Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR THE FISCAL YEAR ENDED JUNE 30, 2002

OR

For the transition period from ____________ to _____________.

COMMISSION FILE NUMBER 0-26934

HYPERION SOLUTIONS CORPORATION
(Exact name of registrant as specified in its charter)

1344 CROSSMAN AVENUE, SUNNYVALE, CALIFORNIA 94089
(Address of principal executive offices, including zip code)

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

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001

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  [X]    NO  [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    [X]

As of September 16, 2002, there were 33,547,554 shares of the registrant’s common stock, $0.001 par value, outstanding. The aggregate market value of the registrant’s voting stock held by nonaffiliates as of September 16, 2002 was approximately $694 million.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2002 Annual Meeting of Stockholders, scheduled to be held on November 13, 2002, are incorporated by reference in Part III hereof.

Table of Contents

HYPERION SOLUTIONS CORPORATION

FORM 10-K

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.

2

Table of Contents

FORWARD-LOOKING STATEMENTS

Certain information contained in this report on Form 10-K and the Annual Report is forward-looking in nature. All statements included in this report on Form 10-K and the Annual Report or made by management of Hyperion Solutions Corporation and its subsidiaries (Hyperion), 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,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the section entitled “Factors That May Affect Future Results.” These and many other factors could affect Hyperion’s future financial and operating results, and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by Hyperion or on its behalf. Hyperion does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances.

PART I

ITEM 1.   BUSINESS

GENERAL

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

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

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

INDUSTRY BACKGROUND

In response to today’s competitive pressures and renewed focus on profitability, most businesses are seeking systems that can support the full business cycle from strategy formulation to the creation and adaptation of plans and operational execution, as well as the monitoring and reporting of results. Companies need to unlock the volumes of transactional and operational information captured in different information systems and in different formats. It is common for organizations to have multiple general ledger, order entry, partner and customer interaction systems worldwide. With business performance management solutions, organizations can consolidate their financial and operational information and turn this raw data into meaningful business information. More importantly, our business performance management solutions can scale from executive management through to the line manager.

We see five business imperatives driving increased demand for business performance management solutions. These are the need to 1) increase visibility, agility and measurable accountability across the enterprise; 2) achieve necessary alignment among business and functional units for tight strategy execution; 3) increase the quality of management reports and have every manager work from the same set of facts; 4) extend existing information technology investments in operational enterprise

3

Table of Contents

resource planning, customer relationship management and other legacy transactional systems; and 5) make information accessible and actionable throughout the organization to increase the speed, quality and accuracy of decision making.

These imperatives are in contrast to the tactical manner in which some organizations address analysis requirements today. Using standalone applications, query and reporting tools and spreadsheets, for example, employees in different functional areas conduct analyses that are potentially incomplete or inaccurate. Deployment of pervasive business performance management applications provides consistent information and allows organizations to create and execute strategic, financial and operational plans that are in alignment.

To be useful, all of the data must be accessed, cleansed, transformed, extracted and then analyzed using an assortment of sophisticated quantitative methods. It must be summarized, visualized and presented in a variety of formats — from spreadsheets and specialized financial report formats, to multidimensional views and graphical Web-based presentations — that are meaningful and intuitive to users throughout the organization. Since most global organizations use multiple operational systems that capture data in different formats, integrating and interpreting this enterprise data is an increasingly critical requirement. To take full advantage of the value of the data stored in existing systems and accelerate decision-making requires specific business performance management applications that provide data quality and integrity, scalability and ease-of-use across the organization.

Our business performance management solutions are comprehensive, scalable, open and enterprise-class. They meet industry needs with a suite and platform approach specifically designed to leverage the investment organizations have already made in raw data collection and operational systems. Business performance management applications represent the next logical step in the evolution of enterprise application software.

STRATEGY

Our objective is to be the leading global provider of business performance management solutions. These solutions give our customers the power to leverage their information assets for strategic purposes and enable organizations to measure performance, anticipate results and drive profitability. We intend to accomplish this by leading with our applications, as those customer wins tend to drive additional platform license revenue. In addition, we will continue to expand our network of partners delivering business performance management capabilities on our platform, including value added solutions for emerging areas of performance management such as customer relationship, supply chain, and industry-specific markets. We will also continue to enhance our scalable, open Hyperion Essbase technology, deliver the best applications available and provide complementary support and service offerings.

