##### 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, 2003

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

(Exact name of registrant as specified in its charter)


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

1344 Crossman Avenue, Sunnyvale, California 94089
(Address of principal executive offices, including zip code)

(408) 744-9500
(Registrants telephone number, including area code)

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

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

As of January 31, 2004, there were 38,134,202 shares of the
Registrants common stock, $0.001 par value, outstanding.



---

---





---

TABLE OF CONTENTS



|                              |                                                                                               |                                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)    
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 
|EXHIBIT 32.2                 



---



##### Table of Contents



Hyperion Solutions Corporation

Form 10-Q

|                              |  |                                                                                       |  |               |                                                                                                                                    |  |      |   | 
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ------------- | ---------------------------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                              |  |                                                                                       |  |               |                                                                                                                                    |  | PAGE
|PART I. FINANCIAL INFORMATION
|Item 1                        |  | Financial Statements (Unaudited):                                                     |  |               |                                                                                                                                    | 
|                              |  |                                                                                       |  |               | Condensed Consolidated Balance Sheets as of December 31, 2003 and June 30, 2003                                                    |  |      | 2 | 
|                              |  |                                                                                       |  |               | Condensed Consolidated Statements of Income and Comprehensive Income for the
three and six months ended December 31, 2003 and 2002 |  |      | 3 | 
|                              |  |                                                                                       |  |               | Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2003
and 2002                                |  |      | 4 | 
|                              |  |                                                                                       |  |               | Notes to Condensed Consolidated Financial Statements                                                                               |  |      | 5 | 
|Item 2                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |               | 14                                                                                                                                 | 
|Item 3                        |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |               | 25                                                                                                                                 | 
|Item 4                        |  | Controls and Procedures                                                               |  |               | 26                                                                                                                                 | 
|PART II. OTHER INFORMATION    |  |                                                                                       |  |              
|Item 1                        |  | Legal Proceedings                                                                     |  |               | 26                                                                                                                                 | 
|Item 4                        |  | Submission of Matters to a Vote of Security Holders                                   |  |               | 26                                                                                                                                 | 
|Item 6                        |  | Exhibits and Reports on Form 8-K                                                      |  |               | 27                                                                                                                                 | 
|                              |  |                                                                                       |  | Signatures    |                                                                                                                                    |  | 28   |  
|                              |  |                                                                                       |  | Exhibit Index |                                                                                                                                    |  | 29   |  

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

1



---



##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




HYPERION SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

|                                           |                                                                                                                                   |   |              |         |          |   |         |         |  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | ------- | -------- | - | ------- | ------- | -
|                                           |                                                                                                                                   |   | December 31, |         | June 30,
|                                           |                                                                                                                                   |   | 2003         |         | 2003    
|                                           |                                                                                                                                   |   |              |         |         
|                                           |                                                                                                                                   |   | (Unaudited)  |         |          |   |        
|ASSETS                                     |                                                                                                                                   |   |              |         |          |   |         |        
|Current assets:                            |                                                                                                                                   |   |              |         |          |   |         |        
|                                           | Cash and cash equivalents                                                                                                         |   | $            | 305,446 |          |   | $       | 398,040 |  
|                                           | Short-term investments                                                                                                            |   |              | 9,061   |          |   |         | 18,514  |  
|                                           | Accounts receivable, net of allowances of $9,248 and $8,231                                                                       |   |              | 121,001 |          |   |         | 98,774  |  
|                                           | Deferred income taxes                                                                                                             |   |              | 11,333  |          |   |         | 12,890  |  
|                                           | Prepaid expenses and other current assets                                                                                         |   |              | 19,030  |          |   |         | 18,498  |  
|                                           |                                                                                                                                   |   |              |         |          |   |         |        
|TOTAL CURRENT ASSETS                       |                                                                                                                                   |   | 465,871      |         |          |   | 546,716 |        
|Property and equipment, net                |                                                                                                                                   |   | 70,366       |         |          |   | 67,533  |        
|Goodwill                                   |                                                                                                                                   |   | 139,191      |         |          |   | 12,774  |        
|Intangible assets, net                     |                                                                                                                                   |   | 35,367       |         |          |   | 8,120   |        
|Deferred income taxes                      |                                                                                                                                   |   | 20,610       |         |          |   | 13,633  |        
|Other assets                               |                                                                                                                                   |   | 5,846        |         |          |   | 5,982   |        
|                                           |                                                                                                                                   |   |              |         |          |   |         |         |  
|TOTAL ASSETS                               |                                                                                                                                   | $ | 737,251      |         |          | $ | 654,758 |        
|                                           |                                                                                                                                   |   |              |         |          |   |         |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                                   |   |              |         |          |   |         |        
|Current liabilities:                       |                                                                                                                                   |   |              |         |          |   |         |        
|                                           | Accounts payable and accrued expenses                                                                                             |   | $            | 62,584  |          |   | $       | 45,631  |  
|                                           | Accrued employee compensation and benefits                                                                                        |   |              | 46,157  |          |   |         | 41,637  |  
|                                           | Deferred revenue                                                                                                                  |   |              | 122,698 |          |   |         | 104,868 |  
|                                           | Other current liabilities                                                                                                         |   |              | 5,638   |          |   |         | 3,931   |  
|                                           |                                                                                                                                   |   |              |         |          |   |         |         |  
|TOTAL CURRENT LIABILITIES                  |                                                                                                                                   |   | 237,077      |         |          |   | 196,067 |        
|Long-term debt                             |                                                                                                                                   |   |             |         |          |   | 50,040  |        
|Other liabilities                          |                                                                                                                                   |   | 26,237       |         |          |   | 11,326  |        
|Commitments 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;
38,737 and 36,654 shares issued; 38,453 and 36,105 shares outstanding |   |              | 39      |          |   |         | 37      |  
|                                           | Additional paid-in capital                                                                                                        |   |              | 395,155 |          |   |         | 278,339 |  
|                                           | Treasury stock, at cost: 284 and 549 common shares                                                                                |   |              | (5,254  | )        |   |         | (10,847 | )
|                                           | Deferred stock-based compensation                                                                                                 |   |              | (7,346  | )        |   |         | (2,893  | )
|                                           | Retained earnings                                                                                                                 |   |              | 92,897  |          |   |         | 137,582 |  
|                                           | Accumulated other comprehensive loss                                                                                              |   |              | (1,554  | )        |   |         | (4,893  | )
|                                           |                                                                                                                                   |   |              |         |          |   |         |         |  
|TOTAL STOCKHOLDERS EQUITY                 |                                                                                                                                   |   | 473,937      |         |          |   | 397,325 |        
|                                           |                                                                                                                                   |   |              |         |          |   |         |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                   | $ | 737,251      |         |          | $ | 654,758 |        
|                                           |                                                                                                                                   |   |              |         |          |   |         |         |  

See accompanying notes to condensed consolidated financial statements.

2



---



##### Table of Contents






HYPERION SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)

|                                                      |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|----------------------------------------------------- | ------------------------ | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                      |                          |   | Three Months Ended |        | Six Months Ended
|                                                      |                          |   | December 31,       |        | December 31,    
|                                                      |                          |   | 2003               |        | 2002             |   | 2003    |        | 2002
|                                                      |                          |   |                    |        |                  |   |         |        |     
|REVENUES                                              |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|                                                      | Software licenses        |   | $                  | 59,701 |                  |   | $       | 51,136 |      |   | $       | 102,746 |  |   | $       | 95,727  | 
|                                                      | Maintenance and services |   |                    | 96,435 |                  |   |         | 74,901 |      |   |         | 176,942 |  |   |         | 150,189 | 
|                                                      |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|TOTAL REVENUES                                        |                          |   | 156,136            |        |                  |   | 126,037 |        |      |   | 279,688 |         |  |   | 245,916 |        
|COSTS AND EXPENSES                                    |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|Cost of revenues:                                     |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|                                                      | Software licenses        |   |                    | 3,408  |                  |   |         | 3,596  |      |   |         | 6,467   |  |   |         | 6,646   | 
|                                                      | Maintenance and services |   |                    | 37,045 |                  |   |         | 32,156 |      |   |         | 67,506  |  |   |         | 64,535  | 
|Sales and marketing                                   |                          |   | 58,255             |        |                  |   | 48,662  |        |      |   | 100,697 |         |  |   | 89,740  |        
|Research and development                              |                          |   | 23,573             |        |                  |   | 18,107  |        |      |   | 43,357  |         |  |   | 35,979  |        
|General and administrative                            |                          |   | 15,950             |        |                  |   | 11,853  |        |      |   | 28,870  |         |  |   | 23,819  |        
|Restructuring charges                                 |                          |   | 3,516              |        |                  |   | 596     |        |      |   | 3,516   |         |  |   | 596     |        
|In-process research and development                   |                          |   | 2,300              |        |                  |   |        |        |      |   | 2,300   |         |  |   |        |        
|                                                      |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|TOTAL COSTS AND EXPENSES                              |                          |   | 144,047            |        |                  |   | 114,970 |        |      |   | 252,713 |         |  |   | 221,315 |        
|                                                      |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|OPERATING INCOME                                      |                          |   | 12,089             |        |                  |   | 11,067  |        |      |   | 26,975  |         |  |   | 24,601  |        
|Interest and other income                             |                          |   | 1,123              |        |                  |   | 1,574   |        |      |   | 2,263   |         |  |   | 3,033   |        
|Interest and other expense                            |                          |   | (420               | )      |                  |   | (852    | )      |      |   | (1,072  | )       |  |   | (1,634  | )      
|Gain (loss) on redemption of debt                     |                          |   | (936               | )      |                  |   | 226     |        |      |   | (936    | )       |  |   | 478     |        
|                                                      |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|INCOME BEFORE INCOME TAXES                            |                          |   | 11,856             |        |                  |   | 12,015  |        |      |   | 27,230  |         |  |   | 26,478  |        
|Income tax provision                                  |                          |   | 5,238              |        |                  |   | 4,446   |        |      |   | 10,925  |         |  |   | 9,797   |        
|                                                      |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|NET INCOME                                            |                          | $ | 6,618              |        |                  | $ | 7,569   |        |      | $ | 16,305  |         |  | $ | 16,681  |        
|                                                      |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|Other comprehensive income                            |                          |   | 2,964              |        |                  |   | 1,489   |        |      |   | 3,339   |         |  |   | 658     |        
|                                                      |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|COMPREHENSIVE INCOME                                  |                          | $ | 9,582              |        |                  | $ | 9,058   |        |      | $ | 19,644  |         |  | $ | 17,339  |        
|                                                      |                          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|Basic net income per share                            |                          | $ | 0.17               |        |                  | $ | 0.22    |        |      | $ | 0.44    |         |  | $ | 0.49    |        
|Diluted net income per share                          |                          | $ | 0.16               |        |                  | $ | 0.21    |        |      | $ | 0.42    |         |  | $ | 0.48    |        
|Shares used in computing basic net income
per share   |                          |   | 38,544             |        |                  |   | 34,173  |        |      |   | 37,221  |         |  |   | 34,056  |        
|Shares used in computing diluted net income
per share |                          |   | 40,166             |        |                  |   | 35,448  |        |      |   | 38,976  |         |  |   | 35,069  |        

See accompanying notes to condensed consolidated financial statements.

