
    
    $
    10,548
    
    
    $
    131
    
    
    $
    10,946Restructuring charge (credit)
    
    
    (51
    )
    
    
    25
    
    
    
    
    
    
    
    (26
    )Cash payments
    
    
    (200
    )
    
    
    (980
    )
    
    
    
    
    
    
    (1,180
    )Non-cash items
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    139Accrual balance at September 30, 2006
    
    $
    16
    
    
    $
    9,732
    
    
    $
    131
    
    
    $
    9,879Cash payments
    
    
    
    
    
    
    (1,200
    )
    
    
    
    
    
    
    (1,200
    )Non-cash items
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    130Accrual balance at December 31, 2006
    
    $
    16
    
    
    $
    8,662
    
    
    $
    131
    
    
    $
    8,809
 12




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##### Table of Contents



Severance
    
    
    Facilities
    
    
    TotalBalance at June 30, 2006
    
    $
    17
    
    
    $
    11,852
    
    
    $
    11,869Cash payments
    
    
    
    
    
    
    (757
    )
    
    
    (757
    )Balance at September 30, 2006
    
    $
    17
    
    
    $
    11,095
    
    
    $
    11,112Cash payments
    
    
    
    
    
    
    (757
    )
    
    
    (757
    )Non-cash items
    
    
    1
    
    
    
    
    
    
    
    1Balance at December 31, 2006
    
    $
    18
    
    
    $
    10,338
    
    
    $
    10,356
  6. Share-Based Payments
 Stock Options
   13




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##### Table of Contents



WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (Years)
    
    
    Value ($000s)Outstanding at June 30, 2006
    
    
    8,315
    
    
    $
    25.01Granted
    
    
    350
    
    
    
    31.90Exercised
    
    
    (426
    )
    
    
    20.05Forfeited
    
    
    (121
    )
    
    
    30.62Outstanding at September 30, 2006
    
    
    8,118
    
    
    $
    25.49
    
    
    
    4.15
    
    
    $
    74,047Granted
    
    
    314
    
    
    
    37.41Exercised
    
    
    (495
    )
    
    
    20.76Forfeited
    
    
    (156
    )
    
    
    29.29Outstanding at December 31, 2006
    
    
    7,781
    
    
    $
    26.19
    
    
    
    4.01
    
    
    $
    77,082Exercisable at December 31, 2006
    
    
    4,011
    
    
    $
    22.16
    
    
    
    3.45
    
    
    $
    55,979
    Restricted Stock Awards
  14




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##### Table of Contents



WeightedAverageGrant-DateShares
    
    
    Fair ValueNonvested shares at June 30, 2006
    
    
    312
    
    
    $
    27.94Granted
    
    
    62
    
    
    
    31.74Vested
    
    
    (89
    )
    
    
    24.97Nonvested shares at September 30, 2006
    
    
    285
    
    
    $
    29.69Granted
    
    
    67
    
    
    
    38.00Vested
    
    
    (6
    )
    
    
    30.51Cancelled
    
    
    (3
    )
    
    
    29.44Nonvested shares at December 31, 2006
    
    
    343
    
    
    $
    31.29
  Restricted Stock Units
   WeightedAverageGrant-DateShares
    
    
    Fair ValueOutstanding at June 30, 2006
    
    
    511
    
    
    $
    31.90Granted
    
    
    40
    
    
    
    31.41Cancelled
    
    
    (9
    )
    
    
    31.32Outstanding at September 30, 2006
    
    
    542
    
    
    $
    31.87Granted
    
    
    58
    
    
    
    37.27Cancelled
    
    
    (23
    )
    
    
    31.94Outstanding at December 31, 2006
    
    
    577
    
    
    $
    32.40Exercisable at December 31, 2006
    
    
    
    
    
    $
    
  Employee Stock Purchase Plan
  15




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##### Table of Contents



7. Stock Repurchases
  8. Segment and Geographic Information
    Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Americas
    
