##### Table of Contents



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, 2006
 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.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    94-2951005
(I.R.S. Employer
Identification No.)One Sybase Drive, Dublin, California
(Address of principal executive offices)
    
    94568
(Zip Code)
 
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, $.001 par value per share
    
    New York Stock Exchange
    þ o
 o þ
  þ o
 o
  þ o o
 o þ
   Class
    
    Outstanding at February 15, 2007Common Stock, $.001 par value per share
    
    91,943,635 shares
 DOCUMENTS INCORPORATED BY REFERENCE
 Document
    
    Parts Into Which IncorporatedAnnual Report to Stockholders for the Fiscal
Year Ended December 31, 2006 (Annual Report)
    
    Parts I, II, and IVProxy Statement for the Annual Meeting of
Shareholders to be held May 29, 2007 (Proxy
Statement)
    
    Part III




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1(A): RISK FACTORSITEM 1 (B): UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF REGISTRANT AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEXHIBIT INDEXEXHIBIT 10.37EXHIBIT 10.41EXHIBIT 10.42EXHIBIT 10.43EXHIBIT 10.44EXHIBIT 10.45EXHIBIT 10.47EXHIBIT 10.48EXHIBIT 10.49EXHIBIT 12EXHIBIT 21EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32    Table of Contents  FORWARD-LOOKING STATEMENTS
   www.sec.gov
 www.sybase.com
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PART I
 
 ITEM 1. BUSINESS
   ®
  Infrastructure Platform Group (IPG) ® TM ® ® ®
  iAnywhere Solutions, Inc. (iAS) ® ® ® ® ® ®
  Sybase 365, Inc.
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UNWIRED ENTERPRISE
  CUSTOMERS
  
    
    A global investment bank uses the real-time events capability in the Sybase Data
Integration Suite to proactively push time-critical data from heterogeneous enterprise
databases to messaging architectures. The firm has eliminated the information lags
created by batch updates or intermittent polling processes. The real-time solution enables
the organization to focus on its risk assessment  using real-time events to send a report
to the risk management department each time a trade crosses a pre-determined risk limit.
    
    A biotechnology research center uses a unique combination of Sybase IQ, SQL Anywhere,
Sybase Adaptive Server Enterprise, PowerBuilder, PowerDesigner, and PocketBuilder to
record the detailed background of seeds and plants used in experiments. Within the system,
masses of data are recorded, stored, and made available for interpretation in the field.
This access to detailed data on the experiments and materials requirements is critical when
applying for patents and performing highly complex search tasks and enhances researchers
efficiency and reduces the likelihood of errors and inconsistencies.
    
    A craft and home décor retailer relies on constant inventory updates and tracking a very
large and dynamic product numbering system as a critical component of its business. The
company needs to cost-effectively improve reporting options and reduce the performance
impact on their OLTP systems from complex queries. To achieve these goals, the company
turns to Sybase IQ to reduce the query speeds by half. This retailer is now able to
quickly and efficiently update and track inventory and revenue.
    
    The largest energy and chemical company in China selects Sybase Adaptive Server
Enterprise and SQL Anywhere to create a highly stable and secure solution to replace
traditional payment methods. Using Sybase technology, the company implements an integrated
circuit card system that improves efficiency and reduces operational costs. The solution
manages transaction data from across the companys 1,300 county-level branches, 260
prefecture-level and 20 provincial-level regions. As a result, the company has improved
operational efficiency across the organization and can use the most up-to-date information
to better manage market risks.
    
    A leading wireless operator relies on Sybase 365 to deliver advanced mobile services to
its subscribers including Short Messaging Services (SMS) and Multimedia Messaging Service
(MMS) inter-carrier messaging and MMS-based content downloads. The wireless operator, which
is known for its network performance and quality of service, wanted to offer its
subscribers a worldwide messaging service without compromising on its stringent quality
standards. Using Sybase 365s interoperability solution, the wireless operators customers
are able to seamlessly exchange text and multimedia messages with other subscribers
irrespective of their network affiliation and across geographical boundaries. Sybase 365
also developed an MMS content
delivery service which powers the wireless operators direct-to-consumer premium content
business.
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
    
    A global leader in communication systems, applications and services relies on
iAnywheres® M-Business Anywhere to enable the companys field technicians to receive
their assignments, provide immediate status, completion and time reporting information, and
order parts wirelessly through a handheld device. In addition, iAnywheres Afaria product
lets them manage these valuable records from the field. This combination of
forward-looking, standards-based application architectures enables a seamless transition to
new network providers and new smartphones while keeping field technicians and customers
happy.
    
    A market leading insurer chooses iAnywhere Afaria to centrally manage the laptop
computers that independent agents use to enroll individuals in supplemental insurance
products. Because these agents are in the field the need for secure and reliable
technology was imperative. The company has benefited from Afarias efficient operation for
occasionally connected use and Afarias performance of critical management functions with
full disk encryption capability to protect customers personal data.
    
    A global healthcare leader relies on a drug dispensing system powered by SQL Anywhere
for prescription administration, recordkeeping and management. The company has 50,000
installed units in 3200 different customer sites, serving thousands of admission and ER
visits per year. SQL Anywhere manages the large volumes of data generated by this system.
 PRODUCTS AND SERVICES
  Infrastructure Platform Group (IPG)
 Sybase Adaptive Server Enterprise
 Sybase IQ
 Sybase Replication Server®
 Sybase Data Integration Suite
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Sybase Mirror Activator
 Sybase PowerDesigner
 Sybase WorkSpace
 Sybase PowerBuilder
 Sybase DataWindow.Net
 Sybase Financial Fusion Banking Solutions
 iAnywhere Solutions (iAS)
 SQL Anywhere
 Information Anywhere Suite
 AvantGo®
 RemoteWare®
 RFID
Anywhere TM
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Standards-based SDKs ®
 Sybase 365
 Operator Services
 Brand and Content Provider Services
 Enterprise Messaging Services
 WORLDWIDE SERVICES
 Technical Support.
  Basic Support
  Extended Support
  Enterprise Support
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Consulting.
 Education.
 SALES AND DISTRIBUTION
 Licensing and Services Model.
 Distribution Method.
 International Business.
 INTELLECTUAL PROPERTY RIGHTS
  -8-




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RESEARCH AND DEVELOPMENT
  COMPETITION
   Information Management Products.
 Financial Fusion Products:
  Mobile and Embedded Database Products
 Mobile Middleware and Device Management Products.
 AvantGo.
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Operator Services.
 Brand and Content Provider Services.
 Enterprise Messaging Services.
  EMPLOYEES
  
 ITEM 1(A): RISK FACTORS
 Future Operating Results
  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.
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We may encounter difficulties in integrating our Mobile 365 acquisition, other acquisitions or
strategic relationships and we may incur acquisition-related charges that could adversely affect
our operating results.
   ®
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Economic conditions in the U.S. and worldwide could adversely affect our revenues.
  If we fail to maintain or expand our relationships with strategic partners and indirect
distribution channels our license revenues could decline.
   System failures, delays and other problems could harm our reputation and business, cause us to lose
customers and expose us to customer liability.
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Industry consolidation and other competitive pressures could affect prices or demand for our
products and services, and our business may be adversely affected.
   The ability to rapidly develop and bring to market advanced products and services that are
successful is crucial to maintaining our competitive position.
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If our existing customers cancel or fail to renew their technical support agreements, our technical
support revenues could be adversely affected.
  Pricing pressure in the mobile messaging market could adversely affect our operating results.
  Unanticipated delays or accelerations in our sales cycles could result in significant fluctuations
in our quarterly operating results.
  Most of our mobile messaging customer contracts may not continue to generate revenues at or near
our historical levels of revenues from these customers.
  If we do not adapt to rapid technological change in the telecommunications industry, we could lose
customers or market share.
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Restructuring activities and reorganizations in our sales model or business units may not succeed
in increasing revenues and operating results.
   Our results of operations may depend on the compatibility of our products with other software
developed by third parties.
  We are subject to risks arising from our international operations.
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We may not receive significant revenues from our current research and development efforts for
several years, if at all.
  We might experience significant errors or security flaws in our products and services.
  Unanticipated changes in our tax rates could affect our future financial results.
  We face exposure to adverse movements in foreign currency exchange rates.
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Growing market acceptance of open source software could cause a decline in our revenues and
operating margins.
  Insufficient protection for our intellectual property rights may have a material adverse affect on
our results of operations or our ability to compete.
  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.
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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.
  Our key personnel are critical to our business, and we cannot assure that they will remain with us.
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Our sales to government clients subject us to risks including early termination, audits, investigations, sanctions and penalties.
   Changes in accounting and legal standards could adversely affect our future operating results.
  ,
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The unfavorable outcome of litigation and other claims against us could have a material
adverse impact on our financial condition and results of operations.
  Our operations and financial results could be severely harmed by certain natural disasters.
  Provisions of our corporate documents have anti-takeover effects that could prevent a change in
control.
  
 ITEM 1 (B): UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
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ITEM 3. LEGAL PROCEEDINGS
   - 21 -




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
STOCKHOLDER MATTERS AND ISSUER                PURCHASES OF EQUITY SECURITIES
  High
    
    LowFiscal 2005Quarter ended March 31, 2005
    
    
    $20.00
    
    
    $
    17.12Quarter ended June 30, 2005
    
    
    $20.40
    
    
    $
    18.03Quarter ended September 30, 2005
    
    
    $23.82
    
    
    $
    18.20Quarter ended December 31, 2005
    
    
    $23.46
    
    
    $
    21.60Fiscal 2006Quarter ended March 31, 2006
    
    
    $22.76
    
    
    $
    20.89Quarter ended June 30, 2006
    
    
    $22.14
    
    
    $
    19.40Quarter ended September 30, 2006
    
    
    $24.77
    
    
    $
    19.60Quarter ended December 31, 2006
    
    
    $26.00
    
    
    $
    23.41
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Issuer Purchases of Equity Securities
  Number of shares
    
    Avg. Price Paid PerPeriod
    
    purchased
    
    ShareOctober 2006
    
    
    403,000
    
    
    $
    24.88November 2006
    
    
    189,200
    
    
    $
    23.83December 2006
    
    
    0
    
    
    
    0Total for Fourth Quarter 2006
    
    
    592,200
    
    
    $
    24.54
  PERFORMANCE GRAPH
  
 - 23 -




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ITEM 6. SELECTED FINANCIAL DATA
       - 24 -




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Consolidated Statements of Operations Data
 (In thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2004
    
    


    2003
    
    
    2002Revenues:License fees
    
    $
    326,751
    
    
    $
    291,695
    
    
    $
    275,872
    
    
    $
    274,817
    
    
    $
    325,916Services
    
    
    531,172
    
    
    