3



---



##### Table of Contents






HYPERION SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|                                                                                  |                                                   |                            |          |                  |       |      |         |         |       | 
|--------------------------------------------------------------------------------- | ------------------------------------------------- | -------------------------- | -------- | ---------------- | ----- | ---- | ------- | ------- | ----- | 
|                                                                                  |                                                   |                            |          | Six Months Ended
|                                                                                  |                                                   |                            |          | December 31,    
|                                                                                  |                                                   |                            |          | 2003             |       | 2002
|                                                                                  |                                                   |                            |          |                  |       |     
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |                                                   |                            |          |                  |       |      |         |        
|Net income                                                                        |                                                   | $                          | 16,305   |                  |       | $    | 16,681  |        
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                   |                            |          |                  |       |      |         |        
|                                                                                  | (Gain) loss on redemption of debt                 |                            |          | 936              |       |      |         | (478    | )    
|                                                                                  | (Gain) loss on sale of assets                     |                            |          | 96               |       |      |         | (8      | )    
|                                                                                  | Depreciation and amortization                     |                            |          | 16,407           |       |      |         | 14,395  |      
|                                                                                  | Provision for accounts receivable allowances      |                            |          | 4,226            |       |      |         | 5,376   |      
|                                                                                  | Deferred income taxes                             |                            |          | 334              |       |      |         | 249     |      
|                                                                                  | Income tax benefit from exercise of stock options |                            |          | 3,310            |       |      |         | 3,148   |      
|                                                                                  | In-process research and development               |                            |          | 2,300            |       |      |         |        |      
|Changes in operating assets and liabilities:                                      |                                                   |                            |          |                  |       |      |         |        
|                                                                                  | Accounts receivable                               |                            |          | (3,700           | )     |      |         | 19,324  |      
|                                                                                  | Prepaid expenses and other current assets         |                            |          | (874             | )     |      |         | (1,875  | )    
|                                                                                  | Other assets                                      |                            |          | 1,296            |       |      |         | (731    | )    
|                                                                                  | Accounts payable and accrued expenses             |                            |          | (6,027           | )     |      |         | (9,062  | )    
|                                                                                  | Accrued employee compensation and benefits        |                            |          | (5,713           | )     |      |         | (2,410  | )    
|                                                                                  | Income taxes payable                              |                            |          | 4,145            |       |      |         | 4,590   |      
|                                                                                  | Deferred revenue                                  |                            |          | (13,526          | )     |      |         | (6,790  | )    
|                                                                                  | Other current liabilities                         |                            |          | 1,707            |       |      |         | (1,489  | )    
|                                                                                  | Other liabilities                                 |                            |          | (715             | )     |      |         | (240    | )    
|                                                                                  |                                                   |                            |          |                  |       |      |         |        
|Net cash provided by operating activities                                         |                                                   |                            | 20,507   |                  |       |      | 40,680  |        
|                                                                                  |                                                   |                            |          |                  |       |      |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |                                                   |                            |          |                  |       |      |         |        
|                                                                                  | Purchases of investments                          |                            |          | (2,104           | )     |      |         | (10,093 | )    
|                                                                                  | Proceeds from maturities of investments           |                            |          | 25,434           |       |      |         | 11,114  |      
|                                                                                  | Purchases of property and equipment               |                            |          | (8,756           | )     |      |         | (10,668 | )    
|                                                                                  | Proceeds from sale of property and equipment      |                            |          | 47               |       |      |         | 285     |      
|                                                                                  | Purchases of intangible assets                    |                            |          | (971             | )     |      |         | (1,190  | )    
|                                                                                  | Payments for acquisitions, net of cash acquired   |                            |          | (6,494           | )     |      |         |        |      
|                                                                                  |                                                   |                            |          |                  |       |      |         |        
|Net cash provided by (used in) investing activities                               |                                                   |                            | 7,156    |                  |       |      | (10,552 | )      
|                                                                                  |                                                   |                            |          |                  |       |      |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |                                                   |                            |          |                  |       |      |         |        
|                                                                                  | Principal payments on mortgage loan               |                            |          |                 |       |      |         | (2,298  | )    
|                                                                                  | Redemption of debt                                |                            |          | (50,683          | )     |      |         | (27,930 | )    
|                                                                                  | Purchases of common stock                         |                            |          | (91,967          | )     |      |         |        |      
|                                                                                  | Proceeds from issuance of common stock            |                            |          | 18,307           |       |      |         | 21,476  |      
|                                                                                  |                                                   |                            |          |                  |       |      |         |        
|Net cash used in financing activities                                             |                                                   |                            | (124,343 | )                |       |      | (8,752  | )      
|Effect of exchange rate on cash and cash equivalents                              |                                                   |                            | 4,086    |                  |       |      | 1,668   |        
|                                                                                  |                                                   |                            |          |                  |       |      |         |        
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  |                                                   |                            | (92,594  | )                |       |      | 23,044  |        
|Cash and cash equivalents at beginning of period                                  |                                                   |                            | 398,040  |                  |       |      | 311,130 |        
|                                                                                  |                                                   |                            |          |                  |       |      |         |        
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        |                                                   | $                          | 305,446  |                  |       | $    | 334,174 |        
|                                                                                  |                                                   |                            |          |                  |       |      |         |        
|SUPPLEMENTAL CASH FLOW INFORMATION:                                               |                                                   |                            |          |                  |       |      |         |        
|                                                                                  |                                                   | Cash paid for interest     |          | $                | 2,546 |      |         | $       | 1,949 | 
|                                                                                  |                                                   | Cash paid for income taxes |          | $                | 3,068 |      |         | $       | 1,843 | 

See accompanying notes to condensed consolidated financial statements.

4



---



##### Table of Contents






HYPERION SOLUTIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2003

1.      Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to these rules and regulations. However,
management believes that the disclosures are adequate to ensure the information
presented is not misleading. The balance sheet at June 30, 2003 has been
derived from the audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. These
unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
our annual report on Form 10-K for the fiscal year ended June 30, 2003.

In the opinion of management, all adjustments, consisting only of normal
recurring items, considered necessary for a fair presentation have been
included in the accompanying unaudited financial statements. The results of
operations for the interim periods presented are not necessarily indicative of
the operating results to be expected for any subsequent interim period or for
the fiscal year ending June 30, 2004.

2.     Significant Accounting Policies

Revenue Recognition

Hyperion derives revenues from licensing its software products and providing
maintenance, consulting and training services. Hyperions standard software
license agreement is a perpetual license to use its products on an end user,
concurrent user or central processing unit basis.

Hyperion records revenue from licensing its software products to end users
provided there is persuasive evidence of an arrangement, the fee is fixed or
determinable, collection is reasonably assured and delivery of the product has
occurred, as prescribed by Statement of Position (SOP) No. 97-2, Software
Revenue Recognition. For arrangements with multiple elements, and for which
vendor specific objective evidence (VSOE) of fair value exists for the
undelivered elements, revenue is recognized for the delivered elements based
upon the residual method in accordance with SOP 98-9, Modifications of SOP
97-2 with Respect to Certain Transactions. Amounts billed or payments
received in advance of revenue recognition are recorded as deferred revenue.

Maintenance agreements are generally twelve-month prepaid contracts that are
recognized ratably over the service period. VSOE of fair value for maintenance
is measured by the stated renewal rates included in the agreements.

Customers may also enter into arrangements that are typically on a time and
materials basis for consulting and training services. VSOE of fair value for
consulting and training services is based upon the standard hourly rate
Hyperion charges for such services when sold separately. Training services are
generally prepaid prior to rendering the service. Consulting and training
revenues are typically recognized as earned. Consulting revenues are generated
primarily from implementation services related to the installation of
Hyperions products. These arrangements are generally accounted for separately
from the license revenue because the arrangements qualify as service
transactions as defined in SOP 97-2. Hyperions services are generally not
essential to the functionality of the software. Hyperions products are fully
functional upon delivery of the product and implementation does not require
significant modification or alteration. Factors considered in determining
whether the revenue should be accounted for separately include, but are not
limited to: degree of risk, availability of services from other vendors, timing
of payments and impact of milestones or acceptance criteria on the
realizability of the software license fee. Payments related to the software
product to which the services relate are typically billed independently from
the services and, therefore, are not coincident with performance of such
services. License agreements generally do not include acceptance provisions.
In the infrequent circumstance where an arrangement does not qualify for
separate accounting of the license and service elements, license revenue is
generally recognized together with the consulting services using the
percentage-of-completion method of contract accounting in accordance with SOP
81-1, Accounting for Performance of Construction-Type and Certain Product-Type
Contracts and Accounting Research Bulletin No. 45, Long-Term
Construction-Type Contracts.

If the fair value of any undelivered element included in a multiple-element
arrangement cannot be objectively determined, revenue is deferred until all
elements are delivered, services have been performed or until fair value can be
objectively determined. License revenue from resellers or distributors is
recognized upon sell-through to the end customer. If Hyperion determines that
collection of a license fee is not reasonably assured, the fee is deferred and
revenue is recognized at the time collection becomes reasonably assured, which
is generally upon receipt of cash.

5



---



##### Table of Contents



Accounts Receivable Allowances

Hyperion makes judgments as to its ability to collect outstanding receivables
and provides allowances for a portion of receivables when collection becomes
doubtful. Provisions are made based upon a specific review of all significant
outstanding invoices. For those invoices not specifically reviewed, provisions
are made at differing rates, based upon the age of the receivable. In
determining these provisions, Hyperion analyzes several factors, including: its
historical collection experience, customer concentrations, customer
credit-worthiness and current economic trends. If the historical data used to
calculate the accounts receivable allowances does not reflect Hyperions future
ability to collect outstanding receivables, Hyperion may record additional
provisions for accounts receivable allowances. Hyperion records the provision
for accounts receivable allowances in general and administrative expense and as
a reduction of revenue in order to match the underlying cause of the provision
to the appropriate classification in Hyperions statement of operations.

Hyperions accounts receivable allowance was $9.2 million at December 31, 2003
and $8.2 million at June 30, 2003. The total provision for accounts receivable
allowances was $2.1 million and $3.7 million for the three months ended
December 31, 2003 and 2002, respectively. Of these provisions, $0.4 million
and $0.7 million were recorded in general and administrative expense for the
three months ended December 31, 2003 and 2002, respectively, and $1.7 million
and $3.0 million were recorded as a reduction of revenue for the three months
ended December 31, 2003 and 2002, respectively. The total provision for
accounts receivable allowances was $4.2 million and $5.4 million for the six
months ended December 31, 2003 and 2002, respectively. Of these provisions,
$0.9 million and $1.2 million were recorded in general and administrative
expense for the six months ended December 31, 2003 and 2002, respectively, and
$3.3 million and $4.2 million were recorded as a reduction of revenue for the
six months ended December 31, 2003 and 2002, respectively.

Net Income Per Share

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

The following table sets forth the computations of basic and diluted net income
per share (in thousands, except per share data):

|                                                      |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|----------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                                                      |  | Three Months Ended |        | Six Months Ended
|                                                      |  | December 31,       |        | December 31,    
|                                                      |  | 2003               |        | 2002             |  | 2003 |        | 2002
|                                                      |  |                    |        |                  |  |      |        |     
|Net income                                            |  | $                  | 6,618  |                  |  | $    | 7,569  |      |  | $ | 16,305 |  |  | $ | 16,681 | 
|Shares used in computing basic net income
per share   |  |                    | 38,544 |                  |  |      | 34,173 |      |  |   | 37,221 |  |  |   | 34,056 | 
|Effect of potentially dilutive securities             |  |                    | 1,622  |                  |  |      | 1,275  |      |  |   | 1,755  |  |  |   | 1,013  | 
|                                                      |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Shares used in computing diluted net income
per share |  |                    | 40,166 |                  |  |      | 35,448 |      |  |   | 38,976 |  |  |   | 35,069 | 
|                                                      |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Basic net income per share                            |  | $                  | 0.17   |                  |  | $    | 0.22   |      |  | $ | 0.44   |  |  | $ | 0.49   | 
|Diluted net income per share                          |  | $                  | 0.16   |                  |  | $    | 0.21   |      |  | $ | 0.42   |  |  | $ | 0.48   | 

For the three and six months ended December 31, 2003, stock option rights
totaling 1.1 million shares of common stock have been excluded from the diluted
EPS calculations because their effect would have been antidilutive. For the
three and six months ended December 31, 2002, stock option rights totaling 2.2
million shares and 2.7 million shares, respectively, have been excluded from
the diluted EPS calculations because their effect would have been antidilutive.

For the three and six months ended December 31, 2003, 0.6 million shares and
0.7 million shares of common stock, respectively, issuable upon conversion of
the convertible subordinated notes due March 2005 have been excluded from the
diluted EPS calculations because their effect would have been antidilutive. For
the three and six months ended December 31, 2002, 1.2 million shares and 1.3
million shares of common stock, respectively, issuable upon conversion of the
convertible subordinated notes have been excluded from the diluted EPS
calculations because their effect would have been antidilutive.

