Sybase 10-Q 2008 Q2 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 JUNE 30, 2008

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filerþ	Accelerated filero	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

     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 July 31, 2008, 80,477,436 shares of the Registrant’s Common Stock, $.001 par value, were outstanding.

SYBASE, INC.
FORM 10-Q

QUARTER ENDED JUNE 30, 2008

INDEX

	Page
Forward-Looking Statements	2
Part I: Financial Information
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007	3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007	4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007	5
Notes to Condensed Consolidated Financial Statements	6
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3: Quantitative and Qualitative Disclosures of Market Risk	29
Item 4: Controls and Procedures	29
Part II: Other Information
Item 1: Legal Proceedings	30
Item 1 (A) : Risk Factors	30
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 4: Submission of Matters to a Vote of Security Holders	40
Item 5: Other Information	40
Item 6: Exhibits	40
Signatures	41
Exhibit Index	42
EXHIBIT 12
EXHIBIT 31.1
EXHBIIT 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

	June 30,
	2008			December 31,
(In thousands, except share and per share data)	(Unaudited)			2007
Current assets:
Cash and cash equivalents	$	575,148		$	604,808
Short-term cash investments		4,815			93,462
Total cash, cash equivalents and short-term cash investments		579,963			698,270
Restricted cash		3,733			3,424
Accounts receivable, net		234,447			245,267
Deferred income taxes		42,088			37,979
Prepaid income taxes		—			17,604
Prepaid expenses and other current assets		32,145			25,182
Total current assets		892,376			1,027,726
Long-term cash investments		22,674			36,637
Property, equipment and improvements, net		66,186			64,841
Deferred income taxes		5,475			10,038
Capitalized software, net		81,496			74,278
Goodwill		534,110			533,339
Other purchased intangibles, net		119,606			130,608
Other assets		35,648			36,016
Total assets	$	1,757,571		$	1,913,483
Current liabilities:
Accounts payable	$	33,947		$	30,290
Accrued compensation and related expenses		58,338			63,852
Accrued income taxes		7,284			273
Other accrued liabilities		118,654			124,849
Deferred revenue		225,944			203,734
Total current liabilities		444,167			422,998
Other liabilities		46,471			44,669
Deferred income taxes		13,920			14,115
Long-term tax liability		30,807			30,807
Long-term deferred revenue		4,716			4,937
Minority interest		5,119			5,147
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 78,931,870 outstanding (2007-105,337,362 shares issued and 87,210,339 outstanding)		105			105
Additional paid-in capital		1,031,132			1,019,930
Accumulated earnings		285,346			241,329
Accumulated other comprehensive income		88,199			66,954
Cost of 26,405,492 shares of treasury stock (2007-18,127,023 shares)		(652,411	)		(397,508	)
Total stockholders’ equity		752,371			930,810
Total liabilities and stockholders’ equity	$	1,757,571		$	1,913,483

See accompanying notes.

3

SYBASE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands, except per share data)	2008			2007			2008			2007
Revenues:
License fees	$	90,515		$	77,435		$	168,639		$	146,800
Services		146,594			135,230			285,991			264,881
Messaging		45,604			32,358			88,231			63,379
Total revenues		282,713			245,023			542,861			475,060
Costs and expenses:
Cost of license fees		15,129			13,083			29,666			25,836
Cost of services		41,080			39,539			81,960			78,281
Cost of messaging		27,403			18,906			52,511			37,795
Sales and marketing		74,272			64,916			142,565			129,491
Product development and engineering		36,046			36,920			71,608			75,673
General and administrative		34,077			32,680			70,138			64,176
Amortization of other purchased intangibles		3,573			3,436			7,089			6,846
Cost (Reversal) of restructure		(8	)		(51	)		19			(47	)
Total costs and expenses		231,572			209,429			455,556			418,051
Operating income		51,141			35,594			87,305			57,009
Interest income		6,165			8,526			14,077			15,909
Interest expense and other, net		(7,041	)		(3,384	)		(11,438	)		(5,763	)
Minority interest		37			—			28			(20	)
Income before income taxes		50,302			40,736			89,972			67,135
Provision for income taxes		17,948			14,708			33,427			25,959
Net income	$	32,354		$	26,028		$	56,545		$	41,176
Basic net income per share	$	0.40		$	0.29		$	0.67		$	0.45
Shares used in computing basic net income per share		81,688			90,891			84,680			91,020
Diluted net income per share	$	0.37		$	0.28		$	0.62		$	0.44
Shares used in computing diluted net income per share		88,033			92,972			90,977			93,294

See accompanying notes.

4

SYBASE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six Months Ended
	June 30,
(Dollars in thousands)	2008			2007
Cash flows from operating activities:
Net income	$	56,545		$	41,176
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		48,859			43,238
Minority interest in income of subsidiaries		(28	)		20
(Gain) Loss on disposal of assets		(18	)		45
Impairment of investment in auction rate securities		6,285			—
Deferred income taxes		259			(2,262	)
Stock-based compensation — restricted stock		4,835			4,185
Stock-based compensation — all other		6,258			7,048
Excess tax benefit from stock-based compensation plans		(6,233	)		(2,855	)
Amortization of note issuance costs		985			985
Changes in assets and liabilities:
Accounts receivable		6,315			22,522
Prepaid income taxes		17,604			—
Other current assets		(6,960	)		(5,258	)
Other assets — operating		(696	)		2,572
Accounts payable		3,657			(669	)
Accrued compensation and related expenses		(5,514	)		(9,360	)
Accrued income taxes		6,429			8,510
Other accrued liabilities		(5,704	)		(7,786	)
Deferred revenues		21,989			21,902
Other liabilities		2,385			(552	)
Net cash provided by operating activities		157,252			123,461
Cash flows from investing activities:
Increase in restricted cash		(309	)		(10	)
Purchases of available-for-sale cash investments		(14,767	)		(165,136	)
Maturities of available-for-sale cash investments		32,027			99,487
Sales of available-for-sale cash investments		80,982			81,984
Business combinations, net of cash acquired		—			(1,531	)
Purchases of property, equipment and improvements		(16,123	)		(11,225	)
Proceeds from sale of property, equipment, and improvements		7			40
Capitalized software development costs		(27,219	)		(17,228	)
(Increase) Decrease in other assets — investing		75			(61	)
Net cash provided by (used for) investing activities		54,673			(13,680	)
Cash flows from financing activities:
Repayments of long-term obligations		(378	)		(33	)
Payments on capital lease		(220	)		(879	)
Net proceeds from the issuance of common stock and reissuance of treasury stock		33,279			19,221
Purchases of treasury stock		(300,601	)		(58,600	)
Excess tax benefit from stock-based compensation plans		6,233			2,855
Net cash used for financing activities		(261,687	)		(37,436	)
Effect of exchange rate changes on cash		20,102			9,155
Net increase (decrease) in cash and cash equivalents		(29,660	)		81,500
Cash and cash equivalents, beginning of year		604,808			355,303
Cash and cash equivalents, end of period	$	575,148		$	436,803

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, 2007 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, 2007. The results of operations for three and six months ended June 30, 2008 are not necessarily indicative of results for the entire fiscal year ending December 31, 2008.

Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157”, which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The three levels are as follows:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial condition. See Note 13 “Adoption of SFAS 157 – Fair Value Measurements” for additional disclosure on the fair values of available-for-sale securities.

Effective January 1, 2008, the Company adopted SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Company did not elect to adopt the fair value option under this Statement.

2. Stock-Based Compensation.The Company currently grants stock options, restricted stock, and stock appreciation rights through the 2003 Stock Plan. At June 30, 2008, an aggregate of 12,142,375 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, 2007.

6

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 in the Company’s results of operations for the three and six months ended June 30, 2008 and 2007.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands, except per share data)	2008			2007			2008			2007
Cost of services	$	306		$	376		$	665		$	715
Cost of messaging		127			124			218			310
Sales and marketing		1,360			1,206			2,716			2,472
Product development and engineering		733			656			1,397			1,342
General and administrative		2,856			3,121			6,097			6,394
Stock-based compensation expense included in total costs and expenses		5,382			5,483			11,093			11,233
Tax benefit related to stock-based compensation expense		(1,480	)		(1,572	)		(3,105	)		(3,037	)
Stock-based compensation expense included in net income	$	3,902		$	3,911		$	7,988		$	8,196
Reduction of net income per share:
Basic	$	0.05		$	0.04		$	0.09		$	0.09
Diluted	$	0.04		$	0.04		$	0.09		$	0.09

As of June 30, 2008, there was $48.4 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 2.5 years.

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, vested restricted stock, stock appreciation rights. 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 computation of diluted earnings per share includes the dilutive effects of the Company’s convertible subordinated debt due to the appreciation of the Company’s stock price, if any. Such computation includes a comparison of the excess, if any, of the average price of the Company’s common stock over the conversion price of $24.99 per share. The Company calculates the average stock price in accordance with the terms of the debt agreement, which states that the debt becomes convertible if the Company’s stock price exceeds 130% of the conversion price for 20 of the last 30 consecutive trading days during a quarter. The Company has consistently applied this policy to all periods in which the convertible debt had a dilutive effect on earnings per share. See Note 10 — Convertible Subordinated Notes. The following table shows the computation of basic and diluted net income per share:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except per share data)	2008		2007		2008		2007
Net income	$	32,354	$	26,028	$	56,545	$	41,176
Basic net income per share	$	0.40	$	0.29	$	0.67	$	0.45
Shares used in computing basic net income per share		81,688		90,891		84,680		91,020
Diluted net income per share	$	0.37	$	0.28	$	0.62	$	0.44
Shares used in computing basic net income per share		81,688		90,891		84,680		91,020
Dilutive effect of stock options, restricted stock and stock appreciation rights		2,295		2,081		2,247		2,274
Dilutive effect of convertible subordinated debt		4,050		—		4,050		—
Shares used in computing diluted net income per share		88,033		92,972		90,977		93,294

The anti-dilutive weighted average shares that were excluded from the shares used in computing diluted net income per share were 1.4 million and 3.8 million for the three month periods ended June 30, 2008 and 2007, respectively, and were 2.3 million and 3.7 million for the six months ended June 30, 2008 and 2007, 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.