    527,000
    
    
    
    512,664
    
    
    
    503,245
    
    
    
    503,945Messaging
    
    
    18,240
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    
    876,163
    
    
    
    818,695
    
    
    
    788,536
    
    
    
    778,062
    
    
    
    829,861Costs and expenses:Cost of license fees
    
    
    50,540
    
    
    
    51,556
    
    
    
    60,795
    
    
    
    60,711
    
    
    
    51,448Cost of services
    
    
    152,962
    
    
    
    156,325
    
    
    
    162,016
    
    
    
    162,703
    
    
    
    190,067Cost of messaging
    
    
    11,097
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sales and marketing
    
    
    263,281
    
    
    
    250,003
    
    
    
    242,778
    
    
    
    239,173
    
    
    
    271,850Product development and engineering
    
    
    149,510
    
    
    
    139,011
    
    
    
    119,959
    
    
    
    116,967
    
    
    
    117,862General and administrative
    
    
    106,025
    
    
    
    92,106
    
    
    
    91,117
    
    
    
    84,750
    
    
    
    86,712Amortization
of other purchased intangibles
    
    
    7,331
    
    
    
    6,639
    
    
    
    5,139
    
    
    
    2,000
    
    
    
    2,000Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,300Reversal of
AvantGo restructuring accrual
    
    
    
    
    
    
    
    
    
    
    (2,677
    )
    
    
    
    
    
    
    Cost of restructuring
    
    
    1,653
    
    
    
    1,115
    
    
    
    20,017
    
    
    
    7,429
    
    
    
    40,446Total costs and expenses
    
    
    742,399
    
    
    
    696,755
    
    
    
    699,144
    
    
    
    673,733
    
    
    
    772,685Operating income
    
    
    133,764
    
    
    
    121,940
    
    
    
    89,392
    
    
    
    104,329
    
    
    
    57,176Interest income and expense, net
    
    
    27,634
    
    
    
    14,824
    
    
    
    11,574
    
    
    
    13,766
    
    
    
    14,033Minority interest
    
    
    (81
    )
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    Income
before income taxes and cumulative effect of an accounting change
    
    
    161,317
    
    
    
    136,715
    
    
    
    100,966
    
    
    
    118,095
    
    
    
    71,209Provision for income taxes
    
    
    66,253
    
    
    
    51,132
    
    
    
    33,016
    
    
    
    30,829
    
    
    
    33,428Income before cumulative effect of an
accounting change
    
    
    95,064
    
    
    
    85,583
    
    
    
    67,950
    
    
    
    87,266
    
    
    
    37,781Cumulative effect of an accounting change
to adopt SFAS 142
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (132,450
    )Net income (loss)
    
    $
    95,064
    
    
    $
    85,583
    
    
    $
    67,950
    
    
    $
    87,266
    
    
    $
    (94,669
    )Income per share before cumulative
effect of an accounting change
    
    $
    1.06
    
    
    $
    0.95
    
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    0.39Cumulative effect of an accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.37
    )Basic net income (loss) per share
    
    $
    1.06
    
    
    $
    0.95
    
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    (0.98
    )Shares used in computing basic net
income (loss) per share
    
    
    89,557
    
    
    
    90,307
    
    
    
    95,550
    
    
    
    94,833
    
    
    
    96,844Income per share before cumulative
effect of an accounting change
    
    $
    1.03
    
    
    $
    0.92
    
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    0.38Cumulative effect of an accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.33
    )Diluted net income (loss) per share
    
    $
    1.03
    
    
    $
    0.92
    
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    (0.95
    )Shares used in computing diluted net
income (loss) per share
    
    
    92,251
    
    
    
    93,257
    
    
    
    98,001
    
    
    
    97,582
    
    
    
    99,584
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Consolidated Balance Sheet Data
 (In thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Cash, cash equivalents and cash
investments
    
    $
    637,696
    
    
    $
    859,936
    
    
    $
    513,632
    
    
    $
    573,793
    
    
    $
    387,180Working capital
    
    
    455,143
    
    
    
    573,247
    
    
    
    290,237
    
    
    
    261,023
    
    
    
    112,296Total assets
    
    
    1,787,550
    
    
    
    1,570,614
    
    
    
    1,183,522
    
    
    
    1,151,356
    
    
    
    992,749Long-term obligations
    
    
    518,876
    
    
    
    500,339
    
    
    
    33,121
    
    
    
    15,129
    
    
    
    10,641Stockholders equity
    
    
    843,131
    
    
    
    698,830
    
    
    
    756,556
    
    
    
    741,469
    
    
    
    580,374
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  
    
    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.
 Risk Factors, Future Operating Results
   - 26 -




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Executive Overview
 Our Business
       Our Results
  - 27 -




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Business Trends
    - 28 -




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Critical Accounting Policies and Estimates
  - 29 -




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
    
    Revenue Recognition
  License and Service Revenues
  Residual Method Accounting
 Percentage of Completion Accounting
 Sublicense Revenues
 Service Revenues
 - 30 -




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Message
Revenues
 Revenue Arrangements with Multiple Deliverables Reporting Revenue Gross as a Principal Versus Net as an
Agent
   Unbilled Message Revenues
 
    
    Impairment of Goodwill, Non-amortizable Intangible Assets and Other Purchased Intangible Assets
  - 31 -




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
    
    Allowance for Doubtful Accounts
  
    
    Capitalized Software
  
    
    Income Taxes  Estimates of Effective Tax Rates, Deferred Taxes and Valuation Allowance
  - 32 -




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
    
    Accounting for Stock-Based Compensation Plans
 Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation. Accounting for Stock-Based
Compensation  Transition and Disclosure,
 Share-Based Payment,
  - 33 -




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
    
    Purchase Accounting
   - 34 -




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
    
    Restructuring
  
    
    Contingencies and Liabilities
   - 35 -




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Results of Operations
 Revenues(Dollars in millions)2006
    
    
    Change
    
    
    2005
    
    
    Change
    
    
    2004License fees by segment:IPG
    
    $
    261.1
    
    
    
    10
    %
    
    $
    237.2
    
    
    
    3
    %
    
    $
    231.4iAS
    
    
    92.1
    
    
    
    13
    %
    
    
    81.4
    
    
    
    15
    %
    
    
    70.7Eliminations
    
    
    (26.4
    )
    
    
    (2
    %)
    
    
    (26.9
    )
    
    
    3
    %
    
    
    (26.2
    )Total license fees
    
    $
    326.8
    
    
    
    12
    %
    
    $
    291.7
    
    
    
    6
    %
    
    $
    275.9Percentage of total revenues
    
    
    37
    %
    
    
    
    
    
    
    36
    %
    
    
    
    
    
    
    35
    %Services by segment:IPG
    
    $
    485.4
    
    
    
    (1
    %)
    
    $
    488.1
    
    
    
    (1
    %)
    
    $
    491.0iAS
    
    
    72.1
    
    
    
    9
    %
    
    
    65.9
    
    
    
    36
    %
    
    
    48.6Eliminations
    
    
    (26.3
    )
    
    
    (3
    %)
    
    
    (27.0
    )
    
    
    *
    
    
    
    (27.0
    )Total services
    
    $
    531.2
    
    
    
    1
    %
    
    $
    527.0
    
    
    
    3
    %
    
    $
    512.6Percentage of total revenues
    
    
    61
    %
    
    
    
    
    
    
    64
    %
    
    
    
    
    
    
    65
    %Messaging by segment:SY365
    
    $
    18.2
    
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    Total messaging
    
    $
    18.2
    
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    Percentage of total revenues
    
    
    2
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    $
    876.2
    
    
    
    7
    %
    
    $
    818.7
    
    
    
    4
    %
    
    $
    788.5
 
 *
    
    Not meaningful     - 36 -




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.
     Geographical Revenues(Dollars in millions)2006
    
    Change
    
    2005
    
    Change
    
    2004North America
    
    $
    474.0
    
    
    
    2
    %
    
    $
    464.9
    
    
    
    3
    %
    
    $
    453.5Percentage of total revenues
    
    
    54
    %
    
    
    
    
    
    
    57
    %
    
    
    
    
    
    
    58
    %International:EMEA
(Europe, Middle East and Africa)
    
    $
    279.3
    
    
    
    20
    %
    
    $
    233.5
    
    
    
    6
    %
    
    $
    220.4Percentage of total revenues
    
    
    32
    %
    
    
    
    
    
    
    28
    %
    
    
    
    
    
    
    28
    %Intercontinental (Asia Pacific and Latin America)
    
    $
    122.9
    
    
    
    2
    %
    
    $
    120.3
    
    
    
    5
    %
    
    $
    114.6Percentage of total revenues
    
    
    14
    %
    
    
    
    
    
    
    15
    %
    
    
    
    
    
    
    14
    %Total Outside North America
    
    $
    402.2
    
    
    
    14
    %
    
    $
    353.8
    
    
    
    6
    %
    
    $
    335.0Percentage of total revenues
    
    
    46
    %
    
    
    
    
    
    
    43
    %
    
    
    
    
    
    
    42
    %Total revenues
    
    $
    876.2
    
    
    
    7
    %
    
    $
    818.7
    
    
    
    4
    %
    
    $
    788.5
   - 37 -




---



##### Table of Contents



Cost and Expenses(Dollars in millions)2006
    
    Change
    
    2005
    
    Change
    
    2004Cost of license fees
    
    $
    50.5
    
    
    
    (2
    %)
    
    $
    51.6
    
    
    
    (15
    %)
    
    $
    60.8Percentage of license fee revenues
    
    
    15
    %
    
    
    
    
    
    
    18
    %
    
    
    
    
    
    
    22
    %Cost of services
    
    $
    153.0
    
    
    
    (2
    %)
    
    $
    156.3
    
    
    
    (4
    %)
    
    $
    162.0Percentage of services revenues
    
    
    29
    %
    
    
    
    
    
    
    30
    %
    
    
    
    
    
    
    32
    %Cost of messaging
    
    $
    11.1
    
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    Percentage of messaging revenues
    
    
    61
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sales and marketing
    
    $
    263.3
    
    
    
    5
    %
    
    $
    250.0
    
    
    
    3
    %
    
    $
    242.8Percentage of total revenues
    
    
    30
    %
    
    
    
    
    
    
    31
    %
    
    
    
    
    
    
    31
    %Product development and engineering
    
    $
    149.5
    
    
    
    8
    %
    
    $
    139.0
    
    
    
    16
    %
    
    $
    120.0Percentage of total revenues
    
    
    17
    %
    
    
    
    
    