6



---



##### Table of Contents



Stock-Based Compensation

Hyperion accounts for employee stock-based compensation in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, as permitted by SFAS 123, Accounting for Stock-Based
Compensation, and SFAS 148, Accounting for Stock-Based Compensation -
Transition and Disclosure. Had Hyperion accounted for employee stock-based
compensation based on the estimated grant date fair values, as defined by SFAS
123, Hyperions net income and net income per share would have been adjusted to
the following pro forma amounts (in thousands, except per share data):

|                                                                                            |                       |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |      | 
|------------------------------------------------------------------------------------------- | --------------------- | - | ------------------ | ---- | ---------------- | - | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                                            |                       |   | Three Months Ended |      | Six Months Ended
|                                                                                            |                       |   | December 31,       |      | December 31,    
|                                                                                            |                       |   | 2003               |      | 2002             |   | 2003   |      | 2002
|                                                                                            |                       |   |                    |      |                  |   |        |      |     
|Net income, as reported                                                                     |                       | $ | 6,618              |      |                  | $ | 7,569  |      |      | $ | 16,305 |      |  | $ | 16,681 |     
|Add: stock-based compensation expense
included in reported net income, net of tax           |                       |   | 678                |      |                  |   |       |      |      |   | 678    |      |  |   |       |     
|Deduct: stock-based compensation expense
determined under the fair value method,
net of tax |                       |   | (4,263             | )    |                  |   | (3,920 | )    |      |   | (8,694 | )    |  |   | (7,929 | )   
|                                                                                            |                       |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |     
|Net income, pro forma                                                                       |                       | $ | 3,033              |      |                  | $ | 3,649  |      |      | $ | 8,289  |      |  | $ | 8,752  |     
|                                                                                            |                       |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |     
|Net income per share:                                                                       |                       |   |                    |      |                  |   |        |      |      |   |        |      |  |   |        |     
|                                                                                            | Basic  as reported   |   | $                  | 0.17 |                  |   | $      | 0.22 |      |   | $      | 0.44 |  |   | $      | 0.49 | 
|                                                                                            | Basic  pro forma     |   | $                  | 0.08 |                  |   | $      | 0.11 |      |   | $      | 0.22 |  |   | $      | 0.26 | 
|                                                                                            | Diluted  as reported |   | $                  | 0.16 |                  |   | $      | 0.21 |      |   | $      | 0.42 |  |   | $      | 0.48 | 
|                                                                                            | Diluted  pro forma   |   | $                  | 0.08 |                  |   | $      | 0.10 |      |   | $      | 0.21 |  |   | $      | 0.25 | 

These pro forma amounts may not be representative of the effects for future
periods as options vest over several years and additional awards are generally
granted each year.

Comprehensive Income

Comprehensive income includes foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities. To date,
unrealized gains and losses on available-for-sale securities have not been
material. The components of accumulated other comprehensive loss are as
follows (in thousands):

|                                                           |  |              |        |          |  |   |        |  
|---------------------------------------------------------- |  | ------------ | ------ | -------- |  | - | ------ | -
|                                                           |  | December 31, |        | June 30,
|                                                           |  | 2003         |        | 2003    
|                                                           |  |              |        |         
|Cumulative translation adjustment                          |  | $            | (1,548 | )        |  | $ | (4,967 | )
|Unrealized gains (losses) on
available-for-sale securities |  |              | (6     | )        |  |   | 74     |  
|                                                           |  |              |        |          |  |   |        |  
|                                                           |  | $            | (1,554 | )        |  | $ | (4,893 | )
|                                                           |  |              |        |          |  |   |        |  

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51. FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 is effective for all new variable interest entities
created or acquired after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period ending after
March 15, 2004. Hyperion adopted FIN 46 on February 1, 2003 for new entities, and the
adoption did not have a material impact on its financial position or results of
operations. Hyperion is currently assessing the impact of adopting FIN 46 for
pre-existing entities but does not expect it will have a material impact on its
financial position or results of operations.

7



---



##### Table of Contents



In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is
generally effective for derivative instruments, including derivative
instruments embedded in certain contracts, entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003.
Hyperion adopted SFAS 149 on July 1, 2003, and the adoption did not have a
material impact on its financial position or results of operations.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
SFAS 150 requires that an issuer classify a financial instrument that falls
within its scope as a liability (or an asset in some circumstances). SFAS 150
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. Hyperion adopted SFAS 150 on May 15, 2003 for
all financial instruments entered into or modified after that date and on July
1, 2003 for pre-existing financial instruments, and the adoption did not have a
material impact on its financial position or results of operations.

3.     Commitments and Contingencies

Guarantees and Indemnifications

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

As permitted under Delaware law, Hyperion has agreements whereby it indemnifies
its officers and directors for certain events or occurrences while the officer
or director is or was serving at Hyperions request in such capacity. The term
of the indemnification period is for the officers or directors lifetime. The
maximum potential amount of future payments Hyperion could be required to make
under these indemnification agreements is unlimited; however, Hyperion has a
director and officer insurance policy that limits its exposure and enables it
to recover a portion of any future amounts paid. As a result of the insurance
policy coverage, Hyperion believes the estimated fair value of these
indemnification agreements is minimal. Hyperion has no liabilities recorded
for these agreements as of December 31, 2003.

Hyperion includes standard intellectual property indemnification clauses in its
software license agreements. Pursuant to these clauses, Hyperion holds
harmless and agrees to defend the indemnified party, generally Hyperions
business partners and customers, in connection with certain patent, copyright
or trade secret infringement claims by third parties with respect to Hyperions
products. The term of the indemnification clauses is generally perpetual any
time after execution of the software license agreement. In the event an
infringement claim against Hyperion or an indemnified party is successful,
Hyperion, at its sole option, agrees to do one of the following: (i) procure
for the indemnified party the right to continue use of the software; (ii)
provide a modification to the software so that its use becomes non-infringing;
(iii) replace the software with software which is substantially similar in
functionality and performance; or (iv) refund the residual value of the
software license fees paid by the indemnified party for the infringing
software. Hyperion believes the estimated fair value of these agreements is
minimal. Hyperion has no liabilities recorded for these agreements as of
December 31, 2003.

Hyperion generally warrants that its software products will perform in all
material respects in accordance with its standard published specifications in
effect at the time of delivery of the licensed products to the customer for a
period of ninety days following delivery. If necessary, Hyperion would provide
for the estimated cost of product warranties based on specific warranty claims
and claim history. Hyperion has not incurred significant expense under its
product warranties to date and, as a result, Hyperion believes the estimated
fair value of these warranties is minimal. Hyperion has no liabilities
recorded for these warranties as of December 31, 2003.

8



---



##### Table of Contents



Contingencies

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

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

4.     Business Combination

On October 16, 2003, Hyperion completed its acquisition of Brio Software, Inc.,
a business intelligence software provider based in Santa Clara, California.
Under the terms of the acquisition, Brio stockholders received a combination of
0.109 of a share of Hyperion common stock and $0.363 in cash in exchange for
each share of Brio common stock, which resulted in the issuance of 4.2 million
shares of Hyperion common stock and $14.0 million in cash to the Brio
stockholders. Additionally, Hyperion reserved 1.1 million shares of its common
stock for issuance in connection with the Brio stock options assumed in the
transaction. Brios results of operations have been included in Hyperions
results since the date of acquisition.

Brio provides business intelligence
software with advanced query, reporting and analysis capabilities.
Brios business intelligence tools are an adjacent application that fills a
customer need and complements our Business Performance Management offering.
Hyperion expects the acquisition will result in greater integration of business
intelligence into the Business Performance Management process.

The aggregate purchase price was approximately $149.9 million, which consisted
of approximately $14.0 million in cash, $133.0 million in Hyperion common stock
and options, and $2.9 million in acquisition costs, which primarily consist of
fees paid for financial advisory, legal, and accounting services. The value of
the stock issued to Brio stockholders was based upon the average of the closing
prices of one share of Hyperions common stock during the five trading days
ending July 25, 2003, which was $27.68. The fair value of Hyperions
stock-based awards issued to employees was estimated using a Black-Scholes
option pricing model. The fair value of the stock-based awards was estimated
assuming no expected dividends and the following weighted-average assumptions:

|                         |  |  |      |  
|------------------------ |  |  | ---- | -
|Expected life (in years) |  |  | 3.56 |  
|Expected volatility      |  |  | 54   | %
|Risk free interest rate  |  |  | 2.51 | %

The intrinsic value allocated to unvested stock-based awards issued to
employees was approximately $7.1 million and has been recorded as deferred
stock-based compensation. Deferred stock-based compensation is being amortized
over the remaining vesting periods of the awards.

In accordance with SFAS 141, Business Combinations, Hyperion allocated
the purchase price to tangible assets, intangible assets, in-process research
and development, deferred compensation, and liabilities based on their
estimated fair values. The excess purchase price over the fair values was
recorded as goodwill. The fair value assigned to intangible assets acquired
was based on estimates and assumptions determined by management. In accordance
with SFAS 142, Goodwill and Other Intangible Assets, goodwill and
purchased intangibles with indefinite lives acquired after June 30, 2001 are
not amortized but will be reviewed periodically for impairment. Purchased
intangibles with finite lives are amortized on a straight-line basis over their
respective useful lives. The total purchase price has initially been allocated
as follows (in thousands):

9



---



##### Table of Contents



|                                    |  |   |         |  
|----------------------------------- |  | - | ------- | -
|Current assets                      |  | $ | 48,345  |  
|Property and equipment              |  |   | 10,234  |  
|Goodwill                            |  |   | 126,212 |  
|Intangible assets                   |  |   | 30,000  |  
|Deferred taxes                      |  |   | 5,710   |  
|In-process research and development |  |   | 2,300   |  
|Deferred compensation               |  |   | 7,113   |  
|Current liabilities                 |  |   | (17,876 | )
|Deferred revenue                    |  |   | (28,667 | )
|Restructuring costs                 |  |   | (33,441 | )
|                                    |  |   |         |  
|Total purchase price                |  | $ | 149,930 |  
|                                    |  |   |         |  

The purchase price allocation is preliminary and a final determination of
required purchase accounting adjustments will be made upon the completion of a
final analysis of the fair values of the assets acquired and
liabilities assumed.

In performing this preliminary purchase price allocation, Hyperion considered,
among other factors, its intention for future use of the acquired assets,
analyses of historical financial performance and estimates of future
performance of Brios products. The fair values of intangible assets were
estimated using the income approach for capitalized software and maintenance
agreements, the royalty savings approach for patents and core technology, and
the cost approach for customer contracts and related relationships and value
added reseller relationships. The rates utilized to discount the net cash
flows to their present values were based upon Hyperions weighted average cost
of capital and range from 14% to 16%. These discount rates were determined
after consideration of Hyperions rate of return on debt capital and equity,
the weighted average return on invested capital and the risk associated with
achieving forecasted sales related to the technology and assets acquired from
Brio. At December 31, 2003, identifiable intangible assets purchased in the
Brio acquisition consist of the following (in thousands, except for useful
life):

|                                             |  |       |        |        |  |         |  | 
|-------------------------------------------- |  | ----- | ------ | ------ |  | ------- |  | 
|                                             |  | Fair  |        | Useful
|Identifiable Intangible Assets               |  | Value |        | Life  
|                                             |  |       |        |       
|Capitalized software                         |  | $     | 15,500 |        |  | 4 years
|Patents and core technology                  |  |       | 4,000  |        |  | 6 years
|Maintenance agreements                       |  |       | 4,400  |        |  | 5 years
|Customer contracts and related relationships |  |       | 6,000  |        |  | 4 years
|Value added reseller relationships           |  |       | 100    |        |  | 1 year 
|                                             |  |       |        |        |  |         |  | 
|                                             |  | $     | 30,000 |        |  |         |  | 
|                                             |  |       |        |        |  |         |  | 

In-process research and development (IPR&D) of $2.3 million was expensed in
the accompanying condensed consolidated statements of operations because the
purchased research and development had no alternative uses and had not reached
technological feasibility. The IPR&D relates to the Brio 8 product line. The
value assigned to IPR&D was determined utilizing the income approach. The
stage of completion for the project was estimated to determine the discount
rate to be applied to the valuation of the in-process technology. Based upon
the level of completion and the risk associated with the in-process technology,
a discount rate of 20% was deemed appropriate for valuing IPR&D.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined
results of operations of Hyperion and Brio, on a pro forma basis, as though the
companies had been combined as of the beginning of each period presented. The
impact of the IPR&D charge and restructuring charges associated with the
acquisition have been excluded. This pro forma financial information is
presented for informational purposes only and is not necessarily indicative of
the results of operations that would have been achieved had the acquisition
taken place at the beginning of each period presented. The unaudited pro forma
combined statement of operations data for the three months ended December
31, 2003 combines (i) the results of Hyperion for the three months
ended December 31, 2003, which include the post-acquisition
results of Brio for the period of October 16, 2003 to
December 31, 2003 and (ii) the pre-acquisition results of
Brio for the period of October 1, 2003 to October 15, 2003. The
unaudited pro forma combined statement of operations data for the six
months ended December 31, 2003 combines (i) the results of
Hyperion for the six months ended December 31, 2003, which
include the post-acquisition results of Brio for the period of
October 16, 2003 to December 31, 2003 and (ii) the
pre-acquisition results of Brio for the period of July 1, 2003
to October 15, 2003. The unaudited pro forma combined statement
of operations data for the three and six months ended
December 31, 2002 combines (i) the results of Hyperion for
the three and six months ended December 31, 2002 and
(ii) the results of Brio for the three and six months ended
December 31, 2002. The pro forma amounts are as follows (in thousands, except per share amounts):