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In thousands)	2008		2007			2008		2007
Net income	$	32,354	$	26,028		$	56,545	$	41,176
Foreign currency translation gains		494		9,372			20,375		12,449
Change in unrealized gains/(losses) on marketable securities		1,046		(26	)		870		118
Comprehensive income	$	33,894	$	35,374		$	77,790	$	53,743

7

The Company’s foreign currency translation gains 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 until realized. See Note 13 – Fair Value Measurements.

5. Segment Information. The Company was organized into three 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; iAnywhere Solutions, Inc. (iAS), which provides mobile database and mobile enterprise solutions; and Sybase 365 (SY365), 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. Until December 31, 2007, AvantGo results were reported as part of the iAS segment. Commencing on January 1, 2008, AvantGo is a part of the SY365 segment. The Company has restated all earlier periods reported to reflect this segment change.

The Company’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 Company’s 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; and the provision for income taxes are not broken out by segment. The Company 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 compensation expenses and reversals of restructuring expenses associated with restructuring activities undertaken prior to 2003. Unallocated costs for the three and six month periods ended June 30, 2008 and 2007 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 June 30, 2008 is presented below:

										Consolidated
(In thousands)	IPG		iAS		SY365		Elimination			Total
Revenues:
License fees
Infrastructure	$	64,228	$	53	$	54		—		$	64,335
Mobile and Embedded		7,920		18,260		—		—			26,180
Subtotal license fees		72,148		18,313		54		—			90,515
Intersegment license revenues		103		6,600		—	$	(6,703	)		—
Total license fees		72,251		24,913		54		(6,703	)		90,515
Services
Direct service revenue		135,469		10,619		506		—			146,594
Intersegment service revenues		58		8,600		—		(8,658	)		—
Total services		135,527		19,219		506		(8,658	)		146,594
Messaging
Direct messaging revenue		6		—		45,598		—			45,604
Intersegment messaging revenues		—		—		12		(12	)		—
Total messaging		6		—		45,610		(12	)		45,604
Total revenues		207,784		44,132		46,170		(15,373	)		282,713
Total allocated costs and expenses before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		158,429		34,634		41,346		(15,373	)		219,036
Operating income before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		49,355		9,498		4,824		—			63,677
Amortization of other purchased intangibles		527		1,023		2,023		—			3,573
Amortization of purchased technology		403		2,159		1,027		—			3,589
Operating income before cost of restructure and unallocated costs		48,425		6,316		1,774		—			56,515
Cost of restructure - 2008 Activity		33		—		—		—			33
Operating income before unallocated costs		48,392		6,316		1,774		—			56,482
Unallocated costs											5,341
Operating income											51,141
Interest income, interest expense and other, net											(876	)
Minority interest											37
Income before income taxes										$	50,302

A summary of the segment financial information reported to the CEO for the three months ended June 30, 2007 is presented below:

												Consolidated
(In thousands)	IPG			iAS		SY365			Elimination			Total
Revenues:
License fees
Infrastructure	$	52,572		$	346	$	3			—		$	52,921
Mobile and Embedded		7,789			16,725		—			—			24,514
Subtotal license fees		60,361			17,071		3	��		—			77,435
Intersegment license revenues		207			6,495		—		$	(6,702	)		—
Total license fees		60,568			23,566		3			(6,702	)		77,435
Services
Direct service revenue		123,446			10,711		1,073			—			135,230
Intersegment service revenues		147			7,275		—			(7,422	)		—
Total services		123,593			17,986		1,073			(7,422	)		135,230
Messaging		—			—		32,358			—			32,358
Total revenues		184,161			41,552		33,434			(14,124	)		245,023
Total allocated costs and expenses before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		146,545			32,652		31,468			(14,124	)		196,541
Operating income before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		37,616			8,900		1,966			—			48,482
Amortization of other purchased intangibles		527			1,046		1,863			—			3,436
Amortization of purchased technology		403			2,003		931			—			3,337
Operating income (loss) before cost of restructure and unallocated costs		36,686			5,851		(828	)		—			41,709
Reversal of restructure - 2007 Activity		(51	)		—		—			—			(51	)
Operating income (loss) before unallocated costs		36,737			5,851		(828	)		—			41,760
Unallocated costs													6,166
Operating income													35,594
Interest income, interest expense and other, net													5,142
Income before income taxes												$	40,736

9

A summary of the segment financial information reported to the CEO for the six months ended June 30, 2008 is presented below:

										Consolidated
(In thousands)	IPG		iAS		SY365		Elimination			Total
Revenues:
License fees
Infrastructure	$	120,606	$	111	$	67		—		$	120,784
Mobile and Embedded		14,158		33,697		—		—			47,855
Subtotal license fees		134,764		33,808		67		—			168,639
Intersegment license revenues		165		11,799		—	$	(11,964	)		—
Total license fees		134,929		45,607		67		(11,964	)		168,639
Services
Direct service revenue		263,602		21,312		1,077		—			285,991
Intersegment service revenues		64		16,725		—		(16,789	)		—
Total services		263,666		38,037		1,077		(16,789	)		285,991
Messaging
Direct messaging revenue		14		—		88,217		—			88,231
Intersegment messaging revenues		—		—		12		(12	)		—
Total messaging		14		—		88,229		(12	)		88,231
Total revenues		398,609		83,644		89,373		(28,765	)		542,861
Total allocated costs and expenses before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		309,293		69,281		80,410		(28,765	)		430,219
Operating income before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		89,316		14,363		8,963		—			112,642
Amortization of other purchased intangibles		1,054		2,046		3,989		—			7,089
Amortization of purchased technology		806		4,310		2,020		—			7,136
Operating income before cost of restructure and unallocated costs		87,456		8,007		2,954		—			98,417
Cost of restructure - 2008 Activity		60		—		—		—			60
Operating income before unallocated costs		87,396		8,007		2,954		—			98,357
Unallocated costs											11,052
Operating income											87,305
Interest income, interest expense and other, net											2,639
Minority interest											28
Income before income taxes										$	89,972

A summary of the segment financial information reported to the CEO for the six months ended June 30, 2007 is presented below:

												Consolidated
(In thousands)	IPG			iAS		SY365			Elimination			Total
Revenues:
License fees
Infrastructure	$	100,887		$	367	$	17			—		$	101,271
Mobile and Embedded		14,428			31,101		—			—			45,529
Subtotal license fees		115,315			31,468		17			—			146,800
Intersegment license revenues		239			12,031		—		$	(12,270	)		—
Total license fees		115,554			43,499		17			(12,270	)		146,800
Services
Direct service revenue		241,829			20,630		2,422			—			264,881
Intersegment service revenues		174			14,058		—			(14,232	)		—
Total services		242,003			34,688		2,422			(14,232	)		264,881
Messaging		—			—		63,379			—			63,379
Total revenues		357,557			78,187		65,818			(26,502	)		475,060
Total allocated costs and expenses before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		290,663			65,192		63,015			(26,502	)		392,368
Operating income before amortization of other purchased intangibles, purchased technology, cost of restructure and unallocated costs		66,894			12,995		2,803			—			82,692
Amortization of other purchased intangibles		1,054			2,092		3,700			—			6,846
Amortization of purchased technology		805			4,006		1,847			—			6,658
Operating income (loss) before cost of restructure and unallocated costs		65,035			6,897		(2,744	)		—			69,188
Reversal of restructure - 2007 Activity		(47	)		—		—			—			(47	)
Operating income (loss) before unallocated costs		65,082			6,897		(2,744	)		—			69,235
Unallocated costs													12,226
Operating income													57,009
Interest income, interest expense and other, net													10,146
Minority interest													(20	)
Income before income taxes												$	67,135

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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, 2008	$	92,192	$	110,392	$	330,755		$	533,339
Reduction in goodwill recorded on Mobile 365 acquisition		—		—		(155	)		(155	)
Foreign currency translation adjustments & other		688		238		—			926
Balance at June 30, 2008	$	92,880	$	110,630	$	330,600		$	534,110

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

	June 30, 2008							December 31, 2007
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
(In thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Purchased technology	$	170,051	$	(117,493	)	$	52,558	$	168,436	$	(108,997	)	$	59,439
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		(218	)		101		319		(165	)		154
Customer lists		104,426		(44,579	)		59,847		102,064		(38,149	)		63,915
Totals	$	281,896	$	(162,290	)	$	119,606	$	277,919	$	(147,311	)	$	130,608

The amortization expense on these intangible assets for the three months ended June 30, 2008 was $7.2 million, of which $2.6 million was included within “cost of license fees” and $1.0 million was included within “cost of messaging” on the Company’s income statement for the three months ended June 30, 2008. The amortization expense on these intangible assets for the six months ended June 30, 2008 was $14.2 million, of which $5.1 million was included within “cost of license fees” and $2.0 million was included within “cost of messaging” on the Company’s income statement for the six months ended June 30, 2008. Estimated amortization expense for each of the next five years ending December 31, is as follows (dollars in thousands):

2008	$	27,827
2009		26,812
2010		24,377
2011		18,867
2012		11,691

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. At June 30, 2008 the weighted average amortization period of the gross carrying value of other purchased intangible assets was 7.1 years.