We believe that high levels of customer service and satisfaction are critical to the successful marketing and sale of our new and existing products. We provide a broad range of worldwide consulting, training and support services that help customers and partners implement, customize, enhance, support and extend their business performance management solutions. We are committed to maintaining a world-class workforce to deliver these offerings and support more than 330 partners that deliver complementary products and services, meeting a wide variety of customer requirements. These solutions include additional packaged business performance management applications, data and application integration technologies, tools, and training services that leverage the Hyperion Essbase XTD platform as the foundation. We believe that the number of partners offering solutions based on our business performance management applications and technology validates the value of our platform. These partner relationships increase the network effects of our platform, enhance our market reach and provide our customers with comprehensive business performance management solutions that deliver greater flexibility and choice.

Key elements of our strategy include:

Leverage Existing Market Leadership Position. We plan to enhance the core component of our Hyperion Essbase XTD platform for ease of development and increased interoperability of business performance management applications, with even greater scalability and ease-of-use features and tighter integration with relational data sources. We intend to actively seek the co-development of vertical and horizontal applications with outside organizations. We also intend to enable all of our packaged applications to fully exploit the Hyperion Essbase XTD platform, creating a key differentiation with competing products. We believe that these activities will increase our ability and our partners’ ability to deliver an integrated suite of business performance management applications across key market areas. We believe our key strengths are our established distribution channels and comprehensive strategic technology. We also believe that our proven domain expertise and credibility gained from market leadership in the financial area can be leveraged to fully exploit the substantial market opportunity that exists in the applications area and expand to the adjacent operational analytics space.

4

Table of Contents

Increase Focus and Penetration of Key Markets. We plan to focus our intellectual capital and leverage our partners to provide best-of-breed business performance management solutions in key markets, including financial management, CRM analysis, supply-chain analysis, workforce analysis, industry-specific solutions, general OLAP-based solutions and data warehousing.

Foster Strategic Partner Relationships. To accelerate the adoption of business performance management solutions, we have established over 330 relationships, including the following:

•		Consulting Partners, including large systems integrators, regional consulting firms, professional services organizations and value added resellers, deliver custom application consulting and related implementation, integration and/or training services.
•		Independent Software Vendor (ISV) Partners integrate their products with our core technology to develop business intelligence enhancements and deliver added value with their solutions.
•		Original Equipment Manufacturer (OEM) Partners embed our products in their own applications to form specialized analytical solutions for vertical markets or functional applications.
•		Distribution Partners market, distribute and support our software solutions in remote markets where we do not have a wholly-owned corporate presence.
•		Technology Partners offer tools and technologies that integrate with our business intelligence platform and help customers build, use, and manage our analytical and business performance management solutions.
•		Alliance Partners cooperatively position and market the benefits of a comprehensive, integrated, multi-vendor solution to the marketplace based upon our business performance management products.

Our partner network enhances and expands our distribution channels and extends our business performance management solutions by providing a wider range of choices for our customers.

Leverage the Web for Ease-of-Implementation and Ease-of-Use. Our new packaged application products are designed to leverage web-based technologies and enable collaboration throughout the organization. By building scalable, high performance applications that can be accessed via an intranet or the Internet, corporations can improve their business processes, gain efficiencies, improve agility to respond to changing market conditions and improve bottom line performance. By leveraging the web browser as a user interface, a corporation’s information technology department can deploy and maintain applications quickly and easily with reduced costs. From an end-user perspective, web-based applications are easy to learn and enhance productivity, resulting in reduced training costs and faster return on investment.

Maintain Sales and Support Relationships. We license our products to customers throughout the world through a direct sales force as well as through original equipment manufacturers, value added resellers (VARs), independent distributors and sales agents. Together with our partners, we often provide installation and post-sale consulting support to build long-term customer relationships.

