SY Sybase, Inc.

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

OR

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 or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, $.001 par value per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value

Preferred Share Purchase Rights

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ      No o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o      No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ       No o

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

      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 filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o      No þ

     As of June 30, 2008, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $2,331,561 based on the closing sale price as reported on the New York Stock Exchange.

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

Class		Outstanding at February 13, 2009
Common Stock, $.001 par value per share		81,021,153 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document		Parts Into Which Incorporated
Annual Report to Stockholders for the Fiscal Year Ended December 31, 2008 (Annual Report)		Parts I, II, and IV
Proxy Statement for the Annual Meeting of Shareholders to be held April 14, 2009 (Proxy Statement)		Part III

 

 

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This annual 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 global economic and credit market conditions; software industry sales trends; customers willingness to renew their technical support agreements; market acceptance of the Company’s products and services; possible disruptive effects of organizational or personnel changes; shifts in our business strategy; interoperability of our products with other software products; system failures or other issues that impact our ability to deliver mobile messages; the success of certain business combinations engaged in by us or by competitors; political unrest or acts of war; customer and industry analyst perception of the Company and its technology vision and future prospects; 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 II, Item 7 of this Annual Report on Form 10-K.

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 at www.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 is www.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 Annual Report on Form 10-K.

Sybase, Adaptive Server Enterprise, Advantage Database Server, Afaria, Avaki, AvantGo, Extended Systems, Financial Fusion, iAnywhere, iAnywhere Solutions, Information Anywhere, Information Anywhere Suite, Mirror Activator, Mobile 365, PowerBuilder, PowerDesigner, RAP — The Trading Edition, Remoteware, Replication Server, SQL Anywhere, Sybase 365, XTNDConnect, XcelleNet, are trademarks of Sybase, Inc. or its subsidiaries. All other names may be trademarks of the companies with which they are associated.

PART I

ITEM 1. BUSINESS

With 2008 annual revenue exceeding $1.1 billion dollars, Sybase is the only global enterprise software and services company exclusively focused on managing and mobilizing information. With our global solutions, enterprises can extend their information securely and make it useful for people anywhere using any device. Sybase’s vision is to enable the Unwired Enterprise, where business-critical information can be securely moved back and forth from the data center to the end device, and delivered to the right person anytime, anywhere. Sybase solutions, combined with our global access and network, allow enterprises unparalleled reach to the broadest base of users and subscribers.

Sybase delivers mission-critical enterprise software to manage, analyze and mobilize information. We are globally recognized as a performance leader, proven in the most data-intensive industries and across all systems, networks and devices. Sybase was founded and incorporated in California on November 15, 1984, and was re-incorporated in Delaware on July 1, 1991.

During 2008, our business was organized into three principal operating segments, Infrastructure Platform Group (IPG), iAnywhere Solutions (iAS) and Sybase 365 (Sybase 365). Below is a brief description of the business of each division:

           • Infrastructure Platform Group (IPG) focuses on software infrastructure for managing and analyzing information. IPG offers two lines of enterprise class data servers: Adaptive Server ^® Enterprise (ASE) a relational database management system for mission-critical transactions and Sybase IQ, a specialized column-based analytics server for business intelligence applications such as accelerated reporting, advanced analytics and analytics services. IPG also produces solutions for data movement including the Sybase Replication Server ^® and the Sybase Mirror Activator™ for disaster recovery. IPG products also include PowerDesigner ^® , a leading modeling tool, and PowerBuilder ^® , a leading Rapid Application Development (RAD) tool. IPG also offers vertical information management solutions for financial services. Sybase RAP — The Trading Edition is a unified market analytics platform that lets capital markets firms make better trading and portfolio decisions across the trade lifecycle. IPG also offers a line of products that enable banks to provide account access and payment initiation on behalf of their consumer, small business and corporate clients over the internet. During 2008, the products of IPG accounted for approximately 72 percent of our license revenue.

           • iAnywhere Solutions (iAS) enables success at the front lines of business. iAS holds worldwide market leadership positions in mobile device management, wireless email, mobile middleware platforms, database and synchronization, and Bluetooth and infrared protocol technologies. Tens of millions of mobile devices, millions of subscribers, and 20,000 customers and partners rely on iAS’s “Always Available” technologies, including Sybase Unwired Platform, SQL Anywhere ^® , Afaria ^® and iAnywhere Mobile Office. The products of iAS accounted for approximately 28 percent of our license revenue in 2008.

           • Sybase 365 is the world leader in mobile messaging services. Sybase 365 services range from SMS (Short Messaging Service), MMS (Multimedia Messaging Service), GRX (GPRS Roaming Exchange) mobile messaging interoperability to mobile content delivery and mobile commerce services, for operators, brands and content providers, enterprises and financial institutions. Sybase 365 delivers advanced mobile services to its customers by addressing the inherent complexities of the wireless ecosystem: incompatible networks, messaging protocols, handsets, and billing systems. Sybase 365 holds worldwide market leadership positions in inter-operator messaging, mobile commerce and enterprise messaging. In order to deliver services, Sybase 365 utilizes an operator-grade, secure messaging platform connected via a global private network of IP and SS7 connections to more than 700 mobile operators worldwide. Sybase 365 offers customers unparalleled subscriber reach (more than three billion mobile subscribers) supported by high quality of service and worldwide message delivery, billing, and settlement capabilities.

A summary of financial results for these divisions is found in Note Ten to Consolidated Financial Statements, Part II, Item 8.

UNWIRED ENTERPRISE

We define the Unwired Enterprise as an enterprise that uses information technology to create the seamless flow of information from the data center to any device. An Unwired Enterprise breaks down information technology barriers and delivers critical information and applications to employees, partners, and customers, to any platform, device or network, anytime, anywhere. The benefits for enterprises becoming an Unwired Enterprise are substantial. An Unwired Enterprise is more efficient, more productive, and better able to capitalize on new opportunities because information is moved to the point of action, increasing its relevance and enhancing the power of decisions and transactions.

To enable the Unwired Enterprise, Sybase offers a cohesive platform that leverages our core strength in data management, analytics, market leading mobile solutions and operator-grade network infrastructure. This platform provides unique opportunities for Sybase to deliver ongoing value to the enterprise market, while at the same time addressing emerging high-growth markets, such as analytics, mobile banking and mobile commerce leveraging Sybase’s global enterprise reach and mobile messaging capabilities.

CUSTOMERS

Our customers are primarily Fortune 1000 companies in North America and their equivalents around the globe. No single customer accounted for more than 10 percent of total revenues during 2008, 2007 or 2006. In 2008 our customers included:

	•		A large digital advertising network uses Sybase ASE Cluster Edition to ensure continuous availability across high-demand systems and to provide cost-efficient consolidation of its data center. Using Sybase ASE Cluster Edition, this customer can now easily manage its environment using virtual resource management technology to provide expected service levels.
	•		One of the world’s largest medical device companies developed a sales force automation solution using Sybase. The company supplies thousands of field representatives with a complete mobility solution that includes Sybase’s device management, security, mobile database and data synchronization technology. The company chose Sybase to support the daily operations requirements of the sales force and to enable it to scale this foundation for future requirements.
	•		A global financial services company uses Sybase RAP — The Trading Edition to execute its long-term strategic trading mission. To take this long-view, this bank gathers vast amounts of trade data for ongoing analysis. With Sybase RAP — The Trading Edition, this trading operation can process enough data in real-time to support its model development and validation to make smart, profitable decisions.
	•		A bank-owned entity processing billions of credit card transactions uses Sybase IQ to manage its massive data loads and to provide real-time performance insights to the organization. With Sybase IQ, complex, ad hoc queries rapidly supply on-demand information to users and houses more archive data cost-effectively.
	•		India’s leading power utility uses Sybase 365 SMS messaging service to offer two-way mobile utility services to its customers, enhancing its CRM processes. Providing SMS connectivity, Sybase empowers utility customers to take advantage of a variety of services via SMS, including: receipt of their electricity bill, billing alerts, disconnection alerts, and alerts of power shutdowns before they occur, and service issue tracking. The utility now has a cost effective and efficient way to update its customers on any reported faults, and to minimize inbound and outbound calls to its call center

PRODUCTS AND SERVICES

Depending on the product, Sybase offers products on an on-premise license model or as hosted services. On-premise license products are available on hardware platforms manufactured by Dell, Hewlett-Packard, IBM, Sun Microsystems, and others. We also make products that connect these platforms to other hardware platforms with large installed bases. These products are also available for a wide range of operating systems including various UNIX environments, Windows, Windows NT, and Linux. Sybase 365 offerings are available as hosted services. A description of our principal products and service offerings follows:

Infrastructure Platform Group (IPG)

Sybase Adaptive Server Enterprise (ASE) is a powerful data management platform for high performance business applications especially in large database, high-transaction, mission-critical environments. Sybase ASE combines a low total cost of ownership with excellent reliability, security, and scalability. Sybase ASE 15 key features include patented encryption, partitioning for scalability and new patent-pending query technology for “smarter” transactions, increased performance and enhanced support for unstructured data management. Sybase ASE Cluster Edition combines the benefits of ASE with support for continuous availability on a system comprising of multiple machines connected in a cluster.

Sybase IQ is a column-oriented analytics server optimized for outstanding query performance for high volumes of both structured and unstructured data in business intelligence applications such as accelerated reporting, advanced analytics and analytics services. Sybase IQ, which holds the record for the world’s largest data warehouse at one petabyte of data, improves analytic performance by up to 100x over traditional solutions while lowering storage and maintenance costs.

Sybase RAP — The Trading Edition ™ is a unified market analytics platform that lets capital markets firms make better trading and portfolio decisions across the trade lifecycle. From better model development to real-time trade and risk analytics to multi-year historical quantitative analysis, Sybase RAP is optimized to support the most demanding analytics requirements. It supports and integrates trade processing applications, such as risk management and algorithmic trading, throughout the trade life-cycle. Sybase RAP enables customers to respond more quickly to market events and increases real-time decision making capability.

Sybase Replication Server ^® is a premier data movement product that supports multiple data management platforms including Sybase ASE, Oracle, Microsoft, IBM DB2 and mainframes. It provides bi-directional, heterogeneous distribution, consolidation and synchronization of data across the enterprise. The product supports a number of uses such as reporting without impacting operational systems, data distribution and consolidation for workload management and business continuity.

Sybase Mirror Activator is a disaster recovery solution that improves the economics of high-end storage replication systems by reducing network costs, accelerating recovery time and guaranteeing data integrity. It also extends the usefulness of standby systems by utilizing them for reporting and decision support.

Sybase PowerDesigner is a leading data-modeling and application design tool for enterprises that need to build or re-engineer applications quickly, cost-effectively and consistently (also sold as Sybase PowerAMC).

Sybase PowerBuilder is an industry-leading rapid application development (RAD) tool that increases developer productivity through tight integration of design, modeling, development, and management.

Sybase Financial Fusion Banking Solutions enable financial institutions to offer multiple-delivery channel support to their consumer, small business, and large corporate clients. Features include account

access, banking, cash management services, imaging, bill payment and presentment, customer care, and mobile banking application support.

iAnywhere Solutions (iAS)

SQL Anywhere is an industry leading mobile and embedded solution providing data management and data synchronization technologies that operate in frontline environments without onsite IT support. It offers enterprise-caliber features in databases that are easily embedded and widely deployed in server, desktop, remote office and mobile application environments. SQL Anywhere data synchronization technologies extend information in corporate applications and enterprise systems to databases running in frontline environments.

Advantage Database Server ™ provides both ISAM table-based and SQL-based data access, enabling application developers to easily chart a growth path for legacy database applications to today’s modern techniques.

Afaria is frontline management software that allows companies to centrally manage and secure devices used by workers at the front lines of business, such as sales people and service technicians. Afaria goes beyond traditional systems management software to help companies secure devices, automate processes and manage software, content and data whenever workers have a connection. Afaria supports a broad range of frontline devices, including handhelds, smart phones, laptops and tablets.

iAnywhere Mobile Office is a flexible and powerful solution that lets enterprises securely extend email and business processes to mobile workers. It combines rich infrastructure support with enhanced on-device security, usability and performance. iAnywhere Mobile Office offers key features that provide the foundation for a company’s “mobile inbox of the future,” that enables the ability to take action on time-sensitive business processes, such as approving purchase orders or submitting reports, all through a single, secure mobile email client

Sybase Unwired Platform is a mobile enterprise application platform that simplifies the development, deployment and management of mobile enterprise applications. It addresses the difficult mobile application challenges of back office integration, secure access for mobile devices into the enterprise, reliable push data synchronization, and support for multiple device types.

RemoteWare ^® is an industry leader in polling, file transfer, and content distribution, RemoteWare supports a broad range of frontline systems and networking options, and supports both classic POS devices and contemporary software environments.

Standards-based SDKs iAS provides standards-based software development kits (SDKs) for implementing protocol stack technologies for infrared, Bluetooth, data synchronization and device management. In addition, XTNDConnect ^® PC is a software application that allows users to synchronize contacts, calendar, tasks, email and notes between mobile devices and popular PC applications such as Microsoft Outlook and ACT! Over the past 10 years, iAS embedded SDKs have been used in hundreds of product designs resulting in tens of millions of iAS-enabled products deployed into the market.

Sybase 365

Operator Services are focused on SMS, MMS and GRX (data roaming) messaging interoperability between mobile operators worldwide. Sybase 365 is a global leader in interoperability services. Messages are delivered through a secure operator-grade messaging platform, with advanced protocol conversion, routing, queuing, and transcoding capabilities. Sybase 365 interoperability service reaches over 700 mobile operators, with over 300 direct two-way SMS destinations — greatly simplifying the deployment and delivery of inter-operator messaging over incompatible networks, protocol stacks, and handsets. Services include robust traffic analysis and detailed reporting and statistics.

Enterprise Services Sybase 365 is the premier provider of mobile services for enterprises, brand and content providers, enabling customers to monetize premium mobile content and deliver interactive services,

mobile advertising and mobile marketing campaigns globally. A high volume delivery infrastructure ensures messages, content and applications get delivered by SMS and MMS regardless of their final destination. Services include MMS 365, content delivery gateway to send and receive MMS from multiple sources; application and content management, mobile advertising services, global billing, settlement, reporting and analysis.

mBanking Services Sybase 365 is at the forefront of mobile banking, with the only product that offers a single connection to complete, multi-channel mobile banking solutions with SMS, mobile browser, and rich-client on a single platform. Multi-channel support, universal alerts engine, unique interactive natural language — intelligent SMS — banking and built-in operator connectivity, enable financial institutions to launch mbanking services quickly and easily. Sybase is a trusted partner for some of the world’s biggest banks with over 20 years experience in providing integrated services to more than 200 of the world’s leading financial institutions. Coupled with Sybase 365’s mobile banking expertise as the leading provider of mobile services (SMS, MMS) for financial corporations worldwide, Sybase 365 is uniquely placed to enable banks to realize the potential of mobile banking.

AvantGo ^® is a free, ad-supported service that delivers rich, personalized mobile websites to smartphones, PDAs, and mobile browsers. Today, major brands and media publishers, including Dell, CNET, Rolling Stone and The New York Times, leverage AvantGo to target a highly desirable demographic of registered users with mobile content and mobile advertising. AvantGo offers the convenience of anywhere, anytime access, seamlessly supporting both wireless and “sync and go” connectivity.

