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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the Fiscal Year Ended June 30, 2003

OR

For the transition period from ____________ to _____________.

Commission File Number 000-26934

Hyperion Solutions Corporation

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]

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

There were 36,159,454 shares of the registrant’s common stock, $0.001 par value, outstanding as of July 31, 2003. The aggregate market value of the registrant’s voting stock held by non-affiliates as of July 31, 2003 was approximately $915 million based on the closing sale price on the Nasdaq National Market reported for such date.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 2003 Annual Meeting of Stockholders, scheduled to be held on November 10, 2003, are incorporated by reference in Part III of this Form 10-K.

HYPERION SOLUTIONS CORPORATION

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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.

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FORWARD-LOOKING STATEMENTS

Certain information contained in this report on Form 10-K is forward-looking in nature. All statements included in this report on Form 10-K or made by management of Hyperion Solutions Corporation and its subsidiaries, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding Hyperion’s future financial results, operating results, business strategies, projected costs, products, competitive positions and plans and objectives of management for future operations. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “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 is a leading provider of Business Performance Management software, which enables companies to translate strategies into plans, monitor execution and provide insight to manage and improve financial and operational performance. Hyperion provides managers with reporting and analysis tools and packaged and custom applications that support a process for proactively managing their business to optimal performance against goals and, most important, for anticipating and forecasting results.

Business Performance Management builds on business intelligence, which provides managers with information, including historic analysis and statistical predictions and forecasts, that enables them to understand how their business is performing at any moment in time. Hyperion combines powerful business and financial applications with an integrating business intelligence platform and expertise in management processes. This combination delivers an integrated Business Performance Management environment, which is being used by employees at all levels across organizations to support continuous performance improvement and accountability.

Our applications along with our development and deployment platform enable Business Performance Management across a wide variety of functional and operational areas beyond the finance areas of the business. We use our 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. We also 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.

AGREEMENT TO ACQUIRE BRIO SOFTWARE, INC.

In July 2003, we entered into a definitive agreement to acquire Brio Software, Inc., a business intelligence software provider based in Santa Clara, California. Under the terms of the agreement, Brio stockholders will receive a combination of 0.109 of a share of Hyperion common stock and $0.363 in cash for each share of Brio common stock. Based on the closing price of Hyperion’s stock on July 22, 2003, one day prior to the date the acquisition was announced, the transaction is valued at approximately $142 million. Brio stockholders will own approximately 10.5% of Hyperion’s common stock after completion of the transaction. The transaction has been approved by the boards of directors of both companies and is subject to customary closing conditions, including the approval of Brio’s stockholders and completion of regulatory review. The transaction is expected to close in the second quarter of fiscal 2004. The acquisition of Brio will add to our product portfolio the Brio query and reporting products, which access relational databases easily and quickly, and can support thousands of users.

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INDUSTRY BACKGROUND

In response to today’s competitive pressures and renewed focus on profitability, many 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 and partner and customer interaction systems worldwide. With Business Performance Management, organizations can consolidate their financial and operational systems’ information and turn the raw data from these systems into meaningful business information used to manage for optimal performance. Additionally, 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) prepare to comply with new and more stringent regulations on a global scope; and 5) extend existing information technology investments to make information accessible and actionable throughout the organization with the aim of increasing 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 combine a comprehensive suite of applications with an integrating business intelligence platform. This combination supports a management process that enables a continuous planning, monitoring and reporting cycle.

STRATEGY

Our objective is to be the leading global provider of Business Performance Management solutions. Our 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 objective 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 some of 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 confirms 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.

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Key elements of our strategy include:

Leverage Existing Market 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 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.

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, customer relationship management 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 include large systems integrators, regional consulting firms, professional services organizations and value added resellers (“VARs”). These partners deliver custom application consulting and related implementation, integration and/or training services.
-		Independent Software Vendor 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 more quickly and easily with reduced costs compared to client-server and desktop implementations.

Maintain Sales and Support Relationships. We license our products to customers throughout the world through a direct sales force as well as through OEMs, VARs and independent distributors. 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.

