##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the Quarterly Period Ended September 30, 2006
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ____________ to ____________.
 
 Commission File Number 000-26934
 Hyperion Solutions Corporation
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    77-0277772
(I.R.S. Employer
Identification No.)
 5450 Great America Parkway, Santa Clara, California
    
    
    95054(Address of principal executive offices)
    
    (zip code)
 (408) 744-9500
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
 o þ




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##### 



HYPERION SOLUTIONS CORPORATION
  
 FORM 10-Q
 PAGEPART I. FINANCIAL INFORMATIONItem 1
    
    Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of September 30, 2006 and June 30, 2006
    
    
    3Condensed Consolidated Statements of Income and Comprehensive Income for the three
months ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended September
30, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4
    
    Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    25Item 1A
    
    Risk Factors
    
    
    25Item 2
    
    Unregistered Sales of Existing Securities and Use of Proceeds
    
    
    32Item 3
    
    Defaults
    
    
    32Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    32Item 5
    
    Other Information
    
    
    33Item 6
    
    Exhibits
    
    
    33Signatures
    
    
    
    
    34Exhibit Index
    
    
    
    
    35EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 HYPERION SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    June 30,2006
    
    
    2006 (*)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    158,004
    
    
    $
    166,055Short-term investments
    
    
    278,171
    
    
    
    271,228Accounts receivable, net of allowances of $11,017 and $10,370
    
    
    140,313
    
    
    
    180,384Deferred tax assets
    
    
    11,621
    
    
    
    10,869Prepaid expenses and other current assets
    
    
    31,136
    
    
    
    35,205TOTAL CURRENT ASSETS
    
    
    619,245
    
    
    
    663,741Property and equipment, net
    
    
    74,489
    
    
    
    76,221Goodwill
    
    
    157,046
    
    
    
    157,208Other intangible assets, net
    
    
    34,163
    
    
    
    38,525Deferred tax assets
    
    
    41,425
    
    
    
    40,956Other assets
    
    
    12,442
    
    
    
    5,669TOTAL ASSETS
    
    $
    938,810
    
    
    $
    982,320LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    59,439
    
    
    $
    78,014Accrued employee compensation and benefits
    
    
    47,152
    
    
    
    68,243Income taxes payable
    
    
    39,585
    
    
    
    47,009Deferred revenue
    
    
    170,839
    
    
    
    171,142Restructuring liabilities
    
    
    6,867
    
    
    
    6,943TOTAL CURRENT LIABILITIES
    
    
    323,882
    
    
    
    371,351Long-term restructuring liabilities and other
    
    
    19,455
    
    
    
    21,384TOTAL LIABILITIES
    
    
    343,337
    
    
    
    392,735Commitments and contingencies (Note 3)Stockholders
equity:Preferred stock  $0.001 par value; 5,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock  $0.001 par value; 300,000 shares authorized;
57,883 and 58,301 shares issued and outstanding
    
    
    58
    
    
    
    58Additional paid-in capital
    
    
    545,207
    
    
    
    534,716Retained earnings
    
    
    51,228
    
    
    
    57,142Accumulated other comprehensive loss
    
    
    (1,020
    )
    
    
    (2,331
    )TOTAL STOCKHOLDERS EQUITY
    
    
    595,473
    
    
    
    589,585TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    938,810
    
    
    $
    982,320
  (*)
    
    The condensed consolidated balance sheet at June 30, 2006 has been derived from the audited
financial statements at that date but does not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete
financial statements. This condensed consolidated balance sheet should be read in conjunction with
the annual report on Form 10-K for the fiscal year ended June 30, 2006.
 3




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##### Table of Contents



HYPERION SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 Three Months EndedSeptember 30,2006
    
    
    2005REVENUESSoftware licenses
    
    $
    68,130
    
    
    $
    60,524Maintenance and services
    
    
    130,373
    
    
    
    109,701TOTAL REVENUES
    
    
    198,503
    
    
    
    170,225COSTS AND EXPENSESCost of revenues:Software licenses
    
    
    5,873
    
    
    
    3,839Maintenance and services
    
    
    49,973
    
    
    
    37,954Sales and marketing
    
    
    73,159
    
    
    
    66,648Research and development
    
    
    30,196
    
    
    
