Sybase 10-Q 2007 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-16493

SYBASE, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware	94-2951005
(State of Incorporation)	(I.R.S. Employer Identification No.)

One Sybase Drive, Dublin, California 94568

(Address of principal executive offices)(Zip Code)

(925) 236-5000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

     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 the filing requirements for at least the past 90 days. Yesþ Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filerþ      Accelerated filero      Non-accelerated filero

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

On April 30, 2007, 91,323,847 shares of the Registrant’s Common Stock, $.001 par value, were outstanding.

SYBASE, INC.
FORM 10-Q

QUARTER ENDED MARCH 31, 2007

INDEX

	Page
Forward-Looking Statements	2
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006	3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006	4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006	5
Notes to Condensed Consolidated Financial Statements	6
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3: Quantitative and Qualitative Disclosures of Market Risk	24
Item 4: Controls and Procedures	24
Part II: Other Information
Item 1: Legal Proceedings	25
Item 1 (A) : Risk Factors	25
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 4: Submission of Matters to a Vote of Security Holders	35
Item 5: Other Information	35
Item 6: Exhibits	35
Signatures	36
Exhibit Index
EXHIBIT 12
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

1

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve risk and uncertainties that could cause the actual results of Sybase, Inc. and its consolidated subsidiaries (“Sybase”, the “Company,” “we” or “us”) to differ materially from those expressed or implied by such forward-looking statements. These risks include the performance of the global economy and growth in software industry sales; market acceptance of the Company’s products and services; customer and industry analyst perception of the Company and its technology vision and future prospects; shifts in our business strategy; interoperability of our products with other software products; the success of certain business combinations engaged in by us or by competitors; political unrest or acts of war; possible disruptive effects of organizational or personnel changes; and other risks detailed from time to time in our Securities and Exchange Commission filings, including those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)- Overview,” and “MD&A — Future Operating Results,” Part I, Item 2 of this Quarterly Report on Form 10-Q.

Expectations, forecasts, and projections that may be contained in this report are by nature forward-looking statements, and future results cannot be guaranteed. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” and similar expressions in this document, as they relate to Sybase and our management, may identify forward-looking statements. Such statements reflect the current views of our management with respect to future events and are subject to risks, uncertainties and assumptions. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false, or may vary materially from those described as anticipated, believed, estimated, intended or expected. We do not intend to update these forward-looking statements.

We file registration statements, periodic and current reports, proxy statements, and other materials with the Securities and Exchange Commission, or SEC. You may read and copy any materials we file with the SEC at the SEC’s Office of Public Reference at 450 Fifth Street, NW, Room 1300, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site atwww.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including our filings.

We are headquartered at One Sybase Drive, Dublin, CA 94568, and the telephone number at that location is (925) 236-5000. Our internet address iswww.sybase.com. We make available, free of charge, through the investor relations section of our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The contents of our website are not incorporated into, or otherwise to be regarded as part of this Quarterly Report on Form 10-Q.

Sybase, Adaptive Server Enterprise, Afaria, Avaki, AvantGo, Dejima, Extended Systems, Financial Fusion, iAnywhere, iAnywhere Solutions, Information Anywhere Suite, Mobile 365, OneBridge, PowerBuilder, PowerDesigner, SQL Anywhere, Sybase 365 and XcelleNet, are trademarks of Sybase, Inc. or its subsidiaries. All other names may be trademarks of the companies with which they are associated.

2

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SYBASE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,
	2007			December 31,
(In thousands, except share and per share data)	(Unaudited)			2006
Current assets:
Cash and cash equivalents	$	413,664		$	355,303
Short-term cash investments		247,768			269,612
Total cash, cash equivalents and short-term cash investments		661,432			624,915
Restricted cash		5,958			6,014
Accounts receivable, net		191,145			218,016
Deferred income taxes		6,231			6,224
Prepaid expenses and other current assets		24,828			16,392
Total current assets		889,594			871,561
Long-term cash investments		31,338			12,781
Property, equipment and improvements, net		64,143			66,458
Deferred income taxes		37,865			36,069
Capitalized software, net		71,394			71,179
Goodwill		539,680			540,303
Other purchased intangibles, net		144,820			149,648
Other assets		39,995			39,551
Total assets	$	1,818,829		$	1,787,550
Current liabilities:
Accounts payable	$	24,651		$	23,439
Accrued compensation and related expenses		44,730			59,748
Accrued income taxes		7,846			31,364
Other accrued liabilities		94,714			108,436
Deferred revenue		230,751			193,431
Total current liabilities		402,692			416,418
Other liabilities		43,769			44,428
Deferred income taxes		14,569			14,448
Long-term tax liability		25,797			—
Long-term deferred revenue		5,444			3,965
Minority interest		5,179			5,160
Convertible subordinated notes		460,000			460,000
Commitments and contingent liabilities
Stockholders’ equity:
Preferred stock, $0.001 par value, 8,000,000 shares authorized; none issued or outstanding		—			—
Common stock, $0.001 par value, 200,000,000 shares authorized; 105,337,362 shares issued and 91,370,664 outstanding (2006-105,337,362 shares issued and 91,281,805 outstanding)		105			105
Additional paid-in capital		983,422			977,672
Accumulated earnings		107,628			92,817
Accumulated other comprehensive income		44,071			40,850
Cost of 13,966,698 shares of treasury stock (2006-14,055,557 shares)		(273,847	)		(268,313	)
Total stockholders’ equity		861,379			843,131
Total liabilities and stockholders’ equity	$	1,818,829		$	1,787,550

See accompanying notes.

3

SYBASE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended
	March 31,
(In thousands, except per share data)	2007			2006
Revenues:
License fees	$	69,365		$	66,888
Services		129,651			128,120
Messaging		31,021			—
Total revenues		230,037			195,008
Costs and expenses:
Cost of license fees		12,753			12,792
Cost of services		38,742			38,352
Cost of messaging		18,889			—
Sales and marketing		64,575			61,355
Product development and engineering		38,753			36,997
General and administrative		31,496			24,987
Amortization of other purchased intangibles		3,410			1,546
Cost of restructure		4			34
Total costs and expenses		208,622			176,063
Operating income		21,415			18,945
Interest income		7,383			8,602
Interest expense and other, net		(2,378	)		(2,544	)
Minority interest		(20	)		—
Income before income taxes		26,400			25,003
Provision for income taxes		11,252			7,751
Net income	$	15,148		$	17,252
Basic net income per share	$	0.17		$	0.19
Shares used in computing basic net income per share		91,149			89,637
Diluted net income per share	$	0.16		$	0.19
Shares used in computing diluted net income per share		93,609			92,041

See accompanying notes.

4

SYBASE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended
	March 31,
(In thousands)	2007			2006
Cash and cash equivalents, beginning of year	$	355,303		$	398,741
Cash flows from operating activities:
Net income		15,148			17,252
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,810			18,012
Minority interest in income of subsidiaries		20			—
Gain on disposal of assets		(11	)		(381	)
Deferred income taxes		(1,682	)		(1,329	)
Stock-based compensation – restricted stock		2,103			1,956
Stock-based compensation – all other		3,647			3,469
Excess tax benefit from stock-based compensation plans		(2,201	)		—
Amortization of note issuance costs		492			492
Changes in assets and liabilities:
Accounts receivable		24,331			31,048
Other current assets		(7,700	)		(6,273	)
Other assets – operating		(919	)		(1,589	)
Accounts payable		1,212			4
Accrued compensation and related expenses		(15,033	)		(14,427	)
Accrued income taxes		2,183			(3,678	)
Other accrued liabilities		(12,007	)		(8,851	)
Deferred revenues		38,799			37,083
Other liabilities		(551	)		582
Net cash provided by operating activities		69,641			73,370
Cash flows from investing activities:
Decrease in restricted cash		56			66
Purchases of available-for-sale cash investments		(120,761	)		(171,467	)
Maturities of available-for-sale cash investments		48,400			101,297
Sales of available-for-sale cash investments		75,894			134,618
Business combinations, net of cash acquired		(1,501	)		(23	)
Purchases of property, equipment and improvements		(4,466	)		(4,622	)
Proceeds from sale of property, equipment, and improvements		34			2
Capitalized software development costs		(8,438	)		(8,542	)
(Increase) Decrease in other assets – investing		(18	)		1
Net cash provided by (used for) investing activities		(10,800	)		51,330
Cash flows from financing activities:
Repayments of long-term obligations		(15	)		(14	)
Payments on capital lease		(392	)		(77	)
Net proceeds from the issuance of common stock and reissuance of treasury stock		12,716			5,699
Purchases of treasury stock		(18,588	)		(24,665	)
Excess tax benefit from stock-based compensation plans		2,201			—
Net cash used for financing activities		(4,078	)		(19,057	)
Effect of exchange rate changes on cash		3,598			1,519
Net increase in cash and cash equivalents		58,361			107,162
Cash and cash equivalents, end of period		413,664			505,903
Cash investments, end of period		279,106			396,562
Total cash, cash equivalents and cash investments, end of period	$	692,770		$	902,465
Supplemental disclosures:
Interest paid	$	4,394		$	5,544
Income taxes paid, net of refunds	$	11,294		$	9,900

See accompanying notes.

5

Notes to Condensed Consolidated Financial Statements

1.Basis of Presentation.The accompanying unaudited condensed consolidated financial statements include the accounts of Sybase, Inc. and its subsidiaries, and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments, except as described below) necessary to fairly state the Company’s consolidated financial position, results of operations, and cash flows as of and for the dates and periods presented. The condensed consolidated balance sheet as of December 31, 2006 has been prepared from the Company’s audited consolidated financial statements.

Certain information and footnote disclosures normally included in the annual financial statements have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. The results of operations for three months ended March 31, 2007 are not necessarily indicative of results for the entire fiscal year ending December 31, 2007.

As discussed in Note 11 “Income Taxes”, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”) on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that an entity takes or expects to take in a tax return. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Under FIN 48, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. Prior to January 1, 2007, the Company followed the guidance of FAS No. 5 in assessing uncertain tax positions. Under FAS No. 5, the Company accrued for uncertain tax positions based on whether an assessment was probable and also estimable. Both before and after the adoption of FIN 48, the Company classifies any interest and penalties associated with these tax positions as income taxes. As a result of adopting FIN 48, the Company did not record any cumulative effect adjustment to the opening balance of retained earnings and additional paid-in-capital.

2.Stock-Based Compensation.The Company currently grants stock options, restricted stock, and stock appreciation rights through the 2003 Stock Plan. At March 31, 2007, an aggregate of 8,122,475 shares of Common Stock have been reserved upon the exercise of options granted to qualified employees and consultants of the Company. The Board of Directors, directly or through committees, administers the 2003 Stock Plan and establishes the terms of option grants. Options and stock appreciation rights expire on terms set forth in the grant notice (generally 10 years from the grant date, and for options granted after May 25, 2005 not more than 7 years from the grant date, three months after termination of employment, two years after death, or one year after permanent disability). Options and stock appreciation rights are exercisable to the extent vested. Vesting occurs at various rates and over various time periods. Stock appreciation rights are settled by the Company in stock. In addition, the Company maintains an Employee Stock Purchase Plan and also had established FFI and iAS stock option plans. The 2003 Stock Plan, its predecessor plans, the Employee Stock Purchase Plan, and the FFI and iAS stock option plans are described more fully in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Stock-Based Compensation Expense

The following table summarizes the total stock-based compensation expense for stock options, restricted option and stock grants, and stock appreciation rights that was recorded on the Company’s results of operations for the three months ended March 31, 2007 and 2006.

	Three Months Ended
	March 31,
(Dollars in thousands, except per share data)	2007			2006
Cost of services	$	339		$	680
Cost of messaging		186			—
Sales and marketing		1,266			996
Product development and engineering		686			593
General and administrative		3,273			3,156
Stock-based compensation expense included in total costs and expenses		5,750			5,425
Tax benefit related to stock-based compensation expense		(1,415	)		(1,595	)
Stock-based compensation expense included in net income	$	4,335		$	3,830
Reduction of net income per share:
Basic	$	0.05		$	0.04
Diluted	$	0.05		$	0.04

As of March 31, 2007, there was $45.8 million of total unrecognized compensation cost before income tax benefit related to non-vested stock-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted average period of 2.4 years.