WORLDWIDE SERVICES

Technical Support. Our Customer Service and Support organization offers technical support for our family of IPG and iAS products. We currently maintain regional support centers in North America, South America, Europe, and Asia Pacific that can provide 24 x 7 technical services in all time zones around the world. Our end users and partners have access to technical information sources and newsgroups on our support website, including a “solved cases” database, and software fixes that can be downloaded. Generally, customers can choose technical support programs that best suit their business needs. All of the following support programs are priced on a percentage of net license fee basis and include updates and new version releases that become available during the support period.

           • Standard Support is designed for high quality around the clock support for critical issues, access to new releases and online support services.

           • Enterprise Support offers personalized high-availability support for companies with mission-critical projects. Services include priority access to the Enterprise Technical Team, proactive services, and other specialized options. Enterprise Support provides the highest priority of response times.

In addition to the above support offerings, we offer several support services options geared toward developers for designated workplace level and tools products. These programs are priced on a flat-fee annual basis with updates and new version releases available for purchase separately for an additional annual fee. iAS also offers support programs to end users priced on a flat-fee annual basis with updates and new version releases available for purchase separately for an additional fee.

Our IPG and iAS business divisions also offer a variety of support services to their partners and resellers.

Sybase 365 operates two 24x7x365 Network Operations Centers (NOCs), one in Singapore and the other in the United States. The NOCs monitor our messaging service infrastructure, direct and monitor global maintenance and repair activities, and provide direct technical support to our customers. Additionally, Sybase 365 maintains two 24x7x365 customer care facilities, one in Dublin, Ireland and one in Mumbai, India, that supports customer requests and services inquiries in 6 languages (English, French, Italian, Spanish, German and Mandarin).

Consulting. The Sybase Professional Services (SPS) organization offers customers comprehensive consulting, education and integration services designed to optimize their business solutions using both Sybase IPG, iAS products, Sybase mBanking 365 and non-Sybase products. Service offerings include assistance with data and system migration, custom application design and development, implementation, performance improvement, knowledge transfer and system administration.

Education. We provide a broad education curriculum allowing customers and partners to increase their proficiency in our IPG and iAS products. Basic and advanced courses are offered at Sybase education centers throughout North America, South America, Europe, and Asia Pacific (including Australia and New Zealand). Specially tailored customer classes and self-paced training are also available. A number of our distributors and authorized training providers also provide education in our products

SALES AND DISTRIBUTION

Licensing and Services Model. Consistent with software industry practice, we do not sell or transfer title to our IPG and iAS software products to our customers. Instead, customers generally purchase non-exclusive, nontransferable perpetual licenses in exchange for a fee that varies depending on the mix of products and services, the number and type of users, the number of servers and/or cpu’s, and the type of operating system. License fees range from several hundred dollars for single user desktop products to several million dollars for solutions that can support hundreds or thousands of users. We also license many of our products for use in connection with customer applications on the Internet. Our products and services are offered in a wide variety of configurations depending on each customer’s needs and hardware environment. In the case of Sybase 365, we sell hosted, turn-key messaging solutions where revenue is generated primarily on a per message or transactional basis.

Distribution Method. Sybase products and services are sold through our direct sales organizations and our indirect IPG and iAS sales channels. “Indirect sales channels” include value added resellers (VARs), systems integrators (SIs), original equipment manufacturers (OEMs) and international distributors and resellers.

International Business. In 2008, 50 percent of our total revenues were from operations outside North America, with operations in EMEA (Europe, Middle East and Africa) accounting for 35 percent, and operations in our Intercontinental region (Asia Pacific and Latin America) accounting for 15 percent. Most of our international sales are made by our foreign subsidiaries. However, certain sales are made in international markets from the United States. We also license our IPG and iAS products through distributors and other resellers throughout the world. A summary of our geographical revenues is set forth in “MD&A — Geographical Revenues,” Part II, Item 7, and Note Ten to Consolidated Financial Statements, Part II, Item 8. For a discussion of the risks associated with our foreign operations, see “Risk Factors — Future Operating Results — We are subject to risks arising from our international operations,” Part I, Item 1 (A).

INTELLECTUAL PROPERTY RIGHTS

We rely on a combination of trade secret, copyright, patent and trademark laws, as well as contractual terms, to protect our intellectual property rights. As of February 1, 2009, we had 184 issued patents (148 U.S. and 36 non-U.S.) that expire approximately 20 years from the date they were filed. These patents cover various aspects of our technology. We believe that our patents and other intellectual property rights have value. However, any of our proprietary rights could be challenged, invalidated or circumvented, or may not provide us with significant competitive advantage. For a discussion of additional risks associated with our intellectual property, see “Risk Factors — Future Operating Results — Insufficient protection for our intellectual property rights may have a material adverse affect on our results of operations or our ability to compete” and “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 I, Item 1(A).

RESEARCH AND DEVELOPMENT

Since inception, we have made substantial investments in software research and product development. We believe that timely development of new products and enhancements to our existing products is essential to maintaining a strong position in our market. During 2008, our investment in research and product development generated expenses of $146.9 million, or 13 percent of our total revenue. These amounts compared to $152.6 million and 15 percent in 2007 and $149.5 million and 17 percent in 2006. In addition, our capitalized software costs were $50.7 million and $36.4 million in 2008 and 2007, respectively. We intend to continue to invest heavily in these areas. However, future operations could be affected if we fail to timely enhance existing products or introduce new products to meet customer demands. For a further discussion of the risks associated with product development, see “Risk Factors — Future 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” and “We may not receive significant revenues from our current research and development efforts for several years, if at all,” Part I, Item 1(A).

COMPETITION

The market for our products and services is extremely competitive due to various factors including a maturing enterprise infrastructure software market, changes in customer IT spending habits, and the trend toward consolidation of companies within the telecommunications and software industries.

Principal competitors to IPG vary by product type.

           Information Management Products. Principal competitors to our Information Management Products include Oracle, IBM and Microsoft. We also compete with specialized vendors such as Teradata, Netezza, and Vertica in data warehousing; Informatica, GoldenGate Software, and Composite Software in data integration; and CA in modeling.

           Financial Fusion Products: Principal competitors for our banking solutions include Fiserv: Checkfree, Metavante, Intuit: Digital Insight, S1, Fidelity Information Services, Online Resources, and ACI.

Principal competitors to iAS vary by product type.

           Mobile and Embedded Database Products . Principal competitors to our mobile and embedded database products include Pervasive Software, Progress Software, Intersystems, Sun, IBM and Oracle.

           Mobile Middleware and Device Management Products. Principal competitors to our mobile middleware products include IBM, Research in Motion and Microsoft and a host of numerous small vendors. For mobile device management and security products, we compete with Microsoft, Symantec, Check Point, Credant, Mformation Technologies and Trust Digital.

Principal competitors to Sybase 365 vary by service.

           Operator Services. Principal competitors to our interoperability services include VeriSign, Syniverse, Aicent, Iris and Belgacom. While the industry is highly competitive, we and others may “peer” from time to time in order to provide more ubiquitous coverage to our customers.

           Enterprise Services. Principal regional competitors to our content aggregation and enterprise messaging services include mBlox, NetSize, VeriSign via its mQube and 3United acquisitions and Amdocs through its OpenMarket division.

           mBanking . Principal regional competitors to our mBanking products include Clairmail, mFoundary, mShift, Firethorn, Monetize and Yodlee

           AvantGo. There are a number of competitors who provide alternatives for viewing content on mobile devices, including extensions of existing Internet portal services such as Yahoo, AOL, and MSN, media publishers own mobile offerings, as well as content provided by carriers.

We believe that we compete favorably against our competitors in each of these areas. However, some of our competitors have longer operating histories, greater name recognition, stronger relationships with partners, larger technical staffs, established relationships with hardware vendors and/or greater financial, technical and marketing resources. These factors may provide our competitors with an advantage in penetrating markets. For a discussion of certain risks associated with competition, see “Risk Factors — Future Operating Results — Industry consolidation and other competitive pressures could affect prices or demand for our products and services, and our business may be adversely affected,” Part I, Item 1(A).

EMPLOYEES

As of February 1, 2009, Sybase and its subsidiaries had approximately 3,995 regular employees. For information regarding our executive officers, see “Directors, Executive Officers of Registrant and Corporate Governance,” Part III, Item 10.

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-K. 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 3.

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 software license 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, a trend toward more conservative IT spending and continued weakness in the economic and capital markets 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. Or 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 past experience IPG and iAS revenues in the fourth quarter benefit from the annual renewal of contracts by large enterprise customers or such customers placing orders before the expiration of budgets tied to the calendar year. This typically results in revenues from license fees declining 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. In the fourth quarter of 2008 we experienced a minimal amount of transactions attributable to large enterprise customers placing orders before budgets expired. 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. Our revenues for the quarter ending December 31, 2008 exceeded revenues for the quarter ending December 31, 2007 by 3 percent. If the U.S. and worldwide economies continue to 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 revenue growth. The ongoing worldwide recession, weakness in the credit markets and significant liquidity problems for the financial services industry may also impact our revenues. While we have not noted significant 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, including from consolidation in the financial services industry, would adversely affect our revenues and operating results. In light of the difficult economic and business environment, we are acting to conservatively manage our expenses in an effort to maintain or expand our financial performance. If the worldwide recession continues or worsens, these efforts many not be successful and our financial results could be materially weaker than forecast.

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, insufficient capacity 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, or insufficient capacity of, computer hardware, software or networks utilized or maintained by us, our customers, or suppliers. Additionally, the failure of, or insufficient capacity of our connections and outsourced service arrangements with third parties could interrupt our services and materially adversely impact our financial performance and relations with customers, including causing liability to our customers.

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. As use of Sybase 365’s services increases, we must continue to expand and upgrade our systems and operations. If we do not accurately project the need for expansions and upgrades to our operations and perform such expansions and upgrades in a timely manner, our services could fail or be interrupted.

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 December 2008 we acquired paybox Solutions AG, a mobile payments solutions provider. In July 2008 we acquired Cable & Wireless’ international inter-operator MMS hubbing service (MMX) and obtained the exclusive rights to market and sell mobile data roaming services. In November 2006 we acquired Mobile 365, Inc. In addition, in October 2005 we acquired Extended Systems Incorporated, a NASDAQ listed 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 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 December 31, 2008, we had approximately $527.2 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 and restructuring charges. 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 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 experienced increasing pricing pressure from customers when purchasing or renewing technical support agreements and the current economic and credit environment may cause further increased pricing pressure from customers. This pressure may result in our reducing support fees or in lost support fees if we refuse to reduce our pricing, either of which could result in reduced revenue. If our existing customers cancel or fail to renew their technical support agreements, or if we are unable to generate additional support fees through the license of new products to existing or new customers, our business and future operating results could be adversely affected.

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

Competition and industry consolidation in the mobile messaging market have resulted in pricing pressure, which we expect to continue in the future. This pricing pressure could cause large reductions in the selling price of our services. For example, consolidation in the wireless services industry could give our customers increased transaction volume leverage in pricing negotiations. Our competitors or our customers’ in-house solutions may also provide services at a lower cost, significantly increasing pricing pressures on us. Pricing pressure may also arise from wireless carriers increasing the cost of access to their services and networks, if we are unable to pass these costs on to our customers. 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; our customers’ financial condition, liquidity or ability to access credit markets; 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 and margins at or near our historical levels of revenues and margins from these customers and we rely on a limited number of customers for most of our messaging revenue.

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 messaging revenues and margins would decline. Additionally, a limited number of customers provide most of our messaging revenue and if they terminate their contracts with us, do no renew their contracts or renegotiate their contracts in a way that is unfavorable to us, our messaging revenue and/or margin could be adversely impacted.

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 December 31, 2008 we had an aggregate par value of $28.9 million invested in six auction rate securities (ARS). The underlying collateral of the ARS we hold consists primarily of corporate bonds, commercial paper, debt instruments issued by the U.S. Treasury and governmental agencies, money market funds, asset backed securities, collateralized debt obligations, similar assets, and in one instance, preferred stock in a bond insurance company. Certain of the ARS may have direct or indirect investments in mortgages, mortgage related securities, or credit default swaps. As of December 31, 2008, the other-than-temporary impairment associated with these ARS totaled $13.4 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 $120 million through December 31, 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.

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. In January 2009 we integrated the product marketing groups for IPG, iAS and Sybase 365 into our Worldwide Marketing Operations under the leadership of Raj Nathan. At that time we commenced the integration of certain back office functions in order to reduce overlap between business operations. 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 fourth 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, and 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, growth or contraction in other markets, the strength or weakness 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 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. Recent changes in applicable accounting rules for convertible notes require interest expense to be imputed at fair value as of the debt issuance date. This will result in increases in previously reported and future interest expense and reductions in our net income in prior and future years. See “Future Operating Results — Changes in accounting and legal standards could adversely affect our future operating results” for a discussion of the impact of changes in GAAP on our accounting for the notes.

The holders may convert the notes into the right to receive the conversion value (described below) (i) when our stock price exceeds 130% of the $24.99 per share adjusted conversion price (equal to $32.49 per share) 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 December 31, 2008, our stock price did not exceed 130% of the $24.99 per share adjusted conversion price for the required specified time. As such, the notes did not become convertible during this period. 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, stock 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. Additionally, if the holders of the notes exercise their right to have us repurchase the notes at par on February 22, 2010, at that time we may have insufficient financial resources or may be unable to arrange financing to pay for par value of all notes tendered for repurchase.

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. The reduction in our diluted earnings per share attributable to shares associated with the 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. Recently, in connection with disruptions in the worldwide credit markets, the U.S. dollar rapidly strengthened against certain currencies, including the Euro and British Pound. Continued rapid fluctuations in foreign currency exchange rates may materially and adversely affect our operating results.

As of December 31, 2008, we had identified net assets totaling $268.9 million associated with our EMEA operations, and $51.6 million associated with our Asia Pacific and Latin America operations. Accordingly, we may experience fluctuations in operating results as a result of translation gains and losses associated with these asset and liability values. In order to reduce the effect of foreign currency fluctuations on our and certain of our subsidiaries’ balance sheets, we utilize foreign currency forward exchange contracts (forward contracts) to hedge certain foreign currency transaction exposures. Specifically, we enter into forward contracts with a maturity of approximately 30 days to hedge against the foreign exchange exposure created by certain balances that are denominated in a currency other than the principal reporting currency of the entity recording the transaction. The gains and losses on the forward contracts are intended to mitigate the gains and losses on these outstanding foreign currency transactions and we do not enter into forward contracts for trading purposes. However, our efforts to manage these risks may not be successful. Failure to adequately manage our currency exchange rate exposure could adversely impact our financial condition and results of operations.

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

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

Insufficient protection for our intellectual property rights may have a material adverse effect 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 Note Twelve to Consolidated Financial Statements, Part II, Item 8, 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”) and the matter is ongoing. In November 2008, we were sued by Data Retrieval LLC, along with co-defendant Informatica Corporation, for alleged infringement of U.S. Patents number 6,026,392 and 6,631,382, both entitled “Data Retrieval Method and Apparatus with Multiple Source Capability.” We are in the process of assessing the claims and potential defenses for the matter raised by Data Retrieval. We believe that our positions in each of the matters noted above are meritorious and we intend to pursue our positions vigorously. In addition, Sybase from time to time receives indemnity demands from customers involved in litigation.