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 approximately $1,845,000 in damages. Sybase filed a motion to set aside the jury verdict or, in the 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 approximately $1,345,000. Additional awards for legal fees and costs amounted to approximately $725,000. All amounts are accruing interest at 10% per annum. Sybase appealed the jury verdict, as well as the fee and cost awards. Plaintiff appealed 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. The California Court of Appeal issued its opinion on April 18,

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2008, in which it reversed the trial judge’s setting aside of the punitive damages, and it remanded the case back to the trial court for the limited purpose of adjusting the attorneys fees award owing to plaintiff in order to take into account time spent by them on the punitive damages issue. In all other aspects, the trial court’s judgment was affirmed by the Court of Appeal. Sybase sought review by the California Supreme Court of the Court of Appeal’s opinion arguing that the Court of Appeal had failed to follow well-established law in making its ruling, and on July 23, 2008, the California Supreme Court agreed to review the Court of Appeal decision.

On July 13, 2006, Telecommunications Systems, Inc. (“TCS”), a wireless services provider, filed a complaint for patent infringement in the U.S. District Court for the Eastern District of Virginia, alleging that Mobile 365 infringes U.S. Patent 6,985,748 (the “‘748 patent”). The matter was tried before a jury beginning on May 14, 2007. On May 25, 2007, the jury rendered its verdict, finding that Mobile 365 willfully infringed the ‘748 patent, and awarded TCS a total amount of $12.1 million. TCS filed post-trial motions for enhanced damages and attorneys’ fees, for an award of prejudgment interest, and for entry of a permanent injunction (although it requested that any injunction be stayed pending the outcome on appeal), but subsequently withdrew its request for enhanced damages for the time period prior to the verdict. Sybase 365 filed post-trial motions for a judgment in its favor as a matter of law, for reduction of the jury award, and for entry of judgment in its favor based on TCS’s inequitable conduct before the Patent and Trademark Office in obtaining the patent. The court has granted TCS’s motion for an injunction but stayed it pending the outcome on appeal, and for pre-judgment interest at the rate of prime plus 1%, compounded quarterly. The court has also partially granted Sybase’s motion for remittitur, reducing the pre-issuance damages portion of the jury award by $2.2 million. The court has not yet ruled on the other outstanding motions. If the jury award stands after the court issues its rulings on the remaining motions, Sybase 365 intends to appeal.

The November 2006 merger agreement between Sybase and Mobile 365 established an escrow which provides for indemnification of Sybase by Mobile 365’s former stockholders for certain losses related to the TCS litigation. If both parties post trial motions do not prevail and if damages are limited to the adjusted jury verdict of $9.9 million, Sybase would bear responsibility for approximately $1 million of this amount after reflecting the merger indemnification rights. Sybase believes that the escrow established by the merger agreement will be adequate to address the substantial majority of losses, if any, related to this litigation.

Since the jury’s verdict, Sybase 365 has developed a design-around so that its service for intercarrier wireless text messaging can operate in a way that avoids the infringement as found by the jury. Sybase 365 is in the process of implementing the design-around.

For a discussion of risks related to intellectual property rights and certain pending intellectual property disputes, 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 either adequately accrued or has adequate indemnification rights for these matters at June 30, 2008. 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. From the program’s inception through June 30, 2008, the Company has used an aggregate total of $767.1 million under the stock repurchase program (of the total $850 million authorized) to repurchase an aggregate total of 42.6 million shares. See Note 14 - - Self-Tender Offer.

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9. Restructuring.

The Company embarked on restructuring activities in 2004, 2002 and 2001 (the 2004, 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. 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, 2007, 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 thousands)
Restructuring plan

	2004			2002			2001			Mobile 365
Accrued liabilities at December 31, 2007	$	3,069		$	5,972		$	1,313		$	837
Amounts paid		(563	)		(1,253	)		(220	)		(542	)
Amounts added/(reversed)		61			(41	)					(106	)
Accrued liabilities at June 30, 2008	$	2,567		$	4,678		$	1,093		$	189

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 $24.99 per share adjusted 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. During the three months ended June 30, 2008, the Company’s stock price did not exceed 130% of the $24.99 per share adjusted conversion price for the required specified time. For each $1,000 principal amount of notes, the conversion value represents the amount equal to 40.02 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. See additional discussion related to changes in the conversion value in Note 14 — - Self-Tender Offer.

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 June 30, 2008 and 2007, excluding amortization of debt issuance costs totaling $0.5 million for the three months ended June 30, 2008 and 2007. The Company recognized interest expense of $4.0 million for the six months ended June 30, 2008 and 2007, excluding amortization of debt issuance costs totaling $1.0 million for the six months ended June 30, 2008 and 2007.

The Company has recorded these notes as long-term debt. Offering fees and expenses associated with the debt offering were approximately $9.8 million. The unamortized balance is included in “other assets” in the Company’s consolidated Balance Sheets at June 30, 2008 and December 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. The remaining unamortized offering fees and expenses were $3.2 million and $4.2 million at June 30, 2008 and December 31, 2007, respectively. See Note 12 – Recent Accounting Pronouncements.

11. Income Taxes. The Company’s effective tax rate was 35.7% for the three months ending June 30, 2008. The Company’s effective tax rate for the six months ending June 30, 2008 was approximately 37.2%. The decrease in the tax rate for the second quarter was largely attributable to an increase in foreign tax credits expected to be used. These rates compare to a tax rate of approximately 36% and 38.7% for the comparable three and six month periods in 2007, respectively.

The Company’s effective tax rate for the quarter and year differs from the statutory rate of 35% primarily due to the impact of state taxes, the addition of tax reserves for uncertain tax positions, and the addition of a valuation allowance for the expected non-deductibility of securities impairment losses due to capital loss limitations, offset somewhat by the deferral of certain low-tax foreign

13

earnings. In 2007, the Company’s effective tax rate for the quarter and year differed from the statutory rate of 35% primarily due to the impact of state taxes and the addition of tax reserves for uncertain tax positions offset somewhat by the deferral of certain low-tax foreign source earnings and the expected utilization during 2007 of foreign tax credits and research credits which previously carried a valuation allowance.

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 2004. The Company is under Canadian tax examination for the years 2002 through 2006. Income tax returns filed in certain other foreign jurisdictions and states are under examination. It is reasonably possible that the total amounts of unrecognized tax benefits will decrease by between $6.2 million to $6.5 million during the next 12 months due to tax settlement payments and the expiration of statute of limitations.

12. Recent Accounting Pronouncements.

FSP APB 14-1,“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion”

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Accounting Principles Board (“APB”) 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Such separate accounting also requires accretion of the resulting discount on the liability component of the debt to result in interest expense equal to an issuer’s nonconvertible debt borrowing rate. In addition, the FSP provides for certain changes related to the measurement and accounting related to derecognition, modification or exchange. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis and will be adopted by the Company in the first quarter of fiscal year 2009. The Company is assessing the potential impact that the adoption of FSP APB 14-1 may have on its consolidated results of operations and financial condition. However, it is expected that the retrospective application of these provisions effective in the first quarter of 2009 will increase the interest expense reported by the Company in prior and future periods .

SFAS 141(R),“Business Combinations”

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 141 (Revised 2007), “Business Combinations” (“FAS 141(R)”). FAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes from current practice resulting from FAS 141(R) include the expansion of the definitions of a “business” and a “business combination.” For all business combinations (whether partial, full or step acquisitions), the acquirer will record 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration will be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settlement; and acquisition-related transaction and restructuring costs will be expensed rather than treated as part of the cost of the acquisition. FAS 141(R) also establishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination. FAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is not permitted. The Company is currently evaluating the potential impact of this statement.

FSP FAS 142-3,“Determination of the Useful Life of Intangible Assets”

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, “Goodwill and Other Intangible Assets.” FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. The Company is currently evaluating the potential impact the adoption of FAS FSP 142-3 will have on its consolidated financial statements.

FSP FAS 157-2,“Effective Date of FASB Statement No. 157”

In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), to partially defer FASB Statement No. 157, “Fair Value Measurements” (“FAS 157”). FSP 157-2 defers the effective date of FAS 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008. The Company is currently evaluating the impact of adopting the provisions of FAS 157 as it relates to non-financial assets and liabilities.

14

SFAS 160, “NonControlling Interests in Consolidated Financial Statements”

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 160,“NonControlling Interests in Consolidated Financial Statements”FAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and deconsolidation of a subsidiary. The provisions of FAS 160 are effective for the fiscal year beginning January 1, 2009. The company is currently evaluating the impact of the provisions of FAS 160.

SFAS 161,“Disclosures about Derivative Instruments and Hedging Activities”

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 161,“Disclosures about Derivative Instruments and Hedging Activities.”FAS 161 amends and expands the disclosure requirements related to derivative instruments and hedging activities. The Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The provisions of FAS 161 are effective for the fiscal year beginning January 1, 2009. The Company is currently evaluating the impact of the provisions of FAS 161.

13.Fair Value Measurements

On January 1, 2008, the Company adopted SFAS 157 “Fair Value Measurements” (SFAS 157). This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of June 30, 2008 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds	$	306,892		—		—	$	306,892
Available-for-sale cash investments		150,028		—	$	22,674		172,702
Total	$	456,920		—	$	22,674	$	479,594

Money market funds are included in cash and cash equivalents on the Company’s condensed consolidated balance sheet. Level 1 available-for-sale cash investments consist of short-term bank deposits with maturities less than one year. These cash investments are included in cash and cash equivalents and short-term cash investments on the Company’s condensed consolidated balance sheet. Level 3 assets consist of six auction rate securities (ARS).

ARS are floating rate securities with longer-term maturities which were marketed by financial institutions with auction reset dates at 28 day intervals to provide short term liquidity. The underlying collateral of the ARS held by the Company consist primarily of commercial paper, debt instruments issued by governmental agencies and governmental sponsored entities, Euro dollar deposits, banker acceptances, repurchase agreements, money funds, auction rate securities, collateralized debt obligations, and similar assets. Certain of the ARS may have limited direct or indirect investments in mortgage or mortgage related securities. The credit ratings for five of the ARS were AAA and for one of the ARS was AA at the time of purchase. Beginning in August 2007 and into September 2007, each of the ARS auctions began to fail due to a lack of market for these securities. In June, 2008 the credit ratings of four of the ARS were changed from AAA to AA. The credit rating on a fifth ARS was lowered from AA to A. The failed auctions have resulted in higher interest rates being earned on these investments than if the auctions had not failed, but the investments currently lack short-term liquidity. The Company will not be able to access these funds until a future auction for the ARS investments is successful or until the Company sells the securities in a secondary market which currently does not exist.