6

3.Net income per share.Shares used in computing basic and diluted net income per share are based on the weighted average shares outstanding in each period, excluding treasury stock. Basic net income per share excludes any dilutive effects of stock options and vested restricted stock. Diluted net income per share includes the dilutive effect of the assumed exercise of stock options, restricted stock, and stock appreciation rights using the treasury stock method. The following table shows the computation of basic and diluted net income per share:

	Three Months Ended
	March 31,
(In thousands, except per share data)	2007		2006
Net income	$	15,148	$	17,252
Basic net income per share	$	0.17	$	0.19
Shares used in computing basic net income per share		91,149		89,637
Diluted net income per share	$	0.16	$	0.19
Shares used in computing basic net income per share		91,149		89,637
Dilutive effect of stock options, restricted stock and stock appreciation rights		2,460		2,404
Shares used in computing diluted net income per share		93,609		92,041

The anti-dilutive weighted average shares that were excluded from the shares used in computing diluted net income per share were 2.8 million and 5.6 million for the three month periods ended March 31, 2007 and 2006, respectively. The Company excludes shares with combined exercise prices and unamortized fair values that are greater than the average market price for the Company’s common stock from the calculation of diluted net income per share because their effect is anti-dilutive. Shares that may be issued to holders of the Company’s convertible subordinated debt due to the appreciation of the Company’s stock price generally would be included in periods in which the average price of the Company’s common stock exceeds $25.22 per share, the initial conversion price. The computation of diluted net income per share excludes the impact of a conversion value excess as the conversion requirements have not yet been met. See Note 10 — Convertible Subordinated Notes.

4.Comprehensive Income. The following table sets forth the calculation of comprehensive income (loss) for all periods presented:

	Three Months Ended
	March 31,
(In thousands)	2007		2006
Net income	$	15,148	$	17,252
Foreign currency translation gains		3,077		1,982
Unrealized gains/(losses) on marketable securities		144		(373	)
Comprehensive income	$	18,369	$	18,861

The Company’s foreign currency translation gains/(losses) primarily arise from its substantial net assets denominated in certain European currencies. Translation losses generally occur when the dollar strengthens against these currencies while translation gains arise when the dollar weakens against these currencies. The Company has classified all of its debt and equity securities as available-for-sale pursuant to SFAS 115. Such securities are recorded at fair value and unrealized holding gains and losses, net of the related tax effect, if any, are not reflected in earnings but are reported as a separate component of other comprehensive income (loss) until realized.

5.Segment Information. Through the third quarter of 2006, the Company was organized into two separate reportable business segments each of which focused on one of three key market segments: Infrastructure Platform Group (IPG), which principally focuses on enterprise class database servers, integration and development products; and iAnywhere Solutions, Inc. (iAS), which provides mobile database and mobile enterprise solutions. On November 8, 2006, the Company acquired Mobile 365, Inc. which provides application services that allows customers to easily deliver and financially settle mobile data and messages, including short message services or SMS and multimedia messaging services or MMS. Beginning in the fourth quarter of 2006, the results of Mobile 365, Inc. were included in the Company’s new reportable business segment Sybase 365 (SY365). There were no changes to the IPG and iAS segments.

Sybase’s chief operating decision maker is the President and Chief Executive Officer (CEO). While the CEO is apprised of a variety of financial metrics and information, the Sybase business is principally managed on a segment basis, with the CEO evaluating performance based upon segment operating profit or loss that includes an allocation of common expenses, but excludes certain unallocated expenses, primarily stock based compensation expense. The CEO does not view segment results below operating profit (loss) before unallocated costs, and therefore unallocated expenses or savings; interest income, interest expense and other, net; the provision for income taxes, and minority interests are not broken out by segment. Sybase does not account for, or report to the CEO, assets or capital expenditures by segment.

Certain common costs and expenses are allocated based on measurable drivers of expense. Unallocated expenses or savings represent corporate activities (expenditures or cost savings) that are not specifically allocated to the segments including stock-based

7

compensation expenses and reversals of restructuring expenses associated with restructuring activities undertaken prior to 2003. Unallocated costs for the three month periods ended March 31, 2007 and 2006 consisted primarily of stock-based compensation expenses.

Segment license and service revenues include transactions between iAS and IPG, The most common instance relates to the sale of iAS products and services to third parties by IPG. In the case of such a transaction, IPG records the revenue on the sale with a corresponding inter-company expense on the transaction, with corresponding inter-company revenue recorded by iAS together with costs of providing the product or service. The excess of revenues over inter-company expense recognized by IPG is intended to reflect the costs incurred by IPG to complete the sales transaction. Total transactions between the segments are captured in “Eliminations.”

8

A summary of the segment financial information reported to the CEO for the three months ended March 31, 2007 is presented below:

											Consolidated
(In thousands)	IPG		iAS		SY365			Elimination			Total
Revenues:
License fees
Infrastructure	$	48,315	$	21	$	14			—		$	48,350
Mobile and Embedded		6,639		14,376		—			—			21,015
Subtotal license fees		54,954		14,397		14			—			69,365
Intersegment license revenues		32		5,536		—			(5,568	)		—
Total license fees		54,986		19,933		14			(5,568	)		69,365
Services
Direct service revenue		118,383		11,268		—			—			129,651
Intersegment service revenues		27		6,783		—			(6,810	)		—
Total services		118,410		18,051		—			(6,810	)		129,651
Messaging		—		—		31,021			—			31,021
Total revenues		173,396		37,984		31,035			(12,378	)		230,037
Total allocated costs and expenses before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		144,118		34,110		29,977			(12,378	)		195,827
Operating income before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		29,278		3,874		1,058			—			34,210
Amortization of other purchased intangibles		527		1,046		1,837			—			3,410
Amortization of purchased technology		402		2,003		916			—			3,321
Operating income (loss) before cost of restructure and unallocated costs		28,349		825		(1,695	)		—			27,479
Cost of restructure – 2007 Activity		4		—		—			—			4
Operating income (loss) before unallocated costs		28,345		825		(1,695	)		—			27,475
Unallocated costs												6,060
Operating income												21,415
Interest income, interest expense and other, net												5,005
Minority interest												(20	)
Income before income taxes											$	26,400

A summary of the segment financial information reported to the CEO for the three months ended March 31, 2006 is presented below:

								Consolidated
(In thousands)	IPG		iAS		Elimination			Total
Revenues:
License fees
Infrastructure	$	44,175	$	39		—		$	44,214
Mobile and Embedded		5,253		17,421		—			22,674
Subtotal license fees		49,428		17,460		—			66,888
Intersegment license revenues		22		4,348		(4,370	)		—
Total license fees		49,450		21,808		(4,370	)		66,888
Services
Direct service revenue		116,837		11,283		—			128,120
Intersegment service revenues		49		6,137		(6,186	)		—
Total services		116,886		17,420		(6,186	)		128,120
Total revenues		166,336		39,228		(10,556	)		195,008
Total allocated costs and expenses before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		143,712		34,135		(10,556	)		167,291
Operating income before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		22,624		5,093		—			27,717
Amortization of other purchased intangibles		500		1,046		—			1,546
Amortization of purchased technology		483		1,964		—			2,447
Operating income before cost of restructure and unallocated costs		21,641		2,083		—			23,724
Cost of restructure – 2006 Activity		34		—		—			34
Operating income before unallocated costs		21,607		2,083		—			23,690
Unallocated costs									4,745
Operating income									18,945
Interest income, interest expense and other, net									6,058
Income before income taxes								$	25,003

9

6.Goodwill and Intangible Assets.

The following table reflects the changes in the carrying amount of goodwill (including assembled workforce) by reporting unit.

								Consolidated
(In thousands)	IPG		iAS		SY365			Total
Balance at January 1, 2007	$	96,186	$	110,408	$	333,709		$	540,303
Reduction in goodwill recorded on Mobile 365 acquisition		—		—		(767	)		(767	)
Foreign currency translation adjustments & other		139		5		—			144
Balance at March 31,2007	$	96,325	$	110,413	$	332,942		$	539,680

On November 8, 2006, the Company completed its acquisition of Mobile 365, Inc, a privately held mobile messaging and content delivery company for approximately $416.0 million in cash and $2.3 million in additional purchase related costs.

The estimated excess of the purchase price over the fair value of the net tangible assets acquired is approximately $411.0 million. Of the estimated $411.0 million excess, $25.2 million was allocated to developed existing technology, $50.7 million was allocated to customer contracts and relationships, and $335.1 million was initially allocated to goodwill. These amounts are subject to change pending the final analysis of the fair values of the assets acquired and the liabilities assumed, including the valuation of certain tax assets acquired that are dependent on the filing of Mobile 365’s final tax returns.

The following table reflects the carrying amount and accumulated amortization of intangible assets:

	March 31, 2007							December 31, 2006
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
(In thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Purchased technology	$	164,064	$	(98,528	)	$	65,536	$	163,333	$	(95,193	)	$	68,140
AvantGo tradenames		3,100		—			3,100		3,100		—			3,100
XcelleNet tradenames		4,000		—			4,000		4,000		—			4,000
Covenant not to compete		319		(85	)		234		319		(59	)		260
Customer lists		99,495		(27,545	)		71,950		98,289		(24,141	)		74,148
Totals	$	270,978	$	(126,158	)	$	144,820	$	269,041	$	(119,393	)	$	149,648

The amortization expense on these intangible assets for the three months ended March 31, 2007 was $6.7 million, of which $2.4 million was included within “cost of license fees” and $0.9 million was included within “cost of messaging” on the Company’s income statement for the three months ended March 31, 2007. Estimated amortization expense for each of the next five years ending December 31, is as follows (dollars in thousands):

2007	$	26,780
2008		26,663
2009		26,271
2010		23,836
2011		18,326

The AvantGo and XcelleNet tradenames were assigned an indefinite life and will not be amortized but instead tested for impairment in the same manner as goodwill.

7.Litigation

A former employee, who was terminated as part of position elimination in February 2003, filed a civil action in the Superior Court for the State of California, Alameda County, alleging discrimination on the basis of gender, national origin, and race. The former employee also alleged retaliation for discussing her working conditions with senior managers. The parties were not able to settle the matter and trial commenced on August 27, 2004. Sybase’s motion for non-suit on the retaliation claim was granted and that claim was dismissed. On October 5, 2004, the jury found in favor of the plaintiff on the remaining claims and awarded her $1,845,000 in damages. Sybase filed a motion to set aside the jury verdict or, in the

10

alternative, for a new trial. The motion also asked the judge to set aside the punitive damage part of the award in the amount of $500,000. On December 7, 2004, the judge issued a decision denying the motion to set the verdict aside and order a new trial, but he did grant that part of the motion asking to set aside the $500,000 punitive damage award, reducing the damage amount to $1,345,000. Additional awards for legal fees and costs amounted to $750,000. Sybase filed a notice of appeal of the $1,345,000 jury verdict, as well as the fee and cost awards. Sybase filed its opening brief in the appeal on January 27, 2006. Plaintiff filed their reply brief in April 2006, responding to Sybase’s appeal and appealing the non-suit judgment on the retaliation claim and the judge’s decision to grant Sybase’s motion setting aside the $500,000 punitive damages award. All briefs have been filed in the appeal and the parties have petitioned the court to schedule oral arguments.

For a discussion of risks related to intellectual property rights and certain pending intellectual property litigation, see “Future Operating Results – If third parties claim that we are in violation of their intellectual property rights, it could have a negative impact on our results of operations or ability to compete,” Part II, Item 1(A).

Sybase is a party to various other legal disputes and proceedings arising in the ordinary course of business. In the opinion of management, resolution of these matters, including the above mentioned legal matters, is not expected to have a material adverse effect on our consolidated financial position or results of operations as the Company believes it has adequately accrued for these matters at December 31, 2006. However, depending on the amount and timing of such resolution, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period.

8.Stock Repurchase Plan.Beginning in 1998, the Board of Directors authorized the Company to repurchase the Company’s outstanding common stock from time to time, subject to price and other conditions. On April 26, 2006 the Board of Directors of the Company approved a $250 million increase to the Company’s stock repurchase program. During the first three months of 2007, the Company repurchased 0.7 million shares at a cost of approximately $18.6 million under the stock repurchase program. From the program’s inception through March 31, 2007, the Company has used an aggregate total of $618.8 million under the stock repurchase program (of the total $850 million authorized) to repurchase an aggregate total of 36.7 million shares.