    27,881General and administrative
    
    
    23,043
    
    
    
    16,129Restructuring credits
    
    
    (26
    )
    
    
    (100
    )TOTAL COSTS AND EXPENSES
    
    
    182,218
    
    
    
    152,351OPERATING INCOME
    
    
    16,285
    
    
    
    17,874Interest and other income, net
    
    
    3,552
    
    
    
    2,576INCOME BEFORE INCOME TAXES
    
    
    19,837
    
    
    
    20,450Income tax provision
    
    
    7,901
    
    
    
    7,158NET INCOME
    
    $
    11,936
    
    
    $
    13,292Other comprehensive income (loss)
    
    
    1,311
    
    
    
    (793
    )COMPREHENSIVE INCOME
    
    $
    13,247
    
    
    $
    12,499Basic net income per share
    
    $
    0.21
    
    
    $
    0.22Diluted net income per share
    
    $
    0.20
    
    
    $
    0.22Shares used in computing basic
net income per share
    
    
    57,459
    
    
    
    59,274Shares used in computing diluted
net income per share
    
    
    58,905
    
    
    
    61,070
  4




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HYPERION SOLUTIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedSeptember 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    11,936
    
    
    $
    13,292Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    9,907
    
    
    
    8,100Stock-based compensation
    
    
    9,074
    
    
    
    7,785Provision for accounts receivable allowances
    
    
    1,977
    
    
    
    1,292Deferred tax assets
    
    
    (1,026
    )
    
    
    (997
    )Income tax benefit from exercise of stock options
    
    
    244
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    39,094
    
    
    
    20,533Prepaid expenses and other current assets
    
    
    4,199
    
    
    
    (1,288
    )Other assets
    
    
    54
    
    
    
    (11
    )Accounts payable and accrued liabilities
    
    
    (19,005
    )
    
    
    (3,612
    )Accrued employee compensation and benefits
    
    
    (21,445
    )
    
    
    (9,552
    )Income taxes payable
    
    
    (7,451
    )
    
    
    3,542Deferred revenue
    
    
    (1,184
    )
    
    
    496Restructuring liabilities
    
    
    (117
    )
    
    
    (1,684
    )Long-term restructuring liabilities and other
    
    
    (1,849
    )
    
    
    (1,501
    )Net cash provided by operating activities
    
    
    24,408
    
    
    
    36,395CASH FLOWS FROM INVESTING ACTIVITIESPurchases of available-for-sale and other investments
    
    
    (83,500
    )
    
    
    (122,918
    )Proceeds from sales and maturities of investments
    
    
    70,297
    
    
    
    94,095Purchases of property and equipment
    
    
    (3,756
    )
    
    
    (3,467
    )Purchases of other intangible assets
    
    
    (12
    )
    
    
    (37
    )Net cash used in investing activities
    
    
    (16,971
    )
    
    
    (32,327
    )CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on capital leases
    
    
    (77
    )
    
    
    Purchases of common stock
    
    
    (25,000
    )
    
    
    (45,860
    )Proceeds from issuance of common stock
    
    
    7,373
    
    
    
    8,643Income tax benefit from exercise of stock options
    
    
    950
    
    
    
    2,276Net cash used in financing activities
    
    
    (16,754
    )
    
    
    (34,941
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    1,266
    
    
    
    (894
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (8,051
    )
    
    
    (31,767
    )Cash and cash equivalents at beginning of period
    
    
    166,055
    
    
    
    170,740CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    158,004
    
    
    $
    138,973SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest
    
    $
    27
    
    
    $
    Cash paid for income taxes
    
    $
    14,476
    
    
    $
    2,809
  5




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HYPERION SOLUTIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2006
 1. Basis of Presentation
   2. Significant Accounting Policies
 Revenue Recognition
     6




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Accounts Receivable Allowances
   Net Income Per Share
   Three Months EndedSeptember 30,2006
    
    
    2005Net income
    
    $
    11,936
    
    
    $
    13,292Shares used in computing basic net income
per share
    
    
    57,459
    
    
    
    59,274Effect of potentially dilutive securities
    
    
    1,446
    
    
    
    1,796Shares used in computing diluted net income
per share
    
    
    58,905
    
    
    