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PRODUCTS

Hyperion’s Business Performance Management Applications

Hyperion’s Business Performance Management suite is a comprehensive suite of interoperable applications that delivers performance scorecarding, modeling and optimization, budgeting, planning and forecasting, consolidation and reporting – on an open, scalable, secure and Web-based business intelligence platform.

Hyperion Planning is a comprehensive Web-architected application that helps coordinate and manage all the elements of the planning, forecasting and budgeting cycle. It drives collaborative, integrated, event-based planning, forecasting and budgeting processes throughout the organization for a wide range of financial and operational needs. Hyperion Planning provides a comprehensive approach that can drive continuous profit improvement. Decision makers and front-line managers communicate which course of action to take and get budget holders to collaborate, so that all profitability improvements can be identified and acted upon.

Hyperion Financial Management is a comprehensive, Web-based application that delivers financial consolidation, reporting and analysis in a single, highly scalable solution. Employees, subsidiaries, branch offices and partners operate from the same page and with a single unified view of key financial data at any moment in time. Hyperion Financial Management generates consolidated results for both internal management and regulatory bodies and is used to facilitate compliance with the Sarbanes-Oxley Act of 2002.

Hyperion Business Modeling provides advanced profitability analysis by combining operational factors with supporting financial data to provide true costs and profitability. It is a sophisticated enterprise-class modeling solution that enables companies to test operational and financial planning assumptions, optimize resources and measure profitability. With Hyperion Business Modeling’s powerful simulation environment, managers dynamically test and compare alternate business scenarios and identify the optimal solution to maximize business performance.

Hyperion Strategic Finance is a strategic financial modeling application that gives corporate development, finance and treasury executives real-time analysis of alternative strategies. It enables them to analyze the financial impact of critical business decisions and to choose the strategic path of greatest value to deliver continuous performance improvement. Financial executives create customized dashboards and report quickly and accurately to assess earnings and demonstrate the quality of earnings in relation to cash flow.

Hyperion Performance Scorecard is a Web-based Balanced Scorecard Collaborative application that provides a strategic management infrastructure for measuring and monitoring business performance. Hyperion Performance Scorecard can give companies a clear understanding of corporate strategy, objectives and accountability, including method and non-method based scorecards, while proactively monitoring their actions and performance against targets and industry benchmarks.

Hyperion Enterprise is a packaged application that can improve departmental financial consolidation and reporting efficiency by streamlining the collection, consolidation and reporting of financial results in a global environment. It frees financial managers from spreadsheets and general ledgers, enabling them to reduce the financial close cycle and improve the quality of financial information. Hyperion Enterprise can be distributed and installed at remote offices quickly and easily. It can be fully deployed by the finance organization with limited IT support – even on a stand-alone PC.

Hyperion Pillar can improve departmental budgeting efficiency by streamlining the distributed, financial budgeting process and increasing accountability. It frees managers from budget mechanics, enabling them to focus on value-added reporting and analysis.

Hyperion’s Business Intelligence Platform: Hyperion Essbase XTD

Hyperion offers a foundation of enabling tools and technologies for the development and deployment of business intelligence and Business Performance Management applications.

Hyperion Essbase XTD is the business intelligence platform that provides the technology foundation for Hyperion’s packaged and tailored applications for Business Performance Management. Scalable, reliable and high-performing, Hyperion Essbase XTD reduces the total cost of ownership and increases the return on investment, compared to multiple solutions from several vendors, by combining data integration, metadata management, online analytical processing, query and reporting, ad hoc analysis and application development tools into a comprehensive Business Performance Management solution.

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Hyperion Essbase XTD Platform Services is a set of business intelligence technologies that integrates data and metadata from multiple sources, performs advanced analytical processing and deploys business performance applications across the enterprise. Comprehensive platform services run on multiple operating systems, leverage multiple relational databases, access data from diverse transactional business systems and deliver high-performance financial and operational reporting. With Hyperion Essbase XTD Platform Services, businesses leverage existing investments in technology and extend their analytical capabilities across the enterprise.