9.Restructuring.

The Company embarked on restructuring activities in 2004, 2003, 2002 and 2001 (the 2004, 2003, 2002 and 2001 Plans, respectively) as a means of managing its operating expenses. In addition, the company recognized certain restructuring liabilities as part of its Mobile 365 acquisition in 2006 and its AvantGo acquisition in 2003. For descriptions of each restructuring plan, see Note 13 to Consolidated Financial Statements, Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, which information is incorporated here by reference.

The following table summarizes the activity associated with the accrued restructuring charges related to the Company’s restructuring plans:

(Dollars in millions)	Lease Cancellations / Commitments and Other
Restructuring plan	2004			2003			2002			2001			Mobile 365		AvantGo
Accrued liabilities at December 31, 2006	$	4.2		$	0.2		$	8.3		$	2.0		$	1.3	$	0.9
Amounts paid		(0.3	)		(0.1	)		(0.8	)		(0.3	)		—		(0.2	)
Accrued liabilities at March 31, 2007	$	3.9		$	0.1		$	7.5		$	1.7		$	1.3	$	0.7

10.Convertible Subordinated Notes. On February 22, 2005, the Company issued through a private offering to qualified institutional buyers in the U.S. $460 million of convertible subordinated notes (“Notes”) pursuant to exemptions from registration afforded by the Securities Act of 1933, as amended. These notes have an interest rate of 1.75 percent and are subordinated to all of the Company’s future senior indebtedness. The notes mature on February 22, 2025 unless earlier redeemed by the Company at its option, or converted or put to the Company at the option of the holders.

The Company may redeem all or a portion of the notes at par on and after March 1, 2010. The holders may require that the Company repurchase notes at par on February 22, 2010, February 22, 2015 and February 22, 2020.

The holders may convert the notes into the right to receive the conversion value (i) when the Company’s stock price exceeds 130% of the $25.22 per share initial conversion price for a specified time, (ii) in certain change in control transactions, (iii) if the notes are redeemed by the Company, (iv) in certain specified corporate transactions, and (v) when the trading price of the notes does not exceed a minimum price level. For each $1,000 principal amount of notes, the conversion value represents the amount equal to 39.6511

11

shares multiplied by the per share price of the Company’s common stock at the time of conversion. If the conversion value exceeds $1,000 per $1,000 in principal of notes, the Company will pay $1,000 in cash and may pay the amount exceeding $1,000 in cash, stock or a combination of cash and stock, at the Company’s election.

Interest is payable semi-annually in arrears on February 22 and August 22 of each year, commencing on August 22, 2005. The Company recognized interest expense of $2.0 million for the three months ended March 31, 2007 and 2006, excluding amortization of debt issuance costs totaling $0.5 million for the three months ended March 31, 2007 and 2006.

The Company has recorded these notes as long-term debt. Offering fees and expenses associated with the debt offering were approximately $9.8 million and are included in “other assets” in the Company’s consolidated Balance Sheets at March 31, 2007. This asset will be amortized into interest expense on a straight-line basis over a five-year period which corresponds to the earliest put date. This approximates the effective interest method. Unamortized offering fees and expenses were $5.6 million and $6.1 million at March 31, 2007 and December 31, 2006, respectively.

11.Income Taxes. The Company adopted FIN No. 48, “Accounting for Uncertainty in Income Taxes,”on January 1, 2007. As of that date, the Company had $44 million of unrecognized tax benefits, $43 million of which, if recognized, would affect the Company’s effective tax rate if the tax benefits are subsequently realized. As of January 1, 2007, the Company had $3 million of accrued interest included in the $44 million of unrecognized tax benefits.

Although unrecognized tax benefits for individual tax positions may increase or decrease during 2007, the Company believes none have a reasonable possibility of significantly increasing or decreasing the total amount of unrecognized tax benefits during 2007 or for the next 12 month period.

Sybase, Inc. or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years before 2002. The Company is no longer subject to Canadian income tax examination for years before 1999. Income tax returns filed in certain state and foreign jurisdictions are under examination.

12.Recent Accounting Pronouncements.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of FAS 157 are effective for the fiscal year beginning January 1, 2008. The Company is currently evaluating the impact of the provisions of FAS 157.

In February 2007 the FASB issued SFAS 159,“The Fair Value Option for Financial Assets and Financial Liabilities”(“FAS 159”). FAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. The new standard does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS 157,“Fair Value Measurements,”and SFAS 107,“Disclosures about Fair Value of Financial Instruments.”FAS 159 is effective as of the start of fiscal years beginning after November 15, 2007. Early adoption is permitted. We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of FAS 159 will have on our financial position, results of operations or cash flows.

12

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) includes the following sections:

• Executive Overview that discusses at a high level our operating results and some of the trends that affect our business.

• Significant changes since our most recent Annual Report on Form 10-K in the Critical Accounting Policies and Estimates as we believe it is important to understanding the assumptions and judgments underlying our financial statements.

• Results of Operations that begins with an overview followed by a more detailed discussion of our revenue and expenses.

• Liquidity and Capital Resources which discusses key aspects of our statements of cash flows, changes in our balance sheets and our financial commitments.

You should note that this MD&A discussion contains forward-looking statements that involve risks and uncertainties. Please see Item 1A in Part II of this Quarterly Report on Form 10-Q for important information to consider when evaluating such statements.

You should read this MD&A in conjunction with the Consolidated Financial Statements and related Notes in Item 1 and our Annual Report on Form 10-K for the year ended December 31, 2006.

On November 8, 2006 we acquired Mobile 365, Inc. (which we renamed Sybase 365, Inc.), a privately held mobile messaging and content delivery company for approximately $418.3 million. Total revenues and operating loss of Mobile 365 for the three month period ended March 31, 2007, were $31.0 million and $1.7 million, respectively.

Executive Overview

Our Business

Sybase is a global enterprise software and services company exclusively focused on managing and mobilizing information from the data-center to the point of action. We provide open, cross-platform solutions that securely deliver information anytime, anywhere, enabling customers to create an information edge.

Our value proposition involves enabling the Unwired Enterprise through integrated applications and solutions designed to manage information across the enterprise, allowing customers to extract more value from their information technology (IT) investments. We deliver a full range of solutions to ensure that customer information is securely managed and mobilized to the point of action, including enterprise and mobile databases, middleware, synchronization, encryption and device management software, and mobile messaging services.

During the fourth quarter of 2006 we expanded our reach by acquiring Mobile 365, a privately-held global provider of mobile messaging and premium content delivery and value added services. Mobile 365 extends our Unwired Enterprise strategy with the addition of two new enterprise channels—leading mobile operators and content providers—and an extensive, operator-grade network with connections to approximately 700 mobile operators around the world. Through Mobile 365’s global footprint, Sybase enables enterprises to deliver data and applications to over 70% of the world’s mobile subscriber population. Mobile 365 operates as a separate business unit, renamed Sybase 365.

Our business is organized into three business segments: IPG, which principally focuses on enterprise class database servers, integration and development products; iAS, which provides mobile database and mobile enterprise solutions; and Sybase 365, which provides global services for mobile messaging interoperability and the management and distribution of mobile content. For further discussion of our business segments, see Condensed Consolidated Financial Statements, Note Five — Segment Information, Part I, Item 1.

13

Our Results

We reported total revenues of $230.0 million for the three months ended March 31, 2007, which represented a $35.0 million (18 percent) increase from total revenues of $195.0 million for the same period last year. The year-over-year increase in revenues for the three-month period was primarily attributable to the mobile messaging services of Sybase 365 which contributed revenue of $31.0 million in the quarter. A $7.1 million (4 percent) increase in IPG revenues also contributed to this increase offset by a $1.2 million (3 percent) decline to total iAS revenues.

The IPG revenue increase was largely attributable to an 11 percent increase in license revenue. The majority of the increase was related to a 17 percent increase in license revenues from our enterprise database products. We expect this segment to continue to grow for the remainder of the year aided by the momentum from our IQ analytics server and ongoing adoption of our latest Enterprise Server product by new and existing customers.

The iAS revenue decline was due to a $1.9 million (9 percent) decrease in license revenue offset somewhat by a $0.7 million (4 percent) increase in service revenue. The decline in iAS license revenues was largely attributable to a 7 percent decrease in revenues associated with our SQL Anywhere product. Going forward, however, we believe our iAS revenues will meet or exceed market growth rates this year as our Unwired Enterprise initiative continues to gain momentum.

With respect to Sybase 365, we expect that the increase in messaging volume including triple digit percentage increases in multi-media messaging traffic, will continue to drive Sybase 365 messaging revenues upward.

We reported net income of $15.1 million for the first quarter of 2007, compared to net income of $17.3 million for the same period last year. The decline in net income was associated with a reduction in interest income attributable to the cash used in the purchase of Mobile 365 and an increase in the income tax provision offsetting an increase in operating income. Our operating margin for the first quarter of 2007 was 9.3 percent compared to 9.7 percent for the same period in 2006. Before inclusion of the results of Sybase 365 our operating margin for the first quarter of 2007 was 11.6 percent compared to 9.7 percent for the same period in 2006.

Our overall financial position remains strong. During the first quarter we generated net cash from operating activities of $69.6 million, and had $698.7 million in cash, cash equivalents and cash investments (including restricted cash) at March 31, 2007. Our days sales outstanding in accounts receivable was 75 days for the quarter ended March 31, 2007 compared to 68 days for the quarter ended March 31, 2006. The increase in days sales outstanding at March 31, 2007 was attributable to the Mobile 365 business purchased in the fourth quarter of 2006. Due to the nature of its business and certain net revenue models under which receivable balances are generated without corresponding revenue, the Sybase 365 segment has, and is expected to retain, a higher DSO than those of the historical Sybase business.

For a discussion of certain factors that may impact our business and financial results, see “Risk Factors — Future Operating Results,” above.

Business Trends

Overall, the IT spending patterns we are witnessing support our view that fiscally cautious customers generally are continuing to purchase products and services based more on present need and less on fulfilling anticipated future needs. We do, however, see a growing pipeline associated with extending enterprise level data to handheld devices. We believe this development supports and validates our Unwired Enterprise initiative, and that our execution around these opportunities will drive short and long term revenue growth.

The environment for new sales of enterprise infrastructure software primarily sold by our IPG segment is limited by a maturing enterprise infrastructure software market which moderates the growth potential for this segment. We have noted, however, an improving pipeline for enterprise infrastructure products especially continued high demand for our Adaptive Server^® Enterprise (ASE) 15.0, which was released in the third quarter of 2005. During the quarter we added 235 new ASE customers.

We continue to see greater customer willingness to invest resources on new data integration initiatives and analytic solutions. These solutions contributed to a year over year increases of 42 percent in license revenue from these products during the first quarter. Our Replication Server product delivers operational data across complex and broadly distributed heterogeneous data infrastructures in near real time to ensure continuous data availability, operational synchronization and timely reporting. Our IQ product offers a highly optimized analytic engine specifically designed to deliver dramatically faster results for business intelligence, analytic and reporting solutions.

14

We are also very encouraged by the progress we have made with our IBM relationships. For all of 2006 and thus far for 2007, our fastest-growing platform was Linux on the IBM p-Series. The growth of Sybase database revenues on the IBM platform are running at approximately two times the six percent industry growth rate. Additionally, we were recently named IBM’s outstanding ISV Innovation Partner for 2006 and the joint Sybase/IBM business intelligence campaign was rated by IBM as their number-one business campaign.

With respect to the market for mobility and integration products primarily sold by our iAS segment, we believe these products are gaining market acceptance and will provide us with growth opportunities in the future. We continue to note a slowdown in the mobile middleware market consistent with broader market trends for these products. We believe some of the slowdown resulted from recent product cycle introductions which in our case included shipping our OneBridge^® 5.5, Afaria^® 5.5 and Information Anywhere^® Suite Products in late November or early December of 2006. We believe that for the remainder of 2007 we are beginning a strong product cycle with our refreshed iAnywhere product platform that will lead to future growth in the iAS segment at or above market rates.