    61,070Basic net income per share
    
    $
    0.21
    
    
    $
    0.22Diluted net income per share
    
    $
    0.20
    
    
    $
    0.22
  Stock-Based Compensation
  7




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Comprehensive Income
  Three Months EndedSeptember 30,2006
    
    
    2005Net income
    
    $
    11,936
    
    
    $
    13,292Other comprehensive income:Foreign currency translation adjustments
    
    
    751
    
    
    
    (471
    )Unrealized gains (losses) on available-for-sale
securities
    
    
    560
    
    
    
    (322
    )Comprehensive income
    
    $
    13,247
    
    
    $
    12,499
 Recent Accounting Pronouncements
     8




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##### Table of Contents



Income Taxes
     Valuation of Goodwill, Intangibles, and Long-Lived Assets
   Balance at June 30, 2006
    
    $
    157,208Goodwill from acquisitions
    
    
    (5
    )Tax benefits related to the Brio acquisition
    
    
    (197
    )Effect of foreign currency translation
    
    
    40Balance at September 30, 2006
    
    $
    157,046
  9




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September 30, 2006
    
    
    June 30, 2006Gross Carrying
    
    
    Accumulated
    
    
    Book
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueProduct development costs
    
    $
    16,975
    
    
    $
    (8,161
    )
    
    $
    8,814
    
    
    $
    16,963
    
    
    $
    (6,912
    )
    
    $
    10,051Acquired technologies
    
    
    46,390
    
    
    
    (24,406
    )
    
    
    21,984
    
    
    
    46,390
    
    
    
    (21,879
    )
    
    
    24,511Other intangibles
    
    
    10,564
    
    
    
    (7,199
    )
    
    
    3,365
    
    
    
    10,564
    
    
    
    (6,601
    )
    
    
    3,963Total
    
    $
    73,929
    
    
    $
    (39,766
    )
    
    $
    34,163
    
    
    $
    73,917
    
    
    $
    (35,392
    )
    
    $
    38,525
  EstimatedAmortizationFiscal Year
    
    ExpenseRemainder of 2007
    
    $
    12,8122008
    
    
    10,7512009
    
    
    6,5942010
    
    
    3,2372011 and thereafter
    
    
    769Total
    
    $
    34,163
 3. Commitments and Contingencies
 Guarantees and Indemnifications
  Contingencies
  10




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4. Restructuring Liabilities
     11




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Severance
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual balance at June 30, 2006
    
    $
    267
    
    
    $
    10,548
    
    
    $
    131
    
    
    $
    10,946Restructuring charge (credit)
    
    
    (51
    )
    
    
    25
    
    
    
    
    
    
    
    (26
    )Cash payments
    
    
    (200
    )
    
    
    (980
    )
    
    
    
    
    
    
    (1,180
    )Non-cash items
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    139Accrual balance at September 30, 2006
    
    $
    16
    
    
    $
    9,732
    
    
    $
    131
    
    
    $
    9,879
  Severance
    
    
    Facilities
    
    
    TotalBalance at June 30, 2006
    
    $
    17
    
    
    $
    11,852
    
    
    $
    11,869Cash payments
    
    
    
    
    
    
    (757
    )
    
    
    (757
    )Balance at September 30, 2006
    
    $
    17
    
    
    $
    11,095
    
    
    $
    11,112
  5. Share-Based Payments
 Stock Options
    Weighted AverageRemainingWeighted Average
    
    
    Contractual Term
    
    
    Aggregate IntrinsicShares
    
    
    Exercise Price
    
    
    (Years)
    
    
    Value ($000s)Outstanding at June 30, 2006
    
    
    8,315
    
    
    $
    25.01Granted
    
    
    350
    
    
    
    31.90Exercised
    
    
    (426
    )
    
    
    20.05Forfeited
    
    
    (121
    )
    
    
    30.62Outstanding at September 30, 2006
    
    
    8,118
    
    
    $
    25.49
    
    
    
    4.15
    
    
    $
    74,047Exercisable at September 30, 2006
    
    
    4,046
    
    
    $
    21.57
    
    
    
    3.67
    
    
    $
    53,032
 12




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##### Table of Contents



Restricted Stock Awards
   Weighted AverageGrant-DateShares
    
    
    Fair ValueNonvested shares at June 30, 2006
    
    
    312
    
    
    $
    27.94Granted
    
    
    62
    
    
    