•		Analytic Services enable sophisticated visual analysis that helps companies better understand and optimize many aspects of their business. By supporting historical and forward-looking analytic applications, companies more effectively manage their business performance and fulfill operational, tactical and strategic business analysis needs.
•		Administration Services centralize the management of business performance applications running on multiple servers and operating systems in geographically dispersed locations, and reduce distribution and maintenance costs compared to decentralized administration and management.
•		Deployment Services extend the scalability and reliability of analytic applications, and support thousands of concurrent users in distributed environments with Web-based architectures. Connection pooling, database clustering, load balancing and failover help ensure applications are available 24X7.
•		Integration Services provide the tools and technologies to reduce the time and expense of integrating operational data with Hyperion Business Performance Management software. Specifically designed to work in a mixed-vendor environment, Integration Services provide a graphical environment to integrate data or metadata from transactional business applications, relational databases, data warehouses and legacy transactional systems as well as flat files, spreadsheets and XML documents.

Hyperion Essbase XTD Application Framework is a tool set that enables rapid creation, delivery and deployment of enterprise analytic and reporting applications for the Web. 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 to meet their unique needs.

•		Analysis Studio provides interactive analysis and delivery of corporate information assets. Out-of-the-box solutions and easy-to-use personalization and visualization tools provide a quick path to Web-based analysis and reporting from relational and transactional business systems as well as multidimensional and other data sources.
•		Developer Workbench enables the rapid creation, management and deployment of tailored analytic applications – with or without programming knowledge. A comprehensive set of value-added application programming interfaces (“APIs”), drag-and-drop components and services accelerate the deployment of tailored analysis applications that can grow and change with customer needs.
•		Open Application Foundation provides an API that enables programmers to extend the out-of-the-box functionality of Hyperion Essbase XTD. A wide range of published APIs provide support for major, open industry standards and protocols, and deliver an open, extensible architecture that ensures interoperability and compatibility with current IT infrastructures.
•		Our extensive partner relationships offer our customers the ability to extend the functionality of Hyperion Essbase XTD. Partner integration offers the most comprehensive solutions for customers and includes front-end reporting, data mining, an enterprise information portal, application development and transactional business vendors. Hyperion business partners provide packaged and custom-development options that deliver information in client/server and Web-enabled interfaces.

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 generally 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 737 employees as of July 31, 2003. We have also established a global network of partners who deliver implementation and training services.

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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 and independent distributors. 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 and independent distributors. 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 2003, 2002 and 2001, approximately 39%, 35% 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.

Our sales and marketing organization consisted of 693 employees as of July 31, 2003, of which approximately 214 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 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 2003, 2002 and 2001 were 26%, 25% and 21% of total license revenues, respectively. Our channel partners include such firms as American Management Systems, BearingPoint, Deloitte & Touche LLP; Fujitsu Limited; Immix Inc.; International Business Machines Corporation; Lawson Associates, Inc.; SPSS Corporation, and Teradata.

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 July 31, 2003, our product development was primarily performed by 441 employees located at our U.S. facilities in Sunnyvale, California; Stamford, Connecticut; Orlando, Florida; and Skokie, Illinois; and at our Canadian facility located in Toronto, Ontario.

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 deliver 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. As markets continue to develop for Business Performance Management products, additional competitors may enter or expand into those markets and competition may intensify.

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Competitors, some of whom have significantly greater financial, technical, marketing and other resources than we do, may be better able to respond 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 the section entitled “Factors That May Affect Future Results” in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 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 the release of our 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 eight 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. See Item 3 – Legal Proceedings for further discussion of this matter.

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.

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We distribute our products under software license agreements that grant customers a nonexclusive, nontransferable license to use 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 July 31, 2003, we employed a total of 2,224 employees. None of our employees is represented by a labor union. We believe our relations with employees are good. Our executive officers as of July 31, 2003 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.

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.

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.

AVAILABLE INFORMATION

We make available free of charge on or through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. Our Internet website address is “www.hyperion.com.” Information contained on our website is not part of this report.