With respect to the market for messaging services sold by our Sybase 365 segment, we believe that our inter-carrier messaging business will see further increases in revenue driven by continuing growth in Short Messaging Services (SMS) and Multimedia Messaging Services (MMS) traffic levels and the acquisition of new carriers, especially in new territories. We also believe that enterprises, brands and content providers will focus more of their business towards mobile messaging as an inexpensive means of interacting with their customers on a real time basis. This in turn will drive further growth in our application messaging business. To handle this demand, we plan to expand our data center capacity and disaster-recovery capabilities, add connectors from our new customers to our network and develop new services. In the second quarter this may result in a decline in Sybase 365’s operating margin, although we believe operating margins will increase in the later half of the year.

Moving forward we will continue to manage our operating margin, pursue synergies between our software and messaging businesses, and aggressively pursue our Unwired Enterprise initiative and strategic alliances with key partners.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP). These accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of our financial statements. We also are required to make certain judgments that affect the reported amounts of revenues and expenses during each reporting period. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2006 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. Except as discussed in“Accounting for Income Taxes”below, we believe that during the first three months of 2007 there were no significant changes in those critical accounting policies and estimates. Senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Quarterly Report on Form 10-Q with the Audit Committee of our Board of Directors.

• Accounting for Income Taxes

As discussed in Note 11 “Income Taxes”, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”) on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that an entity takes or expects to take in a tax return. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Under FIN 48, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. Prior to January 1, 2007, we followed the guidance of FAS No. 5 in assessing uncertain tax positions. Under FAS No. 5, we accrued for uncertain tax positions based on whether an assessment was probable and also estimable. Both before and after the adoption of FIN 48, we classify any interest and penalties associated with these tax positions as income taxes. As a result of adopting FIN 48, we did not record any cumulative effect adjustment to the opening balance of retained earnings and additional paid-in-capital. As of January 1, 2007 we had $44 million of unrecognized tax benefits, $43 million of which, if recognized,

15

would affect our effective tax rate if the tax benefits are subsequently realized. As of January 1, 2007, we had $3 million of accrued interest included in the $44 million of unrecognized tax benefits.

Although unrecognized tax benefits for individual tax positions may increase or decrease during 2007, we believe none have a reasonable possibility of significantly increasing or decreasing the total amount of unrecognized tax benefits during 2007 or for the next 12 months.

A discussion of each of our other critical accounting policies is included in our annual report on Form 10-K for the year ended December 31, 2006.

Recent Accounting Pronouncements

SFAS 157, “Fair Value Measurements”

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of FAS 157 are effective for the fiscal year beginning June 1, 2008. We are currently evaluating the impact of the provisions of FAS 157.

SFAS 159,“The Fair Value Option for Financial Assets and Financial Liabilities”

In February 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”). FAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. The standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. The standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. The new standard does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in FAS 157,“Fair Value Measurements,”and FAS 107,“Disclosures about Fair Value of Financial Instruments.”FAS 159 is effective as of the start of fiscal years beginning after November 15, 2007. Early adoption is permitted. We are in the process of evaluating this standard and therefore have not yet determined the impact that the adoption of FAS 159 will have on our financial position, results of operations or cash flows.

16

Results of Operations

Revenues
(Dollars in millions)

	Three Months ended March 31,
							Percent
	2007			2006			Change
License fees by segment:
IPG	$	55.0		$	49.5			11	%
IAS		19.9			21.8			(9	%)
SY365		0.0			—			*
Eliminations		(5.5	)		(4.4	)		25	%
Total license fees	$	69.4		$	66.9			4	%
Percentage of total revenues		30	%		34	%
Services by segment:
IPG	$	118.4		$	116.9			1	%
IAS		18.0			17.4			3	%
Eliminations		(6.8	)		(6.2	)		10	%
Total services	$	129.6		$	128.1			1	%
Percentage of total revenues		56	%		66	%
Messaging by segment:
SY365	$	31.0			—			*
Total messaging	$	31.0			—			*
Percentage of total revenues		14	%		—			*
Total revenues	$	230.0		$	195.0			18	%

* Not meaningful

License revenues increased 4 percent for the three months ended March 31, 2007 compared to the same period last year. The increase in license revenues during the quarter was primarily attributable to a $5.5 million (11 percent) increase in IPG license revenues offset by a $1.9 million (9 percent) decrease in iAS license revenues. The increase in IPG license revenues was driven by a 94 percent increase in the IQ datawarehouse and a 5 percent increase in revenues from our Adaptive Server Enterprise product line. The decrease in iAS license revenues was largely attributable to a 7 percent decrease in revenue associated with our SQL Anywhere^® product.

Segment license and service revenues include transactions between the segments. The most common instance relates to the sale of iAS products and services to third parties by IPG. In the case of such a transaction, IPG records the revenue on the sale with a corresponding inter-company expense on the transaction. iAS then records intercompany revenue and continues to bear the cost of providing the product or service. The excess of the revenues over inter-company expense recognized by IPG is intended to reflect the costs incurred by IPG to complete the sales transaction. The total transfers between the segments are captured in “Eliminations.”

Total services revenues (which include technical support, professional services and education) increased $1.5 million (1 percent) for the three months ended March 31, 2007 compared to the same period in 2006. For the first quarter of 2007 the increase in services revenues was primarily due to a $0.6 million (7 percent) increase in iAS service revenues and a $1.5 million (1 percent) increase in IPG service revenues, primarily technical support revenues. These increases were partially offset by declines in professional services revenues.

Total technical support revenues increased $2.3 million (2 percent) for the three months ended March 31, 2007, compared to the same period in 2006. Technical support revenues comprised approximately 79 percent of total services revenues for the three months ended March 31, 2007, compared to 78 percent of total service revenues for the three months ended 2006. Deferred revenues relate principally to technical support revenues and increased $4.5 million (2 percent) for the three months ended March 31, 2007, compared to the same period in 2006.

Professional services and education revenues decreased 3 percent the three month period ended March 31, 2007 compared to the same period in 2006. This decrease was primarily attributable to a $0.5 million (36 percent) decline in iAS professional services revenues and a $0.4 million (2 percent) decrease in IPG professional services.

Messaging revenues earned in the three months ended March 31, 2007 were $31.0 million resulting from the acquisition of Mobile 365 in November 2006. Messaging fees consist primarily of revenues earned from the provision of inter-carrier messaging (SMS and MMS), premium content delivery and settlement, and enterprise messaging services to wireless operators, brands, content providers and enterprises.

17

Geographical Revenues
(Dollars in millions)

	Three Months ended March 31,
							Percent
	2007			2006			Change
North American	$	124.0		$	113.2			10	%
Percentage of total revenues		54	%		58	%
Total Outside North America	$	106.0		$	81.8			30	%
Percentage of total revenues		46	%		42	%
International: EMEA (Europe, Middle East and Africa)	$	71.8		$	55.2			30	%
Percentage of total revenues		31	%		28	%
Intercontinental: (Asia Pacific and Latin America)	$	34.2		$	26.6			29	%
Percentage of total revenues		15	%		14	%
Total revenues	$	230.0		$	195.0			18	%

North American revenues (United States, Canada and Mexico) increased $10.8 million (10 percent) for the three months ended March 31, 2007 compared to the same period last year. The increase was primarily due to the $11.1 million inclusion of Sybase 365’s messaging revenues partially offset by a $1.2 million (4 percent) decrease in license revenues from products included in the IPG segment. The messaging revenues are attributable to our November 2006 acquisition of Mobile 365.

International revenues comprised 46 percent and 42 percent of total revenues for the three months ended March 31, 2007 and 2006, respectively.

EMEA (Europe, Middle East and Africa) revenues for the three months ended March 31, 2007 increased $16.6 million (30 percent) compared to the three months ended March 31, 2006. The increase was primarily due to the $15.7 million inclusion of Sybase 365’s messaging revenues and a $2.1 million (6 percent) increase in service revenues. Messaging revenues in France, UK and Germany and IPG license revenue increases in Germany and UK contributed most to the overall increase in the first quarter of 2007.

Intercontinental (Asia Pacific and Latin America) revenues for the three months ended March 31, 2007 increased $7.6 million (29 percent) compared to the three months ended March 31, 2006. The increase was primarily attributable to the $4.2 million inclusion of Sybase 365’s messaging revenues and a $4.2 million increase in license revenues from IPG products, partially offset by a $0.6 million decrease in mobility products. IPG license revenue increases in India and Brazil and messaging revenues in Singapore and Australia contributed most to the overall increase in the first quarter of 2007.

In EMEA and the Intercontinental regions, most revenues and expenses are denominated in local currencies. During the three months ended March 31, 2007, foreign currency exchange rate changes from the same period last year resulted in a $5.4 million (3 percent) increase in our revenues and a $3.6 million (2 percent) increase in our operating expenses. The change for the comparable periods was primarily due to the weakness in the U.S. dollar against certain European and Intercontinental currencies

Our business and results of operations could be materially and adversely affected by fluctuations in foreign currency exchange rates, even though we take into account changes in exchange rates over time in our pricing strategy. Additionally, changes in foreign currency exchange rates, the strength of local economies, and the general volatility of worldwide software markets could result in a higher or lower proportion of international revenues as a percentage of total revenues in the future. For additional risks associated with currency fluctuations, see “Quantitative and Qualitative Disclosures of Market Risk,” Part I, Item 3 and “Future Operating Results,” Part II, Item 1(A).

18

Costs and Expenses
(Dollars in millions)

	Three Months ended March 31,
							Percent
	2007			2006			Change
Cost of license fees	$	12.8		$	12.8			*
Percentage of license fees revenues		18	%		19	%
Cost of services	$	38.7		$	38.4			1	%
Percentage of services revenues		30	%		30	%
Cost of messaging	$	18.9			—			*
Percentage of messaging revenues		61	%		—
Sales and marketing	$	64.6		$	61.4			5	%
Percentage of total revenues		28	%		31	%
Product development and engineering	$	38.8		$	37.0			5	%
Percentage of total revenues		17	%		19	%
General and administrative	$	31.5		$	25.0			26	%
Percentage of total revenues		14	%		13	%
Amortization of other purchased intangibles	$	3.4		$	1.5			127	%
Percentage of total revenues		1	%		1	%
Cost of restructure	$	*		$	*			*
Percentage of total revenues		*			*

* Not meaningful

Cost of License Fees.Cost of license fees consists primarily of product costs (media and documentation), amortization of capitalized software development costs and purchased technology, and third party royalty costs. These costs were $12.8 million for the three months ended March 31, 2007 and March 31, 2006. Such costs were 18 percent and 19 percent of license revenues for the three months ended March 31, 2007 and 2006, respectively. The amortization of capitalized software costs was $8.2 million and $7.5 million for the three months ended March 31, 2007 and 2006, respectively. The increase in capitalized software amortization for the three months ended March 31, 2007 was due to SQL Anywhere 10.0 and ASE 15.0.1. The amortization of purchased technology was $2.4 million and $2.3 million for the three months ended March 31, 2007 and 2006, respectively. The increase in amortization of purchased technology for the three months ended march 31, 2007 was not significant.

Cost of Services.Cost of services consists primarily of the fully burdened cost of our personnel who provide technical support, professional services and education. These costs were $38.4 million for the three months ended March 31, 2007 as compared to $38.7 million for the same period in 2006. These costs were 30 percent of services revenues for both the three months ended March 31, 2007 and 2006. The increase in cost of services in absolute dollars for the three months ended March 31, 2007 compared to the same period in 2006 is 1 percent.

Cost of Messaging. Costs of messaging consist primarily of (1) fees payable to non-domestic wireless operators for delivering traffic into their networks and amounts payable to content providers; (2) fully burdened cost of personnel who manage and monitor network datacenters; and (3) depreciation, fees and other costs associated with the network datacenters. Costs of messaging for the three months ended March 31, 2007 totaled $18.9 million.

Sales and Marketing.Sales and marketing expenses increased to $64.6 million for the three months ended March 31, 2007 as compared to $61.4 million for the same period last year. These costs were 28 percent of total revenues for the three month period ended March 31, 2007 and 31 percent of total revenues for the same period in 2006. The increase in sales and marketing expenses in absolute dollars and the decrease in costs as a percentage of revenues for the three months ended March 31, 2007 was primarily due the Mobile 365 acquisition in November of 2006.