    31.74Vested
    
    
    (89
    )
    
    
    24.97Nonvested shares at September 30, 2006
    
    
    285
    
    
    $
    29.69
  Restricted Stock Units
   Weighted AverageGrant-DateShares
    
    
    Fair ValueOutstanding at June 30, 2006
    
    
    511
    
    
    $
    31.90Granted
    
    
    40
    
    
    
    31.41Cancelled
    
    
    (9
    )
    
    
    31.32Outstanding at September 30, 2006
    
    
    542
    
    
    $
    31.87Exercisable at September 30, 2006
    
    
    
    
    
    $
    
  13




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Employee Stock Purchase Plan
  6. Stock Repurchases
   7. Segment and Geographic Information
    Three Months EndedSeptember 30,2006
    
    
    2005Revenues:Americas
    
    $
    127,787
    
    
    $
    108,034EMEA
    
    
    56,636
    
    
    
    49,332APAC
    
    
    14,080
    
    
    
    12,859$
    198,503
    
    
    $
    170,225
  14




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##### Table of Contents



September 30,
    
    
    June 30,2006
    
    
    2006Long-lived assets:Americas
    
    $
    68,647
    
    
    $
    70,583EMEA
    
    
    4,404
    
    
    
    4,241APAC
    
    
    1,438
    
    
    
    1,397$
    74,489
    
    
    $
    76,221
   Three Months EndedSeptember 30,2006
    
    
    2005Software licenses
    
    $
    68,130
    
    
    $
    60,524Maintenance and services:Maintenance
    
    
    89,610
    
    
    
    77,940Consulting and training
    
    
    40,763
    
    
    
    31,761130,373
    
    
    
    109,701Total revenues
    
    $
    198,503
    
    
    $
    170,225
 15




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
  OVERVIEW
   CRITICAL ACCOUNTING ESTIMATES
  RESULTS OF OPERATIONS
 REVENUES
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentSoftware licenses
    
    $
    68,130
    
    
    $
    60,524
    
    
    $
    7,606
    
    
    
    13
    %Maintenance and
services revenue
    
    
    130,373
    
    
    
    109,701
    
    
    
    20,672
    
    
    
    19
    %Total revenues
    
    $
    198,503
    
    
    $
    170,225
    
    
    $
    28,278
    
    
    
    17
    %
   16




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##### Table of Contents



Software Licenses
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentSoftware licenses
    
    $
    68,130
    
    
    $
    60,524
    
    
    $
    7,606
    
    
    
    13
    %Percent of total revenue
    
    
    34
    %
    
    
    35
    %
 Three Months Ended September 30,Key Software License Revenue Indicators:
    
    2006
    
    
    2005Average selling price
    
    $
    145
    
    
    $
    121Software license transactions greater than $500,000
    
    
    27
    
    
    
    15Number of new customers
    
    
    272
    
    
    
    310Percentage of license revenue from new customers
    
    
    26
    %
    
    
    27
    %
   Maintenance and Services
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentMaintenance
    
    $
    89,610
    
    
    $
    77,940
    
    
    $
    11,670
    
    
    
    15
    %Consulting and training
    
    
    40,763
    
    
    
    31,761
    
    
    
    9,002
    
    
    
    28
    %Total maintenance and
services revenue
    
    $
    130,373
    
    
    $
    109,701
    
    
    $
    20,672
    
    
    
    19
    %Percent of total revenue
    
    
    66
    %
    
    
    65
    %
  COST OF REVENUE
 Cost of Software License Revenue
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentCost of software licenses
    
    $
    5,873
    
    
    $
    3,839
    
    
    $
    2,034
    
    
    
    53
    %Percent of software
license revenue
    
    
    9
    %
    
    
    6
    %
 17




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Cost of Maintenance and Services Revenue
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentCost of maintenance
and services
    
    $
    49,973
    
    
    $
    37,954
    
    
    $
    12,019
    
    
    
    32
    %Percent of
maintenance and
services revenue
    
    
    38
    %
    
    
    35
    %
  18




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OPERATING EXPENSES
 Sales and Marketing
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentSales and marketing
    
    $
    73,159
    
    
    $
    66,648
    
    
    $
    6,511
    
    
    