10



---



##### Table of Contents



|                             |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|---------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                             |  | Three Months Ended |         | Six Months Ended
|                             |  | December 31,       |         | December 31,    
|                             |  | 2003               |         | 2002             |  | 2003 |         | 2002
|                             |  |                    |         |                  |  |      |         |     
|Revenues                     |  | $                  | 159,545 |                  |  | $    | 151,488 |      |  | $ | 310,537 |  |  | $ | 296,190 | 
|Net income                   |  |                    | 10,326  |                  |  |      | 3,983   |      |  |   | 12,413  |  |  |   | 8,583   | 
|Basic net income per share   |  |                    | 0.26    |                  |  |      | 0.10    |      |  |   | 0.31    |  |  |   | 0.22    | 
|Diluted net income per share |  |                    | 0.25    |                  |  |      | 0.10    |      |  |   | 0.30    |  |  |   | 0.22    | 

5.     Restructuring Accruals

During the three months ended December 31, 2003, in connection with the
acquisition of Brio, management approved and initiated plans to restructure the
operations of Hyperion to eliminate certain duplicative activities and reduce
the companys cost structure. Consequently, Hyperion recorded restructuring
charges totaling $3.2 million, of which $3.1 million related to employee
severance costs and $0.1 million related to facility closure costs. These
costs were accounted for under SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities and have been included as a charge to Hyperions
results of operations. During the three months ended December 31, 2003,
Hyperion also recorded a restructuring charge of $0.3 million related to the
restructuring activities initiated in June 2001.

As a result of the acquisition of Brio, Hyperion recorded $33.4
million of restructuring costs in connection with exiting certain
pre-acquisition activities of Brio including employee severance costs, facility
closure costs, and other costs. Accordingly, these costs have been recognized
as a liability assumed in the purchase business combination in accordance with
EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business
Combination.

In June 2001, Hyperion announced a corporate restructuring plan designed to
bring costs more in line with revenues and strengthen the financial performance
of the business, which resulted in a reduction of the workforce by
approximately 300, or 12% of worldwide headcount. Employee groups impacted by
the restructuring include personnel involved in corporate services, product
business units, sales and customer support. In addition, Hyperion consolidated
some of its facilities and exited other facilities. The total restructuring
charges recorded in June 2001 were $42.8 million and were accounted for under
EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring), which was subsequently superseded by SFAS 146.

The following table sets forth the activity in Hyperions restructuring
accruals, accounted for under SFAS 146 and EITF 94-3, for the three months
ended December 31, 2003, which are included in Other current liabilities and
Other liabilities in the accompanying condensed consolidated balance sheet
(in thousands):

|                              |  |           |        |            |  |       |        |       |  |   |       |   |  |   |        |  
|----------------------------- |  | --------- | ------ | ---------- |  | ----- | ------ | ----- |  | - | ----- | - |  | - | ------ | -
|                              |  | Severance |        | Facilities |  | Other |        | Total
|                              |  |           |        |            |  |       |        |      
|Balance at September 30, 2003 |  | $         |       |            |  | $     | 12,870 |       |  | $ | 1,813 |   |  | $ | 14,683 |  
|Restructuring costs           |  |           | 3,072  |            |  |       | 444    |       |  |   |      |   |  |   | 3,516  |  
|Cash payments                 |  |           | (1,428 | )          |  |       | (536   | )     |  |   | (122  | ) |  |   | (2,086 | )
|                              |  |           |        |            |  |       |        |       |  |   |       |   |  |   |        |  
|Balance at December 31, 2003  |  | $         | 1,644  |            |  | $     | 12,778 |       |  | $ | 1,691 |   |  | $ | 16,113 |  
|                              |  |           |        |            |  |       |        |       |  |   |       |   |  |   |        |  

The following table sets forth the activity in Hyperions restructuring
accruals, accounted for under EITF 95-3, for the three months
ended December 31, 2003, which are included in Accounts
payable and accrued expenses,
Accrued employee compensation and benefits, and
Other liabilities in the accompanying condensed
consolidated balance sheet (in thousands):

|                              |  |           |        |            |  |             |        |       |  |       |        |   |  |   |        |  
|----------------------------- |  | --------- | ------ | ---------- |  | ----------- | ------ | ----- |  | ----- | ------ | - |  | - | ------ | -
|                              |  |           |        |            |  |             |        |       |  | Asset |        |   |  |  
|                              |  | Severance |        | Facilities |  | Impairments |        | Total
|                              |  |           |        |            |  |             |        |      
|Balance at September 30, 2003 |  | $         |       |            |  | $           |       |       |  | $     |       |   |  | $ |       |  
|Restructuring costs           |  |           | 4,335  |            |  |             | 23,753 |       |  |       | 5,353  |   |  |   | 33,441 |  
|Non-cash items                |  |           |       |            |  |             |       |       |  |       | (5,353 | ) |  |   | (5,353 | )
|Cash payments                 |  |           | (1,048 | )          |  |             | (1,360 | )     |  |       |       |   |  |   | (2,408 | )
|                              |  |           |        |            |  |             |        |       |  |       |        |   |  |   |        |  
|Balance at December 31, 2003  |  | $         | 3,287  |            |  | $           | 22,393 |       |  | $     |       |   |  | $ | 25,680 |  
|                              |  |           |        |            |  |             |        |       |  |       |        |   |  |   |        |  

The restructuring costs recorded during the three months ended December 31,
2003 are based on Hyperions restructuring plans that have been committed to by
management and are subject to refinement. Any changes to the estimates of
executing the currently approved plans of restructuring the pre-acquisition
Brio operations will be recorded as an adjustment to goodwill and any changes
to the estimated costs of restructuring the pre-acquisition Hyperion operations
will be reflected in Hyperions results of operations.

11



---



##### Table of Contents



6.     Debt Redemption

In October 2003, Hyperions board of directors authorized the redemption of its
outstanding convertible subordinated notes of $50.0 million. The redemption
occurred in November 2003 and resulted in the recognition of a loss on
redemption of debt, which included the 1.286% redemption premium and the
write-off of associated deferred issuance costs, of $0.9 million in the three
and six months ended December 31, 2003.

7.     Stock Repurchases

In July 2003, Hyperions board of directors authorized the repurchase of up to
$125.0 million of its outstanding common stock. Hyperion will determine the
timing and amount of shares to be repurchased based upon market conditions and
other factors, and will use existing cash, cash equivalents and short-term
investments to finance the transactions. During the three months ended
December 31, 2003, Hyperion repurchased and retired 1,986,400 shares of its
common stock for a total cost of $65.9 million. Of this amount, $19.9 million
was recorded as a reduction of additional paid-in capital and the remaining
$46.0 million was recorded as a reduction of retained earnings. During the six
months ended December 31, 2003, Hyperion repurchased and retired 2,791,400
shares of its common stock for a total cost of $92.0 million. Of this amount,
$31.0 million was recorded as a reduction of additional paid-in capital and the
remaining $61.0 million was recorded as a reduction of retained earnings.

8.     Segment and Geographic Information

SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, established standards for reporting information about operating
segments in a companys financial statements. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance. Hyperion has identified one industry segment: the development and
marketing of business performance management software and related services.
This segment operates in three geographic regions: the Americas (United States,
Canada and Latin America), EMEA (Europe, Middle East and Africa) and APAC (Asia
Pacific). Hyperions products are marketed internationally through Hyperions
direct sales force, independent distributors and application resellers.

Enterprise-wide information is provided in accordance with SFAS 131.
Geographic revenue information is primarily based on the ordering location of
the customer, and long-lived asset information is based on the physical
location of the assets. The following table presents revenues and long-lived
assets by geographic region (in thousands):

|          |          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|--------- | -------- | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|          |          |   | Three Months Ended |        | Six Months Ended
|          |          |   | December 31,       |        | December 31,    
|          |          |   | 2003               |        | 2002             |   | 2003    |        | 2002
|          |          |   |                    |        |                  |   |         |        |     
|Revenues: |          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|          | Americas |   | $                  | 95,513 |                  |   | $       | 77,320 |      |   | $       | 170,455 |  |   | $       | 154,198 | 
|          | EMEA     |   |                    | 49,839 |                  |   |         | 41,760 |      |   |         | 91,675  |  |   |         | 77,594  | 
|          | APAC     |   |                    | 10,784 |                  |   |         | 6,957  |      |   |         | 17,558  |  |   |         | 14,124  | 
|          |          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|          |          | $ | 156,136            |        |                  | $ | 126,037 |        |      | $ | 279,688 |         |  | $ | 245,916 |        
|          |          |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 

|                   |          |   |              |        |          |   |        |        | 
|------------------ | -------- | - | ------------ | ------ | -------- | - | ------ | ------ | 
|                   |          |   | December 31, |        | June 30,
|                   |          |   | 2003         |        | 2003    
|                   |          |   |              |        |         
|Long-lived assets: |          |   |              |        |          |   |        |       
|                   | Americas |   | $            | 62,513 |          |   | $      | 59,857 | 
|                   | EMEA     |   |              | 6,356  |          |   |        | 6,360  | 
|                   | APAC     |   |              | 1,497  |          |   |        | 1,316  | 
|                   |          |   |              |        |          |   |        |        | 
|                   |          | $ | 70,366       |        |          | $ | 67,533 |       
|                   |          |   |              |        |          |   |        |        | 

12



---



##### Table of Contents



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

|                          |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |         | 
|------------------------- | ----------------------- | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                          |                         |   | Three Months Ended |        | Six Months Ended
|                          |                         |   | December 31,       |        | December 31,    
|                          |                         |   | 2003               |        | 2002             |   | 2003    |        | 2002
|                          |                         |   |                    |        |                  |   |         |        |     
|Software licenses         |                         | $ | 59,701             |        |                  | $ | 51,136  |        |      | $ | 102,746 |         |  | $ | 95,727  |        
|Maintenance and services: |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|                          | Maintenance             |   |                    | 68,243 |                  |   |         | 52,405 |      |   |         | 123,553 |  |   |         | 103,983 | 
|                          | Consulting and training |   |                    | 28,192 |                  |   |         | 22,496 |      |   |         | 53,389  |  |   |         | 46,206  | 
|                          |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|                          |                         |   | 96,435             |        |                  |   | 74,901  |        |      |   | 176,942 |         |  |   | 150,189 |        
|                          |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        
|Total revenues            |                         | $ | 156,136            |        |                  | $ | 126,037 |        |      | $ | 279,688 |         |  | $ | 245,916 |        
|                          |                         |   |                    |        |                  |   |         |        |      |   |         |         |  |   |         |        

13



---



##### Table of Contents






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

FORWARD-LOOKING STATEMENTS

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

OVERVIEW

Hyperion provides business performance management software that enables
companies to translate strategies into plans, monitor execution and provide
insight to improve financial and operational performance. We combine a
complete set of interoperable applications with a business intelligence
platform to support and create business performance management solutions. In
addition, we offer support and services from offices in 20 countries and are
represented by distributors in an additional 25 countries. We work with over
600 partners to provide solutions to more than 9,000 customer organizations
worldwide. Hyperion is headquartered in Sunnyvale, California and employs
approximately 2,600 people globally. Hyperion was formed in August 1998 when
Arbor Software, founded in 1991, acquired Hyperion Software, founded in 1981.

RESULTS OF OPERATIONS

We completed our acquisition of Brio
Software, Inc. on October 16, 2003. Brios results of
operations have been included in Hyperions results beginning on
the date of acquisition. In addition to
the incremental revenue streams associated with Brio products and services, we
also grew headcount by approximately 15% in the second quarter of fiscal 2004
compared to the first quarter of fiscal 2004.