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

number of patents, the rapid rate of new patent issuances, the complexities of the technology involved and uncertainty of results and expense of potential litigation increase the risk of business assets and management’s attention being diverted to patent issues.

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

When Sybase 365 delivers mobile messages on behalf of content owners into our network of wireless carriers, we are subject to legal, regulatory and wireless carrier requirements governing, among other things, the nature of content delivered, as well as necessary notice and disclosure to, and consent from, consumers receiving mobile messages. Even though we don’t create or control the content delivered over our network, 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, formerly our Chief Financial Officer relocated to London to be our Senior Vice President and General Manager for the EMEA region and Jeff Ross, formerly our Corporate Controller became our Chief Financial Officer. Additionally, Keith Jensen, formerly our 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 May 2008, the Financial Accounting Standards Board (“FASB”) issued FSP No. 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 issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to separately account for the liability and equity (conversion feature) components of the instruments and became effective January 1, 2009. Retrospective adoption is required. As a result, interest expense should be retrospectively imputed and recognized based upon the issuer’s nonconvertible debt borrowing rate, which retrospectively will result in lower net income. Our 1 3/4% convertible subordinated notes (“Notes”) due 2025 issued in February 2005 are subject to FSP APB 14-1. Prior to FSP APB 14-1, Accounting Principles Board Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” (APB 14), provided that no portion of the proceeds from the issuance of the instruments should be attributable to the conversion feature. Upon adoption of FSP APB 14-1 in 2009, we will record a debt discount, which will be amortized to interest expense through February 22, 2010, representing the first date on which holders of the Notes may require us to repurchase all or a portion of their notes. In addition, we will retrospectively record a non cash increase in interest expense for 2007 and 2008 of $16.8 million and $17.8 million, respectively. This will result in a retrospective noncash after tax reduction in diluted earnings per common share of approximately $0.10 and $0.12 in 2007 and 2008, respectively. In addition, the carrying amount of the Notes will be retrospectively adjusted to reflect a discount of $85.0 million on the date of issuance, with an offsetting increase in additional paid-in capital of $51.0 million and deferred tax liability of $34.0 million.

The Notes are our only instrument which fall under FSP APB 14-1. FSP APB 14-1 will be applied to our Notes from their issuance date, and the cumulative effect of such application will be captured with an adjustment to our opening 2007 retained earnings balance. The cumulative effect of this change will total approximately $16.5 million on periods prior to 2007. In 2009 interest expense will increase approximately $18.9 million due to this change. In 2009 after tax diluted earnings per common share will be reduced correspondingly by $0.13. If future interpretations of, or changes to, the FSP APB 14-1 rules necessitate a further change in these reporting practices, our previously reported and future results of operations could be adversely affected.

In December 2007, the 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.

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.

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.

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 that are delivered in physical and not electronic form 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.

ITEM 1 (B): UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of December 31, 2008, our field operations, professional service organizations and subsidiaries occupied leased facilities in approximately 93 separate locations throughout North America, Latin America, Europe and the Asia Pacific region, aggregating approximately 1.5 million square feet.

On January 28, 2000, we entered into a 15-year non-cancelable lease of our corporate headquarters facility in Dublin, California. The lease commenced with occupancy of the building in January 2002 with a lease expiration date of January 31, 2017. The property consists of approximately 406,000 square feet of administrative and product development facilities. We have the option to renew our Dublin lease for up to two five-year periods, generally at then-fair market value, subject to certain conditions.

For a further discussion of our leases, see Note Six to Consolidated Financial Statements, Part II, Item 8.

We continue to lease space at other locations around the world that serve a variety of functions, including professional services, sales, engineering, technical support, and general administration. These include significant facilities in the United States, including New York City, New York; Boulder, Colorado; Alpharetta, Georgia, Concord, Massachusetts, Reston, Virginia and Boise, Idaho; Waterloo, Canada; Maidenhead, England; Düsseldorf, Germany, Paris, France, Singapore, Hong Kong, Beijing China and Utrecht, Netherlands. In addition to the facilities noted above, we maintain engineering centers in Englewood, Colorado; Pune, India, and Shanghai and Xian, China.

ITEM 3. LEGAL PROCEEDINGS

We are involved from time to time in various proceedings, lawsuits and claims involving our customers, products, intellectual property, stockholders and employees, among other parties. We routinely review the status of each significant matter and assess our potential financial exposure. When we reasonably determine that a loss associated with any of these matters is probable, and can reasonably estimate the loss, we record a reserve to provide for such loss contingencies. If we are unable to record a reserve because we are not able to estimate the amount of a potential loss in a matter, or if we determine that a loss is not probable, we are nevertheless required to disclose certain information regarding such matter if we determine that there is a reasonable possibility that a loss has been incurred. Because of the inherent uncertainties related to these types of matters, we base our loss reserves on the best information available at the time. As additional information becomes available, we may reevaluate our assessment regarding the probability of a matter or its expected loss. Our financial position, results of operations or cash flows could be materially and adversely affected by such revisions in our estimates. For further discussion of contingencies and liabilities, see “Future Operating Results,” above.

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 made the following rulings: i) granted TCS’s motion for an injunction but stayed it pending the outcome on appeal, ii) granted TCS’s motion for pre-judgment interest, at the rate of prime plus 1%, compounded quarterly, iii) granted Sybase 365’s motion for remittitur, reducing the pre-issuance damages portion of the jury award by $2.2 million, iv) denied Sybase 365’s motions for judgment as a matter of law, for reduction of the jury award, and for entry of judgment based on inequitable conduct, and v) denied TCS’s motion for attorneys’ fees. Sybase 365 intends to appeal once the court enters judgment in the matter.

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. 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 across its customer base.

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

We currently believe that the ultimate liability, if any, for any pending claims of any type (either alone or combined) will not materially affect our financial position, results of operations or cash flows. However, the ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an adverse impact on Sybase because of defense costs, negative publicity, diversion of management resources and other factors. Our inability to obtain necessary license or other legal rights, or litigation arising out of intellectual property claims could adversely affect our business.

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

No matters were submitted to a stockholder vote in the quarter ended December 31, 2008.

PART II

ITEM 5.		MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Sybase, Inc. Common Stock, par value $.001, began trading on the New York Stock Exchange (NYSE) on May 22, 2001, under the symbol “SY.” Prior to that, our stock traded on the NASDAQ National Market System under the symbol “SYBS.” Following is the range of low and high closing prices for our stock as reported on the NYSE for the quarters indicated.

		High				Low
Fiscal 2007
Quarter ended March 31, 2007		$	26.28			$	24.01
Quarter ended June 30, 2007		$	26.19			$	22.64
Quarter ended September 30, 2007		$	25.08			$	22.07
Quarter ended December 31, 2007		$	28.60			$	23.50
Fiscal 2008
Quarter ended March 31, 2008		$	28.59			$	24.95
Quarter ended June 30, 2008		$	33.09			$	25.74
Quarter ended September 30, 2008		$	36.53			$	28.50
Quarter ended December 31, 2008		$	30.60			$	22.44

We have never paid cash dividends on our capital stock, and we do not anticipate doing so in the foreseeable future. The closing sale price of our Common Stock on the NYSE on February 13, 2009 was $28.64. The number of stockholders of record on that date was 1,104, according to American Stock Transfer and Trust, our transfer agent.

The information required by this item regarding our securities authorized for issuance under equity compensation plans is provided in “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” Part III, Item 12, which incorporates information to be disclosed in our 2009 Proxy Statement.

Issuer Purchases of Equity Securities

During the fourth quarter of 2008 we conducted the following repurchases of our common stock pursuant to our publicly announced repurchase program:

		Number of Shares				Avg. Price Paid Per
Period		Purchased				Share
October 2008			47,000			$	23.73
November 2008			184,080			$	23.13
December 2008			0				0
Total for Fourth Quarter 2008			231,080			$	23.26

Beginning in 1998 our Board of Directors implemented our stock repurchase program and has authorized an aggregate of $850 million for stock repurchases. After completing the repurchases noted above, $77.5 million remained authorized for repurchase pursuant to our publicly announced repurchase program. For additional information about our historical stock repurchase activities see Note Seven to the Consolidated Financial Statements — Stockholders’ Equity, Part II, Item 8.

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 $0.6 million to undertake the self-tender offer. These costs are included in “Cost of treasury stock” in the Company’s consolidated balance sheets at December 31, 2008. See Note Seven to the Consolidated Financial Statements — Stockholders’ Equity, Part II, Item 8.

PERFORMANCE GRAPHS

The graphs and tables below compare the cumulative total return on a $100 investment in our Common Stock on December 31, 2003 and December 31, 1998, respectively, with the cumulative total returns on $100 investments (assuming reinvestment of all dividends) in the indices noted. The seven companies comprising the S&P Systems Software index are BMC Software Inc., CA Inc., Microsoft Corporation, McAfee, Inc, Novell, Inc., Oracle Corporation and Symantec Corporation. McAfee was added to the S&P Systems Software index in 2008.

Copyright ^© 2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

	December, 31
				2003					2004					2005					2006					2007					2008
	Sybase, Inc.				100					96.94					106.22					120.02					126.77					120.36
	S&P 500				100					110.88					116.33					134.7					142.1					89.53
	S&P Systems Software				100					108.39					103.52					122.27					146.54					91.52

Copyright ^© 2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

	December, 31
				1998					1999					2000					2001					2002					2003					2004					2005					2006				2007				2008
	Sybase, Inc.				100.00					229.53					267.51					212.79					180.93					277.87					269.37					295.15					333.50				352.27					334.44
	S&P 500				100.00					121.04					110.02					96.95					75.52					97.18					107.76					113.05					130.91				138.10					87.01
	S&P Systems Software				100.00					187.59					94.45					99.32					74.55					86.99					94.29					90.05					106.36				127.47					79.62

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial information is not necessarily indicative of the results of our future operations. The comparability of the information is affected by a variety of factors, including share-based compensation, impairment charges related to investments in auction rate securities, amortization and impairment of intangible assets and goodwill, acquisitions and restructurings, effective tax rates, accounting changes, and repurchases of common stock.

We adopted Statement of Financial Accounting (SFAS) 123(R), Share-Based Payment, on January 1, 2006 using the modified prospective transition method. Operating income from continuing operations included an increase in pre-tax share-based compensation expense for stock options and stock appreciation rights of $13.6 million in 2006 that we recorded as a result of adopting SFAS 123(R). Operating income from continuing operations included pre-tax share-based compensation expense for stock options and stock appreciation rights of $13.9 million and $12.3 million in 2007 and 2008,

respectively. Because we elected to use the modified prospective transition method, results for prior periods have not been restated to include share-based compensation for options, and stock appreciation rights. For a further discussion of SFAS 123 (R), see Note Seven to the Consolidated Financial Statements — Stockholders’ Equity, Part II, Item 8.

We hold six auction rate securities (ARS) with a combined par value of $28.9 million and fair value of $15.5 million as of December 31, 2008. The difference between the par and fair values represents a $13.4 million other than temporary impairment charge to earnings recognized on these securities during 2008. The auctions for these securities discontinued in the second half of 2007. No secondary market exists. As a result, the ARS are not liquid. Further, the fair values of the ARS underlying collateral decreased substantially during 2008 and the ARS credit ratings have correspondingly been downgraded. These factors led us to impair the securities.

On November 8, 2006 we acquired Mobile 365, Inc. (which we renamed Sybase 365), a privately held mobile messaging and content delivery company for approximately $418.5 million. Sybase 365 delivers mobile data and messaging, premium content, and value-added services for leading mobile operators, content providers, global brands, media companies, and financial institutions worldwide. Total revenues and operating income of Sybase 365 were $178.1 million and $5.3 million, respectively in 2008. Total revenues and operating loss of Sybase 365 were $140.7 million and $0.5 million, respectively in 2007. Total revenues and operating loss of Sybase 365 were $19.4 million and $1.2 million, respectively for period from November 8, 2006 through December 31, 2006.

We undertook restructuring activities in 2004 and 2003 as a means of managing our operating expenses and undertook restructuring activities as part of our acquisition of Mobile 365 in 2006. For descriptions of each restructuring plan, see Note Thirteen to the Consolidated Financial Statements — Restructuring Costs, Part II Item 8.

This data should be read in conjunction the MD&A, Part II, Item 7, as well as the Consolidated Financial Statements and related Notes included in Part II, Item 8 of this Report on Form 10-K.

Consolidated Statements of Operations Data

(In thousands, except per share data)		2008				2007				2006				2005				2004
Revenues:
License fees		$	383,661			$	344,807			$	326,751			$	291,695			$	275,872
Services			572,090				544,209				531,172				527,000				512,664
Messaging			176,179				136,514				18,240				—				—
Total revenues			1,131,930				1,025,530				876,163				818,695				788,536
Costs and expenses:
Cost of license fees			67,342				53,114				50,540				51,556				60,795
Cost of services			160,604				157,790				152,962				156,325				162,016
Cost of messaging			107,757				82,598				11,097				—				—
Sales and marketing			285,376				266,995				263,281				250,003				242,778
Product development and engineering			146,932				152,571				149,510				139,011				119,959
General and administrative			138,980				129,319				106,025				92,106				91,117
Amortization of other purchased intangibles			14,716				13,783				7,331				6,639				5,139
Reversal of AvantGo restructuring accrual			—				—				—				—				(2,677	)
Cost of restructuring			167				797				1,653				1,115				20,017
Total costs and expenses			921,874				856,967				742,399				696,755				699,144
Operating income			210,056				168,563				133,764				121,940				89,392
Interest income and expense, net			(2,955	)			21,377				27,634				14,824				11,574
Minority interest			51				12				(81	)			(49	)			—
Income before income taxes			207,152				189,952				161,317				136,715				100,966
Provision for income taxes			68,581				41,102				66,253				51,132				33,016
Net income		$	138,571			$	148,850			$	95,064			$	85,583			$	67,950
Basic net income per share		$	1.69			$	1.65			$	1.06			$	0.95			$	0.71
Shares used in computing basic net income per share			82,060				90,019				89,557				90,307				95,550
Diluted net income per share		$	1.64			$	1.61			$	1.03			$	0.92			$	0.69
Shares used in computing diluted net income per share			84,455				92,598				92,251				93,257				98,001

Consolidated Balance Sheet Data

(In thousands)		2008				2007				2006				2005				2004
Cash, cash equivalents and cash investments		$	635,566			$	734,907			$	637,696			$	859,936			$	513,632
Working capital			518,044				604,728				455,143				573,247				290,237
Total assets			1,835,417				1,913,483				1,787,550				1,570,614				1,183,522
Long-term obligations			548,768				549,591				518,876				500,339				33,121
Stockholders’ equity			817,173				930,810				843,131				698,830				756,556

ITEM 7. 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.
	•		Critical Accounting Policies that we believe are 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 the section entitled “Risk Factors, Future Operating Results” at the beginning of Item 1(A) 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 Part II, Item 8.

On November 8, 2006 we acquired Mobile 365, Inc. (which we renamed Sybase 365) for approximately $418.5 million. Sybase 365 delivers mobile data and messaging, premium content, and value-added services for leading mobile operators, content providers, global brands, media companies, and financial institutions worldwide. Total revenues and operating income of Sybase 365 were $178.1 million and $5.3 million, respectively in 2008. Total revenues and operating loss of Sybase 365 were $140.7 million and $0.5 million, respectively in December 31, 2007. Total revenues and operating loss of Mobile 365, were $19.4 million and $ 1.2 million, respectively for period from November 8, 2006 through December 31, 2006.