    $
    133,567
    
    
    $
    111,368
    
    
    $
    261,354
    
    
    $
    219,402EMEA
    
    
    75,082
    
    
    
    59,456
    
    
    
    131,718
    
    
    
    108,788APAC
    
    
    14,261
    
    
    
    14,670
    
    
    
    28,341
    
    
    
    27,529$
    222,910
    
    
    $
    185,494
    
    
    $
    421,413
    
    
    $
    355,719
  December 31,
    
    
    June 30,2006
    
    
    2006Long-lived assets:Americas
    
    $
    66,299
    
    
    $
    70,583EMEA
    
    
    5,582
    
    
    
    4,241APAC
    
    
    1,597
    
    
    
    1,397$
    73,478
    
    
    $
    76,221
  16




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Software licenses
    
    $
    84,879
    
    
    $
    74,445
    
    
    $
    153,009
    
    
    $
    134,969Maintenance and services:Maintenance
    
    
    95,067
    
    
    
    81,396
    
    
    
    184,677
    
    
    
    159,336Consulting and training
    
    
    42,964
    
    
    
    29,653
    
    
    
    83,727
    
    
    
    61,414138,031
    
    
    
    111,049
    
    
    
    268,404
    
    
    
    220,750Total revenues
    
    $
    222,910
    
    
    $
    185,494
    
    
    $
    421,413
    
    
    $
    355,719
 17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
  OVERVIEW
   CRITICAL ACCOUNTING POLICIES
  RESULTS OF OPERATIONS
 REVENUES
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    
    Variance
    
    
    December 31,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    Percent
    
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentSoftware licenses
    
    $
    84,879
    
    
    $
    74,445
    
    
    $
    10,434
    
    
    
    14
    %
    
    $
    153,009
    
    
    $
    134,969
    
    
    $
    18,040
    
    
    
    13
    %Maintenance and
services
    
    
    138,031
    
    
    
    111,049
    
    
    
    26,982
    
    
    
    24
    %
    
    
    268,404
    
    
    
    220,750
    
    
    
    47,654
    
    
    
    22
    %Total revenues
    
    $
    222,910
    
    
    $
    185,494
    
    
    $
    37,416
    
    
    
    20
    %
    
    $
    421,413
    
    
    $
    355,719
    
    
    $
    65,694
    
    
    
    18
    %
   18




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##### Table of Contents



Software Licenses
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    Variance
    
    December 31,
    
    Variance(In thousands)
    
    2006
    
    2005
    
    Dollars
    
    Percent
    
    2006
    
    2005
    
    Dollars
    
    PercentSoftware licenses
    
    $
    84,879
    
    
    $
    74,445
    
    
    $
    10,434
    
    
    
    14
    %
    
    $
    153,009
    
    
    $
    134,969
    
    
    $
    18,040
    
    
    
    13
    %Percent of total revenue
    
    
    38
    %
    
    
    40
    %
    
    
    
    
    
    
    
    
    
    
    36
    %
    
    
    38
    %
 Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,Key Software License Revenue Indicators:
    
    2006
    
    2005
    
    2006
    
    2005Average selling price
    
    $
    131
    
    
    $
    118
    
    
    $
    137
    
    
    $
    120Software license transactions greater than $500,000
    
    
    29
    
    
    
    21
    
    
    
    56
    
    
    
    36Software license transactions greater than $1 million
    
    
    7
    
    
    
    5
    
    
    
    16
    
    
    
    11Number of new customers
    
    
    407
    
    
    
    292
    
    
    
    679
    
    
    
    602Percentage of license revenue from new customers
    
    
    27
    %
    
    
    20
    %
    
    
    26
    %
    
    
    23
    %
   Maintenance and Services
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    
    Variance
    
    
    December 31,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    Percent
    
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentMaintenance
    
    $
    95,067
    
    
    $
    81,396
    
    
    $
    13,671
    
    
    