Generate Follow-on Revenues. We generate revenues from existing customers through licensing for additional users, the cross selling of licenses of new products, annual maintenance fees and sales of training and consulting services. Follow-on revenues leverage sales and marketing resources and strengthen relationships with our customers.

BUSINESS PERFORMANCE MANAGEMENT SOFTWARE SOLUTIONS

We offer customers application software products and technology software products. Applications include financial and business performance management products that provide customers the opportunity to strategize, model, plan and measure performance. Technology products include an open, scalable, flexible and integrating platform with Hyperion Essbase as its foundation, and Hyperion tools, incorporating domain-specific business rules, data storage, integration, interoperability, query, reporting, visualization and development capabilities. Together with our partners, we offer a suite of business performance management solutions that are compelling in the industry and help customers measure performance, anticipate results and drive profitability.

5

Table of Contents

Application Products

Our business performance management applications provide comprehensive support for the strategy setting, business modeling, planning, performance measurement, reporting and analysis needs of finance and operations staffs in organizations worldwide. Our business performance management applications complement existing ERP and transaction systems — integrating data from multiple sources, providing a common view across the organization and enabling an integrated financial and performance management process that aligns individual goals with corporate objectives.

Hyperion Planning is a Web-based budgeting, planning and forecasting application that supports financial and operational planning to align with strategic plans and goals. It enables collaborative, event-based operational planning processes throughout the organization. Using Hyperion Planning, strategic and senior managers and front line decision-makers can communicate a desired course of action to facilitate effective collaboration so that the planning process is optimized and efficient. When a material event occurs that changes a critical assumption, planners can quickly adapt, ensuring that plans are relevant and useful. Hyperion Planning is built on the Hyperion Essbase XTD platform and is most appropriate for companies seeking a solution that delivers real-time planning, sophisticated modeling, dynamic forecasting and event-driven reallocation of resources to a large number of users.

Hyperion Financial Management is a comprehensive, Web-based application that delivers global collection, financial consolidation, reporting and analysis in a single, highly scalable solution. With Hyperion Financial Management, companies can unify their financial information (actuals, budgets, forecasts, statistics) into a single application. They can centrally manage and collaborate on financial information and processes for their global operations, via the Internet, intranet, extranet and a standard Web browser. Employees, branch offices and partners operate with a single, unified view of key financial data at any moment in time. Hyperion Financial Management is designed for diverse, multi-entity organizations that have a centralized approach to managing their financial management and reporting processes and that are seeking to align their decision-making processes with overall business goals. It is a financial reporting and analysis system that can manage all financial information and deploy it enterprise-wide. Hyperion Financial Management takes advantage of the Hyperion Essbase XTD platform and is most appropriate for companies seeking a centralized approach to comprehensive financial management unifying all decision makers across the enterprise and leading to improved efficiencies, faster business cycle times and greater company agility.

Hyperion Performance Scorecard, a Balanced Scorecard Collaborative certified application, is a Web-based business analysis application designed to help employees throughout an organization gain a clear understanding of organizational strategy and accountability. Hyperion Performance Scorecard helps companies set and communicate goals, establish key performance metrics and accountability and continuously measure performance against company goals and objectives. With performance scorecarding, organizations can align and focus the enterprise on business objectives, plans and actions; empower employees with clearly defined performance measures; and enable continuous performance improvement and agility at all levels. We believe organizations that deploy Hyperion Performance Scorecard are better able to bridge the gap between strategy and execution, engage a broader range of employees in planning activities and respond more proactively to changing business conditions. Hyperion Performance Scorecard embeds industry-leading metric libraries, exposes world class benchmarking services and supports customized and standard performance measurement frameworks, including the Balanced Scorecard.

Hyperion Business Modeling is a Web-enabled business analysis application that helps organizations optimize resources and execute efficiently. Hyperion Business Modeling is an enterprise-class activity based modeling solution that enables organizations to test operational and financial planning assumptions, model processes and activities, optimize resources and measure profitability. By using business models, managers and analysts test operational and financial plans for the purpose of strategic decision-making. Business modeling also enables organizations to test scenarios, validate strategies and optimize resources to improve profitability.