    10
    %Percent of total revenue
    
    
    37
    %
    
    
    39
    %
  Research and Development
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentResearch and development
    
    $
    30,196
    
    
    $
    27,881
    
    
    $
    2,315
    
    
    
    8
    %Percent of total revenue
    
    
    15
    %
    
    
    16
    %
    General and Administrative
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentGeneral and administrative
    
    $
    23,043
    
    
    $
    16,129
    
    
    $
    6,914
    
    
    
    43
    %Percent of total revenue
    
    
    12
    %
    
    
    10
    %
 19




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Restructuring Charges (Credits)
     20




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Severance
    
    
    Facilities
    
    
    Other
    
    
    TotalAccrual balance at June 30, 2006
    
    $
    267
    
    
    $
    10,548
    
    
    $
    131
    
    
    $
    10,946Restructuring charge (credit)
    
    
    (51
    )
    
    
    25
    
    
    
    
    
    
    
    (26
    )Cash payments
    
    
    (200
    )
    
    
    (980
    )
    
    
    
    
    
    
    (1,180
    )Non-cash items
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    139Accrual balance at September 30, 2006
    
    $
    16
    
    
    $
    9,732
    
    
    $
    131
    
    
    $
    9,879
  Severance
    
    
    Facilities
    
    
    TotalBalance at June 30, 2006
    
    $
    17
    
    
    $
    11,852
    
    
    $
    11,869Cash payments
    
    
    
    
    
    
    (757
    )
    
    
    (757
    )Balance at September 30, 2006
    
    $
    17
    
    
    $
    11,095
    
    
    $
    11,112
  INTEREST AND OTHER INCOME, NET
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentInterest and other income, net
    
    $
    3,552
    
    
    $
    2,576
    
    
    $
    976
    
    
    
    38
    %
  INCOME TAX PROVISION
 Three Months EndedSeptember 30,
    
    
    Variance(In thousands)
    
    2006
    
    
    2005
    
    
    Dollars
    
    
    PercentIncome tax provision
    
    $
    7,901
    
    
    $
    7,158
    
    
    $
    743
    
    
    
    10
    %Effective tax rate
    
    
    39.8
    %
    
    
    35.0
    %
  21




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##### Table of Contents



NET INCOME
  LIQUIDITY AND CAPITAL RESOURCES
 September 30,(In thousands)
    
    2006
    
    
    2005Cash and cash equivalents
    
    $
    158,004
    
    
    $
    138,973Short-term investments
    
    
    278,171
    
    
    
    297,495Working capital
    
    
    295,363
    
    
    
    315,620
 Three Months EndedSeptember 30(In thousands)
    
    2006
    
    
    2005Net cash provided by operating activities
    
    $
    24,408
    
    
    $
    36,395Net cash used in investing activities
    
    
    (16,971
    )
    
    
    (32,327
    )Net cash used in financing activities
    
    
    (16,754
    )
    
    
    (34,941
    )
     22




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##### Table of Contents



Total
    
    Payments Due InPayments
    
    Fiscal
    
    Fiscal 2008
    
    Fiscal 2010
    
    Fiscal 2012Due
    
    2007
    
    and 2009
    
    and 2011
    
    and ThereafterOperating lease obligations [1]
    
    $
    106,678
    
    
    $
    19,546
    
    
    $
    39,042
    
    
    $
    20,562
    
    
    $
    27,528Capital lease obligations [2]
    
    
    897
    
    
    
    273
    
    
    
    624
    
    

    

    

    Purchase obligations [3]
    
    
    1,092
    
    
    
    1,092
    
    

    

    

    

    

    $
    108,667
    
    
    $
    20,911
    
    
    $
    39,666
    
    
    $
    20,562
    
    
    $
    27,528
 [1]
    
    Excludes minimum sublease rentals aggregating approximately $10.9 million due in the future under non-cancelable subleases.[2]
    
    Represents remaining payments under capital leases of computer equipment, including $0.1 million of imputed interest.[3]
    
    Represents amounts associated with agreements that are enforceable, legally binding, and specify terms, including: fixed or
minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the
payment.
  OFF-BALANCE SHEET ARRANGEMENTS
  RECENT ACCOUNTING PRONOUNCEMENTS
    23




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 FOREIGN CURRENCY EXCHANGE RATE RISK
   INTEREST RATE RISK.
 