    17
    %
    
    $
    184,677
    
    
    $
    159,336
    
    
    $
    25,341
    
    
    
    16
    %Consulting and training
    
    
    42,964
    
    
    
    29,653
    
    
    
    13,311
    
    
    
    45
    %
    
    
    83,727
    
    
    
    61,414
    
    
    
    22,313
    
    
    
    36
    %Total maintenance and
services
    
    $
    138,031
    
    
    $
    111,049
    
    
    $
    26,982
    
    
    
    24
    %
    
    $
    268,404
    
    
    $
    220,750
    
    
    $
    47,654
    
    
    
    22
    %Percent of total revenue
    
    
    62
    %
    
    
    60
    %
    
    
    
    
    
    
    
    
    
    
    64
    %
    
    
    62
    %
  19




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##### Table of Contents



COST OF REVENUE
 Cost of Software License Revenue
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    Variance
    
    December 31,
    
    Variance(In thousands)
    
    2006
    
    2005
    
    Dollars
    
    Percent
    
    2006
    
    2005
    
    Dollars
    
    PercentCost of software licenses
    
    $
    5,522
    
    
    $
    4,626
    
    
    $
    896
    
    
    
    19
    %
    
    $
    11,395
    
    
    $
    8,465
    
    
    $
    2,930
    
    
    
    35
    %Percent of software
license revenue
    
    
    7
    %
    
    
    6
    %
    
    
    
    
    
    
    
    
    
    
    7
    %
    
    
    6
    %
   Cost of Maintenance and Services Revenue
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    Variance
    
    December 31,
    
    Variance(In thousands)
    
    2006
    
    2005
    
    Dollars
    
    Percent
    
    2006
    
    2005
    
    Dollars
    
    PercentCost of maintenance
and services
    
    $
    53,169
    
    
    $
    42,845
    
    
    $
    10,324
    
    
    
    24
    %
    
    $
    103,142
    
    
    $
    80,799
    
    
    $
    22,343
    
    
    
    28
    %Percent of
maintenance and
services revenue
    
    
    39
    %
    
    
    39
    %
    
    
    
    
    
    
    
    
    
    
    38
    %
    
    
    37
    %
   20




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##### Table of Contents



OPERATING EXPENSES
 Sales and Marketing
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    Variance
    
    December 31,
    
    Variance(In thousands)
    
    2006
    
    2005
    
    Dollars
    
    Percent
    
    2006
    
    2005
    
    Dollars
    
    PercentSales and marketing
    
    $
    82,644
    
    
    $
    69,807
    
    
    $
    12,837
    
    
    
    18
    %
    
    $
    155,803
    
    
    $
    136,455
    
    
    $
    19,348
    
    
    
    14
    %Percent of total revenue
    
    
    37
    %
    
    
    38
    %
    
    
    
    
    
    
    
    
    
    
    37
    %
    
    
    38
    %
   Research and Development
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    Variance
    
    December 31,
    
    Variance(In thousands)
    
    2006
    
    2005
    
    Dollars
    
    Percent
    
    2006
    
    2005
    
    Dollars
    
    PercentResearch and development
    
    $
    32,149
    
    
    $
    28,360
    
    
    $
    3,789
    
    
    
    13
    %
    
    $
    62,345
    
    
    $
    56,241
    
    
    $
    6,104
    
    
    
    11
    %Percent of total revenue
    
    
    14
    %
    
    
    15
    %
    
    
    
    
    
    
    
    
    
    
    15
    %
    
    
    16
    %
     21




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##### Table of Contents



General and Administrative
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    Variance
    
    December 31,
    
    Variance(In thousands)
    
    2006
    
    2005
    
    Dollars
    
    Percent
    
    2006
    
    2005
    
    Dollars
    
    PercentGeneral and administrative
    
    $
    19,325
    
    
    $
    17,385
    
    
    $
    1,940
    
    
    