Hyperion Enterprise is designed to simplify the collection, consolidation and reporting of financial results, reduce the time organizations spend on these activities and improve financial analysis and planning capabilities. It is appropriate for global organizations seeking a comprehensive consolidation and reporting solution with many remote sites and low IT support requirements. Complementing Hyperion Enterprise, Hyperion Enterprise Reporting is an advanced financial reporting solution. An intuitive graphical interface helps users create sophisticated production-quality financial reports for printing or online access. Embedded process-specific financial intelligence provides accurate and detailed financial information, while a comprehensive library of financial functions and calculations allow users to derive new metrics.

Hyperion Pillar is a business analysis application for departmental budgeting and planning. It is designed to increase the reliability and efficiency of a hierarchically controlled bottom-up budgeting process. By facilitating participation of line managers and business activity experts in this process, Hyperion Pillar can improve an organization’s ability to shorten cyclical budget cycle times and deliver consistent budget revisions and projected financial statements. Hyperion Pillar enables a

6

Table of Contents

company to increase usage and decrease the maintenance of the budgeting and planning process. It is appropriate for organizations seeking a budgeting solution supporting remote users with limited IT resource requirements.

Technology Products

Hyperion Essbase XTD uses our best-of breed OLAP technology, Hyperion Essbase, as its foundation. OLAP is an enabling technology that allows data to be explored well beyond the capabilities of traditional reporting systems. Using sophisticated statistical and mathematical calculations, intuitive multidimensional views and a highly scalable architecture, it supports interactive reporting, analysis, modeling and planning activities. We believe, based on independent industry analyst product evaluations and market share estimates, that Hyperion Essbase is the industry’s leading OLAP technology.

Hyperion Essbase XTD provides an open and integrating platform that delivers the foundation technologies — platform services, application framework, powerful analytics, query and reporting tools — to support business performance management solutions. Built on a flexible, multi-tiered architecture, Hyperion Essbase XTD delivers scalability, performance and reliability at a low total cost of ownership. With Hyperion Essbase XTD as the foundation, businesses can quickly develop and easily deploy any of our business performance management solutions out-of-the-box. Alternatively, they can customize and extend these applications to meet their specific needs with Essbase XTD Application Framework and Platform Services.

Essbase XTD Platform Services are a set of business intelligence technologies that integrate data and metadata from multiple sources, perform advanced analytical processing and deploy business performance applications across the enterprise. Comprehensive platform services run on multiple operating systems, leverage multiple relational databases and access data from diverse ERP, CRM and SCM systems. With Essbase XTD Platform Services, businesses can leverage their existing investments in technology and quickly extend their analytical capabilities across the enterprise. Essbase XTD Query and Reporting Services rounds out the platform services and delivers high performance enterprise reporting. Dynamically scheduled reports also are delivered in a variety of formats to meet individual end user needs.

Essbase XTD Application Framework is a rich tool set that enables rapid creation, delivery and deployment of enterprise-class analytic and reporting applications for the Web. With Hyperion Application Framework, users can share and view personalized content and reports from multiple data sources through a standard Web browser. Out-of-the-box solutions provide a quick path to interactive analysis and reporting. Easy-to-use development tools allow users to rapidly extend, or build custom analytic applications.

SERVICES AND SUPPORT

We believe that high levels of customer service and satisfaction are important to the successful marketing and sale of our products. We offer an extensive selection of worldwide training, consulting and technical support services to install, implement and support our products. Consulting and training services are not included in software license fees, but are provided on a time and materials basis. Within the area of technical support, enhanced support offerings are not included in the software license fees. Our services and support organization consisted of 760 employees as of August 31, 2002. We have also established a global network of partners who deliver implementation and training services.

Under the terms of our standard license agreement, customers may, at their option, pay a maintenance fee annually. This maintenance fee entitles customers to technical support, including telephone and Web-based support, and to any updates and enhancements provided for their software.