    
    17
    %
    
    
    
    
    
    
    15
    %General and administrative
    
    $
    106.0
    
    
    
    15
    %
    
    $
    92.1
    
    
    
    1
    %
    
    $
    91.1Percentage of total revenues
    
    
    12
    %
    
    
    
    
    
    
    11
    %
    
    
    
    
    
    
    12
    %Amortization of other purchased intangibles
    
    $
    7.3
    
    
    
    11
    %
    
    $
    6.6
    
    
    
    29
    %
    
    $
    5.1Percentage of total revenues
    
    
    1
    %
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %Reversal of AvantGo restructuring accrual
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    $
    (2.7
    )Percentage of total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *Cost of restructuring
    
    $
    1.7
    
    
    
    55
    %
    
    $
    1.1
    
    
    
    (95
    %)
    
    $
    20.0Percentage of total revenues
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    3
    %
 
 *
    
    Not meaningful - 38 -




---



##### Table of Contents



Cost of license fees
    Cost of services
  Cost of messaging
  Sales and marketing
  - 39 -




---



##### Table of Contents



Product development and engineering
     General and administrative
   Stock-based compensation expense
  - 40 -




---



##### Table of Contents



(Amounts in thousands)
    
    2006
    
    2005
    
    2004Costs of services
    
    
    1,629
    
    
    
    380
    
    
    
    160Costs of messaging
    
    
    124
    
    
    
    0
    
    
    
    0Sales and marketing
    
    
    4,432
    
    
    
    302
    
    
    
    335Product development and engineering
    
    
    2,679
    
    
    
    38
    
    
    
    82General and administrative
    
    
    12,861
    
    
    
    6,586
    
    
    
    4,02221,725
    
    
    
    7,306
    
    
    
    4,599
  Amortization of other purchased intangibles
  Restructuring Activities
    Operating income(Dollars in millions)2006
    
    
    Change
    
    
    2005
    
    
    Change
    
    
    2004Operating income by segment:IPG
    
    $
    142.9
    
    
    
    40
    %
    
    $
    101.9
    
    
    
    33
    %
    
    $
    76.5IAS
    
    
    15.6
    
    
    
    (28
    %)
    
    
    21.6
    
    
    
    70
    %
    
    
    12.7SY365
    
    
    (1.0
    )
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    Unallocated (costs) savings
    
    
    (23.7
    )
    
    
    1381
    %
    
    
    (1.6
    )
    
    
    *
    
    
    
    0.2Total operating income
    
    $
    133.8
    
    
    
    10
    %
    
    $
    121.9
    
    
    
    36
    %
    
    $
    89.4Percentage of total revenues
    
    
    15
    %
    
    
    
    
    
    
    15
    %
    
    
    
    
    
    
    11
    %
 
 *
    
    Not meaningful - 41 -




---



##### Table of Contents



Other income (expense), net(Dollars in millions)2006
    
    Change
    
    2005
    
    Change
    
    2004Interest income
    
    $
    38.7
    
    
    
    51
    %
    
    $
    25.7
    
    
    
    136
    %
    
    $
    10.9Percentage of total revenues
    
    
    4
    %
    
    
    
    
    
    
    3
    %
    
    
    
    
    
    
    1
    %Interest expense and other, net
    
    $
    (11.0
    )
    
    
    1
    %
    
    $
    (10.9
    )
    
    
    *
    
    
    $
    0.7Percentage of total revenues
    
    
    (1
    %)
    
    
    
    
    
    
    (1
    %)
    
    
    
    
    
    
    *Minority interest
    
    $
    (0.1
    )
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    Percentage of total revenues
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    
 
 *
    
    Not meaningful  - 42 -




---



##### Table of Contents



Provision for Income Taxes(Dollars in millions)2006
    
    Change
    
    2005
    
    Change
    
    2004Provision for income taxes
    
    $
    66.3
    
    
    
    30
    %
    
    $
    51.1
    
    
    
    55
    %
    
    $
    33.0
     - 43 -




---



##### Table of Contents



Net income per share(Dollars and shares in millions)2006
    
    Change
    
    2005
    
    Change
    
    2004Net income
    
    $
    95.1
    
    
    
    11
    %
    
    $
    85.6
    
    
    
    26
    %
    
    $
    68.0Percentage of total revenues
    
    
    11
    %
    
    
    
    
    
    
    10
    %
    
    
    
    
    
    
    9
    %Basic:Net income per share
    
    $
    1.06
    
    
    
    12
    %
    
    $
    0.95
    
    
    
    34
    %
    
    $
    0.71Shares used in computing
basic net income per share
    
    
    89.6
    
    
    
    (1
    %)
    
    
    90.3
    
    
    
    (6
    %)
    
    
    95.6Diluted:Net income per share
    
    $
    1.03
    
    
    
    12
    %
    
    $
    0.92
    
    
    
    33
    %
    
    $
    0.69Shares used in computing diluted
net income per share
    
    
    92.3
    
    
    
    (1
    %)
    
    
    93.3
    
    
    
    (5
    %)
    
    
    98.0
   .
 Liquidity and capital resources(Dollars in millions)2006
    
    Change
    
    2005
    
    Change
    
    2004Working capital
    
    $
    455.1
    
    
    
    (20
    %)
    
    $
    573.2
    
    
    
    
    
    
    
    98
    %
    
    $
    290.2Cash, cash equivalents and cash
investments
    
    $
    637.7
    
    
    
    (26
    %)
    
    $
    859.9
    
    
    
    
    
    
    
    67
    %
    
    $
    513.6Net cash provided by operating activities
    
    $
    214.6
    
    
    
    26
    %
    
    $
    170.0
    
    
    
    
    
    
    
    (4
    %)
    
    $
    176.2Net cash used for investing activities
    
    $
    276.3
    
    
    
    (29
    %)
    
    $
    389.4
    
    
    
    
    
    
    
    370
    %
    
    $
    82.8Net cash provided by (used for)
financing activities
    
    $
    (0.1
    )
    
    
    *
    
    
    $
    328.5
    
    
    

    
    
    
    
    *

    
    
    $
    (102.2
    )
 
 *
    
    Not meaningful - 44 -




---



##### Table of Contents



Working Capital
  Cash and Cash Equivalents and Cash Investments
  Cash Flow
     - 45 -




---



##### Table of Contents



Contractual Obligations
  (Dollars in Millions)
    
    Payments Due by Period2007
    
    2008-2009
    
    2010-2011Contractual Obligations
    
    Total
    
    Commitments
    
    Commitments
    
    Commitments
    
    After 2011Operating leases
    
    $
    276.8
    
    
    $
    45.1
    
    
    $
    76.3
    
    
    $
    55.3
    
    
    $
    100.1Capital lease
    
    
    13.0
    
    
    
    1.2
    
    
    
    2.1
    
    
    
    2.0
    
    
    
    7.7Debt obligations:Sale-and-leaseback
    
    
    3.0
    
    
    
    0.4
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    0.8Note(s) payable
    
    
    3.8
    
    
    
    1.2
    
    
    
    0.7
    
    
    
    0.4
    
    
    
    1.5Convertible
subordinated notes
    
    
    488.2
    
    
    
    8.1
    
    
    
    16.1
    
    
    
    464.0
    
    
    
    Purchase Obligations
    
    
    12.8
    
    
    
    9.9
    
    
    
    2.9
    
    
    
    
    
    
    
    Total commitments
    
    $
    797.6
    
    
    $
    65.9
    
    
    $
    99.0
    
    
    $
    522.6
    
    
    $
    110.1
   - 46 -




---



##### Table of Contents



New Accounting Pronouncements
 SFAS 155, Accounting for Certain Hybrid Instruments
 Accounting for Certain Hybrid Instruments, Accounting for Derivative Instruments and Hedging Activities, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
 SFAS 157, Fair Value Measurements
  SFAS 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
  - 47 -




---



##### Table of Contents



FIN 48, Accounting for Uncertainty in Income Taxes
 Accounting for Uncertainty in
Income Taxes. Accounting for Income Taxes.
 Staff Accounting Bulletin No. 108
  EITF 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement
   Financial Risk Management
 Foreign Exchange Risk
 .
  - 48 -




---



##### Table of Contents



- 49 -




---



##### Table of Contents



US $
    
    
    AverageForward Contracts - As of December 31, 2006
    
    Notional amount
    
    
    Contract rateContracts for the sale of US Dollars and purchase of:Canadian Dollars
    
    $
    4,293
    
    
    
    0.8585Euro
    
    $
    19,545
    
    
    
    1.3206Singapore Dollars
    
    $
    3,206
    
    
    
    0.6543Mexican Pesos
    
    $
    954
    
    
    
    0.0926Indian Rupee
    
    $
    2,966
    
    
    
    0.0226Contracts for the purchase of US Dollars and sale of:Japanese Yen
    
    $
    1,604
    
    
    
    118.45Swiss Franc
    
    $
    1,801
    
    
    
    1.22Korean Won
    
    $
    667
    
    
    
    930.60Contracts for the purchase of Euros and sale of:Swedish Krona
    
    $
    293
    
    
    
    8.9966Swiss Franc
    
    $
    4,005
    
    
    
    1.6131UK Pound
    
    $
    9,375
    
    
    
    0.6751Norwegian Krone
    
    $
    1,197
    
    
    
    8.2643Total
    
    $
    49,906
  US $
    
    
    AverageForward Contracts - As of December 31, 2005
    
    Notional amount
    
    
    Contract rateContracts for the sale of US Dollars and purchase of:Canadian Dollars
    
    $
    9,337
    
    
    
    0.8566Euro
    
    $
    14,359
    
    
    
    1.1867Singapore Dollars
    
    $
    4,223
    
    
    
    0.6034Contracts for the purchase of US Dollars and sale of:Japanese Yen
    
    $
    3,072
    
    
    
    117.2000Swiss Franc
    
    $
    1,672
    
    
    
    1.3154Contracts for the purchase of Euros and sale of:Swedish Krona
    
    $
    1,540
    
    
    
    9.4580Swiss Franc
    
    $
    2,504
    
    
    
    1.5610UK Pound
    
    $
    10,002
    
    
    
    0.6869Norwegian Krone
    
    $
    1,351
    
    
    
    7.9758Total
    
    $
    48,060
 Interest Income Rate and Investment Level Risk
   - 50 -




---



##### Table of Contents



Amortized
    
    
    Weighted Average(In Thousands)
    
    Principal Amount
    
    
    Interest RateCash and cash equivalents
    
    $
    355,303Cash investments
    
    
    282,393Total cash, cash equivalents and cash investments
    
    $
    637,696
    
    
    