 ITEM 4. CONTROLS AND PROCEDURES
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES .
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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
 FACTORS THAT MAY AFFECT FUTURE RESULTS
  Product enhancement and new product introductions involve inherent risks.
  
    
    Product quality, including the possibility of software defects;
    
    Delays in releasing new products;
    
    Customers delaying purchase decisions in anticipation of new products to be released;
    
    Customer confusion and extended evaluation and negotiation time;
    
    The fit of the new products and features with the customers needs;
    
    The successful adaptation of third-party technology into our products;
    
    Educating Hyperions sales, marketing, and consulting personnel to work with the new products and features;
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
    
    Competition from earlier and more established entrants;
    
    Market acceptance of initial product releases;
    
    Technological challenges involved in integrating Hyperion products into cohesive
business performance management systems offerings;
    
    Marketing effectiveness, including challenges in distribution; and
    
    The accuracy of assumptions about the nature of customer demand.
  Fluctuations in our quarterly operating results may not be predictable and may result in
significant volatility in our stock price.
  Hyperion operates in a very competitive environment.
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If Hyperion is unable to develop or acquire new and enhanced products that achieve widespread
market acceptance, we may be unable to recoup product development costs, and our earnings and
revenue may decline.
  Failure to support older products will adversely affect sales.
  Hyperion typically has back-ended quarters which may cause actual revenues in a quarter to vary
from sales forecasts.
  A change in pricing or marketing could adversely affect Hyperions business.
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##### Table of Contents



Employee turnover could adversely impact revenue, costs, and productivity.
  Exchange rate fluctuations may adversely affect results.
  Hyperion may not be able to continue our operational improvements.
  Reorganizations may adversely affect productivity.
  We are required to evaluate our internal control over financial reporting under Section 404 of the
Sarbanes-Oxley Act of 2002 and are exposed to future risks of non-compliance.
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Hyperions international operations are subject to significant risks.
  
    
    Fluctuations in currency exchange rates and economic instability such as higher
interest rates and inflation, which could reduce Hyperions customers ability to obtain
financing for software products or which could make Hyperions products more expensive in
those countries;
    
    Difficulties in hedging foreign currency transaction exposures;
    
    Potential loss of proprietary information due to piracy, misappropriation, or
weaker laws regarding intellectual property protection;
    
    Imposition of foreign laws and other governmental controls, including trade and employment restrictions;
    
    Longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;
    
    Difficulties in staffing and managing our international operations, including
increased turnover as economic opportunities increase in countries such as India and
difficulties related to administering Hyperions stock option plan in some foreign
countries;
    
    Difficulties in coordinating the activities of Hyperions geographically dispersed and culturally diverse operations;
    
    Competition from local suppliers;
    
    Costs and delays associated with developing software in multiple languages; and
    
    Political unrest, war, or terrorism, particularly in areas in which Hyperion has facilities.
  Hyperion faces significant challenges and risks associated with compliance.
  There are significant risks related to any business combination and investment.
  
    
    The possibility that Hyperion pays more than the value derived from the acquisition;
    
    The difficulty of integrating the products, operations, and personnel of the acquired business;
    
    The possibility that all aspects of the integration are not completed or that all
of the anticipated synergies of the acquisition are not realized;
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##### Table of Contents




    
    Difficulties in managing software development activities to define a combined
product roadmap, ensuring timely development of new products, timely release of new products
to market, and the development of efficient integration and migration processes and tools;
    
    The difficulty of retaining key alliances on attractive terms with partners and suppliers;
    
    The difficulty of retaining customers and protecting maintenance revenues;
    
    The difficulty of retaining and recruiting key personnel and maintaining employee morale;
    
    The potential product liability associated with selling the acquired companys products;
    
    The potential that we do not detect a significant liability of the acquired
business during the pre-acquisition due diligence process;
    
    The possibility that businesses in which Hyperion invests ultimately fail, rendering our investment worthless;
    
    The potential disruption of Hyperions ongoing business and the distraction of management from Hyperions business; and
    