    11
    %
    
    $
    42,368
    
    
    $
    33,514
    
    
    $
    8,854
    
    
    
    26
    %Percent of total revenue
    
    
    9
    %
    
    
    9
    %
    
    
    
    
    
    
    
    
    
    
    10
    %
    
    
    9
    %
   Restructuring Charges (Credits)
     22




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##### Table of Contents



Severance
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual balance at June 30, 2006
    
    $
    267
    
    
    $
    10,548
    
    
    $
    131
    
    
    $
    10,946Restructuring charge (credit)
    
    
    (51
    )
    
    
    25
    
    
    
    
    
    
    
    (26
    )Cash payments
    
    
    (200
    )
    
    
    (980
    )
    
    
    
    
    
    
    (1,180
    )Non-cash items
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    139Accrual balance at September 30, 2006
    
    $
    16
    
    
    $
    9,732
    
    
    $
    131
    
    
    $
    9,879Cash payments
    
    
    
    
    
    
    (1,200
    )
    
    
    
    
    
    
    (1,200
    )Non-cash items
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    130Accrual balance at December 31, 2006
    
    $
    16
    
    
    $
    8,662
    
    
    $
    131
    
    
    $
    8,809
  Severance
    
    
    Facilities
    
    
    TotalBalance at June 30, 2006
    
    $
    17
    
    
    $
    11,852
    
    
    $
    11,869Cash payments
    
    
    
    
    
    
    (757
    )
    
    
    (757
    )Balance at September 30, 2006
    
    $
    17
    
    
    $
    11,095
    
    
    $
    11,112Cash payments
    
    
    
    
    
    
    (757
    )
    
    
    (757
    )Non-cash items
    
    
    1
    
    
    
    
    
    
    
    1Balance at December 31, 2006
    
    $
    18
    
    
    $
    10,338
    
    
    $
    10,356
  INTEREST AND OTHER INCOME, NET
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    Variance
    
    December 31,
    
    Variance(In thousands)
    
    2006
    
    2005
    
    Dollars
    
    Percent
    
    2006
    
    2005
    
    Dollars
    
    PercentInterest and other income, net
    
    $
    3,909
    
    
    $
    2,809
    
    
    $
    1,100
    
    
    
    39
    %
    
    $
    7,461
    
    
    $
    5,385
    
    
    $
    2,076
    
    
    
    39
    %
  INCOME TAX PROVISION
 Three Months
    
    
    
    
    
    
    
    
    
    Six Months EndedEnded December 31,
    
    Variance
    
    December 31,
    
    Variance(In thousands)
    
    2006
    
    2005
    
    Dollars
    
    Percent
    
    2006
    
    2005
    
    Dollars
    
    PercentIncome tax provision
    
    $
    12,482
    
    
    $
    9,312
    
    
    $
    3,170
    
    
    
    34
    %
    
    $
    20,383
    
    
    $
    16,470
    
    
    $
    3,913
    
    
    
    24
    %Effective tax rate
    
    
    36.7
    %
    
    
    37.5
    %
    
    
    
    
    
    
    
    
    
    
    37.9
    %
    
    
    36.4
    %
   23




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NET INCOME
  LIQUIDITY AND CAPITAL RESOURCES
 December 31,(In thousands)
    
    2006
    
    
    2005Cash and cash equivalents
    
    $
    209,877
    
    
    $
    154,372Short-term investments
    
    
    276,557
    
    
    
    270,996Working capital
    
    
    331,843
    
    
    
    326,078Six Months Ended December 31,(In thousands)
    
    2006
    
    
    2005Net cash provided by operating activities
    
    $
    71,797
    
    
    $
    41,771Net cash used in investing activities
    
    
    (25,854
    )
    
    
    (13,456
    )Net cash used in financing activities
    
    
    (5,049
    )
    
    
    (42,914
    )
     24




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##### Table of Contents



Payments Due InTotal
    
    
    