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, providing decision-ready information to the right people at the right time.

Our value proposition involves enabling the Unwired Enterprise by allowing enterprises to extend their information securely and make it useful for people anywhere using any device. We deliver a full range of solutions to ensure that customer information is securely managed and mobilized to the point of action, including enterprise and mobile databases, middleware, synchronization, encryption and device management software, and mobile messaging services.

During 2008 our business was 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 Note Ten to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference.

Our Results

We reported total revenues of $1,132 million for 2008 compared to $1,026 million for 2007. The increase in total revenues from 2007 to 2008 was attributable to increases in each of our revenue streams, with license revenues increasing 11 percent, service revenue increasing 5 percent and messaging revenues increasing 29 percent. Our IPG segment saw a $64.5 million (8 percent) increase in revenues, Sybase 365 grew revenues $37.3 million (27 percent) and iAS experienced a $5.6 million (3 percent) increase in revenues.

The increase in IPG revenues was driven by a 12 percent increase in license revenue and a 6 percent increase in services revenues. The growth in IPG license revenues was primarily attributed to a 28 percent increase in database revenues, namely our IQ and Adaptive Server Enterprise Products Adaptive Server ^® Enterprise (ASE) 15.0 and Sybase IQ products, while the increase in services revenues was primarily attributable to an 8 percent increase in technical support services revenue.

The increase in iAS revenues from 2007 to 2008 was driven by a 3 percent increase in license revenue and a 4 percent increase in services revenues. The increase in license revenues was primarily attributed to a 23 percent increase in revenues from our Afaria device management product, while the increase in service revenue came from an increase in technical support services. Our iAnywhere product platform continues to garner accolades for its market leadership from the likes of Gartner 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. We believe that as a market leader, we are positioned to benefit from growth in the enterprise mobility market.

Sybase 365 revenues were driven by a 29 percent increase in messaging revenue spurred by strong growth in both Europe and the United States. 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 continued growth in messaging traffic and the adoption of messaging by the enterprise will offset continued pricing compression and lead to growth in our messaging revenues.

We reported net income of $138.6 million for 2008, compared to 148.9 million 2007. Our 2008 operating income was $210.1 million (19 percent operating margin) compared to $168.6 million (16 percent operating margin) in 2007. The increase in operating income was primarily attributable to the IPG segment’s $35.4 million increase in operating income representing both their revenue growth and operating margin expansion.

Net income decreased year over year due to a charge of $13.0 million in 2008 to write down the value of certain auction rate securities, and the absence of a $27.6 million 2007 tax credit relating to the release of certain valuation allowances.

During 2008, we generated a record amount of net cash from operating activities at $295.5 million, a 16 percent increase over the prior year. Our days sales outstanding in accounts receivable was 80 days for the quarter ended December 31, 2008 compared to 75 days for the quarter ended December 31, 2007.

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

Business Trends

Our business activity and pipeline was strong throughout 2008 despite a deterioration in the macro economic environment. Entering 2009, we are encouraged by the strength of our pipeline and the general condition of our business. We believe, however, that the overall spending environment will be very challenging in 2009, with the world economy mired in a recession and most analysts predicting a decline in overall IT spending. While our short-term pipeline is strong, it is more difficult than in the past to predict the overall buying environment in the second half of the year. Additionally, in 2009 we expect that our year over year revenue and net margin comparisons will be adversely impacted by a significant strengthening of the U.S. dollar against various foreign currencies, most specifically the Euro and other European currencies.

We continue to see spending strength on mission critical applications and new capabilities like business analytics and risk management — areas where our key products have been doing very well. In contrast, we believe the spending environment for discretionary projects and solutions requiring long professional services engagements will continue to be poor during 2009. We have maintained a strong short-term pipeline for enterprise infrastructure products used in mission critical applications, especially our Adaptive Server Enterprise (ASE) 15.0 product, for which we added 954 new customers during 2008.

We also benefit from the continued proliferation of enterprise data with our customers showing willingness to invest resources on new analytic solutions. We saw strong demand for our analytic solutions during 2008 with 200 new customers for our IQ Analytic Server (IQ) product and 14 new customers for our Risk Analytics Platform (RAP) product. IQ offers a highly optimized analytic engine specifically designed to deliver dramatically faster results for business intelligence, analytic and reporting solutions. Our RAP product , which is built on IQ, is targeted to the financial service industry for risk, trading and compliance analytics. The pipeline for RAP, which was launched in the first half of 2008, continues to build and provides what we believe, will be a future growth engine for our IQ product.

With respect to the market for mobility and integration products we believe these products continue to gain market acceptance and will provide us with growth opportunities in the future. For 2009 we are supported by a strong product cycle with our refreshed iAnywhere product platform and will be focused on expanding our relationships with system integrators and other partners.

With respect to the market for messaging services, we believe that our messaging business will see revenue driven by continuing growth in worldwide Short Messaging Services (SMS) and Multimedia Messaging Services (MMS) traffic levels and an expanding demand for mobile data roaming (GRX) services. Additionally, we continue to see growth as enterprises, focus more of their business towards mobile messaging as an inexpensive means of interacting with their customers on a real time basis. Offsetting to some extent the growth in message volume has been continued price compression. Our plans for the future are focused on providing additional value added services such as hosted analytics

and mobile commerce solutions which we believe will allow us to demonstrate service differentiation and provide us with the opportunity to expand financial performance for the messaging business.

In 2009 we will be aggressively maintaining cost controls to improve financial performance. One area of focus will be to drive cost and revenue synergies between our operating segments as we eliminate research and development overlap, combine marketing efforts, integrate back office functions and streamline business operations. With this focus we believe we can improve operating results and maintain our strong cash flow in an uncertain environment.

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 periodically evaluate our estimates and assumptions including those relating to software and mobile messaging revenue recognition, impairment of goodwill and intangible assets, valuation of investments without readily available markets and the classification of related impairments, the allowance for doubtful accounts, capitalized software, income taxes, stock-based compensation, purchase accounting, restructuring, and contingencies and liabilities. We base our estimates on historical experience, observable and unobservable inputs under the 3-level SFAS 157 framework, and various other assumptions that we believe to be reasonable based on specific circumstances. Our management has reviewed the development, selection, and disclosure of these estimates with the Audit Committee of our Board of Directors. These estimates and assumptions form the basis for our judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Further, changes in accounting and legal standards could adversely affect our future operating results (see “Risk Factors — Future Operating Results,” above). Our critical accounting policies include: software and mobile messaging revenue recognition, impairment of goodwill and other intangible assets, valuation of investments without readily available markets and classification of related impairments, allowance for doubtful accounts, capitalized software, income taxes, stock-based compensation, purchase accounting, restructuring and contingencies and liabilities, each of which are discussed below.

•		Revenue Recognition
		Revenue recognition rules for software and message services companies are very complex. We follow specific and detailed guidance in measuring revenue, although certain judgments affect the application of our revenue recognition policy. These judgments would include, for example, the determination of a customer’s creditworthiness, whether two separate transactions with a customer should be accounted for as a single transaction, reporting certain third party content delivery revenues net as an agent versus gross as a principal, or whether included software services are essential to the functionality of a product.

		License and Service Revenues
		We recognize software revenue in accordance with Statement of Position (SOP) 97-2, “Software Revenue Recognition,” and SOP 98-9, and in certain instances in accordance with SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” or SEC Staff Accounting Bulletin, or SAB, No. 104, “Revenue Recognition.” We license software under non-cancelable license agreements. License fee revenues are recognized when (a) a non-cancelable license agreement is in force, (b) the product has been delivered, (c) the license fee is fixed or determinable, and (d) collection is reasonably assured. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer and all other revenue recognition criteria have been met.

      Residual Method Accounting . In software arrangements that include multiple elements (e.g., license rights and technical support services), we allocate the total fees among each of the elements using the “residual” method of accounting. Under this method, revenue allocated to undelivered elements is based on vendor-specific objective evidence of fair value of such undelivered elements, and the residual revenue is allocated to the delivered elements. Vendor specific objective evidence of fair value for such undelivered elements is based upon the price we charge for such product or service when it is sold separately. We may modify our pricing practices in the future, which could result in changes to our vendor specific objective evidence of fair value for such undelivered elements. As a result, the timing of revenue recognition associated with multiple element arrangements could differ significantly from our historical results.

      Percentage of Completion Accounting . Fees from licenses sold together with consulting services are generally recognized upon shipment of the licenses, provided (i) the criteria described in subparagraphs (a) through (d) above are met, (ii) payment of the license fee is not dependent upon performance of the consulting services, and (iii) the consulting services are not essential to the functionality of the licensed software. If the services are essential to the functionality of the software, or performance of services is a condition to payment of license fees, both the software license and consulting fees are recognized under the “percentage of completion” method of accounting. We use labor hours to estimate the progress to completion. Under this method, we are required to estimate the number of total hours needed to complete a project, and revenues are recognized based on the percentage of total contract hours as they are completed while costs are recognized as incurred. Due to the complexity involved in the estimating process, revenues and profits recognized under the percentage of completion method of accounting are subject to revision as contract phases are actually completed. Historically, these revisions have not been material.

      Sublicense Revenues . We recognize sublicense fees as reported to us by our licensees. License fees for certain application development and data access tools are recognized upon direct shipment by us to the end user or upon direct shipment to the reseller for resale to the end user. If collection is not reasonably assured in advance, revenue is recognized only when sublicense fees are actually collected and all other revenue recognition criteria have been met.

      Service Revenues . Technical support revenues are recognized ratably over the term of the related support agreement, which in most cases is one year. Revenues from consulting services under time and materials contracts, and for education, are recognized as services are performed. Revenues from fixed price consulting agreements are generally recognized based on the proportional performance of the project, with performance measured based on hours of work performed.

Message Revenues

We recognize message revenue in accordance with SAB No. 104, Emerging Issues Task Force No. 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”) and where applicable in accordance with EITF, No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent (“EITF 99-19”). We recognize revenue when (a) there is persuasive evidence of an arrangement; (b) the service has been provided to the customer; (c) the amount of the fees to be paid by the customer is fixed and determinable; and (d) the collection of the fees is reasonable assured.

We generate a significant portion of our message revenue from per message transaction fees and to a lesser extent, from fixed price messaging arrangements providing for the delivery of an unlimited number of messages for a specified period of time, and revenue share agreements related to the delivery of third party content. We recognize revenue from transaction fees based upon the number of messages successfully processed by our platforms and delivered in accordance with the terms of our arrangements. We recognize revenue from the fixed price messaging arrangements ratably over the period of time specified in the agreement.

In some instances third party content providers, and other enterprises enter into revenue sharing arrangements with us. Under a standard revenue sharing transaction we deliver content from a third party provider to the cell phone of a mobile operator’s subscriber. Third party content includes, among others, ringtones, wallpapers, interactive games, competitions, directory inquiry services, and information services. The subscriber is invoiced by their mobile operator, who upon receipt of payment, remits a portion of the charge to us. Upon payment from the mobile operator, we generally remit payment to the third party content provider. In accordance with EITF 99-19, we have determined that we act as an agent under these revenue sharing arrangements and accordingly, record as revenue the net amount retained by us. The net amount retained by us reflects the gross amount billed to the operator less amounts due to the content provider.

•		Impairment of Goodwill, Non-amortizable Intangible Assets and Other Purchased Intangible Assets
		Goodwill and other non-amortizable intangible assets, such as tradenames, have generally resulted from our business combinations accounted for as purchases. We are required to test amounts recorded as goodwill or other non-amortizable intangible assets with indeterminate lives, at least annually for impairment. The review of goodwill and indeterminate lived intangibles for potential impairment is highly subjective and requires us to make numerous estimates, using a discounted cash flow model, to determine the fair values of our reporting units to which goodwill is assigned. For these purposes, our reporting units equate to our reported segments. See Note Ten to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. If the estimated fair value of a reporting unit is determined to be less than its carrying value, we are required to perform an analysis similar to a purchase price allocation for an acquired business in order to determine the amount of goodwill impairment, if any. This analysis requires a valuation of certain other purchased intangible assets with determinate and indeterminate useful lives including in-process research and development, and developed technology. We performed our annual impairment analysis for each of our historical operating units (IPG, iAS, and SY365) and for each indeterminate lived intangible asset as of December 31, 2008. This analysis indicated that the estimated fair value of each reporting unit or indeterminate lived intangible exceeded its carrying value. Therefore, we were not required to recognize an impairment loss in 2008. As of December 31, 2008, our goodwill balance totaled $527.2 million and our other non-amortizable purchased intangibles totaled $7.1 million. Changes in our internal business structure, increases in the applicable discount rate, changes in our future revenue and expense forecasts, and certain other factors that directly impact the valuation of our reporting units could result in a future impairment charge.
		We also continue to separately review our other purchased intangible assets (e.g., purchased technology, customer lists and covenants not to compete) for indications of impairment whenever events or changes in circumstances indicate the carrying amount of any such asset may not be recoverable. For these purposes, recoverability of these assets is measured by comparing their carrying values to the future undiscounted cash flows the assets are expected to generate. This methodology requires us to estimate future cash flows associated with certain assets or groups of assets. Changes in these estimates, technology obsolescence, customer terminations and other factors could result in impairment losses associated with other intangible assets. In 2008, we wrote off $4.5 million of certain purchased technologies.
•		Valuation, Classification and Impairments of Investments

On January 1, 2006 we adopted the FASB Staff positions FAS Nos. 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (the FSPs). The FSPs were issued on November 3, 2005 and nullified certain provisions of EITF No. 03-01 related to evaluating an other-than temporary impairment and clarified the accounting policies set forth in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities .

On October 10, 2008 we adopted FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active, (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 is applicable to the valuation of auction-rate securities held by the Company for which there was no active market as of December 31, 2008.

In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” (SFAS 115) management determines the appropriate classification of debt and equity securities at the time of purchase and re-evaluates such designation as of each balance sheet date. At December 31, 2008, we have classified short term bank deposits and long-term cash investments as available-for-sale pursuant to SFAS 115. In addition, the Company has classified $8.6 million invested in mutual funds as directed by participants of a Rabbi Trust related to a deferred compensation plan as trading securities. Investments classified as available for sale are recorded at fair value and unrealized holding gains and losses (excluding impairments that are deemed other than temporary), net of the related tax effect, if any, are not reflected in earnings but are reported as a separate component of other comprehensive income (loss) until realized. Realized gains and losses and impairments that are deemed other than temporary are determined on the specific identification method and are reflected in income. Investments classified as trading securities are recorded at fair value and unrealized gains and losses and realized gains and losses are included in the earnings of the Company.

As of December 31, 2008, long-term cash investments totaling $15.5 million consist of six auction rate securities (ARS) with an aggregate par value of $28.9 million. Our 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 we hold consists primarily of corporate bonds, commercial paper, debt instruments issued by the U.S. Treasury and governmental agencies, money market funds, asset backed securities, collateralized debt obligations, similar assets, and in one instance, preferred stock in a bond insurance company. Certain of the ARS may have direct or indirect investments in mortgages, mortgage related securities, or credit default swaps. 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. As of the fourth quarter of 2008, the credit ratings of four of the ARS were Baa1. The credit rating on a fifth ARS was Baa2. And the credit rating on a sixth ARS was B3. In addition the investments currently lack short-term liquidity and 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 reasonable secondary market which currently does not exist.