Product Development and Engineering.Product development and engineering expenses (net of capitalized software development costs) increased to $38.8 million for the three months ended March 31, 2007 compared to $37.0 million for the same period last year. These costs were 17 percent of total revenues for the three months ended March 31, 2007 as compared to 19 percent for the three month period ended March 31, 2006. The increase in product development and engineering costs in absolute dollars for the three months ended March 31, 2007 is primarily due to a decrease in capitalized software costs. The capitalized software costs decreased due to the completion of the SQL Anywhere 10.0 project in iAS during the third quarter of 2006. An increase in payroll and related costs associated with increases in headcount and the acquisition of Mobile 365 also contributed to the increase spending. The decrease in costs as a percentage of revenues was primarily due to the inclusion of Mobile 365, revenues and product development expenses.

We capitalized approximately $8.3 million of software development costs for the three months ended March 31, 2007 compared to

19

$10.3 million for the three and months ended March 31, 2006. For the three months ended March 31, 2007, capitalized software costs included costs incurred for the development of the Adaptive Server Enterprise 15.0.2 and 15.1, PowerBuilder^® 11.0, PowerDesigner^® 12.5 and Workspace 1.7. For the three months ended March 31, 2006 capitalized software costs included costs incurred for the development of Workspace 1.X, ASE 15.0.1, SQL Anywhere 10.0, ASE 15.1, PowerBuilder 11.0 and Unwired Accelerator 8.0.

We believe product development and engineering expenditures are essential to technology and product leadership and expect product development and engineering expenditures to continue to be significant, both in absolute dollars and as a percentage of total revenues.

General and Administrative.General and administrative expenses include IT, legal, business operations, finance, human resources and administrative functions, and were $31.5 million for the three months ended March 31, 2007 compared to $25.0 million for the three months ended March 31, 2006. These costs represented 14 and 13 percent of total revenues for the three months ended March 31, 2007 and 2006, respectively. The increase in general and administrative expenses in absolute dollars and as a percentage of revenues for the three months ended March 31, 2007 was primarily attributable to the purchase of Mobile 365 in November of 2006.

Amortization of Other Purchased Intangibles.Amortization of other purchased intangibles primarily reflects the amortization of the established customer list associated with the acquisition in 2000 of Home Financial Network, Inc, the amortization of the established customer list and covenant not to compete associated with our acquisition of XcelleNet in 2004, the amortization of the established customer list and other intangible assets associated with our acquisition of Extended Systems in 2005 and Mobile 365 in November of 2006.

Cost of Restructure. We undertook restructuring activities in 2004, 2003, 2002 and 2001 as a means of managing our operating expenses, and recorded acquisition related liabilities when we acquired Mobile 365 and AvantGo. See Note 9 to Condensed Consolidated Financial Statements

Operating Income
(Dollars in millions)

	Three Months ended March 31,
							Percent
	2007			2006			Change
Operating income by segment:
IPG	$	28.3		$	21.6			31	%
IAS		0.8			2.1			(62	%)
SY365		(1.7	)		—			*
Unallocated costs		(6.0	)		(4.8	)		25	%
Total operating income:	$	21.4		$	18.9			13	%
Percentage of total revenues		9	%		10	%

* Not meaningful

Operating income was $21.4 million for the three months ended March 31, 2007 compared to operating income of $18.9 million for the three months ended March 31, 2006. The increase in operating income for the three months ended March 31, 2007 is primarily due to the various factors discussed under “Revenues,” “Geographical Revenues” and “Costs and Expenses,” above.

Operating margin was 9 percent for the three months ended march 31, 2007 compared to 10 percent for the three months ended March 31, 2006. The decrease in operating margin relates to the net change in operating margins for the IPG and iAS segments together with the inclusion of the new Sybase 365 segment. Before inclusion of the results of Sybase 365 our operating margin for the first quarter of 2007 was 11.6 percent compare to 9.7 percent for the same period in 2006. The operating margin for the IPG segment was 16.3 percent for the three months ended March 31, 2007 compared to 13.0 percent for the three months ended March 31, 2006. The increase in operating income in the IPG segment for the three months ended March 31, 2007 was primarily due to the increase in revenues, while operating expenses remained relatively unchanged. The IPG revenue increase was largely attributable to an 11 percent increase in license revenues, primarily a 17 percent increase in license revenues from our enterprise database products.. The operating margin for the iAS segment was 2.2 percent for the three months ended March 31, 2007 compared to 5.3 percent for the same period in 2006. The decrease in operating income for the iAS segment was primarily due to a decrease in license revenues of 9 percent. The operating loss for the Sybase 365 segment of $1.7 million is associated with our acquisition of Mobile 365 in November 2006.

During the three months ended March 31, 2007, foreign currency exchange rate changes from the same period last year resulted in a $5.4 million (3 percent) increase in our revenues and a $3.6 million (2 percent) increase in our operating expenses.

20

Certain common costs and expenses are allocated to the various segments based on measurable drivers of expense. Unallocated expenses represent stock compensation expense and other corporate expenditures or cost savings that are not specifically allocated to the segments including reversals or restructuring expenses associated with restructuring activities undertaken prior to 2003. Unallocated costs for the three month period ended March 31, 2007 consisted primarily of stock-based compensation expenses.

Other Income (Expense), Net
(Dollars in millions)

	Three Months ended March 31,
							Percent
	2007			2006			Change
Interest income	$	7.4		$	8.6			(14	%)
Percentage of total revenues		3	%		4	%
Interest expense and other, net	$	(2.4	)	$	(2.5	)		(4	%)
Percentage of total revenues		(1	%)		(1	%)
Minority interest		*			—			*
Percentage of total revenues		*			—

* Not meaningful

Interest income decreased to $7.4 million for the three months ended March 31, 2007 compared to $8.6 million for the same period last year. Interest income consists primarily of interest earned on our investments. The decrease in interest income in the three month period in 2007 is primarily due to the decrease in the cash balances invested partially offset by an increase in the effective interest rates. During the three month period ended March 31, 2007, our invested cash balances decreased as a result of cash used in our purchase of Mobile 365 in November of 2006.

Interest expense and other, net, primarily includes: interest expense on convertible subordinated notes which bear interest at 1.75 percent; amortization of deferred offering expenses associated with these notes; net gains and losses resulting from foreign currency transactions and the related hedging activities; the cost of hedging foreign currency exposures; bank fees; and gains from the disposition of certain real estate and investments. Interest expense and other, net was an expense of $2.4 million for the three months ended March 31, 2007 compared to an expense of $2.5 million for the three months ended March 31, 2006.

Provision for Income Taxes
(Dollars in millions)

	Three Months ended March 31,
					Percent
	2007		2006		Change
Provision for income taxes	$	11.3	$	7.8		45	%

For the three months ended March 31, 2007, the income tax provision was recorded at a rate of approximately 42.6 percent of income before taxes. Our effective tax rate differed from the statutory rate of 35 percent primarily due to the impact of state taxes, the inclusion of additional tax reserves relating mainly to the deductibility of certain expenses and foreign transfer pricing exposures, offset somewhat by the deferral of certain low-taxed foreign source income and expected utilization of research credits and foreign tax credits which previously carried a valuation allowance. The tax reserve for the deductibility of certain expenses resulting from liquidating several foreign subsidiaries was the primary difference between the 42.6 percent tax rate for the three months ending March 31, 2007 and the 31 percent tax rate for the period ending March 31, 2006.

In the same period a year ago, the income tax provision was recorded at a rate of 31 percent of income before taxes. Our effective tax rate differed from the statutory tax rate primarily due to the expected utilization of foreign tax credits which previously carried a full valuation allowance, and the deferral of certain low-tax foreign source earnings offset somewhat by the impact of state taxes and the addition of additional tax reserves relating mainly to foreign transfer pricing exposures. See Condensed Consolidated Financial Statements, Note 11 – Income Taxes.

21

Net Income Per Share
(Dollars and shares in millions, except per share data)

	Three Months ended March 31,
							Percent
	2007			2006			Change
Net income	$	15.1		$	17.3			(13	%)
Percentage of total revenues		7	%		9	%
Basic net income per share	$	0.17		$	0.19			(12	%)
Diluted net income per share	$	0.16		$	0.19			(16	%)
Shares used in computing basic net income per share		91.1			89.6			1	%
Shares used in computing diluted net income per share		93.6			92.0			2	%

We reported net income of $15.1 million for the three months ended March 31, 2007 compared to net income of $17.3 million for the same period last year. The decrease in net income for the three months ended March 31, 2007 is due to the various factors discussed above.

Basic net income per share was $0.17 for the three months ended March 31, 2007 as compared to $0.19 for the same period in 2006. Diluted net income per share was $0.16 for the three months ended March 31, 2007 as compared to $0.19 for the same period in 2006.

Shares used in computing basic and diluted net income per share increased 1 percent and 2 percent, respectively, for the three months ended March 31, 2007 as compared to the same period in 2006. The increases were due primarily to the exercises of employee stock options offset by shares repurchased under our stock repurchase program.

Shares that may be issued to holders of our convertible subordinated debt due to the appreciation of our stock price are included in the calculation of diluted earnings per share using the if converted method, if their inclusion is dilutive to earnings per share. Generally, such shares would be included in periods in which the average price of our common stock exceeds $25.22 per share, the initial conversion price. For the three month periods ended March 31, 2006 and 2007 our average share price did not exceed $25.22 and accordingly such shares are not included in the calculation of diluted earnings per share. If such shares were dilutive and included in the shares used in computing the dilutive earnings per share, our diluted shares would be greater and our earnings per share amounts could be less. For example, if during the three month period ended March 31, 2007 our average share price was $26.22, or $1.00 greater than the $25.22 initial conversion amount, our diluted shares outstanding would have increased by .7 million which would not have caused a change in our reported diluted earnings per share for the three months ended March 31, 2007. See Condensed Consolidated Financial Statements, Note 10 — Convertible Subordinated Notes.

Liquidity and Capital Resources
(Dollars in millions)

	Three Months Ended
	March 31,
						Percent
	2007			2006		Change
Working capital	$	486.9		$	614.3		(21	%)
Cash, cash equivalents and cash investments	$	692.8		$	902.5		(23	%)
Net cash provided by operating activities	$	69.6		$	73.4		(5	%)
Net cash provided by (used for) investing activities	$	(10.8	)	$	51.3		*
Net cash used for financing activities	$	4.1		$	19.1		(79	%)

* Not meaningful

At March 31, 2007 our cash, cash equivalents and cash investments, excluding restricted cash totaled $692.8 million, a $55 million increase from December 31, 2006. We generated $69.6 million in cash from operations during that period. Our days sales outstanding in accounts receivable was 75 days for the quarter ended March 31, 2007 compared to 63 days for the quarter ended March 31, 2006. The increase in days sales outstanding was primarily attributable to the Mobile 365 business purchased in the fourth quarter of 2006. We expect the Mobile 365 business to continue to cause increases in our days sales outstanding in the future largely due to the recognition of certain revenues on a net basis and the nature of their business.

Net cash used for investing activities was $10.8 million for the three months ended March 31, 2007 compared to a $51.3 million source of cash for the three months ended March 31, 2006. The shift from net cash provided by investing activities to net cash used for investing activities is primarily due to lower maturities and sales of cash investments during the three months ended March 31, 2007.

Net cash used for financing activities decreased to $4.1 million for the three months ended March 31, 2007 compared to $19.1 million

22

for the three months ended March 31, 2006. The decrease in cash used for financing activities is primarily due to a $7.0 million increase in the net proceeds from the issuance of common stock related to the exercise of employee stock options and a decrease in the purchase of treasury stock to $18.6 million in the first quarter of 2007 compared to $24.7 million in the first quarter of 2006.

Our Board of Directors has authorized the repurchase of our outstanding common stock from time to time, subject to price and other conditions (Stock Repurchase Program). Through March 31, 2007, aggregate amounts purchased under the Stock Repurchase Program totaled $743.8 million. During the three months ended March 31, 2007, we repurchased 0.7 million shares at a cost of $18.6 million compared to 1.1 million shares at a cost of $24.7 million during the three months ended March 31, 2006

On April 26, 2006 our Board of Directors approved a $250 million increase to our Stock Repurchase Program. Approximately $231.2 million remained available in the Stock Repurchase Program at March 31, 2007.