    The potential write-down of impaired goodwill, intangible assets, fixed assets,
and other assets. As of September 30, 2006, Hyperion has recorded $157.0 million of goodwill
related to a number of acquisitions that will not be amortized in the ordinary course of
business. We are required under generally accepted accounting principles to review our
goodwill for impairment at least annually or when events or changes in circumstances
indicate the carrying value may not be recoverable. We may be required to record a
significant change to earnings in our consolidated financial statements during the period in
which any impairment of our goodwill or amortizable intangible assets is determined. This
may adversely impact our results of operations.
  Hyperion is subject to the possibility of infringement claims.
   Enforcement of Hyperions intellectual property rights may be difficult.
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##### Table of Contents



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



Some provisions in Hyperions charter documents and our stockholder rights plan may prevent or
deter an acquisition of Hyperion.
  
    
    Hyperions Board of Directors is authorized to issue preferred stock with any
rights it may determine. Consequently, without shareholder approval, Hyperions Board of
Directors may issue preferred stock that has rights superior to the outstanding Hyperion
common stock;
    
    Hyperions Board of Directors is classified into three groups, with each group of
directors holding office for three years. The effect of this classified board is that two
annual meetings, not one, are required to replace a majority of the Board of Directors;
    
    Hyperion stockholders are not entitled to cumulate votes for directors; and
    
    Special meetings of Hyperion stockholders may not be called by Hyperions stockholders.
   We are incurring substantial costs and devoting more management resources to comply with increasing
regulation of corporate governance and disclosure.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    
    Approximate DollarShares Purchased as
    
    
    Value of SharesTotal Number of
    
    
    
    
    
    
    Part of Publicly
    
    
    that May Yet BeShares Purchased
    
    
    Average Price Paid
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    [1]
    
    per Share
    
    
    [2]
    
    
    Plans(In thousands, except per share data)July 1, 2006  July 31, 2006
    
    
    870
    
    
    $
    28.74
    
    
    
    870
    
    
    $
    40,000August 1, 2006  August 31, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    40,000September 1, 2006  September 30, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    40,000
 [1]
    
    All stock repurchases during the three months ended September 30,
2006, were made in open-market transactions as part of our publicly
announced plans.[2]
    
    On April 20, 2006, we announced that our Board of Directors had
authorized a plan to repurchase up to $100.0 million of our common
stock. In the first quarter of fiscal 2007, a total of 0.9 million
shares were purchased under this plan. As of September 30, 2006, the
remaining authorized amount for stock repurchases under the program
was $40.0 million
 
 ITEM 3. DEFAULTS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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##### Table of Contents



ITEM 5. OTHER INFORMATION
 (a)
    
    Not applicable.(b)
    
    None.
 
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Description10.1
    
    
    Standard form of Hyperion Restricted Stock Purchase Agreement under the
2004 Equity Incentive Plan, as amended and restated (filed as Exhibit
10.1 to the Companys Current Report on Form 8-K filed on August 24,
2006 and incorporated herein by reference).31.1
    
    
    Certification of Godfrey R. Sullivan pursuant to Rule 13a-14(a).31.2
    
    
    Certification of Robin L. Washington pursuant to Rule 13a-14(a).32.1
    
    
    Certification of Godfrey R. Sullivan pursuant to 18 U.S.C. Section 1350.32.2
    
    
    Certification of Robin L. Washington pursuant to 18 U.S.C. Section 1350.
 33




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##### Table of Contents



SIGNATURES
  Date: November 8, 2006
    Hyperion Solutions Corporation
(Registrant)By:
    /s/ ROBIN L. WASHINGTONRobin L. WashingtonChief Financial Officer and
Principal Accounting Officer 34




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    
    Standard form of Hyperion Restricted Stock Purchase Agreement under the
2004 Equity Incentive Plan, as amended and restated (filed as Exhibit
10.1 to the Companys Current Report on Form 8-K filed on August 24,
2006 and incorporated herein by reference).31.1
    
    
    Certification of Godfrey R. Sullivan pursuant to Rule 13a-14(a).31.2
    
    
    Certification of Robin L. Washington pursuant to Rule 13a-14(a).32.1
    
    
    Certification of Godfrey R. Sullivan pursuant to 18 U.S.C. Section 1350.32.2
    
    
    Certification of Robin L. Washington pursuant to 18 U.S.C. Section 1350.
 35