SALES AND MARKETING

We market and sell our products in North America, Latin America, Europe and Asia Pacific through our direct sales force and through OEMs, VARs, independent distributors and sales agents. We support our sales force with lead generation and marketing programs, which include telemarketing, public relations, direct mail, advertising, seminars, trade shows, education, ongoing customer communication programs, third-party alliances and user group conferences. Worldwide and regional user conferences are held annually. Regional user meetings and product-specific focus groups are also scheduled periodically. Sales cycles generally last from three to nine months. We have dedicated sales, marketing and technical alliance resources designed to optimize our partner relationships. The direct sales force is compensated for direct sales as well as sales made through channel partners to ensure appropriate cooperation with our OEMs and VARs, independent distributors and sales agents. We have licensed our software to more than 6,000 organizations worldwide, many of which are multidivision and/or multilocation organizations with diverse information management requirements. In fiscal 2002, 2001 and 2000, approximately 35%, 32% and 32%, respectively, of our total revenues were derived from markets outside of North America. In the past three fiscal years, no single customer accounted for more than 10% of total revenues.

7

Table of Contents

Our sales and marketing organization consisted of 718 employees as of August 31, 2002, of which approximately 235 employees were quota-carrying sales representatives. We have sales offices at our worldwide headquarters in Sunnyvale, California and in more than 40 other locations throughout North America, Latin America, Europe and Asia Pacific. Product support and training are also available in many of these locations.

We have been able to leverage sales and marketing through our partnering strategy with channel partners that distribute or resell our products in their respective markets. We have license and distribution agreements with independent distributors and sales agents in many countries worldwide. The distributors generally maintain sales and services personnel dedicated to our products. The distribution agreements generally provide for the right to offer our products within a territory in return for royalties typically equal to 50% of license and maintenance fees.

License revenues derived from channel partners in fiscal 2002, 2001 and 2000 were 25%, 21% and 27% of total license revenues, respectively. Our channel partners include such firms as Deloitte & Touche LLP; Fujitsu Limited; Immix Inc.; International Business Machines Corporation; i2 Technologies, Inc.; KPMG Consulting Inc.; Lawson Associates, Inc.; and SPSS Corporation.

RESEARCH AND DEVELOPMENT

Our products have been developed by our internal staff, contract developers and through strategic acquisitions. Our development efforts are focused on new products, as well as on maintaining the competitiveness of our current product line. As of August 31, 2002, our product development was primarily performed by 418 employees located at our facilities in Sunnyvale, California; Stamford, Connecticut; Orlando, Florida; Atlanta, Georgia and Toronto, Canada.

COMPETITION

The markets in which we compete are intensely competitive, highly fragmented and characterized by rapidly changing technology and evolving standards. Current and potential competitors offer a variety of reporting, analysis, modeling and planning software solutions and generally fall within four categories: (1) vendors of packaged business analysis applications; (2) vendors of enterprise software applications that support transaction processes and front/back office automation; (3) vendors of OLAP server software that may also be marketed as part of a platform offering; and (4) vendors of front-end information access tools. While competition is intense, we believe that no other competitor currently has the singular focus and breadth of products and services required to deliver enterprise-wide business performance management solutions. As markets continue to develop for business performance management products, additional competitors may enter or expand into those markets and competition may intensify.

Competitors, some of whom have significantly greater financial, technical, marketing and other resources than we do, may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than us. Also, certain current and potential competitors may have greater name recognition or more extensive customer bases that could be leveraged, thereby gaining market share to our detriment. We expect additional competition as other established and emerging companies enter into the enterprise software market and new products and technologies are introduced. In addition, as we develop and enhance our software and complementary products, the resulting new functionality may duplicate the functionality of, and thus compete with, other products offered by our channel partners. Increased competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market share, any of which would materially adversely affect our business, operating results and financial condition.

Current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third-parties, thereby increasing their ability to address the needs of our existing and prospective customers. Further competitive pressures, such as those resulting from competitors’ discounting of their products, may require us to reduce the price of our software products, which would materially adversely affect our business, operating results and financial condition. There can be no assurance that we will be able to compete successfully against current and future competitors, and the failure to do so would have a material adverse effect on our business, operating results and financial condition. See “Item 7. Factors That May Affect Future Results.”