    4.24
    %
 Default Risk
  Interest Expense Rate Risk
  - 51 -




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageReport of Management on Internal Controls over Financial Reporting
    
    
    52Report of Independent Registered Public Accounting Firm on Internal Controls over
Financial Reporting
    
    
    53Report of Independent Registered Public Accounting Firm
    
    
    54Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    55Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004
    
    
    56Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2006,
2005 and 2004
    
    
    57Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004
    
    
    58Notes to Consolidated Financial Statements
    
    
    59
 Report of Management on Internal Controls over Financial Reporting
    - 52 -




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
          
 - 53 -




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        
 - 54 -




---



##### Table of Contents



Consolidated Balance Sheets
 December 31(Dollars in thousands, except share and per share data)
    
    2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    355,303
    
    
    $
    398,741Short-term cash investments
    
    
    269,612
    
    
    
    342,247Total cash, cash equivalents and short-term cash investments
    
    
    624,915
    
    
    
    740,988Restricted cash
    
    
    6,014
    
    
    
    2,773Accounts receivable, less allowance for doubtful accounts of $3,998
(2005 - $2,651)
    
    
    218,016
    
    
    
    167,790Deferred income taxes
    
    
    6,224
    
    
    
    5,523Prepaid expenses and other current assets
    
    
    16,392
    
    
    
    16,876Total current assets
    
    
    871,561
    
    
    
    933,950Long-term cash investments
    
    
    12,781
    
    
    
    118,948Restricted long-term cash investments
    
    
    
    
    
    
    2,600Property, equipment and improvements, net
    
    
    66,458
    
    
    
    59,178Deferred income taxes
    
    
    36,069
    
    
    
    24,879Capitalized software, net
    
    
    71,179
    
    
    
    65,911Goodwill
    
    
    540,303
    
    
    
    238,864Other purchased intangibles, less accumulated amortization
of $119,393 (2005  $101,965)
    
    
    149,648
    
    
    
    87,562Other assets
    
    
    39,551
    
    
    
    38,722Total assets
    
    $
    1,787,550
    
    
    $
    1,570,614Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    23,439
    
    
    $
    10,353Accrued compensation and related expenses
    
    
    59,748
    
    
    
    51,983Accrued income taxes
    
    
    31,364
    
    
    
    31,398Other accrued liabilities
    
    
    108,436
    
    
    
    78,040Deferred revenue
    
    
    193,431
    
    
    
    188,929Total current liabilities
    
    
    416,418
    
    
    
    360,703Other liabilities
    
    
    44,428
    
    
    
    40,339Deferred income taxes
    
    
    14,448
    
    
    
    Long-term deferred revenue
    
    
    3,965
    
    
    
    5,663Minority interest
    
    
    5,160
    
    
    
    5,079Convertible subordinated notes
    
    
    460,000
    
    
    
    460,000Commitments and contingent liabilitiesStockholders equity:Preferred stock, $0.001 par value, 8,000,000 shares authorized; none
Issued or outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 200,000,000 shares authorized;
105,337,362 shares issued and 91,281,805 shares outstanding (2005 
105,337,362 shares issued and 90,531,145 shares outstanding)
    
    
    105
    
    
    
    105Additional paid-in capital
    
    
    977,672
    
    
    
    953,771Accumulated earnings
    
    
    92,817
    
    
    
    16,195Accumulated other comprehensive income
    
    
    40,850
    
    
    
    19,231Cost of 14,055,557 shares of treasury stock (2005  14,806,217 shares)
    
    
    (268,313
    )
    
    
    (277,510
    )Unearned stock compensation
    
    
    
    
    
    
    (12,962
    )Total stockholders equity
    
    
    843,131
    
    
    
    698,830Total liabilities and stockholders equity
    
    $
    1,787,550
    
    
    $
    1,570,614
 See accompanying notes.
 - 55 -




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##### Table of Contents



Consolidated Statements of Operations
 For the years ended December 31(In thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2004Revenues:License fees
    
    $
    326,751
    
    
    $
    291,695
    
    
    $
    275,872Services
    
    
    531,172
    
    
    
    527,000
    
    
    
    512,664Messaging
    
    
    18,240
    
    
    
    
    
    
    
    Total revenues
    
    
    876,163
    
    
    
    818,695
    
    
    
    788,536Costs and expenses:Cost of license fees
    
    
    50,540
    
    
    
    51,556
    
    
    
    60,795Cost of services
    
    
    152,962
    
    
    
    156,325
    
    
    
    162,016Cost of messaging
    
    
    11,097
    
    
    
    
    
    
    
    Sales and marketing
    
    
    263,281
    
    
    
    250,003
    
    
    
    242,778Product development and engineering
    
    
    149,510
    
    
    
    139,011
    
    
    
    119,959General and administrative
    
    
    106,025
    
    
    
    92,106
    
    
    
    91,117Amortization of other purchased intangibles
    
    
    7,331
    
    
    
    6,639
    
    
    
    5,139Reversal of AvantGo restructuring accrual
    
    
    
    
    
    
    
    
    
    
    (2,677
    )Cost of restructuring
    
    
    1,653
    
    
    
    1,115
    
    
    
    20,017Total costs and expenses
    
    
    742,399
    
    
    
    696,755
    
    
    
    699,144Operating income
    
    
    133,764
    
    
    
    121,940
    
    
    
    89,392Interest income
    
    
    38,662
    
    
    
    25,707
    
    
    
    10,908Interest expense and other income, net
    
    
    (11,028
    )
    
    
    (10,883
    )
    
    
    666Minority interest
    
    
    (81
    )
    
    
    (49
    )
    
    
    Income before income taxes
    
    
    161,317
    
    
    
    136,715
    
    
    
    100,966Provision for income taxes
    
    
    66,253
    
    
    
    51,132
    
    
    
    33,016Net income
    
    $
    95,064
    
    
    $
    85,583
    
    
    $
    67,950Basic net income per share
    
    $
    1.06
    
    
    $
    0.95
    
    
    $
    0.71Shares used in computing basic net income
per share
    
    
    89,557
    
    
    
    90,307
    
    
    
    95,550Diluted net income per share
    
    $
    1.03
    
    
    $
    0.92
    
    
    $
    0.69Shares used in computing diluted net income
per share
    
    
    92,251
    
    
    
    93,257
    
    
    
    98,001
 See accompanying notes.
 - 56 -




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##### Table of Contents



Consolidated Statements of Stockholders Equity
 Three years ended December 31, 2006AccumulatedCommon stock
    
    
    Additional
    
    
    Accumulated
    
    
    Other
    
    
    
    
    
    
    UnearnedOutstanding
    
    
    Par
    
    
    paid-in
    
    
    Earnings/
    
    
    Comprehensive
    
    
    Treasury
    
    
    Stock(Dollars and shares in thousands)
    
    Shares
    
    
    Value
    
    
    capital
    
    
    (Deficit)
    
    
    Income/(Loss)
    
    
    Stock
    
    
    Compensation
    
    
    TotalBalances at December 31, 2003
    
    
    98,525
    
    
    $
    105
    
    
    $
    933,657
    
    
    $
    (126,385
    )
    
    $
    26,849
    
    
    $
    (87,672
    )
    
    $
    (5,085
    )
    
    $
    741,469Common stock issued and treasury
stock reissued under stock option,
stock purchase plans and other
    
    
    3,058
    
    
    
    
    
    
    
    601
    
    
    
    (4,284
    )
    
    
    
    
    
    
    39,243
    
    
    
    
    
    
    
    35,560Treasury stock reissued under
Restricted stock option plan
    
    
    355
    
    
    
    
    
    
    
    6,673
    
    
    
    (4,071
    )
    
    
    
    
    
    
    4,727
    
    
    
    (7,294
    )
    
    
    35Treasury stock repurchased due to
Forfeiture in restricted stock
option plan
    
    
    (21
    )
    
    
    
    
    
    
    (125
    )
    
    
    100
    
    
    
    
    
    
    
    (353
    )
    
    
    376
    
    
    
    (2
    )Acquisition of treasury stock
    
    
    (6,398
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (115,562
    )
    
    
    
    
    
    
    (115,562
    )Amortization of unearned stock
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,599
    
    
    
    4,599Subtotal
    
    
    95,519
    
    
    
    105
    
    
    
    940,806
    
    
    
    (134,640
    )
    
    
    26,849
    
    
    
    (159,617
    )
    
    
    (7,404
    )
    
    
    666,099Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,950Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,099
    
    
    
    
    
    
    
    
    
    
    
    23,099Unrealized gains/(losses) on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (592
    )
    
    
    
    
    
    
    
    
    
    
    (592
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,457Balances at December 31, 2004
    
    
    95,519
    
    
    $
    105
    
    
    $
    940,806
    
    
    $
    (66,690
    )
    
    $
    49,356
    
    
    $
    (159,617
    )
    
    $
    (7,404
    )
    
    $
    756,556Common stock issued and treasury
stock reissued under stock option,
stock purchase plans and other
    
    
    3,764
    
    
    
    
    
    
    
    101
    
    
    
    (2,913
    )
    
    
    
    
    
    
    51,375
    
    
    
    
    
    
    
    48,563Treasury stock repurchased due to
Forfeiture in restricted stock
option plan
    
    
    (15
    )
    
    
    
    
    
    
    (267
    )
    
    
    215
    
    
    
    
    
    
    
    (216
    )
    
    
    267
    
    
    
    (1
    )Acquisition of treasury stock
    
    
    (8,737
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (169,052
    )
    
    
    
    
    
    
    (169,052
    )Restricted stock
    
    
    
    
    
    
    
    
    
    
    13,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,131
    )
    
    
    Amortization of unearned stock
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,306
    
    
    
    7,306Subtotal
    
    
    90,531
    
    
    
    105
    
    
    
    953,771
    
    
    
    (69,388
    )
    
    
    49,356
    
    
    
    (277,510
    )
    
    
    (12,962
    )
    
    
    643,372Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,583
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,583Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,840
    )
    
    
    
    
    
    
    
    
    
    
    (29,840
    )Unrealized gains/(losses) on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (285
    )
    
    
    
    
    
    
    
    
    
    
    (285
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,458Balances at December 31, 2005
    
    
    90,531
    
    
    $
    105
    
    
    $
    953,771
    
    
    $
    16,195
    
    
    $
    19,231
    
    
    $
    (277,510
    )
    
    $
    (12,962
    )
    
    $
    698,830Common stock issued and treasury
stock reissued under stock option,
stock purchase plans and other
    
    
    3,467
    
    
    
    
    
    
    
    
    
    
    
    (18,744
    )
    
    
    
    
    
    
    69,317
    
    
    
    
    
    
    