Liabilities for uncertain tax positions totaled $25.8 million at March 31, 2006. These liabilities have been classified as non-current as we do not reasonably estimate payment of these liabilities, if at all, within one year. Other than this one year period, however, we cannot make reasonably reliable estimates of the period of payment if any.

There have been no significant changes to the other contractual obligations we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006.

At March 31, 2007 we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

We evaluate, on an ongoing basis, the merits of acquiring technology or businesses, or establishing strategic relationships with and investing in other companies. We may decide to use cash and cash equivalents and investments to fund such activities in the future.

We engage in global business operations and are therefore exposed to foreign currency fluctuations. As of March 31, 2007, we had identifiable net assets totaling $198.8 million associated with our European operations and $87.6 million associated with our Asia and Latin American operations. We experience foreign exchange transaction exposure on our net assets and liabilities denominated in currencies other than the US dollar. The related foreign currency translation gains and losses are reflected in “Accumulated other comprehensive income/ (loss)” under “Stockholders’ equity” on the balance sheet. We also experience foreign exchange translation exposure from certain balances that are denominated in a currency other than the functional currency of the entity on whose books the balance resides. We hedge certain of these short-term exposures under a plan approved by the Board of Directors (see “Qualitative and Quantitative Disclosure of Market Risk,” Part I, Item 3).

23

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

The following discussion about our risk management activities includes forward-looking statements that involve risks and uncertainties, as more fully described on Page 2 of this Report.

Foreign Exchange Risk

The functional currency of our international operating subsidiaries is the local currency. We experience foreign exchange translation exposure on our net assets and liabilities denominated in currencies other than the U.S. dollar. The related foreign currency translation gains and losses from translating these amounts into U.S. dollars for subsidiaries that conduct their business in a currency other than the U.S. dollar, are computed at the average rates of exchange in effect during the period. These gains and losses are reflected in “Accumulated other comprehensive income” under “Stockholders’ equity” on the balance sheet.

As a global concern, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial position and results of operations. Historically, our primary exposures have related to non dollar-denominated sales and expenses in Europe, Asia Pacific, and Latin America. In order to reduce the effect of foreign currency fluctuations, we utilize foreign currency forward exchange contracts (forward contracts) to hedge certain foreign currency transaction exposures outstanding during the period (approximately 30 days). The gains and losses on the forward contracts mitigate the gains and losses on our outstanding foreign currency transactions. We do not enter into forward contracts for trading purposes. We do not currently enter into forward contracts or other similar instruments to hedge against foreign exchange exposures created by intercompany messaging revenues and expenses associated with the business of Mobile 365. All foreign currency transactions and all outstanding forward contracts are marked-to-market at the end of the period with unrealized gains and losses included in interest expense and other, net. The unrealized gain (loss) on the outstanding forward contracts as of March 31, 2007 was immaterial to our consolidated financial statements. Although the impact of currency fluctuations on our financial results has generally been immaterial in the past, there can be no guarantee the impact of currency fluctuations related to our intercompany messaging revenues and expenses and other activities will not be material in the future.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates to our investment portfolio, which consists of taxable, short-term money market instruments and debt securities with maturities between 90 days and three years. We do not use derivative financial instruments in our investment portfolio. We place our investments with high-credit quality issuers and, by policy, we limit the amount of credit exposure to any one issuer.

We mitigate default risk by investing in only the safe and high-credit quality securities and by monitoring the credit rating of investment issuers. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. These securities are generally classified as available for sale, and consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported, as a separate component of stockholders’ equity, net of tax. Losses realized from the less than temporary decline in the value of specific marketable securities are recorded in interest expenses and other, net on the income statement. Neither realized nor unrealized gains and losses at March 31, 2007 were material.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures at March 31, 2007 were effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the timeframe specified in Securities and Exchange Commission rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during our first quarter of 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

24

PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The material set forth in Note 7 of Notes to Condensed Financial Statements in Part I, Item 1 of the Form 10-Q is incorporated herein by reference.

ITEM 1 (A): RISK FACTORS

Future Operating Results

Our future operating results may vary substantially from period to period due to a variety of significant risks, some of which are discussed below and elsewhere in this report on Form 10-Q. We strongly urge current and prospective investors to carefully consider the cautionary statements and risks contained in this report including those regarding forward-looking statements described on page 2.

Significant variation in the timing and amount of our revenues may cause fluctuations in our quarterly operating results and an accurate estimation of our revenues is difficult.

Our operating results have varied from quarter to quarter in the past and may vary in the future depending upon a number of factors described below, including many that are beyond our control. Our revenues, and particularly our new software license revenues, are difficult to forecast, and as a result our quarterly operating results can fluctuate substantially. As a result, we believe that quarter-to-quarter comparisons of our financial results should not be relied on to indicate our future performance. We operate with little or no backlog, and quarterly license revenues for our IPG and iAS businesses depend largely on orders booked and shipped in a quarter. Historically, we have recorded a majority of our quarterly license revenues in the last month of each quarter, particularly during the final two weeks. In the past we have experienced fluctuations in the purchasing patterns of our customers. For example, during 2003 and the first half of 2004, we experienced an overall increase in the volume of license revenue transactions but an overall decrease in the average dollar value of these transactions. Although many of our customers are larger enterprises, an apparent trend toward more conservative IT spending could result in fewer of these customers making substantial investments in our products and services in any given period. Therefore, if one or more significant orders do not close in a particular quarter, our results of operations could be materially and adversely affected, as was the case in the first and second quarters of 2004.

Our operating expenses are based on projected annual and quarterly revenue levels, and are generally incurred ratably throughout each quarter. Since our operating expenses are relatively fixed in the short term, failure to realize projected revenues for a specified period could adversely impact operating results, reducing net income or causing an operating loss for that period. The deferral or non-occurrence of such revenues would materially adversely affect our operating results for that quarter and could impair our business in future periods. Because we do not know when, or if, our potential customers will place orders and finalize contracts, we cannot accurately predict our revenue and operating results for future quarters.

In addition to the above factors, the timing and amount of our revenues are subject to a number of factors that make it difficult to accurately estimate revenues and operating results on a quarterly or annual basis. Our financial forecasts are based on aggregated internal sales forecasts which may incorrectly assess our ability to complete sales within the forecast period, due to competitive pressures, economic conditions or reduced information technology spending. In our experience IPG and iAS revenues in the fourth quarter benefit from large enterprise customers placing orders before the expiration of budgets tied to the calendar year. As a result, revenues from license fees tend to decline from the fourth quarter of one year to the first quarter of the next year. In the past, this seasonality has contributed to lower total revenues and earnings in the first quarter compared to the prior fourth quarter. We cannot assure you that estimates of our revenues and operating results can be made with certain accuracy or predictability. Fluctuations in our operating results may contribute to volatility in our stock price.

We may encounter difficulties in integrating our Mobile 365 acquisition, other acquisitions or strategic relationships and we may incur acquisition-related charges that could adversely affect our operating results.

We regularly explore possible acquisitions and other strategic ventures to expand and enhance our business. We have recently acquired a number of companies.

For example, on November 8, 2006 we acquired Mobile 365, Inc., a Delaware company, in an all cash transaction. The purchase price of $418.3 million is comprised of $416.0 million in cash and $2.3 million in additional purchase related

25

costs and is subject to adjustment based on Mobile 365’s final working capital as of the closing date. Net of acquired cash, the transaction is valued at approximately $394.9 million.

In addition, we acquired AvantGo in 2003 and XcelleNet^® and certain assets of Dejima in April 2004. In April 2005 we acquired ISDD and the assets of Avaki Corporation, both privately-held companies. In October 2005 we acquired Extended Systems Incorporated, a NASDAQ listed company. In June 2006 we acquired Solonde AG, a privately-held company and in October 2006 we acquired certain assets of iFoundry, a privately-held company. We expect to continue to pursue acquisitions of complimentary or strategic business product lines, assets and technologies.

We may not achieve the desired benefits of our Mobile 365 or other acquisitions and investments. Acquisitions may not further our business strategy or we may pay more for acquired companies or assets than they are worth. Further, such companies may have limited infrastructure and systems of internal controls. In addition, for portions of the first year after acquisition, acquired companies may not be subject to our established system of internal control or subject to internal control testing by internal and external auditors.

We may be unable to successfully assimilate an acquired company’s management team, employees, business infrastructure or data centers and related systems, capacity requirements, customer mandated requirements, and third party communication provider relationships or implement and maintain effective internal controls. Our acquisition due diligence may not identify technical, legal, financial, internal control or other problems associated with an acquired entity and our ability to seek indemnification may be limited by the acquisition structure or agreement. Also, dedication of additional resources to execute acquisitions and handle integration tasks and management changes accompanying acquisitions could divert attention from other important business. Acquisitions may also result in costs, liabilities, additional expenses or internal control weaknesses that could harm our results of operations, financial condition or internal control assessment. In addition, we may not be able to maintain customer, supplier, employee or other favorable business relationships of ours, or of our acquired operations, or be able to terminate or restructure unfavorable relationships, any of which might reduce our revenue or limit the benefits of an acquisition.

Under Statement of Financial Accounting Standard No. 142 we no longer amortize goodwill but evaluate goodwill recorded in connection with acquisitions at least annually for impairment. As of March 31, 2007, we had approximately $539.7 million of goodwill recorded on our balance sheet, none of which was determined to be impaired as of that date. Goodwill impairments are based on the value of our reporting units, and reporting units that previously recognized impairment charges are prone to additional impairment charges if future revenue and expense forecasts or market conditions worsen after an impairment is recognized. We test the impairment of goodwill annually in our fourth fiscal quarter or more frequently if indicators of impairment arise. The timing of the formal annual test may result in charges to our statement of operations in our fourth fiscal quarter that could not have been reasonably foreseen in prior periods. New acquisitions, and any impairment of the value of purchased assets, could have a significant negative impact on our future operating results.

Acquisitions may also result in other charges, including stock-based compensation charges for assumed stock awards, restructuring charges and charges related to in process research and development. The timing and amount of such charges will be dependent on future acquisition and integration activities.

With respect to our investments in other companies, we may not realize a return on our investments, or the value of our investments may decline if the businesses in which we invest are not successful. Future acquisitions may also result in dilutive issuances of equity securities, the incurrence of debt, restructuring charges relating to the consolidation of operations and the creation of other intangible assets that could result in amortization expense or impairment charges, any of which could adversely affect our operating results.

Economic conditions in the U.S. and worldwide could adversely affect our revenues.

Our revenues and operating results depend on the overall demand for our products and services. In part due to improvements in the worldwide economy, our revenues for the quarter ending March 31, 2007 exceeded revenues for the quarter ending March 31, 2006. If the U.S. and worldwide economies do not continue their growth patterns, or if these economies weaken, either alone or in tandem with other factors beyond our control (including war, political unrest, shifts in market demand for our products, actions by competitors, etc.), we may not be able to maintain or expand our recent revenue growth.

If we fail to maintain or expand our relationships with strategic partners and indirect distribution channels our license revenues could decline.

26

We currently derive a significant portion of our license revenues from sales of our IPG and iAS products and services through non-exclusive distribution channels, including strategic partners, systems integrators (SIs), original equipment manufacturers (OEMs) and value-added resellers (VARs). We generally anticipate that sales of our products through these channels will account for a substantial portion of our software license revenues in the foreseeable future. Because most of our channel relationships are non-exclusive, there is a risk that some or all of them could promote or sell our competitors’ products instead of ours, or that they will be unwilling or unable to effectively sell new products that we may introduce. Additionally, if we are unable to expand our indirect channels, or these indirect channels fail to generate significant revenues in the future, our business could be harmed.

Our development, marketing and distribution strategies also depend in part on our ability to form strategic relationships with other technology companies. If these companies change their business focus, enter into strategic alliances with other companies or are acquired by our competitors or others, support for our products could be reduced or eliminated, which could have a material adverse effect on our business and financial condition.