PROPRIETARY RIGHTS AND LICENSES

We rely primarily on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. Despite our efforts, unauthorized parties may attempt to copy aspects of

8

Table of Contents

our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult and, while we are unable to determine the extent to which piracy of our software products exists, software piracy is expected to be a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States. There can be no assurance that our means of protecting our proprietary rights in the United States or abroad will be adequate or that competitors will not independently develop similar technology. We have entered into source code escrow agreements with a number of our customers and channel partners requiring release of source code under certain conditions. Generally, such agreements provide that such parties will have a limited, nonexclusive right to use such code in the event that there is an undismissed bankruptcy proceeding by or against us, if we cease to do business or if we materially fail to meet our contractual obligations. The release of source code may increase the likelihood of misappropriation by third-parties.

We currently have a small number of patents relating to our products, including seven United States patents and a number of patent applications pending in the United States and abroad. There can be no assurance that our patents will not be invalidated, circumvented or challenged, that the rights granted thereunder will provide competitive advantages to us or that any of our pending or future patent applications, whether or not being currently challenged by applicable governmental patent examiners, will be issued with the scope of the claims sought by us, if at all. Furthermore, there can be no assurance that other companies will not develop technologies that are similar or superior to our technology or design around the patents owned by us. In 1998, the U.S. Patent and Trademark Office granted two requests for reexamination of our U.S. Patent No. 5,359,724. The reexamination proceedings are currently pending. An adverse outcome of the reexamination proceedings could involve loss of some or all of the claims of the patent. On August 29, 2002 we settled a patent infringement claim brought by Timeline, Inc. See “Item 3. Legal Proceedings” for further discussion of both of these matters.

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

We rely upon certain software that we license from third-parties, including software that is integrated with our internally developed software and used in our products to perform key functions. There can be no assurance that these third-party software licenses will continue to be available to us on commercially reasonable terms. The loss of, or inability to maintain, any such software licenses could result in shipment delays or reductions until equivalent software could be developed, identified, licensed and integrated, which would materially adversely affect our business, operating results and financial condition.

We distribute our products under software license agreements that grant customers a nonexclusive, nontransferable license to our products and contain terms and conditions prohibiting the unauthorized reproduction or transfer of our products. Generally, we do not provide end users with the source code for our products except under the escrow arrangements described above.

EMPLOYEES

As of August 31, 2002, we employed a total of 2,252 employees. None of our employees is represented by a labor union. We believe our relations with employees are good.

Our executive officers as of August 31, 2002 are as follows:

Jeffrey R. Rodek has served as Chairman and Chief Executive Officer of Hyperion since October 1999. He has been a member of Hyperion’s Board of Directors since January 1998. Prior to joining Hyperion, Mr. Rodek served as President and Worldwide Chief Operating Officer of Ingram Micro, a distributor of electronic products, from January 1995 to October 1999.

9

Table of Contents

Godfrey R. Sullivan joined Hyperion as President and Chief Operating Officer in October 2001. Prior to joining Hyperion, Mr. Sullivan served as Chief Executive Officer of Promptu Corporation, an enterprise marketing automation software company, from October 2000 to August 2001. Previously, he spent eight years at AutoDesk, Inc., a design software and digital media company, in various senior management positions.

David W. Odell joined Hyperion as Chief Financial Officer and Corporate Vice President in August 2000. He joined Hyperion from KPMG LLP, a public accounting firm. He was with KPMG for over fifteen years, most recently as a partner in the firm’s Sydney, Australia office.

W. Russell Wayman joined Hyperion as Corporate Vice President, General Counsel and Secretary in January 2001. Prior to that he was Vice President and General Counsel of Etec Systems, Inc, a semiconductor manufacturing equipment company, from 1998 to 2000, and Vice President and General Counsel of Storage Technology Corporation, a manufacturer of computer disk and tape storage devices, from 1990 to 1998.

Nazhin Zarghamee joined Hyperion as Chief Marketing Officer in February 2002. Before joining Hyperion, Ms. Zarghamee served as Vice President of Worldwide Marketing at Documentum, an enterprise content management company, from October 1999 to October 2001. From April 1999 to October 1999, Ms. Zarghamee served as Vice President of Marketing for The Business Network. From August 1994 to April 1999, Ms. Zarghamee was employed by Oracle Corporation, most recently as Senior Director of Worldwide Marketing.