During 2008, we recorded impairment losses totaling $13.4 million for the six ARS. In determining whether each ARS is other than temporarily impaired we considered the guidance provided by FAS 115, “Accounting for Certain Investments in Debt and Equity Securities” and related guidance. This guidance specified that we consider 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. Future changes in these and other factors could result in additional realized impairment losses. Based on our cash, cash equivalents and cash investment balances of $635.6 million as of December 31, 2008 and expected operating cash flows, we do not anticipate that the lack of liquidity for the ARS will adversely affect our ability to conduct business.

		The fair values of the ARS as of December 31, 2008 are based on an estimation using a discounted cash flow model for each of the six ARS using credit related discount rates and term to recovery as key inputs. Changes in assumptions and other factors could result in additional realized impairment losses. For example, if the assumed discount rate was increased by 100 basis points for each ARS, then the total estimated fair value of the Company’s ARS portfolio would decrease $0.55 million and the impairment charge to earnings in the fourth quarter would have increased by $0.55 million. Similarly, if the assumed term to recovery was increased by 1 year for each ARS, then the total estimated fair value of the Company’s ARS portfolio would decrease $1.2 million and the impairment charge to earnings in the fourth quarter would have increased by $1.2 million.
		Notwithstanding our valuation of the securities in accordance with FAS 157 and our determination that these securities were other than temporarily impaired in accordance with FAS 115, we have both the intent and ability to hold these securities until a reasonable market returns. Accordingly, while the current valuation of these securities follows GAAP, management believes that it is possible that the proceeds we receive on the ultimate liquidation of certain of these securities may be higher than their current recorded value.
•		Allowance for Doubtful Accounts
		We maintain an allowance for doubtful accounts to reflect the expected non-collection of accounts receivable. In determining the amount of the allowance we consider our historical level of credit losses; judgments about the creditworthiness of significant customers; an assessment of current economic and industry trends that might impact the level of credit losses in the future; and other factors. Our allowances have generally been adequate to cover our actual credit losses. However, since we cannot reliably predict future changes in the financial stability of our customers, we cannot guarantee that our allowance will continue to be adequate. For example, our allowance for doubtful accounts totaled $3.9 million at December 31, 2008. If our allowance for doubtful accounts, including identified specific customer matters, changed by 10% our allowance for doubtful accounts and operating results would change by $0.4 million.
•		Capitalized Software
		We capitalize certain software development costs after a product becomes technologically feasible and before its general release to customers. Our net capitalized software totaled $82.4 million at December 31, 2008. Significant judgment is required in determining when a product becomes “technologically feasible.” Capitalized development costs are then amortized over the product’s estimated life beginning upon general release of the product. Quarterly, we compare a product’s unamortized capitalized cost to the product’s net realizable value. To the extent unamortized capitalized cost exceeds net realizable value based on the product’s estimated future gross revenues (reduced by the estimated future costs of completing and selling the product) the excess is written off. This analysis requires us to estimate future gross revenues associated with certain products and the future costs of completing and selling certain products. Changes in these estimates could result in write-offs of capitalized software costs. Capitalized software amortization and write-off charges totaled $42.9 million in 2008. Amortization of capitalized software cost included write-offs of $4.1 million in 2008. See Note One to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference.
•		Income Taxes — Estimates of Effective Tax Rates, Deferred Taxes and Valuation Allowance
		Significant judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of the process of identifying items of revenues and expenses that qualify for preferential tax treatment, and segregating foreign and domestic earnings and expenses to avoid double taxation, and determining required intercompany revenue sharing, cost reimbursement and other transfer pricing arrangements among related entities. Although we believe that our estimates are reasonable, the final tax outcome of these matters could be different from that which is reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and net income in the period in which such determination is made.

Our effective tax rate includes the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be indefinitely reinvested outside the United States. Remittances of foreign earnings to the U.S. are planned based on projected cash flow, working capital, stock buyback and investment needs of our foreign and domestic operations. Based on these assumptions, we estimate the amount that will be distributed to the U.S. and provide U.S. federal taxes on these amounts. Material changes in our estimates could impact our effective tax rate.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not (a likelihood of more than 50 percent) to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in those jurisdictions where the deferred tax assets are located. We evaluate our valuation allowance each quarter based on factors such as the mix of earnings in the jurisdictions in which we operate, prudent and feasible tax planning strategies, current taxable income and forecasted future taxable income. Forecasts of future taxable income are further refined as a result of each year’s budget and goal setting process generally occurring annually in the fourth quarter. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period in which we make such a determination. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance. For example, as a result of the Company’s assessment of its valuation allowances for its deferred tax assets for the three month period ending December 31, 2008, the Company concluded that it was more likely than not that a portion of its deferred tax assets relating to federal tax loss carryforwards and state tax loss and credit carryforwards will be realized based on a number of factors including projections of future year federal taxable income and, in the case of state credits and losses, projections of future year taxable income in the relevant states. As a result of this re-evaluation, during the three month period ending December 31, 2008, the Company released approximately $16.5 million of valuation allowances relating to federal tax loss carryforwards, which reduced goodwill, and approximately $11.7 million of valuation allowances relating to state tax credit and loss carryforwards, of which $6.7 million reduced tax expense, approximately $1.7 million reduced goodwill, and approximately $3.3 million increased deferred tax liability for the related federal tax effect.

As of December 31, 2008, our valuation allowance was approximately $60 million. The valuation allowance includes approximately $14 million associated with stock option activity for which any recognized tax benefits will be credited directly to shareholders’ equity if and when the related deferred tax asset is used to reduce current tax payable. The remaining valuation allowance relates primarily to federal net operating loss carrfyorwards and state net operating loss and tax credit carryforwards, which, if realized, will be credited to tax benefit. Realizing the benefit of these loss and credit carryforwards depends primarily on earning sufficient future taxable income in the United States, and in the case of state losses and credits, earning sufficient future taxable income in the relevant states.

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known.

The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, audits are closed or when statutes of limitation on potential assessments expire. Additionally, the jurisdictions in which our earnings or deductions are realized may differ from our current estimates. As a result, our effective tax rate may fluctuate significantly on a quarterly basis.

		As part of our accounting for business combinations, some of the purchase price is allocated to goodwill and intangible assets. Impairment charges associated with goodwill are generally not tax deductible and will result in an increased effective income tax rate in the quarter any impairment is recorded. Amortization expenses associated with acquired intangible assets are generally not tax deductible pursuant to our existing tax structure; however, deferred taxes have been recorded for non-deductible amortization expenses as a part of the purchase price allocation process. We have taken into account the allocation of these identified intangibles among different taxing jurisdictions, including those with nominal or zero percent tax rates, in establishing the related deferred tax liabilities. Income tax contingencies existing as of the acquisition dates of the acquired companies are evaluated quarterly and any adjustments are recorded as adjustments to goodwill. Under FASB Statement No. 141R, any future adjustments will be recorded as tax expense or benefit beginning with our three month period ending March 31, 2009. On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48), which contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit assuming that all issues are audited and resolution of any related appeals or litigation processes are considered. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The adoption of FIN 48 did not have a material impact on the Company’s consolidated financial position. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given with respect to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, expiration of statutes of limitation on potential assessments or the refinement of an estimate. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our provision for income taxes in the period in which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate and also include the related interest and penalties.
•		Accounting for Stock-Based Compensation Plans
		Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123(R), “Share-Based Payment,” using the modified prospective transition method. Under that transition method, compensation expense that we recognize beginning on that date includes: (a) period compensation expense for all share-based payments granted prior to, but not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, adjusted for estimated forfeitures, and (b) period compensation expense for all stock-based payments granted on or after January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Because we elected to use the modified prospective transition method, results for prior periods have not been restated.
		At December 31, 2008, there was $41.0 million of total unrecognized compensation cost before income tax benefit related to non-vested stock-based compensation arrangements granted under all equity compensation plans which we will amortize to expense in the future. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted average period of 2.1 years.
		We estimate the fair value of options granted using the Black-Scholes option valuation model and the assumptions shown in Note Seven to the Consolidated Financial Statements — Stockholders’ Equity , Part II, Item 8. We estimated the expected term of options granted based on historical exercise patterns. We estimated the volatility of our options and stock appreciation rights considering both the

		historical volatility of our stock over the average expected life of our options and the prices of publicly traded options, consistent with SFAS 123(R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107. We base the risk-free interest rate that we use in the Black-Scholes option valuation model on the average of the 5 year treasury rates as published by the Federal Reserve. We have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in the Black-Scholes option valuation model. SFAS 123(R) requires us to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. We amortize the fair value on a ratable basis over the requisite service periods of the awards, which are generally the vesting periods.
		Changes in the subjective input assumptions can materially affect the fair value estimates determined under the Black-Scholes option valuation model. In the future, changes in the assumptions under the Black-Scholes valuation model, or our election to use a different valuation model, could result in a significantly different impact on our net income or loss.
•		Purchase Accounting
		We have made estimates of the fair values of purchased intangible and other assets acquired in conjunction with our purchase of Mobile 365, Inc. as of November 8, 2006, and other acquired companies after considering valuations prepared by independent third-party appraisers and certain internally generated information.
		Purchased intangible assets, excluding goodwill, totaled $114.0 million at December 31, 2008. If the subsequent actual and updated projections of the underlying business activity are less as compared to the underlying assumptions and projections used to develop these values, then we could experience impairment losses, as described above. In addition, we have estimated the economic lives of certain of these assets and these lives were used to calculate depreciation and amortization expense. If our estimates of the economic lives change, then additional depreciation or amortization expense could be incurred on an annual basis. Historically, we have not made any changes in these areas. If the estimates of the economic lives of the definite-lived intangible assets acquired as part of our acquisition of Mobile 365 were reduced by one year, our 2008 amortization expense would increase by approximately $1.7 million.
•		Restructuring
		Our remaining restructuring accruals primarily relate to the estimated net costs to settle certain lease obligations based on analysis of independent real estate consultants. While we do not anticipate significant changes to these estimates in the future, the actual costs may differ from estimates. For example, if we are able to negotiate more affordable termination fees, if rental rates increase in the markets where the properties are located, or if we are able to locate suitable sublease tenants more quickly than expected, the actual costs could be lower than our estimates. In that case, we would reduce our restructuring accrual with a corresponding credit to cost of restructuring or goodwill. Alternatively, if we are unable to negotiate affordable termination fees, if rental rates decrease in the markets where the properties are located, or if it takes us longer than expected to find suitable sublease tenants, the actual costs could exceed our estimates See Note Thirteen to Consolidated Financial Statements —Restructuring Costs, Part II, Item 8.

•		Contingencies and Liabilities
		We are involved from time to time in various proceedings, lawsuits and claims involving our customers, products, intellectual property, stockholders and employees. We routinely review the status of each significant matter and assess our potential financial exposure. When we reasonably determine that a loss associated with any of these matters is probable, and can reasonably estimate the loss, we record a reserve to provide for such loss contingencies. If we are unable to record a reserve because we are not able to estimate the amount of a potential loss in a matter, or if we determine that a loss is not probable, we are nevertheless required to disclose certain information regarding such matter if we determine that there is a reasonable possibility that a loss has been incurred. Because of the inherent uncertainties related to these types of matters, we base our loss reserves on the best information available at the time. As additional information becomes available, we may reevaluate our assessment regarding the probability of a matter or its expected loss. Our financial position, results of operations or cash flows could be materially and adversely affected by such revisions in our estimates. For further discussion of contingencies and liabilities, see “Risk Factors — Future Operating Results,” above.
		We currently believe that the ultimate liability, if any, for any pending claims of any type (either alone or combined) will not materially affect our financial position, results of operations or cash flows. We also believe that we would be able to obtain any necessary licenses or other rights to disputed intellectual property rights on commercially reasonable terms. However, the ultimate outcome of any litigation is uncertain and, regardless of outcome, litigation can have an adverse impact on Sybase because of defense costs, negative publicity, diversion of management resources and other factors. Our inability to obtain necessary license or other legal rights, or litigation arising out of intellectual property claims could adversely affect our business.

Results of Operations

Revenues (Dollars in millions)

		2008				Change				2007				Change				2006
License fees by segment:
IPG		$	308.5				12	%		$	275.5				6	%		$	261.1
iAS			103.0				3	%			100.3				9	%			92.1
SY365			0.2				*				—				*				—
Eliminations			(28.1	)			(9	%)			(31.0	)			17	%			(26.4	)
Total license fees		$	383.6				11	%		$	344.8				6	%		$	326.8
Percentage of total revenues			34	%							34	%							37	%
Services by segment:
IPG		$	528.1				6	%		$	496.6				2	%		$	485.4
iAS			75.7				4	%			72.8				3	%			70.9
SY365			1.7				(60	%)			4.2				250	%			1.2
Eliminations			(33.4	)			14	%			(29.4	)			12	%			(26.3	)
Total services		$	572.1				5	%		$	544.2				2	%		$	531.2
Percentage of total revenues			50	%							53	%							61	%
Messaging by segment:
SY365		$	176.2				29	%		$	136.5				650	%		$	18.2
Total messaging		$	176.2				29	%		$	136.5				650	%		$	18.2
Percentage of total revenues			16	%							13	%							2	%
Total revenues		$	1,131.9				10	%		$	1,025.5				17	%		$	876.2

Total license fees for 2008 increased $38.8 million (11 percent) from total license fees in 2007 which had increased $18.0 million (6 percent) from 2006. The increase in license fees during 2008 was primarily attributable to a $33.0 million (12 percent) increase in IPG license fees and to a $2.7 million (3 percent) increase in iAS license fees. The increase in license fees during 2007 was attributable to increases in both iAS and IPG license fees.

The increase in IPG license fees during 2008 was largely attributable to a 28 percent increase in database license revenues, namely our IQ and Adaptive Server Enterprise Products. The increase in IPG license fees during 2007 was primarily attributable to an increase in our IQ analytics server product. We believe that strong growth trends in IQ and RAP; and the adoption of ASE 15 will drive future revenue.

The increase in iAS license fees during 2008 was largely attributable to a 23 percent increase in our Afaria mobile device management product. The increase in iAS license fees during 2007 was primarily attributable to an increase in revenues from our mobile and embedded database products.

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. iAS then records intercompany revenue and continues to bear the 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 transfers between the segments are captured in “Eliminations.”

Total service revenues for 2008 (which include revenues from technical support, professional services, and education) increased $27.9 million (5 percent) from total service revenues in 2007 . This increase was due to a $31.5 million (6 percent) increase in IPG services and a $2.9 million (4 percent) increase in iAS services. This increase is offset by a $2.5 million (60 percent) decline in Sybase 365 service revenues primarily relating to our AvantGo service. The increase in IPG service revenues was primarily due to a $30.2 million (8 percent) increase in technical support revenues and a $2.5 million (3 percent) increase in professional services revenues. The increase in iAS service revenues was primarily due to a $2.9 million (4 percent) increase in iAS technical support revenues.