REVENUES

|                         |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |   |   |            |         |  |  |     |    |            |   |         |         |  |  |     |    |  
|------------------------ | ----------------------- | ---- | ------------------------------- | ------- | ----------------------------- | ---- | ---------- | ------- | - | ---- | ------- | ------- | ---------- | ---- | --- | ------- | - | - | ---------- | ------- |  |  | --- | -- | ---------- | - | ------- | ------- |  |  | --- | -- | -
|                         |                         |      | Three Months Ended December 31, |         | Six Months Ended December 31,
|                         |                         |      |                                 |         |                              
|                         |                         |      |                                 |         |                               |      | Percent of |         |   |      |         |         | Percent of |      |     |         |   |   | Percent of |         |  |  |     |    | Percent of
|                         |                         |      |                                 |         |                               |      | Total      |         |   |      |         |         | Total      |      |     |         |   |   | Total      |         |  |  |     |    | Total     
|(In thousands)           |                         | 2003 |                                 | Revenue |                               | 2002 |            | Revenue |   | 2003 |         | Revenue |            | 2002 |     | Revenue
|                         |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |        
|Software licenses        |                         | $    | 59,701                          |         |                               |      | 38         | %       |   | $    | 51,136  |         |            |      | 41  | %       |   | $ | 102,746    |         |  |  | 37  | %  |            | $ | 95,727  |         |  |  | 39  | % 
|Maintenance and services |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |   |   |            |         |  |  |     |    |            |   |         |         |  |  |     |   
|                         | Maintenance             |      |                                 | 68,243  |                               |      |            | 44      | % |      |         | 52,405  |            |      |     | 41      | % |   |            | 123,553 |  |  |     | 44 | %          |   |         | 103,983 |  |  |     | 42 | %
|                         | Consulting and training |      |                                 | 28,192  |                               |      |            | 18      | % |      |         | 22,496  |            |      |     | 18      | % |   |            | 53,389  |  |  |     | 19 | %          |   |         | 46,206  |  |  |     | 19 | %
|                         |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |   |   |            |         |  |  |     |    |            |   |         |         |  |  |     |   
|                         |                         |      | 96,435                          |         |                               |      | 62         | %       |   |      | 74,901  |         |            |      | 59  | %       |   |   | 176,942    |         |  |  | 63  | %  |            |   | 150,189 |         |  |  | 61  | % 
|                         |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |   |   |            |         |  |  |     |    |            |   |         |         |  |  |     |   
|Total revenues           |                         | $    | 156,136                         |         |                               |      | 100        | %       |   | $    | 126,037 |         |            |      | 100 | %       |   | $ | 279,688    |         |  |  | 100 | %  |            | $ | 245,916 |         |  |  | 100 | % 
|                         |                         |      |                                 |         |                               |      |            |         |   |      |         |         |            |      |     |         |   |   |            |         |  |  |     |    |            |   |         |         |  |  |     |   

Total revenues increased 24% in the second quarter of fiscal 2004 compared to
the second quarter of fiscal 2003 and increased 14% in the first six months of
fiscal 2004 compared to the first six months of fiscal 2003.

14



---



##### Table of Contents



The change in foreign currency exchange rates favorably impacted total revenues
in the second quarter of fiscal 2004 compared to the second quarter of fiscal
2003 by approximately $6.1 million and favorably impacted total revenues in the
first six months of fiscal 2004 compared to the first six months of fiscal 2003
by approximately $9.9 million, in both cases primarily due to the strength of
the Euro against the U.S. dollar. Excluding the impact of foreign currency
exchange rate changes, total revenues would have increased 19% in the second
quarter of fiscal 2004 and would have increased 10% in the first six months of
fiscal 2004, compared to the same periods in fiscal 2003.

Software licenses.Software license revenues increased 17% in the second
quarter of fiscal 2004 compared to the second quarter of fiscal 2003 and
increased 7% in the first six months of fiscal 2004 compared to the first six
months of fiscal 2003. The increases in license revenue in the second quarter
and first six months of fiscal 2004 compared to the second quarter and first
six months of fiscal 2003 were attributable to our acquisition of Brio in
October 2003, as well as increases in sales of our two primary financial
application products, Hyperion Financial Management and Hyperion Planning.
Sales of Brio products contributed approximately $11.0 million to software
license revenue in the second quarter of fiscal 2004. These increases were
partially offset by decreases in sales of Essbase and related platform
products.

We market our products through our direct sales force and through channel
partners. To date, we have generated the majority of our license revenue
through our direct sales force, but we continue to focus on complementing our
direct sales force with channel partners, which include original equipment
manufacturers, value added resellers, system integrators and independent
distributors. License revenue from channel partners comprised 20% of total
license revenue in the second quarter of fiscal 2004 compared to 27% in the
second quarter of fiscal 2003 and comprised 22% of total license revenue in the
first six months of fiscal 2004 compared to 26% for the first six months of
fiscal 2003. The percentage of license revenue derived from our channel
partners can fluctuate between periods, as it is sensitive to individual large
transactions that are neither predictable nor consistent in size or timing. No
single channel partner represented more than 10% of total revenue during the
periods presented.

Maintenance and services.Maintenance and services revenue increased 29% in
the second quarter of fiscal 2004 compared to the second quarter of fiscal
2003, which was comprised of a 30% increase in maintenance revenue and a 25%
increase in consulting and training services revenue. Maintenance and services
revenue increased 18% in the first six months of fiscal 2004 compared to the
first six months of fiscal 2003, which was comprised of a 19% increase in
maintenance revenue and a 16% increase in consulting and training services
revenue.

The increases in maintenance revenue in the second quarter and first six months
of fiscal 2004 were primarily attributable to our acquisition of Brio in
October 2003 and, to a lesser extent, to year-over-year growth of our installed
customer base and improvements in our invoicing and collecting procedures for
maintenance renewals, offset slightly by cancelled maintenance contracts. The
increases in consulting and training services revenue in the second quarter and
first six months of fiscal 2004 were principally due to our acquisition of Brio
in October 2003 and, to a lesser extent, to increased utilization rates in our
consulting organization.

COST OF REVENUES

|                         |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |         |  |            |        |  |  |  |    |            |  |   |        |  |  |  |    |  
|------------------------ |  | ------------------------------- | ------ | ----------------------------- |  | ---------- | -- | ------- |  | ---- | ------ | ---------- |  | ---- | -- | ------- |  | ---------- | ------ |  |  |  | -- | ---------- |  | - | ------ |  |  |  | -- | -
|                         |  | Three Months Ended December 31, |        | Six Months Ended December 31,
|                         |  |                                 |        |                              
|                         |  |                                 |        |                               |  | Percent of |    |         |  |      |        | Percent of |  |      |    |         |  | Percent of |        |  |  |  |    | Percent of
|                         |  |                                 |        |                               |  | Related    |    |         |  |      |        | Related    |  |      |    |         |  | Related    |        |  |  |  |    | Related   
|(In thousands)           |  | 2003                            |        | Revenue                       |  | 2002       |    | Revenue |  | 2003 |        | Revenue    |  | 2002 |    | Revenue
|                         |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |        
|Software licenses        |  | $                               | 3,408  |                               |  |            | 6  | %       |  | $    | 3,596  |            |  |      | 7  | %       |  | $          | 6,467  |  |  |  | 6  | %          |  | $ | 6,646  |  |  |  | 7  | %
|Maintenance and services |  |                                 | 37,045 |                               |  |            | 38 | %       |  |      | 32,156 |            |  |      | 43 | %       |  |            | 67,506 |  |  |  | 38 | %          |  |   | 64,535 |  |  |  | 43 | %

Cost of software license revenue.Cost of software license revenue consists
primarily of royalty expenses, amortization of capitalized software development
costs, amortization of acquired technologies, and the cost of product packaging
and documentation materials. Cost of software license revenues have remained
relatively flat in the second quarter and first six months of fiscal 2004
compared to the second quarter and first six months of fiscal 2003. While
there has been an overall increase in the level of amortization expense
primarily due to the acquisitions of Brio in October 2003 and The Alcar Group
in April 2003, these increases have been offset by decreases in royalty
expenses due to different mixes of product sales.

Gross margins on software license revenue were 94% for the second quarter and
first six months of fiscal 2004 compared to 93% for the second quarter and
first six months of fiscal 2003.

15



---



##### Table of Contents



In the first six months of fiscal 2004 and 2003, we capitalized $0.9 million
and $0.7 million of software product development costs, respectively, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. The amounts capitalized relate to localization costs for our
software products. Capitalized software product development costs are
amortized over the estimated economic life of the products, which is generally
three years. The amortization of capitalized product development costs begins
upon the general release of the software to customers.

Cost of maintenance and services revenue.Cost of maintenance and services
revenue consists largely of compensation and benefits for support, consulting
and training personnel. Cost of maintenance and services revenue increased 15%
in the second quarter of fiscal 2004 compared to the second quarter of fiscal
2003 and increased 5% in the first six months of fiscal 2004 compared to the
first six months of fiscal 2003. The increase in cost of maintenance and
services revenue in the second quarter of fiscal 2004 compared to the second
quarter of fiscal 2003 was principally due to a $2.4 million increase in
employee expenses and a $2.4 million increase in external personnel costs, both
of which primarily resulted from our acquisition of Brio in October 2003. The
increase in cost of maintenance and services revenue in the first six months of
fiscal 2004 compared to the first six months of fiscal 2003 was principally due
to a $2.2 million increase in employee expenses and a $2.5 million increase in
external personnel costs, both of which primarily resulted from our acquisition
of Brio in October 2003. Maintenance and services headcount grew to 790
employees at December 31, 2003 from 747 employees at December 31, 2002,
primarily due to the addition of incremental Brio employees.

Gross margins on maintenance and services revenue were 62% for the second
quarter and first six months of fiscal 2004 compared to 57% for the second
quarter and first six months of fiscal 2003. The increase in gross margins on
maintenance and services revenue is primarily due to increased consulting
utilization rates combined with increases in maintenance and services revenues.

OPERATING EXPENSES

|                           |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |         |  |            |         |  |  |  |    |            |  |   |         |  |  |  |    |  
|-------------------------- |  | ------------------------------- | ------ | ----------------------------- |  | ---------- | -- | ------- |  | ---- | ------ | ---------- |  | ---- | -- | ------- |  | ---------- | ------- |  |  |  | -- | ---------- |  | - | ------- |  |  |  | -- | -
|                           |  | Three Months Ended December 31, |        | Six Months Ended December 31,
|                           |  |                                 |        |                              
|                           |  |                                 |        |                               |  | Percent of |    |         |  |      |        | Percent of |  |      |    |         |  | Percent of |         |  |  |  |    | Percent of
|                           |  |                                 |        |                               |  | Total      |    |         |  |      |        | Total      |  |      |    |         |  | Total      |         |  |  |  |    | Total     
|(In thousands)             |  | 2003                            |        | Revenue                       |  | 2002       |    | Revenue |  | 2003 |        | Revenue    |  | 2002 |    | Revenue
|                           |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |        
|Sales and marketing        |  | $                               | 58,255 |                               |  |            | 37 | %       |  | $    | 48,662 |            |  |      | 39 | %       |  | $          | 100,697 |  |  |  | 36 | %          |  | $ | 89,740  |  |  |  | 36 | %
|Research and development   |  |                                 | 23,573 |                               |  |            | 15 | %       |  |      | 18,107 |            |  |      | 14 | %       |  |            | 43,357  |  |  |  | 16 | %          |  |   | 35,979  |  |  |  | 15 | %
|General and administrative |  |                                 | 15,950 |                               |  |            | 10 | %       |  |      | 11,853 |            |  |      | 9  | %       |  |            | 28,870  |  |  |  | 10 | %          |  |   | 23,819  |  |  |  | 10 | %
|                           |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |         |  |            |         |  |  |  |    |            |  |   |         |  |  |  |    |  
|Total operating expenses   |  | $                               | 97,778 |                               |  |            |    |         |  | $    | 78,622 |            |  |      |    |         |  | $          | 172,924 |  |  |  |    |            |  | $ | 149,538 |  |  |  |    |  
|                           |  |                                 |        |                               |  |            |    |         |  |      |        |            |  |      |    |         |  |            |         |  |  |  |    |            |  |   |         |  |  |  |    |  

Sales and marketing.Sales and marketing expense increased 20% to $58.3
million in the second quarter of fiscal 2004 from $48.7 million in the second
quarter of fiscal 2003. This increase was mainly due to a $6.9 million
increase in employee expenses that resulted primarily from our acquisition of
Brio in October 2003 and a higher effective commission rate in the second
quarter of fiscal 2004 compared to the second quarter of fiscal 2003. Sales
and marketing headcount grew to 841 employees at December 31, 2003 from 699
employees at December 31, 2002, primarily due to the addition of incremental
Brio employees.