    
    
    
    
    
    
    
    Fiscal
    
    
    Fiscal 2012Payments
    
    
    
    
    
    
    Fiscal 2008
    
    
    2010 and
    
    
    andDue
    
    
    Fiscal 2007
    
    
    and 2009
    
    
    2011
    
    
    ThereafterOperating lease obligations [1]
    
    $
    106,175
    
    
    $
    12,930
    
    
    $
    41,703
    
    
    $
    22,268
    
    
    $
    29,274Capital lease obligations [2]
    
    
    674
    
    
    
    150
    
    
    
    524
    
    
    
    
    
    
    
    Purchase obligations [3]
    
    
    677
    
    
    
    
    
    
    
    677
    
    
    
    
    
    
    
    $
    107,526
    
    
    $
    13,080
    
    
    $
    42,904
    
    
    $
    22,268
    
    
    $
    29,274
 
 [1]
    
    Excludes minimum sublease rentals income aggregating approximately
$10.2 million due in the future under non-cancelable subleases.[2]
    
    Represents remaining payments under capital leases of computer
equipment, the imputed interest included in the capital lease
obligation is immaterial.[3]
    
    Represents amounts associated with agreements that are enforceable,
legally binding, and specify terms, including: fixed or minimum
quantities to be purchased; fixed, minimum, or variable price
provisions; and the approximate timing of the payment.    OFF-BALANCE SHEET ARRANGEMENTS
  RECENT ACCOUNTING PRONOUNCEMENTS
  25




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 FOREIGN CURRENCY EXCHANGE RATE RISK
   INTEREST RATE RISK.
 26




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES .
 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
 
 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, 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 our products;
    
    Educating Hyperions sales, marketing, and consulting personnel to work with the new products and features;
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##### Table of Contents




    
    Competition from earlier and more established entrants;
    
    Market acceptance of initial product releases;
    
    Technological challenges involved in integrating Hyperion products into cohesive business
performance management systems offerings;
    
    Marketing effectiveness, including challenges in distribution; and
    
    The accuracy of assumptions about the nature of customer demand.
  Fluctuations in our quarterly operating results may not be predictable and may result
in significant volatility in our stock price.
  Hyperion operates in a very competitive environment.
    28




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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 actual revenues in a quarter to vary
from sales forecasts.
  A change in pricing or marketing could adversely affect Hyperions business.
  29




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##### Table of Contents



Employee turnover could adversely impact revenue, costs, and productivity.
  There are significant risks related to any business combination and investment.
  
    
    The possibility that Hyperion pays more than the value derived from the acquisition;
    
    The difficulty of integrating the products, operations, and personnel of the acquired business;
    
    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 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 of 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 fails, 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. As of December 31, 2006, Hyperion has recorded $161.2 million of goodwill related to
a number of acquisitions that will not be amortized in the ordinary course of business. We
are required under generally accepted accounting principles to review our goodwill for
impairment at least annually or when events or changes in circumstances indicate the
carrying value may not be recoverable. We may be required to record a significant change to
earnings in our consolidated financial statements during the period in which any impairment
of our goodwill or amortizable intangible assets is determined. This may adversely impact
our results of operations.
  Exchange rate fluctuations may adversely affect results.
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##### Table of Contents



Hyperion may not be able to continue our 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.
    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;
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##### Table of Contents




    
    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.
  Hyperion is subject to the possibility of infringement claims.
   Enforcement of Hyperions intellectual property rights may be difficult.
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##### Table of Contents



Hyperions stock price is volatile.
  Hyperion is dependent upon indirect channel partners and independent distributors.
  