Technical support revenues comprised approximately 80 percent of total services revenues for 2008 and 79 percent in 2007. Total technical support revenue for 2008 increased $29.1 million (7 percent) from the 2007 total. Current and long-term deferred revenue balances in the balance sheet which relate principally to technical support contracts increased $7.7 million (4 percent) from December 31, 2007 to December 31, 2008.

Services revenues other than technical support decreased 1 percent in 2008 from 2007. The decrease was primarily related to a decrease in AvantGo advertising revenue of $2.7 million (64 percent) and education revenue $0.9 million (8 percent) partially offset by a $2.4 million (2 percent) increase in consulting services.

Messaging revenues for 2008 increased $39.7 million (29 percent) from 2007. We have experienced a significant increase in the volume of messaging traffic that we deliver. Our increase in messaging revenues primarily relates to expansion of messaging business by our enterprise customers and to a lesser extent, new revenue from GRX and MMX services.

For a description of our technical support, consulting and education services, see “Business - Worldwide Services,” Part I, Item 1.

Geographical Revenues
(Dollars in millions)

		2008				Change				2007				Change				2006
North America		$	567.7				7	%		$	532.0				12	%		$	474.0
Percentage of total revenues			50	%							52	%							54	%
International:
EMEA (Europe, Middle East and Africa)		$	399.5				17	%		$	342.0				22	%		$	279.3
Percentage of total revenues			35	%							33	%							32	%
Intercontinental (Asia Pacific and Latin America)		$	164.7				9	%		$	151.5				23	%		$	122.9
Percentage of total revenues			15	%							15	%							14	%
Total Outside North America		$	564.2				14	%		$	493.5				23	%		$	402.2
Percentage of total revenues			50	%							48	%							46	%
Total revenues		$	1,131.9				10	%		$	1,025.5				17	%		$	876.2

North American revenues (United States, Canada and Mexico) for 2008 increased $35.7 million (7 percent) from 2007. The increase from 2007 was due to an $18.9 million (12 percent) increase in license revenues, a $10.3 million (22 percent) increase in messaging revenues, and a $6.5 million (2 percent) increase in service revenues. In 2007, the increase in North America revenues was primarily due to messaging revenues and license revenues offset by a decrease in consulting services.

EMEA (Europe, Middle East and Africa) revenues for 2008 increased $57.5 million (17 percent) from 2007. The increase was due to a $29.6 million (41 percent) increase in messaging revenues, a $14.9 million (14 percent) increase in license revenues, and a $13.0 million (8 percent) increase in service revenues. Increased messaging and service revenues in France, Holland and Germany; and increased license revenue in the United Kingdom contributed most to the overall increase for 2008. The increase in 2007 revenues compared to 2006 was due to an increase in messaging revenues and an increase in technical support revenues, offset by a decline in license fees. Increased revenues in France, Spain and Germany contributed most to the overall increase for 2007.

Intercontinental (Asia Pacific and Latin America) revenues for 2008 increased $13.2 million (9 percent) from 2007. The increase was primarily due to an $8.3 million (14 percent) increase in service revenues, and a $5.1 million (7 percent) increase in license revenues. The results of our operations in Asia Pacific contributed most significantly to the increased revenue. The increase in 2007 Intercontinental revenues compared to 2006 was due primarily due to an increase in messaging revenues, an increase in license revenues primarily from our IPG products and an increase in service revenues.

In EMEA and the Intercontinental region, most revenues and expenses are denominated in local currencies. The cumulative impact of changes in foreign currency exchange rates from 2007 to 2008 resulted in an increase in our revenues of under 3 percent and an increase in our operating expenses of just over 1 percent. During the first three quarters of 2008 the dollar weakened against most foreign currencies, resulting in higher revenues and expenses compared to 2007. However, in the fourth quarter of 2008 the dollar strengthened considerably, resulting in a year over year revenue and expense reduction of around 5 percent in the fourth quarter. The cumulative impact of changes in foreign currency exchange rates from 2006 to 2007 resulted in a 3 percent increase in our revenues and a 2 percent increase in our operating expenses. The change for both comparable periods was primarily due to the weakness of 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 fluctuation, see “Financial Risk Management - Foreign Exchange Risk,” below.

Cost and Expenses
(Dollars in millions)

		2008				Change				2007				Change				2006
Cost of license fees		$	67.3				27	%		$	53.1				5	%		$	50.5
Percentage of license fee revenues			18	%							15	%							15	%
Cost of services		$	160.6				2	%		$	157.8				3	%		$	153.0
Percentage of services revenues			28	%							29	%							29	%
Cost of messaging		$	107.8				31	%		$	82.6				644	%		$	11.1
Percentage of messaging revenues			61	%							61	%							61	%
Sales and marketing		$	285.4				7	%		$	267.0				1	%		$	263.3
Percentage of total revenues			25	%							26	%							30	%
Product development and engineering		$	146.9				(4	%)		$	152.6				2	%		$	149.5
Percentage of total revenues			13	%							15	%							17	%
General and administrative		$	139.0				8	%		$	129.3				22	%		$	106.0
Percentage of total revenues			12	%							13	%							12	%
Amortization of other purchased intangibles		$	14.7				7	%		$	13.8				89	%		$	7.3
Percentage of total revenues			1	%							1	%							1	%
Cost of restructuring		$	0.2				(75	%)		$	0.8				(53	%)		$	1.7
Percentage of total revenues			*								*								*

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. The cost of license fees increased $14.2 million (27 percent) in 2008 over 2007, and increased $2.6 million (5 percent) in 2007 over 2006. Such costs were 18 percent, 15 percent, and 15 percent of license revenues in 2008, 2007, and 2006 respectively. The 2008 increase was primarily due to a $9.8 million increase in the amortization of capitalized software development costs and a $4.8 million increase in the amortization of purchased technology. The 2007 increase was primarily due to a $1.9 million increase in the amortization of capitalized software development costs and a $1.1 million increase in royalties.

Amortization of capitalized software costs was $42.9 million, $33.1 million, and $31.2 million in 2008, 2007, and 2006, respectively. In 2008, the increase in capitalized software amortization was due to the full year of amortization of capitalized costs associated with our IQ and Mobility products, and impairment charges totaling $4.1 million. In 2007, the increase in the amortization of capitalized software costs was primarily related to the ASE 15.0.2 product that began fully amortizing in the fourth quarter of 2006. See Note One to the Consolidated Financial Statements - Capitalized Software, Part II, Item 8.

The amortization of purchased technology was $14.6 million, $9.8 million, and $10.1 million in 2008, 2007 and 2006 respectively. The increase in amortization of purchased technology was primarily due to a $4.5 million write-down of certain purchased technologies.

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 increased $2.8 million (2 percent) compared to 2007. These costs were 28 percent of services revenues for 2008 compared with 29 percent of services revenues for 2007. The increase in cost of services in absolute dollars for 2008 is primarily due to an

increase in payroll and related costs for personnel providing professional services. Cost of services increased approximately 4 percent in 2007 from 2006 and remained at 29 percent as a percentage of service in both 2007 and 2006.

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 2008 increased $25.2 million (31 percent) compared to 2007. Cost of messaging has increased in absolute dollars primarily as a result of the increased volume of messages delivered and the associated fees payable to operators for delivering traffic into their networks. Cost of messaging remained at 61 percent as a percentage of messaging revenue in both 2008 and 2007. The amortization of purchased technology was $4.0 million for 2008 compared to $3.8 million 2007.

Sales and marketing

Sales and marketing expenses increased $18.4 million (7 percent) in 2008 from 2007 and were 25 percent and 26 percent of total revenues in 2008 and 2007, respectively. The increased expenses in 2008 were primarily due to increases in salaries, benefits and increased commissions associated with increases in license revenues though headcount was relatively flat. The increased expenses in 2007 were primarily due to the addition of Mobile 365 and sales commissions on higher revenues, partially offset by a reduction in payroll and related costs caused by a decrease in headcount and a decrease in certain allocated costs and a decrease in advertising costs.

Product development and engineering

Product development and engineering expenses (net of capitalized software development costs) decreased $5.7 million (4 percent) in 2008 from 2007 and as a percentage of total revenue decreased to 13 percent in 2008 from 15 percent 2007. The decrease in absolute dollars was primarily due to an increase in capitalized software costs offset by increases in compensation, benefits and other employee-related expenses, and various other product development-related costs.

The 2 percent increase in product development and engineering expenses in 2007 over 2006 was primarily due to an increase in payroll and related expenses, partially offset by an increase in capitalized software and a decrease in certain allocated common expenses.

We capitalize product development and engineering costs during the period between a product’s achievement of technological feasibility and its general availability. Our capitalized software costs in 2008 of $48.6 million included costs incurred for the development of the Adaptive Server Enterprise, Replication Server, IQ, mBanking and Mobility products. Our capitalized software costs in 2007 of $36.2 million included costs incurred for the development of the Adaptive Server Enterprise, IQ, Data Integration Suite, Workspace and eBanking.

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, increased $9.7 million (8 percent) in 2008 compared to 2007 and decreased as a percent of total revenue to 12 percent in 2008 from 13 percent in 2007. The increase in general and administrative expenses in absolute dollars for 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 bonuses. General and administrative expenses included stock-based compensation expense of $12.2 million and $13.7 million in 2008 and 2007, respectively.

The 22 percent increase in 2007 compared to 2006 was primarily due to the acquisition of Mobile 365 in the fourth quarter of 2006 and a slight increase in stock compensation expense.

Stock-based compensation expense

Stock-based compensation expense reflects non-cash compensation expense associated with restricted option and stock grants to certain Sybase executives and employees. Stock-based compensation expense also reflects employee stock options and stock appreciation rights accounted for under SFAS123R. (See Note Seven to the Consolidated Financial Statements — Stockholders’ Equity, Part II, Item 8). Stock-based compensation expense was included in costs and expenses as follows:

(Amounts in thousands)		2008				2007				2006
Costs of services			1,364				1,544				1,629
Costs of messaging			484				544				124
Sales and marketing			5,538				5,304				4,432
Product development and engineering			2,887				2,982				2,679
General and administrative			12,242				13,670				12,861
			22,515				24,044				21,725

The decrease in stock-based compensation expenses in 2008 was primarily due to the decline in stock options granted to employees. The increase in stock-based compensation expenses in 2007 primarily resulted from the grant of certain performance-based restricted stock described more fully in Note Seven to the Consolidated Financial Statements and the assumption of stock options related to the Mobile 365 acquisition.

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, of XcelleNet in 2004, of Extended Systems in 2005, of Mobile 365 in 2006, and of Cable & Wireless businesses in July 2008. See Note Four to Consolidated Financial Statements — Goodwill and Other Purchased Intangible Assets, Part II, Item 8.

Restructuring Activities

We undertook restructuring activities in 2004, 2003, 2002 and 2001 as a means of managing our operating expenses.

For descriptions of each restructuring plan, see Note Thirteen to Consolidated Financial Statements - Restructuring Costs, Part II, Item 8.

Operating income
(Dollars in millions)

		2008				Change				2007				Change				2006
Operating income by segment:
IPG		$	200.0				19	%		$	167.9				17	%		$	142.9
IAS			27.2				1	%			27.0				71	%			15.8
SY365			5.3				*				(0.5	)			(58	%)			(1.2	)
Unallocated costs			(22.4	)			(13	%)			(25.8	)			9	%			(23.7	)
Total operating income		$	210.1				25	%		$	168.6				26	%		$	133.8
Percentage of total revenues			19	%							16	%							15	%

Operating income in 2008 was $210.1 million compared to operating income of $168.6 million in 2007 and $133.8 million in 2006. The increase in operating income was 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 Ten to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference.

Consolidated operating margins improved to 19 percent in 2008 from 16 percent in 2007. The increases in operating margin are primarily due to improvements in operating margin in the IPG and Sybase 365 segment offset by a decline in the operating margin in the iAS segment as discussed below.

The operating margin for the IPG segment was 24 percent in 2008 compared to 22 percent in 2007. The increase in operating income and margin in the IPG segment for 2008 compared to 2007 was primarily due to a 12 percent increase in license fees, a 6 percent increase in service revenues, partially offset by a 5 percent increase in total expenses primarily due to increases in compensation, benefits and other employee-related expenses, and intangible asset amortization.The increase in revenue for 2008 is primarily due to the various factors discussed under “Revenues” and “Geographical Revenues” above.

The increase in operating income and margin in the IPG segment for 2007 compared to 2006 was primarily due to a 6 percent increase in license fees, a 3 percent increase in maintenance fees, a 2 percent decrease in lower margin consulting fees and reduced payroll and related costs associated with a 6 percent decrease in total IPG headcount.

The operating margin for the iAS segment was 15 percent for 2008 compared to 16 percent in 2007. The decrease in iAS segment operating margin was primarily due to the write-down of certain purchased technologies during 2008. 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 reclassified certain revenue and expense amounts for all earlier periods reported to reflect this segment change.

The increase in operating margin for the iAS segment in 2007 was to due a 9 percent increase in license fees, a 10 percent increase in maintenance fees and a lower increase in total expenses.

The operating margin for the Sybase 365 segment was 3 percent for 2008 compared to 0 percent in 2007. The increase in operating margin was primarily due to a 29 percent increase messaging revenue partially offset by a 30 percent increase in cost of messaging.

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 2008 consisted primarily of stock-based compensation expenses.

During 2008, foreign currency exchange rate changes from 2007 resulted in an improvement in operating profits of approximately $18.0 million.

Other income (expense), net
(Dollars in millions)

		2008				Change				2007				Change				2006
Interest income		$	23.8				(29	%)		$	33.5				(13	%)		$	38.7
Percentage of total revenues			3	%							3	%							4	%
Interest expense and other, net		$	(26.8	)			121	%		$	(12.1	)			10	%		$	(11.0	)
Percentage of total revenues			(1	%)							(1	%)							(1	%)
Minority interest		$	0.1				*				*				*			$	(0.1	)
Percentage of total revenues			*								*								*

In 2008, Interest income decreased $9.7 million from 2007. Interest income consists primarily of interest earned on our investments. The decrease is primarily due to a decrease in the cash balances invested along with a 117 basis point decrease in the effective interest rates earned on such cash balances. 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.

In 2007, interest income decreased $5.2 million from 2006. The decrease is primarily due to lower cash balances due to the acquisition of Mobile 365 in the fourth quarter of 2006. See “Consolidated Statements of Cash Flows,” Part II, Item 8.

Interest expense and other, net, primarily includes: impairment charges related to investments in auction-rate securities (ARS); interest expense on our 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 increased $14.7 million in 2008 as compared to 2007. The increase in interest expense and other, net is primarily due to the impairment loss associated with our investment in auction rate securities of $13.4 million and losses resulting from foreign currency transactions and the related hedging activities of $2.0 million in 2008. The ARS investments currently lack short-term liquidity and 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 reasonable secondary market which currently does not exist.

The increase in interest expense and other, net from 2007 compared to 2006 was primarily due to a decline in gains on disposition of cash investments in 2007.

Recent changes in applicable accounting rules for convertible notes require interest expense to be imputed at fair value as of the debt issuance date. This will result in increases in previously reported and future our interest expense and reductions in our net income in prior and future years. In addition, further impairments to the ARS investments, if any, will result in additional charges to earnings.