    50,573Treasury stock repurchased due to
Forfeiture in restricted stock
option plan
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    (305
    )
    
    
    
    
    
    
    (3
    )Acquisition of treasury stock
    
    
    (2,693
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,815
    )
    
    
    
    
    
    
    (59,815
    )Reclassification of unearned stock
compensation balance upon adoption
of SFAS 123(R)
    
    
    
    
    
    
    
    
    
    
    (12,962
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,962
    
    
    
    Stock-based compensation  restricted
stock
    
    
    
    
    
    
    
    
    
    
    8,141
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,141Stock-based compensation  all other
    
    
    
    
    
    
    
    
    
    
    13,585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,585Tax benefit from stock-based
compensation plans
    
    
    
    
    
    
    
    
    
    
    15,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,137Subtotal
    
    
    91,282
    
    
    
    105
    
    
    
    977,672
    
    
    
    (2,247
    )
    
    
    19,231
    
    
    
    (268,313
    )
    
    
    
    
    
    
    726,448Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,064
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,064Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,521
    
    
    
    
    
    
    
    
    
    
    
    21,521Unrealized gains/(losses) on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    98Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,683Balances at December 31, 2006
    
    
    91,282
    
    
    $
    105
    
    
    $
    977,672
    
    
    $
    92,817
    
    
    $
    40,850
    
    
    $
    (268,313
    )
    
    $
    
    
    
    $
    843,131
 See accompanying notes.
 - 57 -




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##### Table of Contents



Consolidated Statements of Cash Flows
 For the years ended December 31(Dollars in thousands)
    
    2006
    
    
    2005
    
    
    2004Cash and cash equivalents, beginning of year
    
    $
    398,741
    
    
    $
    321,417
    
    
    $
    315,404Cash flows from operating activities:Net income
    
    
    95,064
    
    
    
    85,583
    
    
    
    67,950Adjustments to reconcile net income to net cash
Provided by operating activities:Depreciation and amortization
    
    
    72,803
    
    
    
    73,600
    
    
    
    84,912Write-off of assets in restructuring
    
    
    
    
    
    
    
    
    
    
    6,908Minority interest in income of subsidiaries
    
    
    81
    
    
    
    49
    
    
    
    Loss on disposal of assets
    
    
    811
    
    
    
    528
    
    
    
    2,680Reversal of purchase accounting accrual
    
    
    
    
    
    
    
    
    
    
    (2,677
    )Deferred income taxes
    
    
    (1,306
    )
    
    
    8,928
    
    
    
    504Stock-based compensation  restricted stock
    
    
    8,141
    
    
    
    7,306
    
    
    
    4,599Stock-based compensation  all other
    
    
    13,585
    
    
    
    
    
    
    
    Tax benefit from stock-based compensation plans
    
    
    15,137
    
    
    
    
    
    
    
    Excess tax benefit from stock-based compensation plans
    
    
    (9,569
    )
    
    
    
    
    
    
    Amortization of note issuance costs
    
    
    1,969
    
    
    
    1,671
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    6,005
    
    
    
    (1,914
    )
    
    
    (5,342
    )Other current assets
    
    
    3,552
    
    
    
    (1,298
    )
    
    
    2,070Other assets  operating
    
    
    (2,406
    )
    
    
    651
    
    
    
    4,623Accounts payable
    
    
    (7,838
    )
    
    
    (2,410
    )
    
    
    2,323Accrued compensation and related expenses
    
    
    2,427
    
    
    
    7,072
    
    
    
    3,397Accrued income taxes
    
    
    13,237
    
    
    
    24,724
    
    
    
    791Other accrued liabilities
    
    
    (828
    )
    
    
    (10,570
    )
    
    
    (14,792
    )Deferred revenues
    
    
    928
    
    
    
    (26,436
    )
    
    
    8,887Other liabilities
    
    
    2,817
    
    
    
    2,508
    
    
    
    9,318Net cash provided by operating activities
    
    
    214,610
    
    
    
    169,992
    
    
    
    176,151Cash flows from investing activities:(Increase) Decrease in restricted cash
    
    
    (641
    )
    
    
    2,583
    
    
    
    191Purchases of available-for-sale cash investments
    
    
    (468,518
    )
    
    
    (837,237
    )
    
    
    (201,417
    )Maturities of available-for-sale cash investments
    
    
    282,403
    
    
    
    439,737
    
    
    
    149,923Sales of available-for-sale cash investments
    
    
    365,962
    
    
    
    127,648
    
    
    
    116,462Business combinations, net of cash acquired
    
    
    (399,676
    )
    
    
    (71,890
    )
    
    
    (81,255
    )Purchases of property, equipment and improvements
    
    
    (18,356
    )
    
    
    (16,366
    )
    
    
    (30,445
    )Proceeds from sale of fixed assets
    
    
    9
    
    
    
    25
    
    
    
    205Capitalized software development costs
    
    
    (37,531
    )
    
    
    (33,906
    )
    
    
    (36,484
    )Decrease in other assets  investing
    
    
    13
    
    
    
    2
    
    
    
    2Net cash used for investing activities
    
    
    (276,335
    )
    
    
    (389,404
    )
    
    
    (82,818
    )Cash flows from financing activities:Proceeds from the issuance of convertible subordinated notes, net
of issuance costs
    
    
    
    
    
    
    450,234
    
    
    
    Repayments of long-term obligations
    
    
    (60
    )
    
    
    (1,012
    )
    
    
    (22,173
    )Payments on capital lease
    
    
    (343
    )
    
    
    (274
    )
    
    
    (63
    )Net proceeds from the issuance of common stock and
reissuance of treasury stock
    
    
    50,570
    
    
    
    48,564
    
    
    
    35,592Purchases of treasury stock
    
    
    (59,815
    )
    
    
    (169,053
    )
    
    
    (115,563
    )Excess tax benefit from stock-based compensation plans
    
    
    9,569
    
    
    
    
    
    
    
    Net cash provided by (used for) financing activities
    
    
    (79
    )
    
    
    328,459
    
    
    
    (102,207
    )Effect of exchange rate changes on cash
    
    
    18,366
    
    
    
    (31,723
    )
    
    
    14,887Net increase (decrease) in cash and cash equivalents
    
    
    (43,438
    )
    
    
    77,324
    
    
    
    6,013Cash and cash equivalents, end of year
    
    
    355,303
    
    
    
    398,741
    
    
    
    321,417Cash investments, end of year
    
    
    282,393
    
    
    
    461,195
    
    
    
    192,215Total cash, cash equivalents and cash investments, end of year
    
    $
    637,696
    
    
    $
    859,936
    
    
    $
    513,632Supplemental disclosures:Interest paid
    
    $
    9,516
    
    
    $
    5,265
    
    
    $
    308Income taxes paid, net of refunds
    
    $
    34,442
    
    
    $
    15,997
    
    
    $
    26,471
 See accompanying notes.
 - 58 -




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note One: Summary of Significant Accounting Policies
 The Company
   Principles of Consolidation
  Share-Based Payment,
 Use of Estimates
  Accounts Receivable and Allowance for Doubtful Accounts
  - 59 -




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##### Table of Contents



Concentration of Credit Risk
  Capitalized Software
   Property, Equipment and Improvements
   Goodwill and Other Purchased Intangible Assets
  - 60 -




---



##### Table of Contents



Impairment of Long-Lived Assets
  Revenue Recognition
  License and Services Revenues
    - 61 -




---



##### Table of Contents



Message Revenues
 Revenue Arrangements with Multiple Deliverables Reporting Revenue Gross as a Principal Versus Net as an Agent
   Unbilled Message Revenues
 Other Message Related Revenues
 - 62 -




---



##### Table of Contents



Business Combinations
  Foreign Currencies
   Income Taxes
  - 63 -




---



##### Table of Contents



Stock-Based Compensation
 Accounting for Stock Issued to
Employees,
 Accounting for Stock-Based Compensation, Accounting for Stock-Based Compensation  Transition and
Disclosure.
  Net Income Per Share
   (In thousands, except per share data)
    
    2006
    
    2005
    
    2004Net income
    
    $
    95,064
    
    
    $
    85,583
    
    
    $
    67,950Shares used in computing basic net income
per share
    
    
    89,557
    
    
    
    90,307
    
    
    
    95,550Effect of dilutive securities  stock options
    
    
    2,694
    
    
    
    2,950
    
    
    
    2,451Shares used in computing diluted net income
per share
    
    
    92,251
    
    
    
    93,257
    
    
    
    98,001Basic net income per share
    
    $
    1.06
    
    
    $
    0.95
    
    
    $
    0.71Diluted net income per share
    
    $
    1.03
    
    
    $
    0.92
    
    
    $
    0.69
 - 64 -




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##### Table of Contents



Comprehensive Income
  Advertising
  Recent Accounting Pronouncements
 SFAS 155, Accounting for Certain Hybrid Instruments
 Accounting for Certain Hybrid Instruments, Accounting for Derivative Instruments and Hedging Activities, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
 SFAS 157, Fair Value Measurements
  SFAS 158, Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans
  FIN 48, Accounting for Uncertainty in Income Taxes
 Accounting for Uncertainty in
Income Taxes. Accounting for Income Taxes.
 - 65 -




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##### Table of Contents



Staff Accounting Bulletin No. 108
  EITF 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement
  Note Two: Financial Instruments
 Cash, Cash Equivalents and Cash Investments
   The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (the FSPs). Accounting for
Certain Investments in Debt and Equity Securities
 - 66 -




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##### Table of Contents



Amortized
    
    Unrealized
    
    Unrealized
    
    Fair Market(In thousands)
    
    Cost
    
    Gains
    
    Losses
    
    ValueDecember 31, 2006:Cash and cash equivalents
    
    $
    355,304
    
    
    $
    1
    
    
    $
    (2
    )
    
    $
    355,303Short-term corporate notes and bonds
(maturities of one year or less)
    
    
    166,241
    
    
    
    19
    
    
    
    (306
    )
    
    
    165,954Short-term government obligations
(maturities of one year or less)
    
    
    68,050
    
    
    
    
    
    
    
    (120
    )
    
    
    67,930Short-term government sponsored enterprise
obligations (maturities of one year or less)
    
    
    35,785
    
    
    
    
    
    
    
    (57
    )
    
    
    35,728Long-term corporate notes and bonds
(maturities over one year)
    
    
    4,958
    
    
    
    
    
    
    
    (6
    )
    
    
    4,952Long-term government sponsored enterprise
obligations (maturities over one year)
    
    
    7,849
    
    
    
    
    
    
    
    (20
    )
    
    
    7,829$
    638,187
    
    
    $
    20
    
    
    $
    (511
    )
    