System failures, delays and other problems could harm our reputation and business, cause us to lose customers and expose us to customer liability.

The success of Sybase 365 is highly dependent on its ability to provide reliable services to customers. These operations could be interrupted by any damage to or failure of our or our customers, or suppliers, computer software, hardware or networks, and our connections and outsourced service arrangements with third parties.

Sybase 365’s systems and operations are also vulnerable to damage or interruption from power loss, transmission cable cuts and other telecommunications failures, natural disasters, interruption of service due to potential facility migrations, computer viruses or software defects, physical or electronic break-ins, sabotage, intentional acts of vandalism and similar events and errors by our employees or third-party service providers.

Because many of our services play a mission-critical role for our customers, any damage to or failure of the infrastructure we rely on, including that of our customers and vendors, could disrupt the operation of our network and the provision of our services, result in the loss of current and potential customers and expose us to potential customer liability.

Industry consolidation and other competitive pressures could affect prices or demand for our products and services, and our business may be adversely affected.

The IT industry and the market for our core database infrastructure products and services is becoming increasingly competitive due to a variety of factors including a maturing enterprise infrastructure software market and changes in customer IT spending habits. There is also a growing trend toward consolidation in the software industry. Continued consolidation within the software industry could create opportunities for larger software companies, such as IBM, Microsoft and Oracle, to increase their market share through the acquisition of companies that dominate certain lucrative market niches or that have loyal installed customer bases. Continued consolidation activity could pose a significant competitive disadvantage to us.

The significant purchasing and market power of larger companies may also subject us to increased pricing pressures. Many of our competitors have greater financial, technical, sales and marketing resources, and a larger installed customer base than us. In addition, our competitors’ advertising and marketing efforts could overshadow our own and/or adversely influence customer perception of our products and services, and harm our business and prospects as a result. To remain competitive, we must develop and promote new products and solutions, enhance existing products and retain competitive pricing policies, all in a timely manner. Our failure to compete successfully with new or existing competitors in these and other areas could have a material adverse impact on our ability to generate new revenues or sustain existing revenue levels.

The ability to rapidly develop and bring to market advanced products and services that are successful is crucial to maintaining our competitive position.

Widespread use of the Internet and fast-growing market demand for mobile and wireless solutions may significantly alter the manner in which business is conducted in the future. In light of these developments, our ability to timely meet the demand for new or enhanced products and services to support wireless and mobile business operations at competitive prices could significantly impact our ability to generate future revenues. We acquired XcelleNet and certain assets of Dejima in April 2004, to enhance our mobile, wireless and embedded solutions that form the foundation of our Unwired Enterprise initiative. In October 2005 we acquired Extended Systems Incorporated, in June 2006 we acquired Solonde AG, and in October 2006 we acquired certain assets of iFoundry in part to strengthen our Unwired Enterprise effort. In November 2006 we acquired Mobile 365, to extend our Unwired Enterprise effort with the addition of two new enterprise

27

channels – wireless carriers and global content providers. If the market for unwired solutions does not continue to develop as we anticipate, if our solutions and services do not successfully compete in the relevant markets, or our new products are not widely adopted and successful, our competitive position and our operating results could be adversely affected.

If our existing customers cancel or fail to renew their technical support agreements, our technical support revenues could be adversely affected.

We currently derive a significant portion of our overall revenues from technical support services, which are included in service revenues. The terms of our standard software license arrangements provide for the payment of license fees and prepayment of first-year technical support fees. Support is renewable annually at the option of the end user. We have recently been experiencing increasing pricing pressure from customers when purchasing or renewing technical support agreements and this pressure may result in our reducing support fees or in lost support fees if we refuse to reduce our pricing, either of which could result in reduced revenue. If our existing customers cancel or fail to renew their technical support agreements, or if we are unable to generate additional support fees through the license of new products to existing or new customers, our business and future operating results could be adversely affected.

Pricing pressure in the mobile messaging market could adversely affect our operating results.

Competition and industry consolidation in the mobile messaging market have resulted in pricing pressure, which we expect to continue in the future. This pricing pressure could cause large reductions in the selling price of our services. For example, consolidation in the wireless services industry could give our customers increased transaction volume leverage in pricing negotiations. Our competitors or our customers’ in-house solutions may also provide services at a lower cost, significantly increasing pricing pressures on us. While historically pricing pressure has been largely offset by volume increases and the introduction of new services, in the future we may not be able to offset the effects of any price reductions.

Unanticipated delays or accelerations in our sales cycles could result in significant fluctuations in our quarterly operating results.

The length of our sales cycles varies significantly from product to product. The sales cycle for some of our IPG and iAS products can take up to 18 months to complete. Any delay or unanticipated acceleration in the closing of a large license or a number of smaller licenses could result in significant fluctuations in our quarterly operating results. For example, in the second quarter of 2004, the license revenue in IPG declined 15% from the prior year period, in part due to larger sales being delayed and a lengthening sales cycle. The length of the sales cycle may vary depending on a number of factors over which we may have little or no control, including the size and complexity of a potential transaction, the level of competition that we encounter in our selling activities and our potential customers’ internal budgeting process. Our sales cycle can be further extended for product sales made through third party distributors. As a result of the lengthy sales cycle, we may expend significant efforts over a long period of time in an attempt to obtain an order, but ultimately not complete the sale, or the order ultimately received may be smaller than anticipated.

Most of our mobile messaging customer contracts may not continue to generate revenues at or near our historical levels of revenues from these customers.

If our customers decide for any reason not to continue to purchase services from us at current levels or at current prices, to terminate their contracts with us or not to renew their contracts with us, our revenues would decline.

If we do not adapt to rapid technological change in the telecommunications industry, we could lose customers or market share.

The mobile market is characterized by rapid technological change, frequent new service introductions and changing customer demands. Significant technological changes could make our technology and services obsolete. Our success depends in part on our ability to adapt to our rapidly changing market by continually improving the features, functionality, reliability and responsiveness of our existing services and by successfully developing, introducing and marketing new features, services and applications to meet changing customer needs. We cannot assure you that we will be able to adapt to these challenges or respond successfully or in a cost-effective way to adequately meet them. Our failure to do so would impair our ability to compete, retain customers or maintain our financial performance. Our future revenues and profits will depend, in part, on our ability to sell to new market participants.

Restructuring activities and reorganizations in our sales model or business units may not succeed in increasing revenues and operating results.

28

Since 2000, we have implemented several restructuring plans in an effort to align our expense structure to our expected revenue. As a result of these restructuring activities, we have recorded gross restructuring charges totaling approximately $119 million through March 31, 2007. Our ability to significantly reduce our current cost structure in any material respects through future restructurings may be difficult without fundamentally changing elements of our current business. If we are unable to generate increased revenues or control our operating expenses going forward, our results of operations will be adversely affected.

Our sales model has evolved significantly during the past few years to keep pace with new and developing markets and changing business environments. If we have overestimated demand for our products and services in our target markets, or if we are unable to coordinate our sales efforts in a focused and efficient way, our business and prospects could be materially and adversely affected. For example, in the second quarter of 2005, our FFI business was integrated into IPG in an effort to better support the FFI product line and promote synergies between FFI and IPG technical resources. In the second quarter of 2006 IPG’s International and North American sales organizations were combined to form Worldwide Field Operations. Starting in January 2007, our corporate, product and field marketing operations were consolidated into a new Worldwide Marketing Operations organization. Other organizational changes in our sales or divisional model could have a direct effect on our results of operations depending on whether and how quickly and effectively our employees and management are able to adapt to and maximize the advantages these changes are intended to create. We cannot assure that these or other organizational changes in our sales or divisional model will result in any increase in revenues or profitability, and they could adversely affect our business.

Our results of operations may depend on the compatibility of our products with other software developed by third parties.

Our future results may be affected if our products cannot interoperate and perform well with software products of other companies. Certain leading applications currently are not, and may never be, interoperable with our products. In addition, many of our principal products are designed for use with products offered by competitors. In the future, vendors of non-Sybase products may become less willing to provide us with access to their products, technical information, and marketing and sales support, which could harm our business and prospects.

We are subject to risks arising from our international operations.

We derive a substantial portion of our revenues from our international operations, and we plan to continue expanding our business in international markets in the future. In the first quarter of 2007, revenues outside North America represented 46 percent of our total revenues. As a result of our international operations, we are affected by economic, regulatory and political conditions in foreign countries, including changes in IT spending generally, the imposition of government controls, changes or limitations in trade protection laws, unfavorable changes in tax treaties or laws, natural disasters, labor unrest, earnings expatriation restrictions, misappropriation of intellectual property, acts of terrorism, continued unrest and war in the Middle East and other factors, which could have a material impact on our international revenues and operations. Our revenues outside North America could also fluctuate due to the relative immaturity of some markets, rapid growth in other markets, the strength of local economies, the general volatility of worldwide software markets and organizational changes we have made to accommodate these conditions.

We may not receive significant revenues from our current research and development efforts for several years, if at all.

Developing and localizing software is expensive and the investment in product development often involves a long payback cycle. We have and expect to continue making significant investments in software research and development and related product opportunities. Accelerated product introductions and short product life cycles require high levels of expenditures for research and development that could adversely affect our operating results if not offset by revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. Revenues may not be realized from particular research and development expenditures and revenues which are generated may occur significantly later than when the associated research and development costs were incurred.

We might experience significant errors or security flaws in our products and services.

Despite testing prior to their release, software products may contain errors or security flaws, particularly when first introduced or when new versions are released. Errors in our software products could affect the ability of our products to work with other hardware or software products, could delay the development or release of new products or new versions of products and could adversely affect market acceptance of our products. If we experience errors or delays in releasing

29

new products or new versions of products, we could lose revenues. Our customers rely on our products and services for critical parts of their businesses and they may have a greater sensitivity to product errors and security vulnerabilities than customers for software products generally. Software product errors and security flaws in our products or services could expose us to product liability, performance and/or warranty claims as well as harm our reputation, which could impact our future sales of products and services. The detection and correction of any security flaws can be time consuming and costly.

Unanticipated changes in our tax rates could affect our future financial results.

Our future effective tax rates could be favorably or unfavorably affected by unanticipated changes in the valuation of our deferred tax assets and liabilities, the geographic mix of our revenue, or by changes in tax laws or their interpretation. In addition, we are subject to the continuous examination of our income tax returns by tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

We face exposure to adverse movements in foreign currency exchange rates.

We experience foreign exchange translation exposure on our net assets and transactions denominated in currencies other than the U.S. dollar. We do not utilize foreign currency hedging contracts to smooth the impact of converting non-U.S. dollar denominated revenues into U.S. dollars for financial reporting. Because we do not anticipate entering into currency hedges for non-U.S. dollar revenues, our future results will fluctuate based on the appreciation or depreciation of the U.S. dollar against major foreign currencies.

Due to the significance of our business conducted in currencies other than the U.S. dollar, our results of operations could be materially and adversely affected by fluctuations in foreign currency exchange rates, even though we take into account changes in exchange rates over time in our pricing strategy.

As of March 31, 2007, we had identified net assets totaling $198.8 million associated with our EMEA operations, and $87.6 million associated with our Asia Pacific and Latin America operations. Accordingly, we may experience fluctuations in operating results as a result of translation gains and losses associated with these asset and liability values. In order to reduce the effect of foreign currency fluctuations on our and certain of our subsidiaries’ balance sheets, we utilize foreign currency forward exchange contracts (forward contracts) to hedge certain foreign currency transaction exposures. Specifically, we enter into forward contracts with a maturity of approximately 30 days to hedge against the foreign exchange exposure created by certain balances that are denominated in a currency other than the principal reporting currency of the entity recording the transaction. The gains and losses on the forward contracts are intended to mitigate the gains and losses on these outstanding foreign currency transactions and we do not enter into forward contracts for trading purposes. However, our efforts to manage these risks may not be successful. Failure to adequately manage our currency exchange rate exposure could adversely impact our financial condition and results of operations.

Growing market acceptance of “open source” software could cause a decline in our revenues and operating margins.