In the quarter ended March 31, 2008, the Company concluded that three of the six ARS were other than temporarily impaired and had recorded an impairment loss of $3.3 million in its consolidated statement of operations for the quarter ended March 31, 2008. In the quarter ended June 30, 2008, the Company concluded that the remaining three ARS were also other than temporarily impaired and recorded an impairment loss of $3.0 million in its consolidated statement of operations related to these impairments as well as additional declines in the ARS previously deemed to be other than temporarily impaired. The determination of whether each ARS is other than temporarily impaired is based on a variety of factors including (i) the quality and estimated value of the investments held by the trust/issuer; (ii) the financial condition and credit rating of the trust, issuer, sponsors, and insurers; and, (iii) the frequency of the auction function failing. Changes in these and other factors could result in additional realized impairment losses. Based on the Company’s cash, cash equivalents and cash investment balances of $602.6 million as of June 30, 2008 and expected operating cash flows, the Company does not anticipate that the lack of liquidity for the ARS will adversely affect its ability to conduct business.

The fair values of the ARS as of June 30, 2008 are based on an estimation employing a discounted cash flow model for each of the six ARS using credit related discount rates and term to recovery as key inputs. The Company has classified ARS as long-term cash investments on its

15

balance sheet. The following table provides a summary of changes in fair value of the Company’s Level 3 financial assets as of June 30, 2008 (in thousands):

	Auction Rate
	Securities
Balance at December 31, 2007	$	27,364
Reversal of unrealized loss in accumulated other comprehensive income		1,595
Impairment loss included in interest expense and other, net		(6,285	)
Balance at June 30, 2008	$	22,674

14. Self-Tender Offer. On February 25, 2008 the Company agreed with one of its stockholders, Sandell Asset Management Corp. (Sandell) to undertake a self-tender offer to purchase $300 million worth of its common stock at a price between $28.00 and $30.00 per share in a modified Dutch auction. On April 15, 2008, the Company completed the self-tender offer and purchased 10.7 million shares of its common stock for a purchase price of $28.00 per share or a total cost of $300 million. The Company also incurred costs of approximately $0.5 million to undertake the self-tender offer. These costs are included in “Cost of treasury stock” in the Company’s consolidated Balance Sheets at June 30, 2008.

As a result of the completion of the self tender, the Conversion Rate for the Notes has been adjusted from 39.6511 shares of the Company’s Common Stock per $1,000 principal amount of Notes to 40.02 shares of the Company’s Common Stock per $1,000 principal amount of Notes.

15. Subsequent Events. On July 8, 2008, the Company entered into an agreement with Cable & Wireless giving the Company exclusive worldwide rights to market and sell mobile data roaming services. The Company also acquired the Cable & Wireless international inter-operator MMS hubbing service. The mobile date roaming services and MMS hubbing service will be integrated into the SY365 segment. The total cash outlay to Cable & Wireless is an estimated $37 million over three years.

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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, 2007.

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, 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.

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.

Our Results

We reported total revenues of $282.7 million for the three months ended June 30, 2008, which represented a $37.7 million (15 percent) increase from total revenues of $245.0 million for the same period last year. The year-over-year increase in revenues for the three-month period was primarily attributable to a $23.6 million (13 percent) increase in the IPG segment and a $12.7 million (38 percent) increase in the mobile messaging services segment.

The increase in IPG revenues was attributable to a 19 percent increase in license revenue and a 10 percent increase in service revenue. The overall increase in IPG license revenue was attributable to a 22 percent increase in database license revenues, largely fueled by robust demand for our Adaptive Server^® Enterprise (ASE) 15.0 product and continued strong growth from our IQ analytics server. Our Sybase 365 segment continued to see strong growth in messaging volume and greater adoption of messaging as an effective means for enterprises to reach their customers. We believe this growth in messaging traffic and the adoption by the enterprise will continue to benefit our Sybase 365 messaging segment.

The $2.6 million (6 percent) increase in iAS revenue resulted primarily from a 6 percent increase in license revenue and a 7 percent increase in service revenue. Our iAnywhere platform continues to garner accolades for its market leadership from the likes of Gartner

17

and IDC. Currently, Sybase is the only vendor to be rated as a leader in three enterprise mobility categories: multi-access gateways, enterprise mobile email, and mobile device management & security. We have also been a long-time leader in the mobile and embedded database market.

For the first six months of fiscal 2008, our total revenues were $542.8 million compared to $475.1 million for the same six month period in 2007. This $67.8 million overall increase is primarily attributable to a $41.1 million increase in the IPG segment and a $23.6 million increase in the mobile messaging services segment. These increases were attributable to the same general factors that generated our revenue growth in the second quarter.

We reported net income of $32.4 million for the second quarter of 2008, compared to net income of $26.0 million for the same period last year. The increase in our overall net income was driven by greater net income in each of our business segments, with the largest increase attributable to our IPG segment. Our overall operating margin for the second quarter of 2008 was 18.1 percent compared to 14.5 percent for the same period in 2007. Our revenue growth in both licenses and services drove this improvement in operating margin.

During the three months ended June 30, 2008, foreign currency exchange rate changes from the same period last year resulted in an increase of approximately 7 percent our revenues and approximately 4.3 percent in our operating expenses.

Our overall financial position remains strong. During the second quarter we generated net cash from operating activities of $62.7 million, and had $606.4 million in cash, cash equivalents and cash investments (including restricted cash) at June 30, 2008. Our days sales outstanding in accounts receivable was 75 days for the quarter ended June 30, 2008 compared to 72 days for the quarter ended June 30, 2007.

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

Business Trends

Our business activity and pipeline was strong in the second quarter of 2008. While we are aware of concerns regarding the macro economic environment, we have not noted a meaningful impact on our business. We do see some indications that 2008 IT budgets may be constricted for certain companies in the financial services industry where we have a significant market share and presence. Notwithstanding the statement above, however, we have not noted a change in buying patterns to date for these customers and remain cautiously optimistic that our business will not be materially impacted.

We continue to see a proliferation of enterprise data and greater customer willingness to invest resources on new data integration initiatives and analytic solutions. These solutions contributed to a year over year increases of 41 percent in license revenue from these products during the first half of 2008. 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. In the second quarter we launched our risk analytics platform (RAP) built on IQ, which is targeted to the financial service industry for risk, trading and compliance analytics. Our pipeline for RAP is building nicely, and we believe it will help contribute to future growth of our IQ product.

The overall 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 overall growth potential for this segment. We continue to maintain, however, a strong pipeline for enterprise infrastructure products especially continued high demand for ASE. During the quarter we added 234 new ASE customers.

With respect to the market for mobility and integration products primarily sold by our iAS segment, we believe these products continue to gain market acceptance and will provide us with growth opportunities in the future. For the remainder of 2008 we believe we are supported by a strong product cycle with our refreshed iAnywhere product platform that will continue to drive growth in the iAS segment. We also see a growing pipeline of OEM opportunities for our embedded database, and increasing interest in extending enterprise level data to handheld devices which we believe supports and validates our Unwired Enterprise initiative.

With respect to the market for messaging services sold by our Sybase 365 segment, we believe that our inter-carrier messaging business will see 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 the application messaging industry. To handle this demand, we are expanding our data center capacity and disaster-recovery capabilities, add connectors from our new customers to our network and develop new services.

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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.

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, 2007 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. We believe that during the first six months of 2008 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.

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, 2007.

Recent Accounting Pronouncements

FSP APB 14-1,“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion”

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Accounting Principles Board (“APB”) 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Such separate accounting also requires accretion of the resulting discount on the liability component of the debt to result in interest expense equal to an issuer’s nonconvertible debt borrowing rate. In addition, the FSP provides for certain changes related to the measurement and accounting related to derecognition, modification or exchange. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis and will be adopted by us in the first quarter of fiscal year 2009. We are evaluating the potential impact that the adoption of FSP APB 14-1 may have on our consolidated results of operations and financial condition. However, it is expected that the application of these provisions will increase the interest expense we report.

SFAS 141(R),“Business Combinations”

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 141 (Revised 2007), “Business Combinations” (“FAS 141(R)”). FAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes from current practice resulting from FAS 141(R) include the expansion of the definitions of a “business” and a “business combination.” For all business combinations (whether partial, full or step acquisitions), the acquirer will record 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration will be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settlement; and acquisition-related transaction and restructuring costs will be expensed rather than treated as part of the cost of the acquisition. FAS 141(R) also establishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination. FAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is not permitted. We are currently evaluating the potential impact of this statement.

FSP FAS 142-3,“Determination of the Useful Life of Intangible Assets”

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, “Goodwill and Other Intangible Assets.” FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. We are currently evaluating the potential impact the adoption of FAS FSP 142-3 will have on our consolidated financial statements.

FSP FAS 157-2,“Effective Date of FASB Statement No. 157”

In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), to partially defer FASB Statement No. 157, “Fair Value Measurements” (“FAS 157”). FSP 157-2 defers the effective date of FAS

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157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008. We are currently evaluating the impact of adopting the provisions of FAS 157 as it relates to non-financial assets and liabilities.

SFAS 160, “NonControlling Interests in Consolidated Financial Statements”

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 160,“NonControlling Interests in Consolidated Financial Statements”FAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and deconsolidation of a subsidiary. The provisions of FAS 160 are effective for the fiscal year beginning January 1, 2009. We are currently evaluating the impact of the provisions of FAS 160.

SFAS 161,“Disclosures about Derivative Instruments and Hedging Activities”

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 161,“Disclosures about Derivative Instruments and Hedging Activities.”FAS 161 amends and expands the disclosure requirements related to derivative instruments and hedging activities. The Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The provisions of FAS 161 are effective for the fiscal year beginning January 1, 2009. We are currently evaluating the impact of the provisions of FAS 161.