Sales and marketing expense increased 12% to $100.7 million in the first six
months of fiscal 2004 from $89.7 million in the first six months of fiscal
2003. This increase was mainly due to a $8.9 million increase in employee
expenses that resulted primarily from our acquisition of Brio in October 2003
and a higher effective commission rate in the first six months of fiscal 2004
compared to the first six months of fiscal 2003.

Research and development.Research and development expense increased 30% to
$23.6 million in the second quarter of fiscal 2004 from $18.1 million the
second quarter of fiscal 2003. This increase was mainly attributable to a $4.5
million increase in employee expenses that resulted primarily from our
acquisition of Brio in October 2003. Research and development headcount grew
to 525 employees at December 31, 2003 from 413 employees at December 31, 2002,
primarily due to the addition of incremental Brio employees.

16



---



##### Table of Contents



Research and development expense increased by 21% to $43.4 million in the first
six months of fiscal 2004 from $36.0 million in the first six months of fiscal
2003. This increase was primarily attributable to a $6.3 million increase in
employee expenses that resulted primarily from our acquisition of Brio in
October 2003.

General and administrative.General and administrative expense increased 35%
to $16.0 million in the second quarter of fiscal 2004 from $11.9 million in the
second quarter of fiscal 2003. This increase was principally due to a $2.2
million increase in employee expenses that resulted from our acquisition of
Brio in October 2003. General and administrative headcount grew to 391
employees at December 31, 2003 from 337 employees at December 31, 2002,
primarily due to the addition of incremental Brio employees.

General and administrative expense increased 21% to $28.9 million in the first
six months of fiscal 2004 from $23.8 million in the first six months of fiscal
2003. This increase was principally due to a $3.0 million increase in employee
expenses that resulted primarily from our acquisition of Brio in October 2003.

RESTRUCTURING CHARGES

During the second quarter of fiscal 2004, in connection with our acquisition of
Brio, management approved and initiated plans to restructure the operations of
Hyperion to eliminate certain duplicative activities and reduce the companys
cost structure. Consequently, we recorded restructuring charges totaling $3.2
million, of which $3.1 million related to employee severance costs and $0.1
million related to facility closure costs. During the second quarter of fiscal
2004, we also recorded a restructuring charge of $0.3 million related to the
restructuring activities initiated in June 2001.

During the second quarter of fiscal 2003, we recorded a restructuring charge of
$0.6 million related to the restructuring activities initiated in June 2001.

IN-PROCESS RESEARCH AND DEVELOPMENT

During the second quarter of fiscal 2004, in connection with our acquisition of
Brio, we recorded a charge of $2.3 million related to the write-off of
in-process research and development costs.

INTEREST AND OTHER INCOME

Interest and other income consists primarily of interest earned on cash, cash
equivalent and short-term investment balances. Interest and other income
decreased 29% in the second quarter of fiscal 2004 compared to the second
quarter of fiscal 2003 and decreased 25% in the first six months of fiscal 2004
compared to the first six months of fiscal 2003 primarily due to declines in
short-term interest rates.

INTEREST AND OTHER EXPENSE

Interest and other expense consists primarily of interest paid and amortization
of deferred issuance costs related to our convertible subordinated notes due
March 2005. Interest and other expense decreased 51% in the second quarter of
fiscal 2004 compared to the second quarter of fiscal 2003 and decreased 34% in
the first six months of fiscal 2004 compared to the first six months of fiscal
2003. During the first and second quarters of fiscal 2003, we repurchased and
retired convertible subordinated notes with face values totaling $28.7 million
and, during the second quarter of fiscal 2004, we redeemed the remaining
convertible subordinated notes with face values totaling $50.0 million. These
repurchases and redemptions significantly contributed to the decrease in
interest and other expense in the second quarter and first six months of fiscal
2004 compared to the second quarter and first six months of fiscal 2003.

GAIN (LOSS) ON REDEMPTION OF DEBT

During the second quarter of fiscal 2004, we redeemed all of our outstanding
convertible subordinated notes, which had face values totaling $50.0 million.
This redemption resulted in the recognition of a loss of $0.9 million in the
second quarter of fiscal 2004, which comprised the 1.286% redemption premium
paid as well as the write-off of associated deferred issuance costs.

During the first quarter of fiscal 2003, we repurchased convertible
subordinated notes with a face value of $5.0 million for a total cost of
approximately $4.7 million, which resulted in the recognition of a gain, net of
the write-off of associated deferred issuance costs, of approximately $0.3
million. During the second quarter of fiscal 2003, we repurchased convertible
subordinated notes with a face value of $23.7 million for a total cost of
approximately $23.2 million, which resulted in the recognition of a gain, net
of the write-off of associated deferred issuance costs, of approximately $0.2
million.

17



---



##### Table of Contents



INCOME TAX PROVISION

Our effective income tax rate was 44% for the second quarter of fiscal 2004
compared to 37% for the second quarter of fiscal 2003 and was 40% for the first
six months of fiscal 2004 compared to 37% for the first six months of fiscal
2003. Excluding the impact of the charge for in-process research and
development of $2.3 million, which is not deductible for tax purposes, our
effective income tax rate would have been 37% for the second quarter and first
six months of fiscal 2004.

NET INCOME

We generated net income of $6.6 million, or
$0.16 per diluted share, in the second quarter of fiscal 2004 compared to net
income of $7.6 million, or $0.21 per diluted share, in the second quarter of
fiscal 2003. For the first six months of fiscal 2004, our net income was $16.3
million or $0.42 per diluted share, compared to net income of $16.7 million or
$0.48 per diluted share, for the first six months of fiscal 2003.

We project total revenues in the third
quarter of fiscal 2004 to be in the range of $156.0 million to
$161.0 million, which will reflect a full quarter of revenue
from the Brio products and services versus approximately eleven weeks
of revenue recorded from the acquisition date through the end of the
second quarter of fiscal 2004. We expect operating expenses in the third
quarter of fiscal 2004 to increase by approximately $2.0 million
for the operating expenses associated with a full quarter of
additional Brio headcount versus approximately eleven
weeks recorded in the second quarter of fiscal 2004. We also
anticipate a seasonal increase of approximately
$2.0 million for employee benefit expenses. These additional
operating expenses will impact cost of maintenance and services
revenue, sales and marketing expense, research and development
expense, and general and administrative expense proportionately
based upon the headcount of these functional categories. We expect
reductions in restructuring charges and in-process research and
development expenses, as well as a decrease in our effective tax rate
to 37%. Based upon the cumulative factors noted above, we expect net
income for the third quarter of fiscal 2004 to be in the range of
$9.0 million to $11.5 million, or $0.23 to $0.29 per diluted
share, assuming projected diluted shares outstanding of approximately
39.7 million.

LIQUIDITY AND CAPITAL RESOURCES

|                                                    |  |                  |          |      |  |   |         |  
|--------------------------------------------------- |  | ---------------- | -------- | ---- |  | - | ------- | -
|                                                    |  | Six Months Ended
|                                                    |  | December 31,    
|(In thousands)                                      |  | 2003             |          | 2002
|                                                    |  |                  |          |     
|Cash, cash equivalents and short-term investments   |  | $                | 314,507  |      |  | $ | 352,282 |  
|Working capital                                     |  |                  | 228,794  |      |  |   | 294,598 |  
|Net cash provided by operating activities           |  |                  | 20,507   |      |  |   | 40,680  |  
|Net cash provided by (used in) investing activities |  |                  | 7,156    |      |  |   | (10,552 | )
|Net cash used in financing activities               |  |                  | (124,343 | )    |  |   | (8,752  | )

At December 31, 2003, we had $305.4 million in cash and cash equivalents and
$9.1 million in short-term investments, consisting primarily of balances in
interest-bearing demand deposit accounts, state and municipal bonds, U.S.
government and agency obligations and other highly-liquid securities. At
December 31, 2003, our working capital was $228.8 million.

In the first six months of fiscal 2004 and 2003, we generated positive cash
flow from operations of $20.5 million and $40.7 million, respectively. In the
first six months of fiscal 2004, our operating cash flow was primarily due to
the net income generated during the period and the impact of the non-cash
charges reflected in the net income amount such as depreciation and
amortization expense, partially offset by decreases in accounts payable,
accrued expenses, accrued employee compensation and benefits, and deferred
revenue. In the first six months of fiscal 2003, our operating cash flow was
primarily due to the net income generated during the period and the impact of
the non-cash charges reflected in the net income amount such as depreciation
and amortization expense, as well as a substantial decrease in accounts
receivable due to our focus on invoicing and collection process improvements in
fiscal 2003. These cash inflows were partially offset by decreases in accounts
payable, accrued expenses, accrued employee compensation and benefits, and
deferred revenue.

18



---



##### Table of Contents



Net cash provided by investing activities amounted to $7.2 million in the first
six months of fiscal 2004, compared to net cash used in investing activities of
$10.6 million in the first half of fiscal 2003. The cash provided by investing
activities in the first six months of fiscal 2004 resulted primarily from
proceeds from maturities of investments, net of purchases, of $23.3 million,
partially offset by purchases of property and equipment of $8.8 million and
payments for acquisitions, net of cash acquired, of $6.5 million. In
connection with our acquisition of Brio in October 2003, we paid a total of
$17.0 million, comprising $14.0 million paid to the Brio
stockholders and $3.0 million in acquisition costs paid to various third parties, and acquired Brios
existing cash balance of $10.5 million. The cash used in investing activities
in the first six months of fiscal 2003 was primarily due to purchases of
property and equipment of $10.7 million. The higher level of capital
expenditures in the first six months of fiscal 2003 primarily related to the
purchase and implementation of our worldwide customer relationship management
system, as well as purchases of other software products.

Net cash used in financing activities was $124.3 million and $8.8 million in
the first six months of fiscal 2004 and 2003, respectively. The cash used in
financing activities in the first six months of fiscal 2004 resulted from $50.7
million paid to redeem our remaining outstanding convertible subordinated
notes, as authorized by our board of directors in October 2003, and $92.0
million of repurchases of our common stock, which was partially offset by $18.3
million of proceeds from the issuance of common stock under our employee stock
option and stock purchase plans. The net cash used in financing activities in
the first six months of fiscal 2003 was due to the repurchase of our
convertible subordinated notes with face values totaling $28.7 million for a
total cost of approximately $27.9 million, partially offset by $21.5 million of
proceeds from the issuance of common stock under our employee stock option and
stock purchase plans.

In July 2003, our board of directors authorized the repurchase of up to $125.0
million of our common stock. As discussed above, we repurchased $92.0 million
of our common stock in the first six months of fiscal 2004. We intend to
continue to repurchase our common stock, subject to the terms and conditions
set by our board of directors and general market conditions, until the stock
repurchase plan is complete. This would result in a cash outflow of
approximately $33.0 million, which will likely occur in the third quarter of
fiscal 2004.

We intend to fund our capital requirements, as well as our liquidity needs,
with existing cash, cash equivalent and short-term investment balances as well
as cash generated from future operations, if any. However, capital
requirements will depend on many factors, including our rate of revenue growth,
market acceptance of our products, the timing and extent of development
projects and increases in operating expenses, all of which are subject to
uncertainty. We believe that our existing cash, cash equivalent and short-term
investment balances, and cash generated from our future operations, if any,
will be sufficient to finance our business through at least December 31, 2004.
To the extent that existing cash, cash equivalent and short-term investment
balances and cash generated by operations are insufficient to fund future
activities, we may need to raise additional funds through public or private
debt or equity financing. Additional funds may not be available on terms
favorable to us or at all. In addition, our ability to generate positive cash
flows from operations will be impacted by changes in customer demand and
acceptance of our products as well as our ability to manage operating expenses
and achieve further operational efficiencies.