ITEM 2.   PROPERTIES

Our principal administrative, sales, marketing, services, training and research and development facilities are located in Sunnyvale and San Francisco, California; Stamford, Connecticut; Dallas, Texas; Atlanta and Kennesaw, Georgia; Lisle, Illinois; Orlando, Florida; Toronto, Canada; Waltham, Massachusetts; Paris, France; and Singapore. We occupy approximately 100,000 square feet at our worldwide headquarters in Sunnyvale, California, pursuant to a lease that expires in December 2006. We also own and occupy approximately 230,000 square feet in Stamford, Connecticut. In addition, we lease office space throughout the world for our local sales and services needs. We believe that our existing facilities are adequate for our current needs. If additional space is needed in the future, we believe that suitable space will be available on commercially reasonable terms.

ITEM 3.   LEGAL PROCEEDINGS

On June 27, 2001, Timeline, Inc. filed a complaint against us in the United States District Court for the Western District of Washington alleging that we infringe U.S. Patent Nos. 5,802,511; 6,023,694; and 6,026,392 (the “Timeline patents”) and seeking a permanent injunction and monetary damages, including treble damages. On August 29, 2002, we settled the lawsuit with Timeline, and each company agreed to dismiss its claims with prejudice. Under the settlement agreement, we obtained a fully paid-up license to the Timeline patents and agreed to pay Timeline a settlement totaling $1.05 million, payable over four months. This settlement has been recorded in fiscal 2002, and the resulting liability is included in accounts payable and accrued expenses on our consolidated balance sheet.

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

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

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

During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.

10

Table of Contents

PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock trades on the Nasdaq National Market under the symbol “HYSL.” The following table sets forth, for the periods indicated, the high and low sales prices of our common stock as reported on the Nasdaq National Market.

As of August 31, 2002, we had 174 stockholders of record and approximately 10,000 beneficial holders of our common stock.

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all earnings to finance future growth and, therefore, we do not anticipate paying any cash dividends in the foreseeable future.

11

Table of Contents

ITEM 6.   SELECTED FINANCIAL DATA

			Year Ended June 30,
			2002				2001				2000				1999				1998
			(In thousands, except per share amounts)
Statement of Income Data:
Revenues			$	492,018			$	528,011			$	499,332			$	431,722			$	382,968
Costs and expenses (1)				471,944				582,891				460,935				416,600				330,677
Operating income (loss)				20,074				(54,880	)			38,397				15,122				52,291
Income (loss) before extraordinary item				14,379				(32,537	)			28,819				7,973				34,757
Net income (loss)				14,981				(31,073	)			28,819				7,973				34,757
Basic EPS:
	Income (loss) before extraordinary item		$	0.44			$	(0.99	)		$	0.91			$	0.26			$	1.19
	Net income (loss)		$	0.46			$	(0.95	)		$	0.91			$	0.26			$	1.19
Diluted EPS:
	Income (loss) before extraordinary item		$	0.43			$	(0.99	)		$	0.87			$	0.26			$	1.13
	Net income (loss)		$	0.45			$	(0.95	)		$	0.87			$	0.26			$	1.13
Weighted average shares outstanding:
	Basic			32,836				32,592				31,665				30,196				29,121
	Diluted			33,491				32,592				33,107				30,855				30,770
Balance Sheet Data:
Cash, cash equivalents and short-term investments			$	330,258			$	255,366			$	295,159			$	271,856			$	257,347
Working capital				281,501				254,141				297,745				230,910				218,033
Total assets				583,890				570,393				589,891				512,894				476,665
Deferred revenue				94,910				100,234				88,828				81,089				63,724
Long-term debt				80,802				91,045				102,518				103,752				107,314
Stockholders’ equity				299,657				267,319				309,861				240,776				213,225