Provision for Income Taxes
(Dollars in millions)

		2008				Change				2007				Change				2006
Provision for income taxes		$	68.6				67	%		$	41.1				(38	%)		$	66.3

In 2008 a provision for income taxes was recorded at a rate of approximately 33 percent of income before taxes. Our effective rate differed from the statutory federal rate of 35 percent primarily due to adjustments for the release of valuation allowances on deferred tax assets, and the effect of foreign operations; offset somewhat by the impact of state taxes. After assessing the valuation on our deferred tax assets at December 31, 2008, we concluded that it was more likely than not (a likelihood of more than 50 percent) that a portion of our deferred tax assets relating to federal tax loss carryforwards and state tax credit and loss carryfowards would be realized based on a number of factors including projections of future year federal taxable income and, in the case of state credits and losses, projections of future year taxable income in the relevant states. As a result of this re-evaluation, during the three month period ending December 31, 2008, we released approximately $16.5 million of valuation allowances relating to federal tax loss carryforwards, all of which reduced goodwill, and approximately $11.7 million of valuation allowances relating to state tax credit and loss carryforwards, of which $6.7 million reduced tax expense, approximately $1.7 million reduced goodwill, and approximately $3.3 million increased deferred tax liability for the related federal tax effect.

Our tax expense in 2008 was higher than our tax expense in 2007 primarily due to the $26.4 million valuation allowance release which reduced 2007’s tax expense. In 2007 a provision for income taxes was recorded at a rate of approximately 22 percent of income before taxes. Our effective rate differed from the statutory federal rate of 35 percent primarily due to adjustments for the release of valuation allowances on deferred tax assets, the effect of foreign operations, offset somewhat by the impact of state taxes.

We record a deferred tax liability for US taxes expected to be incurred on our foreign subsidiaries’ earnings that are not considered to be permanently reinvested overseas. Prior to the quarter ending December 31, 2007, we had anticipated a certain amount of foreign earnings to not be permanently reinvested. During the three month period ending December 31, 2007, due to possible share repurchases or acquisitions, we concluded that a total of approximately $60 million of earnings of a foreign subsidiary were not considered permanently reinvested since the funds were required for possible share repurchases or acquisitions. This change had the effect of increasing full year tax expense by approximately $13 million.

During the three month period ending December 31 2007, we also evaluated our projections of the Company’s future US taxable income and released approximately $27.6 million of valuation allowances relating to federal research tax credit and foreign tax credit carryforwards, of which $26.4 million reduced tax expense and approximately $1.2 million reduced goodwill.

In 2006 a provision for income taxes was recorded at a rate of approximately 41 percent of income before taxes. Our effective rate differed from the statutory federal rate of 35 percent primarily due to adjustments for the impact of state taxes, and the tax effect of our foreign operations; offset somewhat by adjustments for the difference between estimated amounts recorded and actual liabilities resulting from the filing of prior years’ tax returns.

We had a gross deferred tax asset of $121 million at December 31, 2008. This deferred tax asset is reduced by a valuation allowance of $61 million, for a net balance of $60 million. In order to realize our net deferred tax assets we must generate sufficient taxable income in future years in appropriate tax jurisdictions to obtain the recorded benefit from the reversal of temporary differences (i.e., between book and tax basis), and from tax loss and credit carryforwards. Based on the plans and estimates we are using to manage the underlying business, we believe that sufficient income will be earned in the future to realize these assets. The amount of the deferred tax assets considered realizable is subject to

adjustment in future periods if estimates of future taxable income are reduced. Any such adjustments to the deferred tax assets would be charged to income in the period such adjustment was made. See Note Eight to the Consolidated Financial Statements — Income Taxes, Part II, Item 8.

Net income per share
(Dollars and shares in millions)

		2008				Change				2007				Change				2006
Net income		$	138.6				(7	%)		$	148.9				57	%		$	95.1
Percentage of total revenues			12	%							15	%							11	%
Basic:
Net income per share		$	1.69				2	%		$	1.65				56	%		$	1.06
Shares used in computing basic net income per share			82.1				(9	%)			90.0				*				89.6
Diluted:
Net income per share		$	1.64				2	%		$	1.61				56	%		$	1.03
Shares used in computing diluted net income per share			84.5				(9	%)			92.6				*				92.3

In 2008 the decrease in net income compared to 2007 was due to the various factors discussed above, primarily the increase in operating income offset an increase in tax expenses and a reduction of non-operating interest income and expense, net.

In 2008, shares used in computing basic and diluted net income per share decreased 9 percent compared to 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.

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. As the average price of the Company’s stock did not exceed the conversion price in the fourth quarter of 2008, the 2008 computation of diluted earnings per share excludes the dilutive effects of the Company’s convertible debt. See Note Fifteen to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference.

Liquidity and capital resources
(Dollars in millions)

		2008				Change				2007				Change				2006
Working capital		$	518.0				(14	%)		$	604.7				33	%		$	455.1
Cash and cash equivalents		$	611.4				1	%		$	604.8				70	%		$	355.3
Net cash provided by operating activities		$	295.5				16	%		$	254.0				18	%		$	214.6
Net cash provided by (used for) investing activities		$	(14.6	)			*			$	86.7				*			$	(276.3	)
Net cash provided by (used for) financing activities		$	(245.9	)			118	%		$	(112.6	)			*			$	(0.1	)

Our primary source of cash is collections from our customers following the purchase of our products and services. Our business activity and cash generation was strong in 2008. While we are aware of concerns regarding the macro economic environment, we have not noted a meaningful impact on the cash flows generated by our business to date.

Our primary use of cash is payment of our operating costs, which consist primarily of compensation, benefits and other employee-related expenses, as well as other operating expenses for marketing, facilities and overhead costs. In addition to operating expenses, we also use cash to invest in our growth initiatives, which include acquisitions of products, technology and businesses and to fund our stock repurchase program.

As a result of recent volatile conditions in global capital markets, general liquidity in short-term credit markets has been constrained despite several pro-active intervention measures undertaken by the U.S. government. At December 31, 2008, our principal sources of liquidity were cash (excluding long-term cash investments), cash equivalents and short-term marketable securities totaling $620.1 million and accounts receivable of $270.4 million.

At December 31, 2008, we had $611.4 million invested in money market funds, bank time deposits, savings accounts and checking accounts. Our short-term investments totaling $8.7 million consisted principally of marketable securities held in a Rabbi Trust under non-qualified deferred compensation plans. See Note Two to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference. Approximately 40 percent of our cash is held outside the U.S.. As discussed above in Critical Accounting Policies — Income Taxes, approximately $50 million of these funds are considered permanently reinvested in our foreign operations. Management may, from time to time, revise its estimates of foreign subsidiaries’ earnings permanently reinvested depending on US cash needs. Such changes will correspondingly affect US taxable income. In addition, management periodically evaluates whether funds not permanently reinvested can be repatriated based on local country operating needs, foreign governmental and regulatory controls and/or dividend restrictions and any additional U.S. or foreign taxes when repatriated.

At December 31, 2008, long-term cash investments included auction rate securities with an estimated fair value of $15.5 million and a par value of $28.9 million. These investments have failed to settle at auction since August 2007 due to a lack of market. At this time, these investments are not liquid. Based on our current cash, investment balances and expected operating cash flows, we do not anticipate that the lack of ARS liquidity to adversely affect our ability to conduct business. See “Short-term and Long-term Cash Investments and Auction-Rate Securities” below for further discussion on these securities.

Our only significant debt is a $460 million convertible debt instrument which may be put to us or called by us in February 2010. See Note Fifteen to Consolidated Financial Statements, Part II, Item 8. Though it may be somewhat dependent upon the actions of our noteholders (if some or all of them decide to put the convertible note to us), it is our current expectation that this instrument will be repaid in February 2010, possibly through the issuance of another debt instrument. That said, at this time, we believe our cash and cash equivalents of $611.4 million and future cash flow from operations is sufficient to pay the notes if they are redeemed.

Recent changes in applicable accounting rules for convertible notes require interest expense to be imputed at fair value as of the debt issuance date. This will result in increases in previously reported and future interest expense and reductions in our net income in prior and future years.

Working Capital

The decrease in working capital during 2008 was primarily due changes in our cash balance. Such changes in our cash balance reflect the net use of $306 million to fund stock buybacks offset by net cash

flows provided from operations of $295.5 million. The increase in working capital during 2007 is primarily due to net cash provided from operations and investing activities of $254.0 million and $86.7 million respectively.

Cash Flow

Net cash provided by operating activities increased by 16.3 percent in 2008 to $295.5 million primarily due to an increase in non-cash expenses, increases in income taxes payable, and decreases in prepaid taxes from the collection of certain tax refunds. The primary use of cash was for an increase in accounts receivable. Our days sales outstanding in accounts receivable was 80 days for the year ended December 31, 2008 compared to 75 days for the year ended December 31, 2007. The increased days sales outstanding was due to a larger amount of sales transactions occurring closer to the end of the fourth quarter compared with the same period in 2007. Net cash provided by operating activities increased 18 percent in 2007 compared to 2006 primarily due to a $53.8 million increase in net income. This was partially offset by changes in non-cash expenses related to stock compensation expense, accounts receivable and prepaid taxes.

Net cash used for investing activities was $14.6 million for 2008 compared to a $86.7 million source of cash in 2007. The primary uses of cash for investing activities were for capitalized software development business combinations, and purchases of property, equipment and improvements; partially offset by maturities and sales of short-term investments during 2008. Net cash provided by investing activities increased $363.0 million from 2006 to 2007. The increase in net cash used for investing activities is primarily due to the liquidation of marketable securities to fund our acquisition of Mobile 365 in 2006.

Net cash used for financing activities was $245.9 million for 2008 compared to a $112.6 million use of cash for the 2007. The increase in cash used for financing activities is primarily due to a $306.1 million repurchase of our common stock during 2008, partially offset by net proceeds from the reissuance of treasury stock associated with stock option exercises and our employee stock purchase plan totaling $50.0 million. Net cash used for financing activities totaled $112.6 million in 2007 compared to $0.1 million in 2006. The increase in cash used for financing activities in 2007 is primarily due to purchases of treasury stock which increased $106.9 million in 2007 from 2006.

Revaluation of cash denominated in currencies other than US dollars had a negative impact on cash of $28.4 million during 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 December 31, 2008, aggregate amounts purchased under the Stock Repurchase Program totaled $1,197.4 million. During 2008, we repurchased 11.0 million shares at a cost of $306.1 million. The majority of the 2008 purchases occurred on April 15, 2008, when we completed a self-tender offer on 10.7 million shares of our common stock for $28 per share at a total cost of $300 million. On April 26, 2006 our Board of Directors approved a $250 million increase to our Stock Repurchase Program. Approximately $77.5 million remained available in the Stock Repurchase Program at December 31, 2008.

On July 4, 2008 we acquired certain businesses from Cable and Wireless. On December 30, 2008 we acquired Paybox Solutions AG. See Note Eleven to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference.

In response to the uncertain economic climate and the constrained short-term credit market, in the fourth quarter of 2008 we reassessed and tightened our credit extension policy. The effect of the reassessment resulted in deferral of revenue in certain cases.

At December 31, 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. Additionally, in order to fund such investment we may decide to repatriate certain funds held outside the US. The repatriation of such funds could result in the payment of additional US taxes.

We engage in global business operations and are therefore exposed to foreign currency fluctuations. As of December 31, 2008, we had identifiable net assets totaling $416.9 million associated with our foreign 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. The principal currencies hedged during 2008 were the Euro, British Pound, South African Rand, and Singapore dollar. We monitor our foreign exchange exposures to ensure the overall effectiveness of our foreign currency hedge positions. For a further discussion of the effect of foreign currency fluctuations on our financial condition, see “Financial Risk Management — Foreign Exchange Risk,” below.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments that are comprised principally of taxable, short-term money market instruments with maturities of three months or less at the time of purchase and demand deposits with financial institutions. The increase in cash and cash equivalents together with cash investments during 2008 is due to increases in cash from operations partially offset by stock repurchases.

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

Short-term cash investments consist principally of a defined set of mutual funds that are invested as directed by participants of the Rabbi Trust established in 1994 related to our Executive Deferred Compensation Plan. Short term cash investments also include short-term bank deposits with maturities up to one year.

As of December 31, 2008, long-term cash investments totaling $15.5 million consist of six auction rate securities (ARS) with an aggregate par value of $28.9 million. As of December 31, 2008, the other-than-temporary impairment associated with these six ARS totaled $13.4 million.

Contractual Obligations

Our contractual obligations at December 31, 2008 are summarized as follows:

		Payments Due by Period
(Dollars in Millions)						2009				2010-2011				2012-2013
Contractual Obligations		Total				Commitments				Commitments				Commitments				After 2013
Operating leases		$	229.9			$	46.7			$	68.9			$	48.3			$	66.0
Capital lease			10.3				1.0				1.9				1.9				5.5
Debt obligations:
Sale-and-leaseback			2.1				0.4				0.9				0.8				—
Note(s) payable			2.7				0.9				0.4				0.4				1.0
Convertible subordinated notes			472.1				8.1				464.0				—				—
Purchase Obligations			17.3				13.2				4.1				—				—
Accrued income taxes			17.6				17.6				—				—				—
Total commitments		$	752.0			$	87.9			$	540.2			$	51.4			$	72.5

Upon completion of our acquisition of Extended Systems Incorporated (ESI) in October 2005, we assumed the obligations under a sale-and-leaseback transaction completed by ESI in September 2003 related to ESI’s headquarters building and land in Boise, Idaho. The sale-and-leaseback is recorded as a financing transaction. Under the terms of the agreement we have an option to repurchase the building and land at any time before September 2013 at a price of $5.1 million. The gross proceeds received of $4.8 million are included in other long-term liabilities on our balance sheet at December 31, 2008.

As part of the agreement, ESI entered into a 10-year master lease for the building with annual lease payments, which are recorded as interest expense, equal to 9.2 percent of the sale price, or approximately $442,000. We are also obligated to pay all expenses associated with the building during our lease, including the costs of property taxes, insurance, operating expenses and restoration and other repairs. (See Note Six to Consolidated Financial Statements, Part II, Item 8).

As part of the 15-year capital lease agreement entered into for our Waterloo, Canada facility (see Note Six to Consolidated Financial Statements, Part II, Item 8), we entered into an agreement with the landlord to finance approximately $1.5 million of tenant improvements at an annual interest rate of 8.76%. The loan requires monthly payments of $14,955 which includes both principal and interest commencing October 2004 through October 2019.

On February 22, 2005, we issued through a private offering to qualified institutional buyers in the U.S. $460 million of convertible subordinated 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 our future senior indebtedness. The notes mature on February 22, 2025 unless earlier redeemed by us at our option, or converted or put to us at the option of the holders. Interest is payable semi-annually in arrears on February 22 and August 22 of each year, commencing on August 22, 2005. We used approximately $125 million of the proceeds to repurchase 6.7 million shares of Sybase stock in February of 2005. For purposes of determining the total principal and interest payment commitments above, we have assumed the notes will be held until the first day we may redeem the notes, March 1, 2010. See Note Fifteen to Consolidated Financial Statements, Part II, Item 8.

We have other long-term liabilities reflected in the Consolidated Balance Sheets, including Long-term tax liabilities related to FIN48 contingencies of approximately $32 million. We have not included this amount in the table above because we cannot make a reasonably reliable estimate regarding the timing of settlements with taxing authorities, if any.