The following table summarizes our contractual obligations as of December 31,
2003 and the effect such obligations are expected to have on our liquidity and
cash flow in future periods. For the year ended June 30, 2004, the table below
includes only those obligations to be settled between January 1, 2004 and June
30, 2004.

|                                 |  |                     |        |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |        |  |  |   |         | 
|-------------------------------- |  | ------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                 |  | Year Ended June 30, |        |      |  |      |        |      |  |     
|                                 |  |                     |        |      |  |      |        |      |  |     
|(In thousands)                   |  | 2004                |        | 2005 |  | 2006 |        | 2007 |  | 2008 |        | Thereafter |  | Total
|                                 |  |                     |        |      |  |      |        |      |  |      |        |            |  |      
|Non-cancellable operating leases |  | $                   | 13,678 |      |  | $    | 19,927 |      |  | $    | 14,930 |            |  | $     | 14,181 |  |  | $ | 12,007 |  |  | $ | 27,131 |  |  | $ | 101,854 | 

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51. FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 is effective for all new variable interest entities
created or acquired after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period ending after
March 15, 2004. We adopted FIN 46 on February 1, 2003 for new entities, and the adoption
did not have a material impact on our financial position or results of
operations. We are currently assessing the impact of adopting FIN 46 for
pre-existing entities but do not expect it will have a material impact on our
financial position or results of operations.

19



---



##### Table of Contents



In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 149 is generally effective for
derivative instruments, including derivative instruments embedded in certain
contracts, entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. We adopted SFAS 149 on July 1,
2003, and the adoption did not have a material impact on our financial position
or results of operations.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
SFAS 150 requires that an issuer classify a financial instrument that falls
within its scope as a liability (or an asset in some circumstances). SFAS 150
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted SFAS 150 on May 15, 2003 for all
financial instruments entered into or modified after that date and on July 1,
2003 for pre-existing financial instruments, and the adoption did not have a
material impact on our financial position or results of operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS

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

Hyperion may face challenges in integrating Brios business and, as a result,
may not realize the expected benefits of the acquisition and the price of
Hyperion common stock may be adversely affected.

Hyperion may not be successful in integrating Brios business. Achieving the
benefits of the acquisition will depend on many factors, including:



| |  |  | the successful and timely integration of the products, technology and
sales operations of the two companies;                                                                                                                                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | managing software development activities to define a combined product
roadmap, ensure timely development of new products, ensure timely
release of new products to market, and the development of efficient
integration and migration processes and tools;                        
|
| |  |  | combining product offerings, platforms and technologies quickly and
effectively;                                                                                                                                                                                                  
|
| |  |  | demonstrating to our existing and potential customers that the
acquisition will not result in adverse changes in customer service
standards or business focus;                                                                                                                    
|
| |  |  | retaining key alliances on attractive terms with partners and
suppliers;                                                                                                                                                                                                          
|
| |  |  | coordinating and integrating sales and marketing efforts to
effectively communicate the capabilities of the combined company, cross
selling related products to each others customers, and managing the
combined sales force and distribution channels to avoid channel
conflict;
|
| |  |  | maintaining employee morale, assimilating key employees and managing
an increased number of employees over large geographic distances;                                                                                                                                            
|
| |  |  | creating and effectively implementing uniform standards, controls, procedures, policies and information systems; and                                                                                                                                                              
|
| |  |  | retaining or recruiting key personnel.                                                                                                                                                                                                                                            

The successful execution of these tasks will involve considerable effort and
time, especially considering the highly technical and complex nature of each
companys products. Failure to achieve a successful and timely integration of
the respective businesses could impair relationships with employees, customers
and business partners as a result of the integration of management and other
key personnel and the potential disruption of the combined companys ongoing
business and distraction of its management.

The combined company may not succeed in addressing integration issues or other
problems encountered in connection with the acquisition, which could have a
material adverse effect on the business, financial condition and results of
operations of Hyperion, and on the price of shares of Hyperion common stock.
The diversion of the attention of management and any difficulties encountered
in the process of combining the companies could cause the disruption of, or a
loss of momentum in, the activities of the combined companys business.

20



---



##### Table of Contents



Failure to upgrade older products will adversely affect revenue.

As newer products are introduced by Hyperion, or by its competition, the
markets demand for Hyperions older products declines. Declining demand
reduces revenue from additional licenses, and reduces maintenance revenue from
past purchasers of Hyperions software. We must continually upgrade Hyperions
older products in order for Hyperions customers to continue to see value in
Hyperions maintenance services. If Hyperion is unable to provide continued
improvements in functionality, or, alternatively, move customers from
Hyperions older products to Hyperions newer products, declining maintenance
and new license revenue from older products could have a material adverse
effect on Hyperions business.

Product enhancement and new product introductions involve inherent risks.

Hyperion competes in a market characterized by rapid technological advances in
hardware and software development, evolving standards in computer hardware and
software technology and frequent new product introductions and enhancements.
Hyperion continually seeks to expand and refresh its product offerings to
include newer features or products, and enter into agreements allowing
integration of third-party technology into Hyperions products. The
introduction of new products or updated versions of continuing products has
inherent risks, including, but not limited to:



| |  |  | product quality, including the possibility of software defects;                                           
| | - |  | ----------------------------------------------------------------------------------------------------------
|
| |  |  | 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;                                                            
|
| |  |  | marketing effectiveness; and                                                                              
|
| |  |  | the accuracy of assumptions about the nature of customer demand.                                          

Hyperions failure to successfully introduce, market and sell new products and
technologies, enhance and improve existing products in a timely manner, and
properly position and/or price Hyperions products, and undetected errors or
delays in new products or new versions of a product and/or the failure of
anticipated market growth could have a material adverse effect on Hyperions
business, results of operations or financial position. These risks tend to be
greater when newer products, such as Hyperion Financial Management, Hyperion
Planning and Hyperion Performance Suite, make up a larger portion of the
overall product mix. As more and more of these newer products are deployed,
Hyperions service and maintenance organizations, along with its partners, will
have to rapidly increase their ability to install and service these products,
and Hyperion must rapidly improve their ease-of-implementation and ease-of-use.
The failure to successfully increase these capacities and make these
improvements could result in significantly lower customer satisfaction, which
could lead to lower revenues and profits.

As a result of the acquisition of Brio, charges to earnings resulting from the
application of the purchase method of accounting may adversely affect the
market value of shares of Hyperion common stock.

In accordance with United States generally accepted accounting principles, the
combination of Brio with Hyperion has been accounted for using the purchase
method of accounting, resulting in charges to earnings that could have a
material adverse effect on the market value of shares of Hyperion common stock.
Under purchase accounting, Hyperion recorded the market value of its shares
issued in connection with the acquisition, the fair market value of the options
to purchase Brio common stock that will be converted into options to purchase
Hyperion shares and the amount of direct transaction costs, as the cost of
acquiring the business of Brio. The combined company allocated these total
costs to Brios net tangible assets, amortizable intangible assets and
in-process research and development based on their fair values as of the date
of acquisition, and recorded the excess of the purchase price over those fair
values as goodwill. Hyperion will incur depreciation and amortization expense
over the useful lives of certain of the net tangible and intangible assets
acquired in connection with the acquisition. In addition, to the extent the
value of these assets, including goodwill, becomes impaired, Hyperion may be
required to incur material charges relating to the impairment of those assets.
These depreciation, amortization, and potential impairment charges will
decrease the net income of Hyperion in the foreseeable future, which could have
a material impact on Hyperions results of operations and the market value of
shares of Hyperion common stock following the acquisition.

21



---



##### Table of Contents



If Hyperion is unable to develop new and enhanced products that achieve
widespread market acceptance, Hyperion may be unable to recoup product
development costs, and Hyperions earnings and revenue may decline.

Hyperions future success depends on its ability to address the rapidly
changing needs of its customers by developing and introducing new products,
product updates and services on a timely basis. Hyperion must also extend the
operation of its products to new platforms and keep pace with technological
developments and emerging industry standards. Hyperion commits substantial
resources to developing new software products and services. If the markets for
these new products do not develop as anticipated, or demand for Hyperions
products and services in these markets does not materialize or occurs more
slowly than Hyperion expects, Hyperion will have expended substantial resources
and capital without realizing sufficient revenue, and Hyperions business and
operating results could be adversely affected.

Hyperion operates in a very competitive environment.

The markets in which Hyperion competes are intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. Hyperion has experienced, and expects it will continue to
experience, vigorous competition from current competitors and new competitors,
some of whom may have significantly greater financial, technical, marketing and
other resources than Hyperion does. Cognos competes with Hyperion across a
wide range of products, offering what they refer to as Corporate Performance
Management solutions, as do, generally, the major ERP vendors, including SAP,
Microsoft and Oracle. Many other companies compete in specific areas of
Hyperions business. SAS and Peoplesoft have OLAP products and analytic
applications, Business Objects and Cognos have query and reporting products,
and numerous smaller vendors offer specific applications that compete with a
single Hyperion product. Hyperion expects additional competition as other
established and emerging companies, including Microsoft and Peoplesoft, move
further into both the application and platform parts of the business
performance management software market. This competition could result in price
reductions, fewer customer orders, reduced gross margins and loss of market
share, any of which would materially adversely affect Hyperions business,
operating results and financial condition.

Hyperion typically has back-ended quarters.

Quarterly revenues and operating results are highly dependent on the volume and
timing of the signing of licensing agreements and product deliveries during the
quarter, which are difficult to forecast. Significant portions of Hyperions
quarterly software licensing agreements are concluded in the last month of the
fiscal quarter, generally with a concentration of such revenues in the final
week of that month. Due to the relatively fixed nature of certain costs,
including personnel and facilities expenses, a decline or shortfall in
quarterly and/or annual revenues typically results in lower profitability or
may result in losses. Prior to the very end of any quarter, Hyperion must rely
on Hyperions forecasts of revenue for planning, modeling and other purposes.
However, forecasts are only estimates and may not correlate to revenues in a
particular quarter or over a longer period of time. Consequently, a
significant discrepancy between actual results and sales forecasts could cause
Hyperion to improperly plan or budget and thereby adversely affect Hyperions
business or results of operations. Any publicly stated revenue or earnings
projections by Hyperion are especially subject to this risk.

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

In an effort to simplify and clarify Hyperions product positioning and
marketing, Hyperion periodically makes changes to Hyperions product pricing or
product descriptions. Broadly based changes to pricing or marketing messages
could cause customers to change or delay their purchasing decisions in response
to such revisions. Additional risks of such changes include delays in
transactions as Hyperions sales force learns how to deploy the new pricing or
convey Hyperions new marketing messages and delay or loss of revenues as the
competition reacts to the pricing and marketing changes, any of which could
have a material adverse effect on Hyperions business, results of operations or
financial position.

Hyperion may not be able to continue its operational improvements.

As part of Hyperions focus on improving its operating margins, Hyperion is
driving toward increased efficiencies in Hyperions sales force, as well as
Hyperions services, product development, product marketing, finance, and other
administrative processes. The ability to continue to realize current
efficiencies and find ways to improve on past performance is crucial to the
improvement of operating margins. Any increase in the relative cost of these
functions, or failure to continue to realize current efficiencies, could have a
material adverse effect on Hyperions profits.

Reorganizations may adversely affect productivity.

Hyperion has continued to make adjustments to Hyperions operations and
organization. These changes have historically resulted in productivity
declines in the short term. The revised operations and/or organization must
keep improving over past performance in order to provide better operating
margins and efficiencies. Failure to maintain or improve momentum and
productivity could materially adversely impact Hyperions revenue and profits.

22



---



##### Table of Contents



Hyperions international operations are subject to significant risks.

Hyperion derives a substantial portion of its revenue from customers located
outside of the United States. Hyperions international operations are subject
to risks, including:



| |  |  | 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;                                                                                                                                                                           
|
| |  |  | 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;                                                                                                                                                                                                                    
|
| |  |  | longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;                                                                                                                                                                           
|
| |  |  | difficulties in staffing and managing its international operations,
including 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 may not be able to successfully address each of these challenges.

Exchange rate fluctuations may adversely affect results.

Hyperion conducts a significant portion of its business in currencies other
than the United States dollar. Hyperions operating results are, therefore,
subject to fluctuations in foreign currency exchange rates. Hyperions
revenues and operating results are adversely affected when the United States
dollar strengthens relative to other currencies and are positively affected
when the United States dollar weakens. Changes in the value of major foreign
currencies, particularly the Euro, relative to the value of the United States
dollar positively affected revenues and operating results in the quarter. If
the United States dollar strengthens relative to other currencies in the
future, our revenues and operating results will be adversely affected.

There are significant organizational and product integration risks related to
any future business combination.