Growing market acceptance of open source software has presented both benefits and challenges to the commercial software industry in recent years. “Open source” software is made widely available by its authors and is licensed “as is” without charge for the license itself (there may be a charge for related services or rights). We have developed certain products to operate on the Linux platform, which has created additional sources of revenues. Additionally, we have incorporated other types of open source software into our products, allowing us to enhance certain solutions without incurring substantial additional research and development costs. Thus far, we have encountered no unanticipated material problems arising from our use of open source software. However, as the use of open source software becomes more widespread, certain open source technology could become competitive with our proprietary technology, which could cause sales of our products to decline or force us to reduce the fees we charge for our products, which could have a material adverse impact on our revenues and operating margins.

Insufficient protection for our intellectual property rights may have a material adverse affect on our results of operations or our ability to compete.

We attempt to protect our intellectual property rights in the United States and in selected foreign countries through a combination of reliance on intellectual property laws (including copyright, patent, trademark and trade secret laws) and registrations of selected patent, trademark and copyright rights in selected jurisdictions, as well as licensing and other agreements preventing the unauthorized disclosure and use of our intellectual property. We cannot assure you that these

30

protections will be adequate to prevent third parties from copying or reverse engineering our products, from engaging in other unauthorized use of our technology, or from independently developing and marketing products or services that are substantially equivalent to or superior to our own. Moreover, third parties may be able to successfully challenge, oppose, invalidate or circumvent our patents, trademarks, copyrights and trade secret rights. We may elect or be unable to obtain or maintain certain protections for certain of our intellectual property in certain jurisdictions, and our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United States because of the differences in foreign laws concerning intellectual property rights. Lack of protection of certain intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition. Moreover, monitoring and protecting our intellectual property rights is difficult and costly. From time to time, we may be required to initiate litigation or other action to enforce our intellectual property rights or to establish their validity. Such action could result in substantial cost and diversion of resources and management attention and we cannot assure you that any such action will be successful.

If third parties claim that we are in violation of their intellectual property rights, it could have a negative impact on our results of operations or ability to compete.

Patent litigation involving software and telecom companies has increased significantly in recent years as the number of software and telecom patents has increased and as the number of patent holding companies has increased. We face the risk of claims that products or services that we provide have infringed the intellectual property rights of third parties. We are currently litigating with different parties regarding claims that our products or services violate their patents, we have in the past received similar claims and it is likely that such claims will be asserted in the future. For example, on July 13, 2006, Telecommunications Systems, Inc. (“TCS”) filed a complaint for patent infringement in the U.S. District Court for the Eastern District of Virginia, naming us as a defendant, among others, and alleging that the delivery of certain of our digital messaging services infringe one of TCS’s issued patents. The trial of this matter is scheduled to commence on May 14, 2007. Also, in May 2005, we received a claim from TeliaSonera alleging that iAnywhere’s product now known as Answers Anywhere Mobile Edition infringes a TeliaSonera patent issued in Finland. We are currently involved in litigation in Finland regarding the ownership of the patent. No trial date has been set. Additionally, in February 2006, two Financial Fusion product customers received claims from a patent licensing company, Ablaise, Ltd., alleging that the customers’ websites are infringing. The customers’ websites are based on our products and the customers tendered defense of the claims to us under their contractual indemnification provisions. We are currently involved in litigation in the U.S. Federal courts regarding infringement and validity of the patents. No trial date has been set. We believe that our positions in each of the matters noted above are meritorious and we intend to pursue our positions vigorously.

Regardless of whether patent or other intellectual property claims have merit, they can be time consuming and expensive to defend or settle, and can harm our business and reputation. In particular, such claims may cause us to redesign our products or services, if feasible, or cause us to enter into royalty or licensing agreements in order to obtain the right to use the necessary intellectual property. Patent claimants may seek to obtain injunctions or other permanent or temporary remedies that prevent us from offering our products or services, and such injunctions could be granted by a court before the final resolution of the merits of a claim. Our competitors in both the U.S. and foreign countries, many of which have substantially greater resources than we have and have made substantial investments in competing technologies, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make and sell our products and services. We have not conducted an independent review of patents issued to third parties. The large number of patents, the rapid rate of new patent issuances, the complexities of the technology involved and uncertainty of results and expense of potential litigation increase the risk of business assets and management’s attention being diverted to patent issues.

Laws and regulations affecting our customers and us and future laws and regulations to which they or we may become subject may harm our business.

When Sybase 365 delivers mobile messages on behalf of content owners into our network of wireless carriers, we are subject to legal, regulatory and wireless carrier requirements governing, among other things, the nature of content delivered, as well as necessary notice and disclosure to, and consent from, consumers receiving mobile messages. If we are unable to effectively prevent or detect violations of legal, regulatory or wireless carrier requirements, or otherwise unable to mitigate the effect of these violations, we may be subject to fines or the suspension or termination of some or all of our wireless carrier connections in one or more territories which could materially and adversely affect our business and results of operation. Also, we cannot predict when, or upon what terms and conditions, future regulation might occur or the effect regulation may have on our business or our markets.

Our key personnel are critical to our business, and we cannot assure that they will remain with us.

31

Our success depends on the continued service of our executive officers and other key personnel. In recent years, we have made additions and changes to our executive management team. For example, in August 2006, Thomas Volk, our Executive Vice President of International Field Operations, left us to pursue an opportunity in Germany and Steve Capelli, formerly Senior Vice President and General Manager North America Operations, was named President of Worldwide Field Operations. In connection with our acquisition of Mobile 365, Marty Beard was appointed to be the President of Sybase 365 in November 2006. In January 2007, Raj Nathan, formerly the head of IPG was named our Chief Marketing Officer, Billy Ho was promoted to head IPG’s technology operations and Mark Westover was promoted to head Corporate Development. Further changes involving executives and managers resulting from acquisitions, mergers and other events could increase the current rate of employee turnover, particularly in consulting, engineering and sales. We cannot be certain that we will retain our officers and key employees. In particular, if we are unable to hire and retain qualified technical, managerial, sales, finance and other employees it could adversely affect our product development and sales efforts, other aspects of our operations, and our financial results. Competition for highly skilled personnel in the software industry is intense. Our financial and stock price performance relative to the companies with whom we compete for employees, and the high cost of living in the San Francisco Bay Area, where our headquarters is located, could also impact the degree of future employee turnover.

Our sales to government clients subject us to risks including early termination, audits, investigations, sanctions and penalties.

We derive revenues from contracts with the United States government, state and local governments and their respective agencies, which may terminate most of these contracts at any time, without cause. Federal Government contracts may be affected by political pressure to reduce government spending. Our federal government contracts are subject to the approval of appropriations being made by the United States Congress to fund the expenditures under these contracts. Similarly, our contracts at the state and local levels are subject to government funding authorizations.

Additionally, government contracts are generally subject to audits and investigations which could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.

Changes in accounting and legal standards could adversely affect our future operating results.

During the past several years, various accounting guidance has been issued with respect to revenue recognition rules in the software industry. However, much of this guidance addresses software revenue recognition primarily from a conceptual level, and is silent as to specific implementation requirements. As a consequence, we have been required to make assumptions and judgments, in certain circumstances, regarding application of the rules to transactions not addressed by the existing rules. We believe our current business arrangements and contract terms have been properly reported under the current rules. However, if final interpretations of, or changes to, these rules necessitate a change in our current revenue recognition practices, our results of operations, financial condition and business could be materially and adversely affected.

We adopted Share-Based Payment Statement 123(R),or SFAS 123 (R) requiring companies to measure compensation cost for all share-based payments at fair value beginning January 1, 2006. This resulted in $9.8 million of share-based compensation expense net of income tax benefit for stock options and stock appreciation rights recorded during 2006. The actual effects of SFAS 123(R) depend on numerous factors including the assumptions used for the Black Scholes value model including expected volatility, term, and forfeiture rates, and the timing and amount of future share-based payments to employees.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109, or FIN No. 48. FIN 48 prescribes a recognition and measurement threshold for a tax position taken or expected to be taken in a tax return.

In addition to the changes discussed above, the U.S. Congress enacted the Sarbanes-Oxley Act of 2002 in July 2002, providing for or mandating the implementation of extensive corporate governance reforms relating to public company financial reporting, internal controls, corporate ethics, and oversight of the accounting profession, among other areas. We are also subject to additional rules and regulations, including those enacted by the New York Stock Exchange where our common stock is traded. Compliance with existing or new rules that influence significant adjustments to our business practices and procedures could result in significant expense and may adversely affect our results of operations. Failure to comply with these rules could result in delayed financial statements and might adversely impact the price of our common stock.

32

The unfavorable outcome of litigation and other claims against us could have a material adverse impact on our financial condition and results of operations.

We are subject to a variety of claims and lawsuits from time to time, some of which arise in the ordinary course of our business. Adverse outcomes in some or all of such pending cases may result in significant monetary damages or injunctive relief against us. While management currently believes that resolution of these matters, individually or in the aggregate, will not have a material adverse impact on our financial position or results of operations, the ultimate outcome of litigation and other claims are subject to inherent uncertainties, and management’s view of these matters may change in the future. It is possible that our financial condition and results of operations could be materially adversely affected in any period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable.

Our operations and financial results could be severely harmed by certain natural disasters.

Our headquarters, some of our offices, and some of our major customers’ facilities are located near major earthquake faults. We have not been able to maintain earthquake insurance coverage at reasonable costs. Instead, we rely on self-insurance and preventative safety measures. We currently ship most of our products from our Dublin, California facility near the site of our corporate headquarters. If a major earthquake or other natural disaster occurs, disruption of operations at that facility could directly harm our ability to record revenues for such quarter. This could, in turn, have an adverse impact on operating results.

Provisions of our corporate documents have anti-takeover effects that could prevent a change in control.

Provisions of our certificate of incorporation, bylaws, stockholder rights plan and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include authorizing the issuance of preferred stock without stockholder approval, prohibiting cumulative voting in the election of directors, prohibiting the stockholders from calling stockholders meetings and prohibiting stockholder actions by written consent.

33

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     (e) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the quarter ended March 31, 2007, the Company made the following repurchases of its Common Stock:

ISSUER PURCHASES OF EQUITY SECURITIES

							(d) Maximum
					(c) Total		Number (or
					Number of		Approximate
					Shares (or		Dollar Value)
					Units)		of Shares (or
	(a) Total				Purchased as		Units) that May
	Number of		(b) Average		Part of Publicly		Yet Be
	Shares (or		Price Paid per		Announced		Purchased
Period	Units)		Share (or Unit)		Plans or		Under the Plans
(2006)	Purchased (#)		($)		Programs (#)		or Programs ($)
January 1 - 31		—		—		—		—
February 1 – 28		558,336	$	25.61		558,336	$	235,498,000
March 1 – 31		171,300		25.05		171,300		231,207,000
Total		729,636	$	25.48		729,636	$	231,207,000

34

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

None.

ITEM 5: OTHER INFORMATION

On May 9, 2007, the Company’s Board of Directors approved an increase in the additional annual retainer for the Compensation Committee chairperson from $8,500 annually to $10,000 annually. This increase will effective on July 1, 2007. Other than this change, the compensation paid to the Company’s non-employee directors remains at the levels disclosed under “Non-Employee Director Compensation” in the Company’s Proxy Statement, which was mailed to the Company’s stockholders on April 30, 2007.

On May 9, 2007, the Compensation Committee of the Company’s Board of Directors amended the tax advisory services benefit for the Company’s executive officers (other than the CEO). Effective for tax services provided for the 2007 tax year, the Compensation Committee placed a $10,000 annual cap on this benefit and determined that this benefit will not be grossed up for tax purposes. Previously this benefit was uncapped and was grossed up for tax purposes.

ITEM 6: EXHIBITS

     (a) Exhibits furnished pursuant to Section 601 of Regulation S-K

The information required by this item is incorporated here by reference to the “Exhibit Index” attached to this Report on Form 10-Q.

35

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

May 9, 2007	SYBASE, INC.
	By /s/ PIETER VAN DER VORST
	Pieter Van der Vorst
	Senior Vice President and Chief Financial Officer (Principal Financial Officer)
	By /s/ JEFFREY G. ROSS
	Jeffrey G. Ross
	Vice President and Corporate Controller (Principal Accounting Officer)

36

EXHIBIT INDEX

Exhibit No.	Description
12	Computation of Ratio of Earnings to Fixed Charges
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14 or 15d-14, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14 or 15d-14, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002