New Accounting Pronouncements

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

In May 2008, the FASB issued FSP No. 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, which is effective January 1, 2009 requires issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to separately account for the liability and equity (conversion feature) components of the instruments. Retrospective adoption is required. As a result, interest expense will be retrospectively imputed and recognized on our convertible subordinated notes (“Notes”) based upon the difference between the Notes 1.75 percent coupon rate and the nonconvertible debt borrowing rate which would have applied to us in February of 2005 when we issued the Notes. This imputed interest will result in lower net income. Upon adoption of FSP APB 14-1 in 2009,

we will record a debt discount, which will be amortized to interest expense through February 22, 2010, representing the first date on which holders of the Notes may require us to repurchase all or a portion of their notes. In addition, we will retrospectively record a non cash increase in interest expense for 2007 and 2008 of $16.8 million and $17.8 million, respectively. This will result in a retrospective non cash after tax reduction in diluted earnings per common share of approximately $0.10 and $0.12 in 2007 and 2008, respectively. In addition, the carrying amount of the Notes will be retrospectively adjusted to reflect a discount of $85.0 million on the date of issuance, with an offsetting increase in additional paid-in capital of $51.0 million and deferred tax liability of $34.0 million.

The convertible debt is our only instrument which falls under FSP APB 14-1. FSP APB 14-1 will be applied to the convertible debt from its inception date. The cumulative effect of such application will be captured with an adjustment to our opening 2007 retained earnings balance. The cumulative effect of this change will total approximately $16.5 million on periods prior to 2007. 2009 interest expense will increase approximately $18.9 million due to this change. 2009 after tax diluted earnings per common share will be reduced correspondingly by $0.13.

SFAS 141(R), “Business Combinations"

In December 2007, the 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 the tangible and intangibles assets acquired. FAS 141(R) will result in a number of significant changes from current practice, including: the definitions of a “business” and a “business combination” will be expanded; contingent considerations will be recognized at their 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. Except for certain income tax accounting, 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. Generally, the effects of SFAS 141(R) will depend on future acquisitions. FAS 141(R) applies retrospectively to our deferred tax asset valuation allowance relating primarily to our acquired federal tax loss carryforwards. If in the future the realization of these tax loss carryforwards is evaluated as being more likely than not, then under current generally accepted accounting principles the tax benefit would have been credited to goodwill. Under FAS 141(R), any tax benefit will now be credited to our operations. As of December 31, 2008, approximately $22 million of our valuation allowance relates to acquired federal tax loss carryforwards.

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

In April 2008, the FASB issued 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. As we evaluate the useful lives of recognized intangible assets we will apply the FSP and expand our disclosures accordingly.

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. We do not expect the adoption of FSP FAS 157-2 will have a material impact on our financial position, results of operations, or cash flows.

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. FAS 160 will change the presentation of our noncontrolling interests in our balance sheet and income statement. Specifically, noncontrolling interests will now appear as a separate component of consolidated equity in our balance sheet rather than a “mezzanine” item between liabilities and equity. Further, earnings and other comprehensive income will be attributed to both the controlling and noncontrolling interests. Earnings per share will continue to be calculated based on net income attributable to our controlling interest. We do not expect the adoption of FAS 160 will have a material impact on our financial position, results of operations, or cash flows.

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 do not expect the adoption of FAS 161 will have a material impact on our financial position, results of operations, or cash flows.

EITF No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock"

In June 2008 the FASB ratified EITF consensus No. 07-5. “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). The objective of this Issue is to provide guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. Such determination is required when assessing whether certain financial instruments should be accounted for as derivative instruments. This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We do not expect the adoption of EITF 07-5 will have a material impact on our financial position, results of operations, or cash flows.

EITF No. 08-3, “Accounting by Lessees for Maintenance Deposits"

In June 2008, the FASB ratified EIFT consensus No. 08-3, “Accounting by Lessees for Maintenance Deposits” (EITF 08-3). EITF 08-3 clarifies how a lessee accounts for a maintenance deposit under an arrangement accounted for as a lease that is refunded only if the lessee performs specified maintenance activities. This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008. We do not expect the adoption of EITF 08-3 will have a material impact on our financial position, results of operations, or cash flows.

EITF No. 08-4, “Transition Guidance for Conforming Changes to Issue No. 98-5"

In June 2008, the FASB ratified EITF consensus No. 08-4 “Transition Guidance for Conforming Changes to Issue No. 98-5” (EITF 08-4). EITF 08-4 provides guidance for accounting for convertible securities with Beneficial Conversion Features that are in the money at the time off issuance. The issue is effective for financial statements issued for fiscal years ending after December 15, 2008. We do not expect the adoption of EITF 08-4 will have a material impact on our financial position, results of operations, or cash flows.

See Note One to Consolidated Financial Statements — Recent Accounting Pronouncements, Part II, Item 8.

Financial Risk Management

Foreign Exchange Risk

The functional currency of our international operating subsidiaries is generally the local currency. We experience foreign exchange translation exposure on our net assets and liabilities denominated in currencies other than the U.S. dollar. The related foreign currency translation gains and losses from translating these amounts into U.S. dollars for subsidiaries that conduct their business in a currency other than the U.S. dollar, are reflected in “Accumulated other comprehensive income” under “Stockholders’ equity” on the balance sheet. Foreign currency transaction gains and losses, which historically have not been material, are included in interest expense and other, net in the consolidated statements of operations. As of December 31, 2008, we had identifiable net assets totaling $817.2 million worldwide. Of those net assets, $416.9 million were associated with our foreign operations .

As a global concern, we face exposure to movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have material adverse or beneficial impacts on our financial position and results of operations. Historically, our primary exposures have been related to sales and expenses in EMEA, Asia Pacific, and Latin America; intercompany sublicense fees, intercompany messaging revenues and expenses and other intercompany transactions which are denominated in a currency other than the functional currency of the subsidiary recording the transaction. 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. 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 meant to mitigate the gains and losses on these outstanding foreign currency transactions. Although the impact of currency fluctuations on our financial results has generally been immaterial in the past, there can be no guarantee the impact of currency fluctuations related to our intercompany messaging revenues and expenses and other activities will not be material in the future.

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. Net foreign exchange transaction gains (losses) included in interest expense and other, net were ($4.2) million, $0.3 million and $0.3 million in 2008, 2007 and 2006, respectively. The realized loss of $4.2 million on our outstanding forward contracts as of December 31, 2008 was due to fluctuation in foreign exchange rates in September and October of 2008. The tables below provide information about our forward contracts as of December 31, 2008 and 2007.

(Amounts in thousands except exchange rates)

		US $				Average
Forward Contracts - As of December 31, 2008		Notional amount				Contract rate
Contracts for the sale of US Dollars and purchase of:
Canadian Dollars		$	1,473				0.8183
Euro		$	18,294				1.3965
Mexican Pesos		$	1,278				13.9255
Indian Rupee		$	2,016				48.6000
Contracts for the sale of GBP and purchase of:
South African Rand		$	8,943				13.7971
Contracts for the purchase of US Dollars and sale of:
British Pound		$	1,161				0.6889
Singapore Dollar		$	1,386				0.6931
Contracts for the purchase of Euros and sale of:
Swedish Krona		$	1,332				11.0047
Swiss Franc		$	2,804				1.4951
UK Pound		$	17,709				0.9621
Norwegian Krone		$	1,407				9.7286
Singapore Dollars		$	4,369				2.0138
South African Rand		$	9,710				13.2743
Total		$	71,882

(Amounts in thousands except exchange rates)

		US $				Average
Forward Contracts - As of December 31, 2007		Notional amount				Contract rate
Contracts for the sale of US Dollars and purchase of:
Canadian Dollars		$	18,438				1.0130
Euro		$	15,056				1.4618
Singapore Dollars		$	2,018				0.6957
Contracts for the sale of GBP and purchase of:
South African Rand		$	1,299				13.7194
Contracts for the purchase of US Dollars and sale of:
Japanese Yen		$	16,899				111.8400
British Pound		$	5,544				0.5051
Korean Won		$	1,814				937.2000
Contracts for the purchase of Euros and sale of:
Swedish Krona		$	524				9.4842
Swiss Franc		$	2,292				1.6572
UK Pound		$	19,585				0.7384
Norwegian Krone		$	3,388				7.9763
Australian Dollars		$	2,621				1.6718
Hong Kong Dollars		$	1,667				11.3904
South African Rand		$	2,466				10.1288
Malaysian Ringits		$	908				4.8268
Total		$	94,519

Interest Income Rate and Investment Level Risk

Our investments consist primarily 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. Based on our intentions regarding investments, we classify our investments as either held-to-maturity, available-for-sale or trading securities. Held-to-maturity investments are reported on the balance sheet at amortized cost. Available-for-sale and trading securities are reported at market value.

As a majority of our investments are classified as available-for-sale such securities are recorded at fair value and unrealized holding gains and losses, net of the related tax effect, if any, are not reflected in earnings but are reported as a separate component of other comprehensive income (loss) until realized. Declines in fair value judged to be other than temporary are reflected in earnings. Declines in fair value recorded as impairment losses in earnings have not been material in any reporting period. Realized gains and losses are determined on the specific identification method and are reflected in income.

Changes in the overall level of interest rates and investment levels affect our interest income that is generated from our investments. For 2008 total interest income was $23.8 million with investments yielding 3.63 percent on a worldwide basis on an average investment portfolio that totaled $647 million. This interest rate level was down from the 4.48 percent yield earned during 2007. If interest rates fell by a similar amount (1.17 percent) in 2009, our interest income would decline approximately $7.9 million assuming consistent investment levels.

The table below presents the cash, cash equivalents, cash investments, trading securities and the related weighted average interest rates for our investment portfolio at December 31, 2008. The cash, cash equivalents, cash investments, and trading securities balances approximate fair value at December 31, 2008.

		Amortized				Weighted Average
(Dollars in Thousands)		Principal Amount				Interest Rate
Cash and cash equivalents		$	611,364
Cash investments			15,606
Trading securities			8,638
Total		$	635,608				3.14	%

Default Risk

We place our investments with high quality credit issuers and, by policy, limit the amount of credit exposure with any one issuer. We mitigate default risk by investing in safe, high investment grade 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, with the exception of failed auction securities described below. We have no cash flow exposure due to rate changes for our investment portfolio, since all investments are made in securities with fixed interest rates.

Failed Auction Securities

A small proportion of our investment portfolio is held in Auction Rate Securities with credit ratings ranging from AA to AAA at the time of purchase. The securities, which met Sybase’s investment guidelines at the time the investments were made, have failed to settle in auctions since August 2007. ARS are floating rate securities with long-term nominal maturities of 25 to 30 years 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 we hold consists primarily of corporate bonds, commercial paper, debt instruments issued by the U.S. Treasury and governmental agencies, money market funds, asset backed securities, collateralized debt obligations, similar assets, and in one instance, preferred stock in a bond insurance company. Certain of the ARS may have direct or indirect investments in mortgages, mortgage related securities, or credit default swaps. At December 31, 2008 we held approximately $15.5 million in estimated market value in ARS for which the reset auctions have failed. The par value of these securities

is $28.9 million. The write-downs on these securities have been booked in Other Income and Expense. In addition the investments currently lack short-term liquidity and 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 reasonable secondary market which currently does not exist. Therefore, we have moved the balance sheet classification of these investments from short term to long term. Any future evaluations by the credit agencies could result in downgrades to the credit ratings of the ARS we hold. Based on our current cash, investment balances and expected operating cash flows, we do not anticipate that the lack of short-term liquidity for the ARS to adversely affect our ability to conduct business. See Note Two to Consolidated Financial Statements, Part II, Item 8.

Interest Expense Rate Risk

Borrowings, which were at fixed rates, as of December 31, 2008, were $460 million. Interest expense was $11.5 million for 2008. Sybase might decide to borrow additional funds in the future. The potential interest rates could be higher in the future than in our past borrowing. A 50 basis point increase in interest rates of our borrowings subject to variable interest rate fluctuations would increase our interest expense by $2.3 million annually. Additionally, as further discussed in Note One to Consolidated Financial Statements, Part II, Item 8, FSP APB 14-1 takes effect January 1, 2009 and will increase the amount of interest expense we recognize.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is presented under “MD&A — Financial Risk Management,” Part II, Item 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

		Page
Report of Management on Internal Controls over Financial Reporting			62
Report of Independent Registered Public Accounting Firm on Internal Controls over Financial Reporting			63
Report of Independent Registered Public Accounting Firm			64
Consolidated Balance Sheets as of December 31, 2008 and 2007			65
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006			66
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2008, 2007 and 2006			67
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006			68
Notes to Consolidated Financial Statements			69

Report of Management on Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2008 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2008 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our internal control over financial reporting as of December 31, 2008 has been audited by Ernst & Young LLP, an independent registered public accounting firm, who expressed an unqualified opinion on the effectiveness of internal control over financial reporting as stated in their report which is included elsewhere herein.

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Stockholders of Sybase, Inc.

We have audited Sybase, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sybase, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Report of Management on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Sybase, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sybase, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008, and our report dated February 26, 2009 expressed an unqualified opinion thereon.

		/s/ ERNST & YOUNG LLP

San Francisco, California
February 26, 2009

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Sybase, Inc.

We have audited the accompanying consolidated balance sheets of Sybase, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sybase, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sybase, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2009 expressed an unqualified opinion thereon.

		/s/ ERNST & YOUNG LLP

San Francisco, California
February 26, 2009

Consolidated Balance Sheets

		December 31
(Dollars in thousands, except share and per share data)		2008				2007
Assets
Current assets:
Cash and cash equivalents		$	611,364			$	604,808
Short-term cash investments			8,689				93,462
Total cash, cash equivalents and short-term cash investments			620,053				698,270
Restricted cash			2,773				3,424
Accounts receivable, less allowance for doubtful accounts of $3,888 (2007 - $3,735)			270,400				245,267
Deferred income taxes			45,524				37,979
Prepaid income taxes			4,932				17,604
Prepaid expenses and other current assets			34,208				25,182
Total current assets			977,890				1,027,726
Long-term cash investments			15,513				36,637
Restricted long-term cash investments			41				—
Property, equipment and improvements, net			62,263				64,841
Deferred income taxes			26,474				10,038
Capitalized software, net			82,400				74,278
Goodwill			527,151				533,339
Other purchased intangibles, less accumulated amortization of $177,839 (2007 — $147,311)			113,970				130,608
Other assets			29,715				36,016
Total assets		$	1,835,417			$	1,913,483
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	26,300			$	30,290
Accrued compensation and related expenses			80,031				63,852
Accrued income taxes			17,562				273
Other accrued liabilities			124,050				124,849
Deferred revenue			211,903				203,734
Total current liabilities			459,846				422,998
Other liabilities			44,788				44,669
Deferred income taxes			11,898				14,115
Long-term tax liability			32,082				30,807
Long-term deferred revenue			4,535				4,937
Minority interest			5,095				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 79,571,991 shares outstanding (2007 — 105,337,362 shares issued and 87,210,339 shares outstanding)			105				105
Additional paid-in capital			1,054,517				1,019,930
Accumulated earnings			367,286				241,329
Accumulated other comprehensive income			36,912				66,954
Cost of 25,765,371 shares of treasury stock (2007 — 18,127,023 shares)			(641,647	)			(397,508	)
Total stockholders’ equity			817,173				930,810
Total liabilities and stockholders’ equity		$	1,835,417			$	1,913,483