12

Table of Contents

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                 OPERATIONS

OVERVIEW

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

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

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

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We derive revenues from the licensing of our software products and providing maintenance and professional services. Our standard software license agreement is a perpetual license to use our products on an end user, concurrent user or central processing unit basis. We record revenue from licensing of software products to end users provided there is persuasive evidence of an arrangement, the fee is fixed and determinable, collection is reasonably assured and delivery of the product has occurred as prescribed by Statement of Position (“SOP”) No. 97-2, “Software Revenue Recognition,” issued by the American Institute of Certified Public Accountants. For arrangements with multiple elements, and for which vendor specific objective evidence (“VSOE”) of fair value exists for the undelivered elements, we recognize revenue 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.” VSOE of fair value for all elements of an arrangement is based upon the normal pricing and discounting practices for those products and services when sold separately. VSOE of fair value for services is based upon the standard hourly rate we charge for such services when sold separately. VSOE of fair value for maintenance is measured by the stated renewal rates included in the contracts. If we cannot objectively determine the fair value of any undelivered element included in a multiple-element arrangement, we defer revenue until all elements are delivered, services have been performed or until fair value can be objectively determined. License revenue from resellers or distributors is recognized upon sell-through to the end customer. Amounts billed or payments received in advance of revenue recognition are recorded as deferred revenue.

Maintenance agreements are generally a 12 month prepaid contract that is recognized ratably over the period. Customers may also enter into a professional services arrangement that is typically on a time and materials basis and includes consulting and training services. Consulting and training revenues are typically recognized as earned.

Consulting revenues are generated primarily from implementation services related to the installation of our 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. Our services are generally not essential to the functionality of the software. Our

13

Table of Contents

products are fully functional upon delivery of the product and implementation does not require any significant modification or alteration. Our services often include assistance with product adoption. Other significant factors considered in determining whether the revenue should be accounted for separately include degree of risk, availability of services from other vendors, timing of payments and impact of milestones or acceptance criteria on the realizability of the software license fee. Customers generally purchase these services to facilitate the adoption of our products and obtain dedicated personnel to participate in the services being performed, but they may also decide to use their own internal resources or appoint other professional service organizations to provide these services. Payments related to the software product to which the services relate are typically billed independently from the services and, therefore, are not coincident with performance of such services. License agreements generally do not include acceptance provisions. If an arrangement does not qualify for separate accounting of the license and service elements, license revenue is generally recognized together with the consulting services using the percentage-of-completion method of contract accounting in accordance with SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Product-Type Contracts” and Accounting Research Bulletin No. 45, “Long-Term Construction-Type Contracts.”

Allowance for Doubtful Accounts

We make judgments as to our ability to collect outstanding receivables and provide allowances for a portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are made at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience, customer concentrations, customer credit-worthiness and current economic trends. If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and future results of operations could be adversely affected.

Income Taxes

Income taxes are accounted for using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. The measurement of current and deferred tax assets and liabilities are based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated.

During the preparation of our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we record an expense within the tax provision in our statements of income.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily relating to net operating losses carried forward, before they expire. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates, or we adjust these estimates in future periods, we may need to establish an additional valuation allowance, which could materially impact our financial position and results of operations.

Valuation of Long-Lived and Intangible Assets

We evaluate the recoverability of our property and equipment and intangible assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.” SFAS No. 121 requires us to review for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important which could trigger an impairment review include:

•		significant underperformance relative to expected historical or projected future operating results;
•		significant changes in the manner of use of the assets or the strategy for our overall business;
•		significant negative industry or economic trends;
•		significant decline in our stock price for a sustained period; and
•		our market capitalization relative to net book value.

14

Table of Contents

When we determine that the carrying amount of long-lived or intangible assets may not be recoverable based upon the existence of one or more of the above indicators, we assess the assets for impairment based on the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. Fair value is generally determined based on the estimated future discounted cash flows over the remaining useful life of the of the asset using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. The assumptions supporting the cash flows, including the discount rates, are determined using our best estimates as of the date of the impairment review. If these estimates or their related assumptions change in the future, we may be required to record additional impairment charges for these assets and future results of operations could be adversely affected.

RESULTS OF OPERATIONS

REVENUES