Results of Operations

Revenues
(Dollars in millions)

	Three Months ended June 30,									Six Months ended June 30,
							Percent									Percent
	2008			2007			Change			2008			2007			Change
License fees by segment:
IPG	$	72.3		$	60.6			19	%	$	134.9		$	115.6			17	%
IAS		24.9			23.5			6	%		45.6			43.5			5	%
SY365		0.0			0.0			*			0.1			0.0			*
Eliminations		(6.7	)		(6.7)			*			(12.0	)		(12.3	)		(2	%)
Total license fees	$	90.5		$	77.4			17	%	$	168.6		$	146.8			15	%
Percentage of total revenues		32	%		32	%					31	%		31	%
Services by segment:
IPG	$	135.5		$	123.6			10	%	$	263.7		$	242.0			9	%
IAS		19.2			18.0			7	%		38.0			34.7			10	%
SY365		0.5			1.0			(50	%)		1.1			2.4			(54	%)
Eliminations		(8.6	)		(7.4	)		16	%		(16.8	)		(14.2	)		18	%
Total services	$	146.6		$	135.2			8	%	$	286.0		$	264.9			8	%
Percentage of total revenues		52	%		55	%					53	%		56	%
Messaging by segment:
SY365	$	45.6		$	32.4			41	%	$	88.2		$	63.4			39	%
Total messaging	$	45.6		$	32.4			41	%	$	88.2		$	63.4			39	%
Percentage of total revenues		16	%		13	%					16	%		13	%
Total revenues	$	282.7		$	245.0			15	%	$	542.8		$	475.1			14	%

* Not meaningful

License revenues increased $13.1 million (17 percent) for the three months ended June 30, 2008 compared to the same period last year. The increase in license revenues during the quarter was primarily attributable to an $11.7 million (19 percent) increase in IPG license revenues and a $1.4 million (6 percent) increase in iAS license revenues. The increase in IPG license revenues was driven by a 38 percent increase in the database license revenues, namely our IQ and Adaptive Server Enterprise Products, and an 18 percent increase in revenues from our Replication Server. The increase in iAS license revenues was largely attributable to a 65 percent increase in revenue associated with our SQL NT product and a 43 percent increase in revenue associated with our Afaria product.

License revenues increased $21.8 million (15 percent) for the first six months ended June 30, 2008 compared to the same period last year. The increase in license revenues was primarily attributable to a $19.4 million (17 percent) increase in IPG license revenues along with a $2.1 million (5 percent) increase in iAS license revenues. The increase in IPG license fees was driven by a 28 percent increase in database license revenues and a 49 percent increase in Replication Server revenues. The increase in iAS revenues was driven by a 61 percent increase in SQL NT license revenues and a 15 percent increase in Afaria revenues.

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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 $11.4 million (8 percent) and $21.1 million (8 percent) for the three and six months ended June 30, 2008, respectively, compared to the same periods in 2007. For the three months ended June 30, 2008 the increase in services revenues was primarily due to an $11.9 million (10 percent) increase in IPG service revenues. The increase was primarily in technical support revenues. For the six months ended June 30, 2008 the increase in service revenues was primarily due to a $21.7 million (9 percent) increase in IPG service revenues. This increase was primarily in technical support revenues.

Total technical support revenues increased $19.5 million (9 percent) for the six months ended June 30, 2008 compared to the same period in 2007. Technical support revenues comprised approximately 79 percent of total services revenues for the six month period ended June 30, 2008 as well as for the six month period ending June 30, 2007. Current and long-term deferred revenue balances recorded in the balance sheet relate principally to technical support contracts and increased $22.0 million (11 percent) from December 31, 2007 to June 30, 2008. This change is comparable to a $21.9 million (11 percent) increase for the same six month period in 2007 and follows seasonal patterns.

Professional services increased $0.8 million (3 percent) and $3.1 million (6 percent) for the three and six month periods ending June 30, 2008, respectively, compared to the same periods in 2007. Education revenues increased $0.3 million (11 percent) and declined $0.1 million (2 percent) during the three and six month periods ended June 30, 2008, respectively, compared to the same period in 2007.

Messaging revenues increased $13.2 million (41 percent) and $24.9 million (39 percent) for the three and six months ended June 30, 2008, respectively, compared to the same periods in 2007. We have experienced a significant increase in the volume of messaging traffic that we deliver. The increase relates to expansion of SMS and MMS messaging by our enterprise customers and subscribers of our domestic and international mobile carriers.

Geographical Revenues
(Dollars in millions)

	Three Months ended June 30,									Six Months ended June 30,
	2008			2007			Percent Change			2008			2007			Percent Change
North American	$	135.8		$	130.8			4	%	$	267.7		$	254.9			5	%
Percentage of total revenues		48	%		53	%					49	%		54	%
Total Outside North America	$	146.9		$	114.2			29	%	$	275.1		$	220.2			25	%
Percentage of total revenues		52	%		47	%					51	%		46	%
International: EMEA (Europe, Middle East and Africa)	$	103.4		$	77.6			33	%	$	195.4		$	149.5			31	%
Percentage of total revenues		37	%		32	%					36	%		31	%
Intercontinental: (Asia Pacific and Latin America)	$	43.5		$	36.6			19	%	$	79.7		$	70.7			13	%
Percentage of total revenues		15	%		15	%					15	%		15	%
Total revenues	$	282.7		$	245.0			15	%	$	542.8		$	475.1			14	%

North American revenues (United States, Canada and Mexico) increased $5.0 million (4 percent) for the three months ended June 30, 2008 compared to the same period last year. The increase was primarily due to the $5.1 million (49 percent) increase in messaging revenue compared to the same period in 2007. For the six months ended June 30, 2008, North American revenues increased $12.8 million (5 percent) compared to the same period last year. This was primarily due to an $8.0 million (37 percent) increase in messaging revenue and a $5.0 million (7 percent) increase in license revenue compared to the same period last year.

International revenues comprised 52 percent and 47 percent of total revenues for the three months ended June 30, 2008 and 2007, respectively. International revenues comprised 51 percent and 46 percent of total revenues for the six months ended June 30, 2008 and 2007, respectively.

EMEA (Europe, Middle East and Africa) revenues for the three months ended June 30, 2008 increased $25.8 million (33 percent) compared to the three months ended June 30, 2007. The increase was due primarily to a $9.5 million (43 percent) increase in license revenues, a $7.9 million (20 percent) increase in service revenues, and a $7.4 million (42 percent) increase in messaging revenues. License revenue increases in the UK and Germany, service revenue increases in the UK, Germany, and Holland, and messaging

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revenue increases in France contributed most to the overall increase in the second quarter of 2008. Revenues for the six months ended June 30, 2008 increased $45.9 million (31 percent) compared to the six months ended June 30, 2007. The increase was primarily due to a $13.8 million (31 percent) increase in license revenues, a $14.3 million (19 percent) increase in service revenues, and a $15.5 million (46 percent) increase in messaging revenues.

Intercontinental (Asia Pacific and Latin America) revenues for the three months ended June 30, 2008 increased $6.9 million (19 percent) compared to the three months ended June 30, 2007. The increase was primarily attributable to a $4.4 million (26 percent) increase in license revenues, and a 1.7 million (11 percent) increase in services revenues. These increases were primarily driven by license and service revenues in Japan. Revenues for the six months ended June 30, 2008 increased $9.0 million (13 percent) compared to the six months ended June 30, 2007. The increase was primarily due to a $2.9 million (9 percent) increase in license revenues, a $4.8 million (16 percent) increase in service revenues, and a $1.3 million (16 percent) increase in messaging revenues.

In EMEA and the Intercontinental regions, most revenues and expenses are denominated in local currencies. During the three months ended June 30, 2008, foreign currency exchange rate changes from the same period last year resulted in approximately an $18.5 million (7 percent) increase in our revenues and a $9.7 million (4 percent) increase in our operating expenses. During the six months ended June 30, 2008 foreign currency exchange rate changes from the same period last year resulted in a $33.5 million (7 percent) increase in our revenues and a $19.1 million (4 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).

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Costs and Expenses
(Dollars in millions)

	Three Months ended June 30,									Six Months ended June 30,
							Percent									Percent
	2008			2007			Change			2008			2007			Change
Cost of license fees	$	15.1		$	13.1			15	%	$	29.7		$	25.8			15	%
Percentage of license fees revenues		17	%		17	%					18	%		18	%
Cost of services	$	41.1		$	39.5			4	%	$	82.0		$	78.3			5	%
Percentage of services revenues		28	%		29	%					29	%		30	%
Cost of messaging	$	27.4		$	18.9			45	%	$	52.5		$	37.8			39	%
Percentage of messaging revenues		60	%		58	%					60	%		60	%
Sales and marketing	$	74.3		$	64.9			14	%	$	142.6		$	129.5			10	%
Percentage of total revenues		26	%		26	%					26	%		27	%
Product development and engineering	$	36.0		$	36.9			(2	%)	$	71.6		$	75.7			(5	%)
Percentage of total revenues		13	%		15	%					13	%		16	%
General and administrative	$	34.1		$	32.7			4	%	$	70.1		$	64.2			9	%
Percentage of total revenues		12	%		13	%					13	%		14	%
Amortization of other purchased intangibles	$	3.6		$	3.4			6	%	$	7.1		$	6.8			4	%
Percentage of total revenues		1	%		1	%					1	%		1	%
Cost (Reversal) of restructure	$	(0.0	)	$	(0.1	)		*		$	0.0		$	(0.0	)		*
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 $15.1 million and $29.7 million for the three and six months ended June 30, 2008, up from $13.1 million and $25.8 million for the three and six months ended June 30, 2007, respectively. Such costs were 17 and 18 percent of license revenues for the three and six months ended June 30, 2008 as compared to 17 and 18 percent for the same periods in 2007, respectively. The increase in the cost of license fees in absolute dollar amounts was primarily due to an increase in amortization of capitalized software development costs. The amortization of capitalized software development costs was $10.1 million and $20.1 million for the three and six months ended June 30, 2008 compared to $8.1 million and $16.3 million for the three and six months ended June 30, 2007, respectively. The increase in capitalized software amortization for the three and six months ended June 30, 2008 was due to the commencement of amortization of capitalized costs associated with certain data management products including a certain option to our ASE database. The amortization of purchased technology included in cost of license fees was $2.6 million and $5.1 million for the three and six months ended June 30, 2008 compared to $2.4 million and $4.8 million for the three and six months ended June 30, 2007. The increase in amortization of purchased technology for the three and six months ended June 30, 2008 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 $41.1 million and $82.0 million for the three and six months ended June 30, 2008 as compared to $39.5 million and $78.3 million for the same periods in 2007, respectively. These costs were 28 percent and 29 percent of services revenues for the three and six months ended June 30, 2008, respectively. This compares with 29 and 30 percent of services revenues for the three and six months ending June 30, 2007, respectively. The increase in cost of services in absolute dollars for the three and six months ended June 30, 2008 is primarily due to an increase in payroll and related costs.