In addition to its acquisition of Brio, Hyperion has made, and may in the
future make, acquisitions of, mergers with, or significant investments in,
businesses that offer complementary products, services and technologies. There
are risks involved in these activities, including but not limited to:



| |  |  | the possibility that Hyperion pays more than the value it derives from the acquisition;                                                            
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the difficulty of integrating the operations and personnel of the acquired businesses;                                                             
|
| |  |  | the possibility that all aspects of the integration are not completed
or that all of the anticipated synergies of the acquisition are not
realized;
|
| |  |  | the potential product liability associated with selling the acquired
companys products; and                                                       
|
| |  |  | the potential disruption of Hyperions ongoing business and the
distraction of management from Hyperions business.                                

These factors could have a material adverse effect on Hyperions business,
results of operations or financial position, especially in the case of a large
acquisition.

Hyperion is subject to the possibility of infringement claims.

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

23



---



##### Table of Contents



Enforcement of Hyperions intellectual property rights may be difficult.

Hyperion relies primarily on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect Hyperions proprietary rights. Hyperions means of protecting its
proprietary rights in the United States or abroad may not be adequate and could
be subject to challenge, such as the reexamination of one of our patents by the
United States Patent and Trademark Office.

Hyperions stock price may be volatile.

The market price of Hyperions common stock is subject to significant
fluctuations. The market price of Hyperions common stock may be significantly
affected by such factors as the announcement of new products, product
enhancements or technological innovation by Hyperion or Hyperions competitors,
announcements of acquisitions by Hyperion, changes in Hyperions or Hyperions
competitors results of operations, changes in revenue, revenue growth rates
and revenue mix, changes in earnings estimates by market analysts and general
market conditions or market conditions specific to particular industries.
Technology stocks have experienced wide fluctuations in prices, which sometimes
have been unrelated to their operating performance. The market price of
Hyperions common stock could be adversely affected by such fluctuations.

Hyperion is dependent upon indirect channel partners.

In addition to its direct sales force, Hyperion relies on indirect channel
partners such as OEMs, VARs and distributors for licensing and support of its
products in the United States and internationally. License revenue from
channel partners comprised 22% of Hyperions total license revenue for the six
months ended December 31, 2003. This channel involves a number of special
risks, including:



| |  |  | Hyperions lack of control over the delivery of its products to end-users;                               
| | - |  | ---------------------------------------------------------------------------------------------------------
|
| |  |  | Hyperions resellers and distributors may terminate their relationship with Hyperion on short notice; and
|
| |  |  | Hyperions resellers and distributors may market and distribute competing products.                      

Hyperions current indirect channel partners may not elect, or be able, to
market or support Hyperions products effectively or be able to release their
products embedded with Hyperion products in a timely manner. Hyperion may not
be able to effectively manage channel conflicts, and economic conditions or
industry demand may adversely affect these or other indirect channel partners
or these indirect channel partners may devote greater resources to marketing
and supporting the products of other companies. Revenues derived from indirect
channel partners may fluctuate significantly in subsequent periods.

Hyperion is exposed to product liability claims.

Hyperions license agreements with its customers typically contain provisions
designed to limit Hyperions exposure to potential product liability claims,
and Hyperion carries insurance to protect against such claims. It is possible,
however, that the limitation of liability provisions contained in Hyperions
license agreements may not be effective as a result of U.S. or foreign laws or
ordinances or because of judicial decisions, and that liability insurance may
not be available, or that coverage for specific claims may be denied. Although
Hyperion has not experienced any material product liability claims to date, the
sale and support of business performance management products by Hyperion
entails the risk of such claims. A successful product liability claim brought
against Hyperion could have a material adverse effect upon Hyperions business,
operating results and financial condition.

Defects in Hyperions products could increase its costs, adversely affect its
reputation, diminish demand for its products and hurt its operating results.

As a result of their complexity, Hyperions software products may contain
undetected errors or viruses. Errors in new products or product enhancements
might not be detected until after initiating commercial shipments, which could
result in additional costs, delays, possible damage to Hyperions reputation
and could cause diminished demand for Hyperions products. This could lead to
customer dissatisfaction and reduce the opportunity to renew maintenance or
sell new licenses.

24



---



##### Table of Contents



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

Some of the provisions in Hyperions charter documents may deter or prevent
certain corporate actions, such as a merger, tender offer or proxy contest,
which could affect the market value of Hyperions securities. These provisions
include:



| |  |  | Hyperions board of directors is authorized to issue preferred stock
with any rights it may determine. Consequently, Hyperions board of
directors may issue preferred stock, without shareholder approval, 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 to hold office for three years, which has the
effect that two annual meetings, not one, are required to replace a
majority of Hyperions board of directors;                      
|
| |  |  | Hyperion stockholders are not entitled to cumulate votes for
directors; and                                                                                                                                                                                                   
|
| |  |  | special meetings of Hyperion stockholders may be called only by
Hyperions president or by the president or secretary upon written
request by a majority of the board of directors and may not be called by
Hyperions stockholders.                                          

Hyperion has in place a stockholder rights plan that is designed to discourage
coercive takeover offers. In general, Hyperions stockholder rights plan makes
it uneconomic for any person to acquire more than a 15% interest in Hyperion
without the consent of the Hyperion Board of Directors.

Hyperions board of directors could utilize the provisions of its charter
documents and stockholder rights plan to resist an offer from a third party to
acquire Hyperion, including an offer to acquire Hyperion common stock at a
premium to its trading price or an offer that is otherwise considered favorable
by Hyperion stockholders.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK. The primary objective of our investment activities is to
preserve principal while maximizing yields, without significantly increasing
risk. To achieve this objective, we maintain our portfolio of cash equivalents
and short-term investments in a variety of high-quality, liquid securities. At
December 31, 2003, our short-term investments consisted of investment-grade
debt securities with a fair value of $9.1 million. The portfolio is invested
in securities with relatively short maturities to minimize interest rate risk
and for liquidity purposes in the event of immediate cash needs. Due to the
short duration of our investment portfolio, an immediate 10% change in market
interest rates would not have a material impact on the value of our investment
portfolio.

FOREIGN CURRENCY EXCHANGE RATE RISK. We transact business in various foreign
currencies. Our exposure to foreign currency exchange rate fluctuations arises
in part from non-functional currency denominated trade accounts receivable and
intercompany accounts receivable. Intercompany accounts receivable arise when
software royalty fees and certain other costs incurred in the United States are
charged to our foreign sales subsidiaries. These intercompany accounts are
typically denominated in the functional currency of the foreign subsidiary,
which is generally their local currency. From time to time, we utilize foreign
currency forward exchange contracts to offset the risk associated with the
effects of these trade receivables and the effects of certain intercompany
receivables for which we anticipate settlement in the foreseeable future. As a
result, increases or decreases in these accounts due to foreign exchange rate
changes are offset by gains and losses on the forward contracts, so as to
minimize foreign currency transaction gains and losses. Our forward contracts
generally have terms of 60 days or less. We do not use forward contracts for
trading purposes. All foreign currency balances and all outstanding forward
contracts are marked-to-market at the end of the period with unrealized gains
and losses included in our consolidated statements of operations. Our ultimate
realized gain or loss with respect to currency fluctuations will depend on the
currency exchange rates and other factors in effect as the contracts mature.

Net foreign exchange transaction gains and losses were not material for the
second quarter and first six months of fiscal 2004. As of December 31, 2003,
we had net forward contracts to sell U.S. dollar equivalent of $12.7 million in
foreign currency. An immediate 10% change in currency exchange rates affecting
these contracts would not have a material impact on our results of operations.

25



---



##### Table of Contents






ITEM 4. CONTROLS AND PROCEDURES

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no
significant changes in our internal control over financial reporting identified
in connection with our evaluation that occurred during our first fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

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

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




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

The following is a tabulation of the votes on proposals considered at our
annual meeting of stockholders held on November 10, 2003:



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

|              |  |     |            |          |  |  |           | 
|------------- |  | --- | ---------- | -------- |  |  | --------- | 
|              |  | For |            | Withheld
|              |  |     |            |         
|Jeffrey Rodek |  |     | 30,640,364 |          |  |  | 1,788,534 | 
|Aldo Papone   |  |     | 31,383,607 |          |  |  | 1,045,291 | 



|2. |  | To approve amendments to our Employee Stock Purchase Plan to increase the
number of shares of common stock reserved for issuance by 1,500,000 shares.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|                 |  |  |            | 
|---------------- |  |  | ---------- | 
|For              |  |  | 24,395,345 | 
|Against          |  |  | 3,996,204  | 
|Abstain          |  |  | 28,123     | 
|Broker non-votes |  |  | 4,009,226  | 



|3. |  | To ratify the appointment of PricewaterhouseCoopers LLP as our
independent accountants for the fiscal year ending June 30, 2004.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------

|                 |  |  |            | 
|---------------- |  |  | ---------- | 
|For              |  |  | 31,182,698 | 
|Against          |  |  | 1,204,634  | 
|Abstain          |  |  | 41,566     | 
|Broker non-votes |  |  |           | 

26



---



##### Table of Contents






ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

|            |  |                                                                          |  |  |  | 
|----------- |  | ------------------------------------------------------------------------ |  |  |  | 
|Exhibit No. |  | Description                                                              |  |  |  | 
|            |  |                                                                          |  |  |  | 
|31.1        |  | -  Certification of Jeffrey R. Rodek pursuant to Rule 13a-14(a).        
|            |  |                                                                         
|31.2        |  | -  Certification of David W. Odell pursuant to Rule 13a-14(a).          
|            |  |                                                                         
|32.1        |  | -  Certification of Jeffrey R. Rodek pursuant to 18 U.S.C. Section
1350.
|            |  |                                                                         
|32.2        |  | -  Certification of David W. Odell pursuant to 18 U.S.C. Section 1350.  

(b)  Reports on Form 8-K

On January 22, 2004, we filed a current report on Form 8-K in connection with
the issuance of a press release dated January 22, 2004 announcing Hyperions
financial results for the second fiscal quarter ended December 31, 2003.

On December 2, 2003, we filed a current report on Form 8-K in connection with
the issuance of a press release dated December 1, 2003 announcing that we had
completed the previously announced redemption of Hyperions 4 1/2% Convertible
Subordinated Notes due March 2005.

On October 28, 2003, we filed a current report on Form 8-K in connection with
the issuance of a press release dated October 21, 2003 announcing that our
Board of Directors had approved the redemption, on November 26, 2003, of
Hyperions 4 1/2% Convertible Subordinated Notes due March 2005.

On October 21, 2003, we filed a current report on Form 8-K in connection with
the issuance of a press release dated October 21, 2003 announcing Hyperions
financial results for the first fiscal quarter ended September 30, 2003.

On October 17, 2003, we filed a current report on Form 8-K in connection with
the issuance of a press release dated October 16, 2003 announcing Hyperions
completion of the acquisition of Brio Software, Inc.

27



---



##### Table of Contents






SIGNATURES

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

|                       |  |                                             |  |                               
|---------------------- |  | ------------------------------------------- |  | ------------------------------
|Date: February 9, 2004 |  | Hyperion Solutions Corporation
(Registrant)
|                       |  |                                             |  |                               
|                       |  | By:                                         |  | /s/ DAVID W. ODELL            
|                       |  |                                             |  |                               
|                       |  |                                             |  | David W. Odell                
|                       |  |                                             |  | Chief Financial Officer       
|                       |  |                                             |  |                               
|                       |  | By:                                         |  | /s/ WILLIAM B. DEWES          
|                       |  |                                             |  |                               
|                       |  |                                             |  | William B. Dewes              
|                       |  |                                             |  | Global Controller             
|                       |  |                                             |  | (Principal Accounting Officer)

28



---



##### Table of Contents






EXHIBIT INDEX

|            |  |                                                                         
|----------- |  | ------------------------------------------------------------------------
|Exhibit No. |  | Description                                                             
|            |  |                                                                         
|31.1        |  | -  Certification of Jeffrey R. Rodek pursuant to Rule 13a-14(a).        
|            |  |                                                                         
|31.2        |  | -  Certification of David W. Odell pursuant to Rule 13a-14(a).          
|            |  |                                                                         
|32.1        |  | -  Certification of Jeffrey R. Rodek pursuant to 18 U.S.C. Section
1350.
|            |  |                                                                         
|32.2        |  | -  Certification
of David W. Odell pursuant to 18 U.S.C. Section 1350.  

29