    $
    637,696December 31, 2005:Cash and cash equivalents
    
    $
    398,736
    
    
    $
    5
    
    
    $
    
    
    
    $
    398,741Short-term corporate notes and bonds
(maturities of one year or less)
    
    
    174,274
    
    
    
    218
    
    
    
    (81
    )
    
    
    174,411Short-term government obligations
(maturities of one year or less)
    
    
    75,485
    
    
    
    40
    
    
    
    (38
    )
    
    
    75,487Short-term government sponsored enterprise
obligations (maturities of one year or less)
    
    
    92,268
    
    
    
    88
    
    
    
    (7
    )
    
    
    92,349Long-term corporate notes and bonds
(maturities over one year)
    
    
    83,460
    
    
    
    
    
    
    
    (642
    )
    
    
    82,818Long-term government obligations
(maturities over one year)
    
    
    19,935
    
    
    
    
    
    
    
    (99
    )
    
    
    19,836Long-term government sponsored enterprise
obligations (maturities over one year)
    
    
    16,392
    
    
    
    
    
    
    
    (98
    )
    
    
    16,294$
    860,550
    
    
    $
    351
    
    
    $
    (965
    )
    
    $
    859,936
  In a Loss Position for
    
    
    In a Loss Position forLess Than 12 Months
    
    
    12 Months or More
    
    
    Total In a Loss PositionGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized(In thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesCash and cash equivalents
    
    $
    11,965
    
    
    $
    (2
    )
    
    $
    
    
    
    $
    
    
    
    $
    11,965
    
    
    $
    (2
    )Corporate notes and bonds
    
    
    14,843
    
    
    
    (10
    )
    
    
    67,433
    
    
    
    (302
    )
    
    
    82,276
    
    
    
    (312
    )Government obligations
    
    
    
    
    
    
    
    
    
    
    19,858
    
    
    
    (120
    )
    
    
    19,858
    
    
    
    (120
    )Government sponsored
enterprise obligations
    
    
    27,597
    
    
    
    (30
    )
    
    
    15,960
    
    
    
    (47
    )
    
    
    43,557
    
    
    
    (77
    )Totals
    
    $
    54,405
    
    
    $
    (42
    )
    
    $
    103,251
    
    
    $
    (469
    )
    
    $
    157,656
    
    
    $
    (511
    )
 - 67 -




---



##### Table of Contents



Restricted Cash
  Foreign Currency Forward Exchange Contracts
  - 68 -




---



##### Table of Contents



Note Three: Property, Equipment and Improvements
 Estimated useful(In thousands)
    
    2006
    
    
    2005
    
    
    livesComputer equipment and software
    
    $
    282,278
    
    
    $
    274,712
    
    
    
    3 to 5 yearsFurniture and fixtures
    
    
    60,319
    
    
    
    58,260
    
    
    
    5 to 10 yearsLeasehold improvements and real property
    
    
    70,907
    
    
    
    69,976
    
    
    Improvements overshorter of 5 yearsor lease term;property over 7 to40 years413,504
    
    
    
    402,948Less accumulated depreciation
    
    
    (347,046
    )
    
    
    (343,770
    )Net property, equipment and improvements
    
    $
    66,458
    
    
    $
    59,178
  Note Four: Goodwill and Other Purchased Intangibles
  (In thousands)
    
    IPG
    
    
    iAS
    
    
    SY365
    
    
    Consolidated TotalBalance at January 1, 2005
    
    $
    130,869
    
    
    $
    83,241
    
    
    $
    
    
    
    $
    214,110Reduction in goodwill recorded on XcelleNet
acquisition
    
    
    
    
    
    
    (410
    )
    
    
    
    
    
    
    (410
    )Reduction in liabilities in purchase accounting
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (11
    )Goodwill recorded on ISDD acquisition
    
    
    2,031
    
    
    
    
    
    
    
    
    
    
    
    2,031Goodwill recorded on Avaki acquisition
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Goodwill recorded on Extended Systems acquisition
    
    
    
    
    
    
    44,898
    
    
    
    
    
    
    
    44,898Reduction for utilization of acquired tax assets
    
    
    (15,825
    )
    
    
    (5,049
    )
    
    
    
    
    
    
    (20,874
    )Foreign currency translation adjustments
    
    
    (882
    )
    
    
    
    
    
    
    
    
    
    
    (882
    )Balance at December 31, 2005
    
    $
    116,184
    
    
    $
    122,680
    
    
    $
    
    
    
    $
    238,864Addition in goodwill recorded on Extended Systems
acquisition
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    500Goodwill recorded on Mobile 365 acquisition
    
    
    
    
    
    
    
    
    
    
    335,088
    
    
    
    335,088Goodwill recorded on Solonde acquisition
    
    
    2,065
    
    
    
    
    
    
    
    
    
    
    
    2,065Goodwill recorded on iFoundry acquisition
    
    
    
    
    
    
    490
    
    
    
    
    
    
    
    490Reduction for utilization of acquired tax assets
    
    
    (22,600
    )
    
    
    (13,273
    )
    
    
    (1,379
    )
    
    
    (37,252
    )Foreign currency translation adjustments and other
    
    
    537
    
    
    
    11
    
    
    
    
    
    
    
    548Balance at December 31, 2006
    
    $
    96,186
    
    
    $
    110,408
    
    
    $
    333,709
    
    
    $
    540,303
 - 69 -




---



##### Table of Contents



Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)
    
    12/31/06
    
    
    12/31/06
    
    
    12/31/06
    
    
    12/31/05
    
    
    12/31/05
    
    
    12/31/05Purchased technology
    
    $
    163,333
    
    
    $
    (95,193
    )
    
    $
    68,140
    
    
    $
    134,838
    
    
    $
    (85,096
    )
    
    $
    49,742AvantGo tradenames
    
    
    3,100
    
    
    
    
    
    
    
    3,100
    
    
    
    3,100
    
    
    
    
    
    
    
    3,100XcelleNet tradenames
    
    
    4,000
    
    
    
    
    
    
    
    4,000
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Covenant not to compete
    
    
    319
    
    
    
    (59
    )
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    Customer lists
    
    
    98,289
    
    
    
    (24,141
    )
    
    
    74,148
    
    
    
    47,589
    
    
    
    (16,869
    )
    
    
    30,720Totals
    
    $
    269,041
    
    
    $
    (119,393
    )
    
    $
    149,648
    
    
    $
    189,527
    
    
    $
    (101,965
    )
    
    $
    87,562
   2007
    
    
    26,7372008
    
    
    26,6632009
    
    
    26,2712010
    
    
    23,8362011
    
    
    18,326
 Note Five: Other Assets
  2006
    
    
    2005Deposits
    
    $
    30,655
    
    
    $
    28,476Other
    
    
    8,896
    
    
    
    10,246$
    39,551
    
    
    $
    38,722
  Note Six: Lease Obligations, Other Liabilities and Commitments
 Capital Lease
  - 70 -




---



##### Table of Contents



2007
    
    $
    1,1542008
    
    
    1,0712009
    
    
    1,0442010
    
    
    9952011
    
    
    995Thereafter
    
    
    7,749Sub-total
    
    
    13,008Less amount representing interest
    
    
    5,090Total minimum lease payments
    
    $
    7,918
 Sale-and-Leaseback
   Leasehold Improvements Note
  Operating leases and Commitments
  - 71 -




---



##### Table of Contents



2007
    
    $
    45,1212008
    
    
    39,3312009
    
    
    36,9372010
    
    
    30,4702011
    
    
    24,830Thereafter
    
    
    100,148Total minimum lease payments*
    
    $
    276,837
 
 *
    
    Minimum payments have not been reduced by minimum sublease rentals of $10.5 million due in the
future under non-cancelable subleases.  Year ending December 31,2006
    
    
    2005
    
    
    2004Rent expense
    
    $
    46,051
    
    
    $
    45,990
    
    
    $
    46,463Less: sublease rentals
    
    
    4,289
    
    
    
    4,339
    
    
    
    3,797$
    41,762
    
    
    $
    41,651
    
    
    $
    42,666
 Letters of Credit
  Note Seven: Stockholders Equity
  Restricted Option and Stock Grants
 Restricted Option Grants
  - 72 -




---



##### Table of Contents



Restricted Stock Grants
     - 73 -




---



##### Table of Contents



Stock Repurchase Program
   Employee Stock Purchase Plans
   Stock Option Plans
    - 74 -




---



##### Table of Contents



FFI Stock Option Plans
   iAS Stock Option Plan
  Impact of the Adoption of SFAS 123(R)
  - 75 -




---



##### Table of Contents



Year EndedIn thousands, except per share data
    
    December 31, 2006Cost of services
    
    $
    2,018Cost of messaging
    
    
    124Sales and marketing
    
    
    3,659Product development and engineering
    
    
    2,466General and administrative
    
    
    5,318Stock-based compensation expense included in total costs and expenses
    
    
    13,585Tax benefit related to stock-based compensation expense
    
    
    (3,775
    )Stock-based compensation expense included in net income
    
    $
    9,810Reduction of net income per share:Basic
    
    $
    0.11Diluted
    
    $
    0.11
   Determining Fair Value
 Valuation and Amortization Method.
 Expected Term
 Expected Volatility
 Risk-Free Interest Rate.
 Dividends.
 Forfeitures.
 - 76 -




---



##### Table of Contents



Stock option and appreciation rights
    
    
    
    
    
    ESPP2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Expected volatility
    
    
    27.73
    %
    
    
    36.93
    %
    
    
    54.45
    %
    
    
    *
    
    
    
    *
    
    
    
    55.42
    %Risk-free interest rates
    
    
    4.71
    %
    
    
    3.81
    %
    
    
    3.08
    %
    
    
    *
    
    
    
    *
    
    
    
    1.39
    %Expected lives (years)
    
    
    3.98
    
    
    
    4.24
    
    
    
    4.25
    
    
    
    *
    
    
    
    *
    
    
    
    .50Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    *
    
    
    
    
 
 *
    
    Due to changes in the discount on ESPP purchases during 2005, the ESPP is no longer a compensatory plan. Equity Compensation Plans
  Outstanding Options,Stock AppreciationRights and Restricted
    
    Weighted AverageStock
    
    Exercise Price(Number of Shares)
    
    Per ShareBalance at December 31, 2003
    
    
    18,020,678
    
    
    $
    14.40Granted
    
    
    2,967,294
    
    
    
    16.48Exercised
    
    
    (2,511,797
    )
    
    
    10.39Forfeited or expired
    
    
    (1,547,958
    )
    
    
    16.63Balance at December 31, 2004
    
    
    16,928,217
    
    
    $
    15.15Granted
    
    
    2,329,981
    
    
    