Cost of Messaging. Costs of messaging consist primarily of (1) fees payable to non-domestic wireless operators for delivering traffic into their networks; (2) fully burdened cost of personnel who manage and monitor network datacenters; (3) depreciation, fees and other costs associated with the network datacenters; and (4) amortization of purchased technology used internally by the Sybase 365 segment. Costs of messaging for the three and six months ended June 30, 2008 totaled $27.4 million and $52.5 million compared to $18.9 million and $37.8 million for the same periods in 2007, respectively. Cost of messaging has increased in absolute dollars as a result of the increased volume of messages delivered. Cost of messaging has increased slightly as a percentage of revenue primarily due to a shift in traffic mix to higher cost services. The amortization of purchased technology was $1.0 million for the three months ended June 30, 2008 and $2.0 million for the six months ended June 30, 2008. This compares to $0.9 million for the three months ended June 30, 2007 and $1.8 million for the six months ended June 30, 2007.

Sales and Marketing.Sales and marketing expenses were $74.3 million and $142.6 million for the three and six months ended June 30, 2008 as compared to $64.9 million and $129.5 million for the same periods last year, respectively. These costs were 26 percent of total revenues for the three and six month periods ended June 30, 2008 as compared to 26 percent and 27 percent for the same periods ended June 30, 2007, respectively. The increase in sales and marketing expenses in absolute dollars for the three and six month periods ending June 30, 2008 is due primarily to increases in salaries, benefits and increased commissions associated with increases in license revenues.

23

Product Development and Engineering.Product development and engineering expenses (net of capitalized software development costs) were $36.0 million and $71.6 million for the three and six months ended June 30, 2008 as compared to $36.9 million and $75.7 million for the same period last year. These costs were 13 percent of total revenues for the three and six month periods ending June 30, 2008 as compared to 15 percent and 16 percent of total revenues for the three and six months ended June 30, 2007, respectively. The decrease in product development and engineering costs in absolute dollars for the three and six months ended June 30, 2008 is primarily due to an increase in capitalized software costs.

We capitalized approximately $12.9 million and $25.9 million of software development costs for the three and six months ended June 30, 2008 compared to $8.8 million and $17.1 million for the three and six months ended June 30, 2007. For the three months ended June 30, 2008, capitalized software costs included costs incurred for efforts associated with options for ASE, SQL Anywhere 11.0, UEP Phase I, and certain options for Sybase IQ.

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, which include IT, legal, business operations, finance, human resources and administrative functions, were $34.1 million and $70.1 million for the three and six months June 30, 2008 as compared to $32.7 million and $64.2 million for the three months ended June 30, 2007. These costs represented 12 percent and 13 percent of total revenues for the three and six months ended June 30, 2008 as compared to 13 percent and 14 percent of total revenues for the three and six months ended June 30, 2007, respectively. The increase in general and administrative expenses in absolute dollars for the three and six months ended June 30, 2008 was primarily due to additional legal and other professional fees as well as increases in salaries and benefits related to annual performance evaluations, and additional headcount.

Amortization of Other Purchased Intangibles.Amortization of other purchased intangibles primarily reflects the amortization of the established customer lists 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 lists and other intangible assets associated with our acquisition of Extended Systems in 2005 and the amortization of the established customer lists associated with our acquisition of Mobile 365 in 2006. The increases in amortization of other purchased intangibles for the three and six month periods ended June 30, 2008 compared to the same period in the prior year are insignificant.

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 – Restructuring, Part I, Item I.

Operating Income
(Dollars in millions)

	Three Months ended June 30,									Six Months ended June 30,
							Percent									Percent
	2008			2007			Change			2008			2007			Change
Operating income by segment:
IPG	$	48.4		$	36.7			32	%	$	87.4		$	65.1			34	%
IAS		6.3			5.9			7	%		8.0			6.9			16	%
SY365		1.8			(0.8	)		*			3.0			(2.8	)		*
Unallocated costs		(5.4	)		(6.2	)		(13	%)		(11.1	)		(12.2	)		(9	%)
Total operating income:	$	51.1		$	35.6			44	%	$	87.3		$	57.0			53	%
Percentage of total revenues		18	%		15	%					16	%		12	%

* Not meaningful

Operating income was $51.1 million and $87.3 million for the three and six months ended June 30, 2008 compared to operating income of $35.6 million and $57.0 million for the three and six months ended June 30, 2007. The increase in operating income for the three and six months ended June 30, 2008 is primarily due to the various factors discussed under “Revenues”, “Geographical Revenues” and “Costs and Expenses” above. Segment operating income includes the revenues and expenses described in Note 5 to the Condensed Consolidated Financial Statements — Segment Information, Part I, Item I.

Consolidated operating margins improved to 18 percent and 16 percent for the three and six month periods ended June 30, 2008 from 15 percent and 12 percent for the same periods in the prior year, respectively. The increases in operating margin are primarily due improvements in operating margin of each segment discussed below.

The operating margin for the IPG segment was 23 percent and 22 percent for the three and six months ended June 30, 2008 compared

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to 20 percent and 18 percent for the three and six months ended June 30, 2007. The increase in operating margin in the IPG segment for the three and six months ended June 30, 2008 was primarily due to IPG revenue increasing at approximately twice the rate of IPG expenses. The increase in revenue for the three and six months ended June 30, 2008 is primarily due to the various factors discussed under “Revenues” and “Geographical Revenues” above.

The operating margin for the iAS segment was 14 percent and 10 percent for the three and six months ended June 30, 2008 compared to 14 percent and 9 percent for the same periods in 2007, respectively. The increase in the iAS segment operating margin was primarily due to the increase in total revenue for the three and six month periods ending June 30, 2008. The increases in revenues for the three and six month periods were primarily due to the various factors discussed under “Revenues” and “Geographical Revenues” above. Until December 31, 2007, AvantGo results were reported as part of the iAS segment. Commencing on January 1, 2008, AvantGo is a part of the SY365 segment. We have restated all earlier periods reported to reflect this segment change.

The operating margin for the Sybase 365 segment for the three and six month periods ended June 30, 2008 was 4 percent and 3 percent compared to a negative 2 percent and negative 4 percent for the same periods in 2007, respectively.

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 and six month periods ended June 30, 2008 consisted primarily of stock-based compensation expenses.

During the three and six months ended June 30, 2008, foreign currency exchange rate changes from the same periods last year resulted in $8.8 million and $14.3 million improvement in operating profits, respectively.

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

	Three Months ended June 30,									Six Months ended June 30,
							Percent									Percent
	2008			2007			Change			2008			2007			Change
Interest income	$	6.2		$	8.5			(27	%)	$	14.1		$	15.9			(11	%)
Percentage of total revenues		2	%		3	%					3	%		3	%
Interest expense and other, net	$	(7.0	)	$	(3.4	)		106	%	$	(11.4	)	$	(5.8	)		97	%
Percentage of total revenues		(2	%)		(1	%)					(2	%)		(1	%)
Minority interest		*			*			*			*			*			*
Percentage of total revenues		*			*						*			*

* Not meaningful

Interest income decreased to $6.2 million and $14.1 million for the three and six months ended June 30, 2008 compared to $8.5 million and $15.9 million for the same periods last year. Interest income consists primarily of interest earned on our investments. The decrease in interest income in the three and six month periods in 2008 is primarily due to a decrease in the cash balances invested . Our invested cash balances decreased as a result of our $300 million repurchase of 10.7 million shares of common stock during April, 2008 offset by cash provided from operations.

Interest expense and other, net, primarily includes: impairment charges related to investments in auction-rate securities (ARS); 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; and bank fees. Interest expense and other, net was an expense of $7.0 million and $11.4 million for the three and six months ended June 30, 2008 as compared to expense of $3.4 million and $5.8 million for the three and six months ended June 30, 2007. The increase in interest expense and other, net in the second quarter of 2008 compared to the same quarter in 2007 is primarily due to the impairment loss associated with our investment in auction rate securities of $3.0 million and $6.3 million for the three and six months ended July 30, 2008, respectively.