ITEM 2. PROPERTIES

Our principal administrative, sales, marketing, services, training and research and development facilities are located in Sunnyvale, Irvine and San Francisco, California; Stamford, Connecticut; Dallas, Texas; Atlanta and Kennesaw, Georgia; Lisle and Skokie, Illinois; Orlando, Florida; Waltham, Massachusetts; Parsippany, New Jersey; Toronto, Canada; Egham and Manchester, England; Paris, France; Frankfurt and Munich, Germany; Rome and Milan, Italy; Utrecht, Netherlands; Madrid, Spain; Stockholm, Sweden; Zurich, Switzerland; North Sydney, Australia; Sao Paolo, Brazil; Tokyo, Japan; Seoul, South Korea; 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.

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ITEM 3. LEGAL PROCEEDINGS

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

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

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

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.

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 July 31, 2003, we had 163 stockholders of record and approximately 11,500 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.

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ITEM 6. SELECTED FINANCIAL DATA

(1)

Costs and expenses for the years ended June 30, 2003, 2002, 2001 and 2000 include restructuring and other charges of $0.8 million, $0.1 million, $42.8 million and $2.1 million, respectively. See Note 15 of the Notes to Consolidated Financial Statements for discussion of these restructuring and other charges.

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

OVERVIEW

Hyperion Solutions Corporation is a leading provider of Business Performance Management software, which enables companies to translate strategies into plans, monitor execution and provide insight to manage and improve financial and operational performance. Hyperion provides managers with reporting and analysis tools and packaged and custom applications that support a process for proactively managing their business to optimal performance against goals and, most important, for anticipating and forecasting results.

Business Performance Management builds on business intelligence, which provides managers with information, including historic analysis and statistical predictions and forecasts, that enables them to understand how their business is performing at any moment in time. Hyperion combines powerful business and financial applications with an integrating business intelligence platform and expertise in management processes. This combination delivers an integrated Business Performance Management environment, which is being used by employees at all levels across organizations to support continuous performance improvement and accountability.

Our applications along with our development and deployment platform enable Business Performance Management across a wide variety of functional and operational areas beyond the finance areas of the business. We use our 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. We also 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 most significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We derive revenues from licensing our software products and providing maintenance, consulting and training 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 our software products to end users provided there is persuasive evidence of an arrangement, the fee is fixed or determinable, collection is reasonably assured and delivery of the product has occurred, as prescribed by Statement of Position (“SOP”) No. 97-2, “Software Revenue Recognition,” 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, revenue is recognized for the delivered elements based upon the residual method in accordance with SOP 98-9, “Modifications of SOP 97-2 with Respect to Certain Transactions.” Amounts billed or payments received in advance of revenue recognition are recorded as deferred revenue.

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

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

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

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 provisions, we analyze several factors, including: our historical collection experience, customer concentrations, customer credit-worthiness and current economic trends. If the historical data used to calculate the allowance for doubtful accounts does not reflect our future ability to collect outstanding receivables, we may record additional provisions for doubtful accounts. We record the provision for doubtful accounts in general and administrative expense and as a reduction of revenue in order to match the underlying cause of the provision to the appropriate classification in our statement of operations. For additional discussion of our provisions, refer to the section entitled “Liquidity and Capital Resources.”

Our allowance for doubtful accounts was $8.2 million at June 30, 2003 and $10.7 million at June 30, 2002. The total provision for doubtful accounts was $5.8 million, $20.9 million and $27.7 million in fiscal 2003, 2002 and 2001, respectively. Of these provisions, $1.4 million, $4.1 million and $6.0 million were recorded in general and administrative expense in fiscal 2003, 2002 and 2001, respectively, and $4.4 million, $16.8 million and $21.7 million were recorded as a reduction of revenue in fiscal 2003, 2002 and 2001, respectively.

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 expense 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 operations.

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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 foreign 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 Assets

We evaluate the recoverability of our long-lived assets, including property and equipment and certain identifiable intangible assets, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which we adopted on July 1, 2002. SFAS 144 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 historical or projected future operating results;
	•		significant changes in the manner of use of the assets or the strategy for our overall business;
	•		significant decrease in the market value of the assets; and
	•		significant negative industry or economic trends.

When we determine that the carrying amount of long-lived 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 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