    14.45Exercised
    
    
    (3,640,478
    )
    
    
    12.15Forfeited or expired
    
    
    (855,106
    )
    
    
    18.95Balance at December 31, 2005
    
    
    14,762,614
    
    
    $
    15.59Granted
    
    
    3,413,093
    
    
    
    17.15Exercised
    
    
    (3,380,478
    )
    
    
    13.92Forfeited or expired
    
    
    (794,710
    )
    
    
    17.26Balance at December 31, 2006
    
    
    14,000,519
    
    
    $
    16.26
   - 77 -




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##### Table of Contents



Options, Restricted Stock, & Stock Appreciation RightsOutstanding
    
    Options & Stock Appreciation Rights ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    Weighted-
    
    
    
    
    
    
    
    
    
    Average
    
    Weighted-Remaining
    
    Average
    
    Aggregate
    
    
    
    
    
    Remaining
    
    Average
    
    AggregateRanges of
    
    
    
    
    
    Contractual
    
    Exercise
    
    Intrinsic
    
    
    
    
    
    Contractual
    
    Exercise
    
    IntrinsicExercisable Prices
    
    Shares
    
    Life
    
    Price
    
    Value
    
    Shares
    
    Life
    
    Price
    
    Value$0.00 to $9.40
    
    
    2,358,665
    
    
    
    6.68
    
    
    $
    2.33
    
    
    $
    52,758,007
    
    
    
    447,311
    
    
    
    3.58
    
    
    $
    7.79
    
    
    $
    7,564,676$9.56 to $14.19
    
    
    2,460,194
    
    
    
    5.34
    
    
    $
    11.84
    
    
    
    31,626,955
    
    
    
    2,393,862
    
    
    
    5.28
    
    
    $
    11.80
    
    
    
    30,870,363$14.20 to $19.70
    
    
    3,015,409
    
    
    
    5,96
    
    
    $
    18.03
    
    
    
    20,098,637
    
    
    
    1,835,978
    
    
    
    5.67
    
    
    $
    17.47
    
    
    
    13,280,509$19.75 to $21.38
    
    
    2,347,431
    
    
    
    5.75
    
    
    $
    20.78
    
    
    
    9,207,142
    
    
    
    986,519
    
    
    
    4.64
    
    
    $
    20.26
    
    
    
    4,376,874$21.45 to $23.94
    
    
    2,384,669
    
    
    
    4.50
    
    
    $
    22.61
    
    
    
    4,994,012
    
    
    
    1,689,300
    
    
    
    3.82
    
    
    $
    22.91
    
    
    
    3,027,654$24.16 to $28.13
    
    
    1,434,151
    
    
    
    5.09
    
    
    $
    25.07
    
    
    
    174,879
    
    
    
    1,031,351
    
    
    
    4.00
    
    
    $
    25.38
    
    
    
    $0.00 to $28.13
    
    
    14,000,519
    
    
    
    5.60
    
    
    $
    16.26
    
    
    $
    118,859,632
    
    
    
    8,384,321
    
    
    
    4.75
    
    
    $
    17.73
    
    
    $
    59,120,076
   Weighted-averagegrant date fairShares
    
    value per shareNonvested at December 31, 2005
    
    
    1,303,200
    
    
    $
    18.00Granted
    
    
    428,050
    
    
    
    21.49Vested
    
    
    (64,500
    )
    
    
    14.01Forfeited
    
    
    (109,061
    )
    
    
    19,43Nonvested at December 31, 2006
    
    
    1,557,689
    
    
    $
    19.02
  Weighted averageOutstanding options
    
    Exercise pricenumber of shares
    
    Per shareBalance at December 31, 2003
    
    
    8,732,056
    
    
    $
    3.32Granted
    
    
    200,500
    
    
    
    0.78Forfeited or expired
    
    
    (1,067,100
    )
    
    
    2.47Balance at December 31, 2004
    
    
    7,865,456
    
    
    $
    3.37Forfeited or expired
    
    
    (112,950
    )
    
    
    3.33Balance at December 31, 2005
    
    
    7,752,506
    
    
    $
    3.37Forfeited or expired
    
    
    (4,574,138
    )
    
    
    3.51Balance at December 31, 2006
    
    
    3,178,368
    
    
    $
    3.22
 - 78 -




---



##### Table of Contents



Options outstanding
    
    
    Options exercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRanges of
    
    
    
    
    
    Contractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseExercisable prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$0.75
    
    
    606,750
    
    
    
    6.08
    
    
    $
    0.75
    
    
    
    594,366
    
    
    $
    0.75$0.78
    
    
    727,500
    
    
    
    6.66
    
    
    $
    0.78
    
    
    
    624,512
    
    
    $
    0.78$5.00
    
    
    1,844,118
    
    
    
    3.64
    
    
    $
    5.00
    
    
    
    1,844,118
    
    
    $
    5.00$0.75 to $5.00
    
    
    3,178,368
    
    
    
    4.80
    
    
    $
    3.22
    
    
    
    3,062,996
    
    
    $
    3.31
   Weighted averageOutstanding options
    
    exercise pricenumber of shares
    
    per shareBalance at December 31, 2003
    
    
    10,630,586
    
    
    $
    2.51Granted
    
    
    1,250,650
    
    
    
    2.51Forfeited or expired
    
    
    (353,882
    )
    
    
    2.51Balance at December 31, 2004
    
    
    11,527,354
    
    
    $
    2.51Granted
    
    
    46,750
    
    
    
    2.51Forfeited or expired
    
    
    (57,405
    )
    
    
    2.51Balance at December 31, 2005
    
    
    11,516,699
    
    
    $
    2.51Forfeited or expired
    
    
    (1,283,359
    )
    
    
    2.51Balance at December 31, 2006
    
    
    10,233,340
    
    
    $
    2.51
    - 79 -




---



##### Table of Contents



Comparable Disclosures
  (Dollars in thousands, except per share data)
    
    2005
    
    
    2004As reported net income  stock-based employee
compensation determined using the intrinsic value method
    
    $
    85,583
    
    
    $
    67,950Add: Stock-based employee compensation cost, net of tax,
Included in net income as reported
    
    
    7,306
    
    
    
    4,599Less: Pro-forma stock-based employee compensation cost,
net of tax, determined under the fair value method
    
    
    (18,848
    )
    
    
    (24,772
    )Pro-forma net income  stock-based employee
Compensation determined under the fair value method
    
    $
    74,041
    
    
    $
    47,777Basic net income per shareAs reported
    
    $
    0.95
    
    
    $
    0.71Pro forma
    
    
    0.82
    
    
    
    0.50Diluted net income per shareAs reported
    
    $
    0.92
    
    
    $
    0.69Pro forma
    
    
    0.79
    
    
    
    0.49
 Note Eight: Income Taxes
   - 80 -




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004United States
    
    $
    51,110
    
    
    $
    24,755
    
    
    $
    (8,590
    )Foreign
    
    
    110,207
    
    
    
    111,960
    
    
    
    109,556Total
    
    $
    161,317
    
    
    $
    136,715
    
    
    $
    100,966
  2006
    
    
    2005
    
    
    2004FederalCurrent
    
    $
    20,840
    
    
    $
    16,595
    
    
    $
    3,445Deferred
    
    
    4,171
    
    
    
    7,199
    
    
    
    (1,869
    )25,011
    
    
    
    23,794
    
    
    
    1,576StateCurrent
    
    $
    2,323
    
    
    $
    2,413
    
    
    
    475Deferred
    
    
    2,696
    
    
    
    2,002
    
    
    
    1,6035,019
    
    
    
    4,415
    
    
    
    2,078ForeignCurrent
    
    $
    41,910
    
    
    $
    21,952
    
    
    
    28,391Deferred
    
    
    (5,687
    )
    
    
    971
    
    
    
    97136,223
    
    
    
    22,923
    
    
    
    29,362Total
    
    $
    66,253
    
    
    $
    51,132
    
    
    $
    33,016
   2006
    
    
    2005
    
    
    2004Tax (credit) at U.S. statutory rate
    
    $
    56,461
    
    
    $
    47,850
    
    
    $
    35,338State tax, net of federal benefit
    
    
    5,019
    
    
    
    4,415
    
    
    
    2,078Difference between estimated amounts recorded and actual
liabilities resulting from the filing of prior years tax
return
    
    
    (2,806
    )
    
    
    (2,646
    )
    
    
    (2,820
    )Expired federal research credits
    
    
    854
    
    
    
    0
    
    
    
    0Effect of foreign operations
    
    
    (2,683
    )
    
    
    410
    
    
    
    (971
    )Benefit of Japanese operating losses
    
    
    0
    
    
    
    (275
    )
    
    
    (3,751
    )Amortization/impairment of intangible assets
    
    
    0
    
    
    
    1,054
    
    
    
    788Non-deductible executive compensation
    
    
    3,012
    
    
    
    2,570
    
    
    
    1,610Increase (decrease) of deferred tax liability associated with certain foreign earnings
    
    
    1,464
    
    
    
    (1,174
    )
    
    
    0Release of tax reserves following the completion of
certain audits and expiration of statute of limitations
    
    
    (3,680
    )
    
    
    (4,978
    )
    
    
    (3,519
    )Reserve for tax contingencies
    
    
    8,569
    
    
    
    2,922
    
    
    
    3,680Other
    
    
    43
    
    
    
    984
    
    
    
    583Total
    
    $
    66,253
    
    
    $
    51,132
    
    
    $
    33,016
 - 81 -




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##### Table of Contents



2006
    
    
    2005Depreciation
    
    $
    6,725
    
    
    $
    9,682Deferred revenue
    
    
    1,023
    
    
    
    2,366Accrued expenses
    
    
    26,890
    
    
    
    19,449Allowance for doubtful accounts
    
    
    667
    
    
    
    1,056Capitalized R&D expenses
    
    
    531
    
    
    
    16,809Net operating loss carryovers and tax credits
carryforwards
    
    
    168,236
    
    
    
    127,022Intangible assets
    
    
    23,743
    
    
    
    225Share-based compensation
    
    
    6,563
    
    
    
    483Capital loss carryforward
    
    
    11,453
    
    
    
    14,885Other assets
    
    
    8,558
    
    
    
    6,511Gross deferred tax asset
    
    
    254,389
    
    
    
    198,488Unremitted foreign earnings
    
    
    (5,759
    )
    
    
    (4,059
    )Acquired Intangibles
    
    
    (50,663
    )
    
    
    (29,395
    )Other liabilities
    
    
    0
    
    
    
    (1,896
    )Gross deferred tax liability
    
    
    (56,422
    )
    