In the quarter ended June 30, 2008, we concluded the remaining three of the six ARS held by us were other than temporarily impaired. As such, we have concluded all six of our ARS are other than temporarily impaired. Correspondingly, we recorded an impairment loss of $3.0 million in the consolidated statement of operations bringing our year-to-date impairment losses for ARS to $6.3 million. ARS are floating rate securities with longer-term maturities which are marketed by financial institutions with auction reset dates at 28 day intervals to provide short term liquidity. The underlying collateral of the ARS held by us consist primarily of commercial paper, debt instruments issued by governmental agencies and governmental sponsored entities, Euro dollar deposits, banker acceptances, repurchase agreements, money funds, auction rate securities, collateralized debt obligations, and similar assets. Certain of the ARS may have limited direct or indirect investments in mortgage or mortgage related securities. The credit ratings for five of the ARS were

25

AAA and for one of the ARS was AA at the time of purchase. Beginning in August 2007 and into September 2007, each of the ARS auctions began to fail due to a lack of market for these securities. In June, 2008 the credit ratings of four of the ARS were changed from AAA to AA. The credit rating on a fifth ARS was lowered from AA to A. The failed auctions have resulted in higher interest rates being earned on these investments than if the auctions had not failed, but the investments currently lack short-term liquidity. We will not be able to access these funds until a future auction for the ARS investments is successful or until we sell the securities in a secondary market which currently does not exist.

In the quarter ended March 31, 2008, we concluded that three of the six ARS were other than temporarily impaired and had recorded an impairment loss of $3.3 million in its consolidated statement of operations for the quarter ended March 31, 2008. In the quarter ended June 30, 2008, we concluded that the remaining three ARS were also other than temporarily impaired and recorded an impairment loss of $3.0 million in its consolidated statement of operations related to these impairments as well as additional declines in the ARS previously deemed to be other than temporarily impaired. The determination of whether each ARS is other than temporarily impaired is based on a variety of factors including (i) the quality and estimated value of the investments held by the trust/issuer; (ii) the financial condition and credit rating of the trust, issuer, sponsors, and insurers; and, (iii) the frequency of the auction function failing. Changes in these and other factors could result in additional realized impairment losses. Based on our cash, cash equivalents and cash investment balances of $602.6 million as of June 30, 2008 and expected operating cash flows, we do not anticipate that the lack of liquidity for the ARS will adversely affect its ability to conduct business.

Provision for Income Taxes
(Dollars in millions)

	Three Months ended June 30,							Six Months ended June 30,
					Percent							Percent
	2008		2007		Change			2008		2007		Change
Provision for income taxes	$	17.9	$	14.7		22	%	$	33.4	$	26.0		28	%

Our effective tax rate was 35.7% for the three months ending June 30, 2008. Our effective tax rate for the six months ending June 30, 2008 was approximately 37.2%. The decrease in the tax rate for the second quarter was largely attributable to an increase in foreign tax credits expected to be used upon repatriation of certain foreign dividends. These rates compare to a tax rate of approximately 36.0% and 38.7% for the comparable three and six month periods in 2007, respectively.

Our effective tax rate for the quarter and year differs from the statutory rate of 35.0% primarily due to the impact of state taxes, the addition of tax reserves for uncertain tax positions, and the addition of a valuation allowance for the expected non-deductibility of securities impairment losses due to capital loss limitations, offset somewhat by the deferral of certain low-tax foreign earnings. In 2007, our effective tax rate for the quarter and year differed from the statutory rate of 35% primarily due to the impact of state taxes and the addition of tax reserves for uncertain tax positions offset somewhat by the deferral of certain low-tax foreign source earnings and the expected utilization during 2007 of foreign tax credits and research credits which previously carried a valuation allowance. See Condensed Consolidated Financial Statements, Note 11 — Income Taxes.

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

	Three Months ended June 30,									Six Months ended June 30,
							Percent									Percent
	2008			2007			Change			2008			2007			Change
Net income	$	32.4		$	26.0			25	%	$	56.5		$	41.2			37	%
Percentage of total revenues		11	%		11	%					10	%		9	%
Basic net income per share	$	0.40		$	0.29			38	%	$	0.67		$	0.45			49	%
Diluted net income per share	$	0.37		$	0.28			32	%	$	0.62		$	0.44			41	%
Shares used in computing basic net income per share		81.7			90.9			(10	%)		84.7			91.0			(7	%)
Shares used in computing diluted net income per share		88.0			93.0			(5	%)		91.0			93.3			(2	%)

* Not meaningful

We reported net income of $32.4 million and $56.5 million for the three and six months ended June 30, 2008 compared to net income of $26.0 million and $41.2 million for the same periods last year. The increase in net income for the three and six months ended June 30, 2008 is due to the various factors discussed above.

Basic net income per share was $0.40 and $0.67 for the three and six months ended June 30, 2008 as compared to $0.29 and $0.45 for the same periods in 2007. Diluted net income per share was $0.37 and $0.62 for the three and six months ended June 30, 2008 as compared to $0.28 and $0.44 for the same periods in 2007.

Shares used in computing basic and diluted net income per share decreased 10 percent and 5 percent, respectively, for the three

26

months ended June 30, 2008 as compared to the same period in 2007. For the six months ended June 30, 2008, shares used in computing basic and diluted net income per share decreased 7 percent and 2 percent, respectively, as compared to the same periods in 2007. The decreases were due primarily to shares repurchased in accordance with a self-tender offer to repurchase $300 million of common stock offset somewhat by the exercises of employee stock options and increases in shares that may be issued to holders of our convertible debt.

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 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 $24.99 per share, the adjusted conversion price. In the second quarter of 2008, the average of the high closing prices during a specified number of trading days exceeded the $24.99 threshold. As a result, approximately 4.0 million shares were assumed to be converted and included in the calculation of the fully diluted shares outstanding, resulting in an impact of approximately two cents to our diluted earnings per share. See Note 10 to Condensed Consolidated Financial Statements — Convertible Subordinated Notes; Part I, Item I.

Liquidity and Capital Resources
(Dollars in millions)

	SixMonths Ended June 30,
						Percent
	2008		2007			Change
Working capital	$	448.2	$	487.6			(8	%)
Cash and cash equivalents	$	575.1	$	436.8			32	%
Net cash provided by operating activities	$	157.3	$	123.5			27	%
Net cash provided by (used for) investing activities	$	54.7	$	(13.7	)		*
Net cash used for financing activities	$	261.7	$	37.4			600	%

* Not meaningful

At June 30, 2008 our cash, cash equivalents and long-term cash investments, excluding restricted cash totaled $602.7 million, a $132.2 million decrease from December 31, 2007. While we generated $157.3 million in cash from operations during that period, the decline relates to our $300 million self-tender offer completed in the second quarter. Our days sales outstanding in accounts receivable was 75 days for the quarter ended June 30, 2008 compared to 72 days for the quarter ended June 30, 2007. The increase in days sales outstanding was driven by an increase in days sales outstanding for the Sybase 365 segment offset by a reduction in days sales outstanding for the rest of Sybase. 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 and more volatile DSO than those of the remainder of the Sybase business.

Net cash provided by investing activities was $54.7 million for the six months ended June 30, 2008 compared to a $13.7 million use of cash for the six months ended June 30, 2007. The increase in net cash provided by investing activities is primarily due to a decline in purchases of cash investments during the six months ended June 30, 2008.

Net cash used for financing activities was $261.7 million for the six months ended June 30, 2008 compared to a $37.4 million use of cash for the six months ended June 30, 2007. The increase in cash used for financing activities is primarily due to a $300.1 million increase in the repurchase of our common stock during the six months ended June 30, 2008.

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 June 30, 2008, aggregate amounts purchased under the Stock Repurchase Program totaled $767.1 million. During the six months ended June 30, 2008, we repurchased 6,000 shares at a cost of $0.1 million compared to 2.4 million shares at a cost of $58.6 million during the six months ended June 30, 2007.

On April 26, 2006 our Board of Directors approved a $250 million increase to our Stock Repurchase Program. Approximately $82.9 million remained available in the Stock Repurchase Program at June 30, 2008.

On April 15, 2008, we completed a self-tender offer using a modified Dutch auction process and purchased 10.7 million shares of our common stock for $28 per share at a total cost of $300 million.

On July 1, 2008 we entered into an agreement to acquire certain assets from Cable and Wireless (see Note 15 “Subsequent Events”). Except for the matters noted above, there have been no other significant changes to the other contractual obligations we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.

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At June 30, 2008 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 or incur additional debt to fund such activities in the future.

We engage in global business operations and are therefore exposed to foreign currency fluctuations. As of June 30, 2008, we had identifiable net assets totaling $330.8 million associated with our European operations and $117.7 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).

Short-term and Long-term Cash Investments and Auction-Rate Securities

Short-term and long-term cash investments consist principally of commercial paper, corporate bonds, U.S. and Canadian government obligations, and U.S. government sponsored enterprise obligations with maturities between 90 days and up to three years.

As of June 30, 2008, long-term cash investments totaling $22.7 million include six auction rate securities (ARS) with an aggregate par value of $28.9 million. As of June 30, 2008, the other-than-temporary impairment associated with these six ARS represented an aggregate par value of $22.7 million totaled $6.3 million.

ARS are floating rate securities with longer-term maturities which were marketed by financial institutions with auction reset dates at 28 day intervals to provide short term liquidity. The underlying collateral of the ARS held by us consist primarily of commercial paper, debt instruments issued by governmental agencies and governmental sponsored entities, Euro dollar deposits, banker acceptances, repurchase agreements, money funds, auction rate securities, collateralized debt obligations, and similar assets. Certain of the ARS may have limited direct or indirect investments in mortgage or mortgage related securities. The credit ratings for five of the ARS were AAA and for one of the ARS was AA at the time of purchase. Beginning in August 2007 and into September 2007, each of the ARS auctions began to fail due to a lack of market for these securities. In June, 2008 the credit ratings of four of the ARS were changed from AAA to AA. The credit rating on a fifth ARS was lowered from AA to A. The failed auctions have resulted in higher interest rates being earned on these investments than if the auctions had not failed, but the investments currently lack short-term liquidity. We will not be able to access these funds until a future auction for the ARS investments is successful or until we sell the securities in a secondary market which currently does not exist.