    
    Hyperions lack of control over the delivery of Hyperions products to end-users;
    
    Hyperions resellers and distributors may terminate their relationship with Hyperion on short notice; and
    
    Hyperions resellers and distributors may market and distribute competing products.
  Hyperion is subject to the possibility of customer claims.
  Defects in Hyperions products could increase our costs, adversely affect our reputation, diminish
demand for our products, and hurt our operating results.
  33




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##### Table of Contents



Some provisions in Hyperions charter documents and our 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.
   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
    
    Dollar Value ofof Shares
    
    Average Price
    
    as Part of Publicly
    
    Shares that MayPurchased
    
    Paid per
    
    Announced Plans
    
    Yet Be PurchasedPeriod
    
    [1]
    
    Share
    
    [2]
    Under the Plans(In thousands, except per share data)October 1, 2006  October 31, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    40,000November 1, 2006  November 30, 2006
    
    
    96
    
    
    $
    37.59
    
    
    
    96
    
    
    $
    36,392December 1, 2006  December 31, 2006
    
    
    104
    
    
    $
    37.04
    
    
    
    104
    
    
    $
    32,543
 
 [1]
    
    All stock repurchases during the three months ended December 31, 2006,
were made in open-market transactions as part of our publicly
announced plans.[2]
    
    On April 20, 2006, we announced that our Board of Directors had
authorized a plan to repurchase up to $100.0 million of our common
stock. In the second quarter of fiscal 2007, a total of 0.2 million
shares were purchased under this plan. As of December 31, 2006, $32.5
million remain as authorized for additional stock repurchases. 
 ITEM 3. DEFAULTS
  34




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    To elect three Class II directors to serve on our board of directors for a three-year term.
 For
    
    WithheldNanci Caldwell
    
    
    55,177,324
    
    
    
    282,007Jeffrey Rodek
    
    
    55,062,500
    
    
    
    396,831Maynard Webb
    
    
    54,949,828
    
    
    
    509,503
 The other six directors whose term of office as director continued after the meeting were: Henry
Autry, Terry Carlitz, Yorgen Edholm, Gary Greenfield, John Riccitiello and Godfrey Sullivan.2.
    
    To approve amendment of our 2004 Equity Incentive Plan.
 For
    
    
    41,504,967Against
    
    
    9,251,209Abstain
    
    
    317,853Broker non-votes
    
    
    4,385,302
 3.
    
    To ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the fiscal year ending June 30, 2007.
 For
    
    
    55,155,634Against
    
    
    299,231Abstain
    
    
    4,466Broker non-votes
    
    
    
 
 ITEM 5. OTHER INFORMATION
   
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Description3.1
    
    
    Amended and Restated Bylaws of Hyperion Solutions Corporation. (filed
as Exhibit 3.1 to the Companys Current Report on Form 8-K filed on
November 15, 2006 and incorporated herein by reference).10.1
    
    
    Executive Employment Agreement between Hyperion and Mr. Temple,
effective October 16, 2006. (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on October 16, 2006 and incorporated
herein by reference).10.2
    
    
    2004 Equity Incentive Plan of Hyperion Solutions Corporation, as
amended. (filed as Exhibit 10.1 to the Companys Current Report on Form
8-K filed on November 15, 2006 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.
 35




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##### Table of Contents



SIGNATURES
  Date:  February 8, 2007
    Hyperion Solutions Corporation
(Registrant)By:
    /s/ ROBIN L. WASHINGTONRobin L. WashingtonChief Financial Officer and
    Principal Accounting Officer 36




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    
    Amended and Restated Bylaws of Hyperion Solutions Corporation. (filed
as Exhibit 3.1 to the Companys Current Report on Form 8-K filed on
November 15, 2006 and incorporated herein by reference).10.1
    
    
    Executive Employment Agreement between Hyperion and Mr. Temple,
effective October 16, 2006. (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on October 16, 2006 and incorporated
herein by reference).10.2
    
    
    2004 Equity Incentive Plan of Hyperion Solutions Corporation, as
amended. (filed as Exhibit 10.1 to the Companys Current Report on Form
8-K filed on November 15, 2006 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.
 37