In the quarter ended March 31, 2008, we concluded that three of the six ARS were other than temporarily impaired and had recorded an impairment loss of $3.3 million in its consolidated statement of operations for the quarter ended March 31, 2008. In the quarter ended June 30, 2008, we concluded that the remaining three ARS were also other than temporarily impaired and recorded an impairment loss of $3.0 million in its consolidated statement of operations related to these impairments as well as additional declines in the ARS previously deemed to be other than temporarily impaired. The determination of whether each ARS is other than temporarily impaired is based on a variety of factors including (i) the quality and estimated value of the investments held by the trust/issuer; (ii) the financial condition and credit rating of the trust, issuer, sponsors, and insurers; and, (iii) the frequency of the auction function failing. Changes in these and other factors could result in additional realized impairment losses. Based on our cash, cash equivalents and cash investment balances of $602.6 million as of June 30, 2008 and expected operating cash flows, we do not anticipate that the lack of liquidity for the ARS will adversely affect its ability to conduct business.

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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. Assets and liabilities of our foreign subsidiaries are translated at the exchange rate in effect on the balance sheet date. Revenue, costs and expenses are translated at average rates of exchange in effect during the period. We report translation gains and losses as a separate component of stockholders’ equity. We include net gains and losses resulting from foreign exchange transactions in our statement of operations.

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. 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 June 30, 2008 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 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 June 30, 2008 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 June 30, 2008 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 second quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

29

PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The material set forth in Note 7 of Notes to Condensed Consolidated Financial Statements - Litigation 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. 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 second quarter of 2007 when we refused to accept certain terms in a large transaction, which delayed the closing of this transaction from the second quarter of 2007 to the third quarter of 2007, but resulted in better terms for us.

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.

Economic and credit market 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 strength in the worldwide economy our revenues for the quarter ending June 30, 2008 exceeded revenues for the quarter ending June 30, 2007 by 15 percent. If the U.S. and worldwide 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. Continued weakness in the credit markets and financial services industry may also impact our revenues. While we have not noted a change in buying patterns by financial services customers, the financial services industry is one of the largest markets for our products and services and decreased demand from this industry would adversely affect our revenues and operating results.

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

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 customers, or suppliers, computer software, hardware or networks, and our connections and outsourced service arrangements with third parties.

Sybase 365’s systems and operations may also be 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 contractual performance and other liabilities.

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 technology 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.

We may encounter difficulties in completing 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, in July 2008 we entered into an agreement to acquire Cable & Wireless’ international inter-operator MMS hubbing service and to have the exclusive rights to market and sell mobile data roaming services. In November 2006 we acquired Mobile 365, Inc in an all cash transaction with a purchase price of $418 million. In addition, 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

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acquired certain assets of iFoundry, a privately-held company. In August 2007 we acquired Coboplan, a privately-held Japanese 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 acquisitions and investments. Acquisitions may not further our business strategy or we may pay more for acquired companies or assets than they may prove to be 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 do not amortize goodwill but evaluate goodwill recorded in connection with acquisitions at least annually for impairment. As of June 30, 2008, we had approximately $534.1 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.

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. 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, either internally developed or resulting from acquisitions, 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.

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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 2007 we refused to accept certain terms in a large transaction, which delayed the closing of this transaction from the second quarter of 2007 to the third quarter of 2007, but resulted in better terms for us. 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.

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.

Impairments in our investment portfolio may result in temporary and/or realized losses.

As of June 30, 2008 we had an aggregate par value of $28.9 million invested in six auction rate securities (ARS). The underlying collateral of the ARS held by us consist primarily of commercial paper, debt instruments issued by governmental agencies and governmental sponsored entities, Euro dollar deposits, banker acceptances, repurchase agreements, money funds, auction rate securities, collateralized debt obligations, and similar assets. Certain of the ARS may have limited direct or indirect investments in mortgage or mortgage related securities. As of June 30, 2008, the other-than-temporary impairment associated with these ARS totaled $6.3 million.

The credit and capital markets have continued to deteriorate in 2008. If uncertainties in these markets continue, these markets deteriorate further or we experience any additional ratings downgrades on any investments in our portfolio (including on ARS), we may incur additional impairments to our investment portfolio, which could negatively affect our financial condition, cash flow and reported earnings.

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

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 June 30, 2008. 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.

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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 second quarter of 2008, revenues outside North America represented 52 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, 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 international operations also require that we comply with, any could have liabilities due to, US laws that may not apply to companies that operate only in the United States, including the Foreign Corrupt Practices Act and export control laws. 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 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.

We are subject to risks related to the terms of our 1.75% Convertible Subordinated Notes.

In February 2005 we issued $460 million in convertible subordinated notes (“notes”) in a private offering to qualified institutional buyers. The notes bear interest at 1.75% and are subordinated to all of our future senior indebtedness. The notes mature in February

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2025 unless earlier redeemed by us at our option, or converted or put to us by the holders of the notes. We may redeem all or a portion of the notes at par on and after March 1, 2010. The holders may require that we 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 our stock price exceeds 130% of the $24.99 per share adjusted conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter, (ii) in certain change in control transactions, (iii) if the notes are redeemed by us, (iv) in certain specified corporate transactions, and (v) when the trading price of the notes does not exceed a minimum price level. During the three months ended June 30, 2008, our stock price did not exceed 130% of the $24.99 per share adjusted conversion price for the required specified time. For each $1,000 principal amount of notes, the conversion value represents the amount equal to 40.02 shares multiplied by the per share price of our common stock at the time of conversion. If the conversion value exceeds $1,000 per $1,000 in principal of notes, we 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 our election.

If our stock price exceeds 130% of the $24.99 per share adjusted conversion price for the specified period in any subsequent fiscal quarter or the notes are otherwise convertible under the notes’ terms, and the holders of the notes elect to convert the notes, we will be required to repay up to all of the notes’ $460 million in principal amount in cash and must pay cash, or a combination of cash and stock, the amount by which the converted notes exceed the principal amount of the notes. At the time of such conversion we may have insufficient financial resources or may be unable to arrange financing to pay for the conversion value of all notes tendered for conversion.

The conversion feature of the notes also serves to reduce our diluted net income per share. In periods when our stock price exceeds the notes’ $24.99 per share adjusted conversion price, we must include the shares that may be issued to the holders of the notes in the shares included in our diluted net income per share. In the second quarter of 2008, approximately 4.0 million shares were assumed to be converted and included in the calculation of fully diluted shares outstanding, resulting in an impact of approximately two cents per share to our diluted earnings per share. The reduction in our diluted earnings per share attributable to shares attributable to the assumed conversion of the notes may adversely impact the market price of our common stock.

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 June 30, 2008, we had identified net assets totaling $330.8 million associated with our EMEA operations, and $117.7 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.

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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 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. As an example, Sybase filed a complaint against Vertica Systems, Inc., on January 30, 2008 in the Eastern District of Texas, alleging infringement of Sybase’s patent #5,794,229 (“Database System with Methodology for Storing a Database Table by Vertically Partitioning All Columns of the Table”). 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. See Footnote 7 in the Notes to the Condensed Consolidated Financial Statements for a discussion of our patent litigation with Telecommunications Systems, Inc. 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 (although Ablaise later withdrew that charge as to one of the two). Financial Fusion filed a declaratory judgment action against Ablaise in the Northern District of California which is ongoing. The customers’ websites are or were based in part on our products and the customers tendered defense of the claims to us under their contractual indemnification provisions. In August 2007 Sybase (along with 20 other defendants, including Microsoft and IBM) was sued by JuxtaComm Technologies, a Canadian company, for infringement of its US patent 6,195,662 (“System for Transforming and Exchanging Data Between Distributed Heterogeneous Computer Systems”). We are in the process of assessing the claims and potential defenses for this matter. 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

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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 or telecommunications licenses in one or more territories which could materially and adversely affect our business and results of operation. Such suspension or termination may also result in loss of current and potential customers and expose us to potential customer liability. 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.

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 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. In November 2007, Pieter Van der Vorst, our Chief Financial Officer relocated to London to be our Senior Vice President and General Manager for the EMEA region and Jeff Ross, our Corporate Controller became our Chief Financial Officer. Additionally, Keith Jensen, our current senior director became our Corporate Controller at that time. 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.

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. We adopted FIN No. 48 on January 1, 2007. It had no material effect on our financial statements.

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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.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Accounting Principles Board (“APB”) 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Such separate accounting also requires accretion of the resulting discount on the liability component of the debt to result in interest expense equal to an issuer’s nonconvertible debt borrowing rate. In addition, the FSP provides for certain changes related to the measurement and accounting related to derecognition, modification or exchange. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis and will be adopted by us in the first quarter of fiscal year 2009. Our current accounting and reporting related to our convertible debt instruments are in accordance with current accounting rules. If final interpretations of, or changes to, these rules necessitate a change in our current practices, our previously reported and future results of operations could be adversely affected.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 141 (Revised 2007), “Business Combinations” (“FAS 141(R)”). FAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes from current practice resulting from FAS 141(R) include the expansion of the definitions of a “business” and a “business combination.” For all business combinations (whether partial, full or step acquisitions), the acquirer will record 100% of all assets and liabilities of the acquired business, including goodwill, generally at their fair values; contingent consideration will be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settlement; and acquisition-related transaction and restructuring costs will be expensed rather than treated as part of the cost of the acquisition. FAS 141(R) also establishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination. FAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is not permitted. We are currently evaluating the potential impact of this statement.

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 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.

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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 June 30, 2008, we made the following repurchases of our 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
(2008)	Purchased (#)		($)		Programs (#)		or Programs ($)
April 1 — 30		10,714,285	$	28.04		—	$	82,913,000
May 1 — 31		—		—		—		—
June 1 — 30		—		—		—		—
Total		10,714,285	$	28.04		—	$	82,913,000

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

None.

ITEM 5: OTHER INFORMATION

None.

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.

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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.

August 8, 2008	SYBASE, INC.
	By	/s/ JEFFREY G. ROSS
		Jeffrey G. Ross
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)
	By	/s/ KEITH JENSEN
		Keith Jensen
		Vice President and Corporate Controller (Principal Accounting Officer)

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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

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