    
    (35,350
    )Total before valuation allowance
    
    
    197,967
    
    
    
    163,138Valuation allowance
    
    
    (170,122
    )
    
    
    (132,736
    )Net deferred tax assets
    
    $
    27,845
    
    
    $
    30,402Recorded as:Current deferred tax assets
    
    $
    6,224
    
    
    $
    5,523Noncurrent deferred tax assets
    
    
    36,069
    
    
    
    24,879Noncurrent deferred tax liabilities
    
    
    (14,448
    )
    
    
    0$
    27,845
    
    
    $
    30,402
  Valuation allowance primarily associated with deferred tax asset acquired
with Mobile 365
    
    $
    6,899Valuation allowance associated with foreign tax credits
    
    
    8,060Valuation allowance associated with research tax credits
    
    
    672Valuation allowance associated primarily with various acquired tax
assets adjusted to tax return amounts
    
    
    35,174Valuation allowance associated with acquired net operating loss used
during the year
    
    
    (6,882
    )Valuation allowance attributable to capital loss that expired in 2006
    
    
    (3,625
    )Valuation allowance attributable to prior year stock option tax
deductions that reduced taxes payable in 2006
    
    
    (1,926
    )Valuation Allowance attributable to State net operating loss
carryforwards used or considered realizable
    
    
    (986
    )$
    37,386
 - 82 -




---



##### Table of Contents



Note Nine: Retirement Plan
 401(k) Defined Contribution Retirement Plan
  - 83 -




---



##### Table of Contents



Note Ten: Segment and Geographical Information
      - 84 -




---



##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    SY365
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    229,376
    
    
    $
    235
    
    
    $
    
    
    
    $
    
    
    
    $
    229,611Mobile and Embedded
    
    
    31,621
    
    
    
    65,519
    
    
    
    
    
    
    
    
    
    
    
    97,140Subtotal license fees
    
    
    260,997
    
    
    
    65,754
    
    
    
    
    
    
    
    
    
    
    
    326,751Intersegment license revenues
    
    
    86
    
    
    
    26,333
    
    
    
    
    
    
    
    (26,419
    )
    
    
    Total license fees
    
    
    261,083
    
    
    
    92,087
    
    
    
    
    
    
    
    (26,419
    )
    
    
    326,751ServicesDirect service revenue
    
    
    485,016
    
    
    
    46,156
    
    
    
    
    
    
    
    
    
    
    
    531,172Intersegment service revenues
    
    
    367
    
    
    
    25,905
    
    
    
    
    
    
    
    (26,272
    )
    
    
    Total services
    
    
    485,383
    
    
    
    72,061
    
    
    
    
    
    
    
    (26,272
    )
    
    
    531,172Messaging
    
    
    
    
    
    
    
    
    
    
    18,240
    
    
    
    
    
    
    
    18,240Total revenues
    
    
    746,466
    
    
    
    164,148
    
    
    
    18,240
    
    
    
    (52,691
    )
    
    
    876,163Total allocated costs and expenses before
amortization of other purchased intangibles,
purchased technology, cost of restructure,
and unallocated costs
    
    
    598,864
    
    
    
    136,500
    
    
    
    17,596
    
    
    
    (52,691
    )
    
    
    700,269Operating income before amortization of other
purchased intangibles, purchased technology,
cost of restructure, and unallocated costs
    
    
    147,602
    
    
    
    27,648
    
    
    
    644
    
    
    
    
    
    
    
    175,894Amortization of other purchased intangibles
    
    
    2,060
    
    
    
    4,184
    
    
    
    1,087
    
    
    
    
    
    
    
    7,331Amortization of purchased technology
    
    
    1,654
    
    
    
    7,883
    
    
    
    543
    
    
    
    
    
    
    
    10,080Operating income (loss) before cost of
restructure and unallocated costs
    
    
    143,888
    
    
    
    15,581
    
    
    
    (986
    )
    
    
    
    
    
    
    158,483Cost of restructure  2006 Activity
    
    
    961
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    961Operating income (loss) before unallocated costs
    
    
    142,927
    
    
    
    15,581
    
    
    
    (986
    )
    
    
    
    
    
    
    157,522Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,758Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133,764Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,634Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    161,317
 - 85 -




---



##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    204,975
    
    
    $
    48
    
    
    $
    
    
    
    $
    205,023Mobile and Embedded
    
    
    32,171
    
    
    
    54,501
    
    
    
    
    
    
    
    86,672Subtotal license fees
    
    
    237,146
    
    
    
    54,549
    
    
    
    
    
    
    
    291,695Intersegment license revenues
    
    
    86
    
    
    
    26,854
    
    
    
    (26,940
    )
    
    
    Total license fees
    
    
    237,232
    
    
    
    81,403
    
    
    
    (26,940
    )
    
    
    291,695ServicesDirect service revenue
    
    
    488,019
    
    
    
    38,981
    
    
    
    
    
    
    
    527,000Intersegment service revenues
    
    
    59
    
    
    
    26,907
    
    
    
    (26,966
    )
    
    
    Total services
    
    
    488,078
    
    
    
    65,888
    
    
    
    (26,966
    )
    
    
    527,000Total revenues
    
    
    725,310
    
    
    
    147,291
    
    
    
    (53,906
    )
    
    
    818,695Total allocated costs and expenses before
amortization of other purchased intangibles,
purchased technology, cost of restructure,
and unallocated costs
    
    
    613,912
    
    
    
    116,402
    
    
    
    (53,906
    )
    
    
    676,408Operating income before amortization of other
purchased intangibles, purchased technology,
cost of restructure, and unallocated costs
    
    
    111,398
    
    
    
    30,889
    
    
    
    
    
    
    
    142,287Amortization of other purchased intangibles
    
    
    2,000
    
    
    
    4,639
    
    
    
    
    
    
    
    6,639Amortization of purchased technology
    
    
    7,224
    
    
    
    4,626
    
    
    
    
    
    
    
    11,850Operating income before cost of restructure and
unallocated costs
    
    
    102,174
    
    
    
    21,624
    
    
    
    
    
    
    
    123,798Cost of restructure  2005 Activity
    
    
    284
    
    
    
    
    
    
    
    
    
    
    
    284Operating income before unallocated costs
    
    
    101,890
    
    
    
    21,624
    
    
    
    
    
    
    
    123,514Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,574Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,940Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,824Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    136,715
 - 86 -




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##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    200,097
    
    
    $
    87
    
    
    $
    
    
    
    $
    200,184Mobile and Embedded
    
    
    31,152
    
    
    
    44,536
    
    
    
    
    
    
    
    75,688Subtotal license fees
    
    
    231,249
    
    
    
    44,623
    
    
    
    
    
    
    
    275,872Intersegment license revenues
    
    
    117
    
    
    
    26,063
    
    
    
    (26,180
    )
    
    
    Total license fees
    
    
    231,366
    
    
    
    70,686
    
    
    
    (26,180
    )
    
    
    275,872ServicesDirect service revenue
    
    
    491,033
    
    
    
    21,631
    
    
    
    
    
    
    
    512,664Intersegment service revenues
    
    
    11
    
    
    
    27,007
    
    
    
    (27,018
    )
    
    
    Total services
    
    
    491,044
    
    
    
    48,638
    
    
    
    (27,018
    )
    
    
    512,664Total revenues
    
    
    722,410
    
    
    
    119,324
    
    
    
    (53,198
    )
    
    
    788,536Total allocated costs and expenses before
amortization of other purchased intangibles,
purchased technology, cost of restructure,
and unallocated costs
    
    
    610,009
    
    
    
    100,428
    
    
    
    (53,198
    )
    
    
    657,239Operating income before amortization of other
purchased intangibles, purchased technology,
cost of restructure, and unallocated costs
    
    
    112,401
    
    
    
    18,896
    
    
    
    
    
    
    
    131,297Amortization of other purchased intangibles
    
    
    2,000
    
    
    
    3,139
    
    
    
    
    
    
    
    5,139Amortization of purchased technology
    
    
    14,924
    
    
    
    2,894
    
    
    
    
    
    
    
    17,818Operating income before cost of restructure and
unallocated savings
    
    
    95,477
    
    
    
    12,863
    
    
    
    
    
    
    
    108,340Cost of restructure  2004 Activity
    
    
    19,016
    
    
    
    140
    
    
    
    
    
    
    
    19,156Operating income before unallocated savings
    
    
    76,461
    
    
    
    12,723
    
    
    
    
    
    
    
    89,184Unallocated savings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (208
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,392Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,574Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    100,966
 - 87 -




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Revenues:Unaffiliated customers:United States
    
    $
    442,432
    
    
    $
    441,809
    
    
    $
    426,626Europe
    
    
    279,306
    
    
    
    233,524
    
    
    
    220,441Other
    
    
    154,425
    
    
    
    143,362
    
    
    
    141,469Total
    
    $
    876,163
    
    
    $
    818,695
    
    
    $
    788,536Long-lived assets, net:United States
    
    $
    788,052
    
    
    $
    571,976
    
    
    $
    435,003Europe
    
    
    60,086
    
    
    
    13,572
    
    
    
    10,082Other
    
    
    31,782
    
    
    
    26,237
    
    
    
    30,115Total
    
    $
    879,920
    
    
    $
    611,785
    
    
    $
    475,200
 Note Eleven: Business Combinations
    -88 -




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##### Table of Contents



Cash and cash equivalents
    
    $
    23.3Accounts receivable, net
    
    
    52.9Other current assets
    
    
    3.0Property, equipment and improvements
    
    
    13.4Deferred income taxes
    
    
    (28.4
    )Developed technology
    
    
    25.2Customer lists
    
    
    50.7Goodwill
    
    
    335.1Other assets
    
    
    0.5Accounts payable
    
    
    (20.9
    )Accrued compensation and related expenses
    
    
    (5.3
    )Other current accrued liabilities
    
    
    (29.6
    )Other long-term liabilities
    
    
    (0.5
    )$
    419.4
   AccruedAccrued
    
    
    
    
    
    
    LiabilitiesLiabilities
    
    
    Amounts
    
    
    atAssumed
    
    
    Paid
    
    
    12/31/06Lease Cancellations and
Commitments
    
    $
    0.4
    
    
    
    
    
    
    $
    0.4Termination Payments to Employees
    
    $
    0.2
    
    
    
    
    
    
    $
    0.2Other
    
    $
    0.7
    
    
    
    
    
    
    $
    0.7$
    1.3
    
    
    
    
    
    
    $
    1.3
  - 89 -




---



##### Table of Contents



Twelve
    
    TwelveMonths
    
    MonthsEnded
    
    Ended12/31/06
    
    12/31/05(In thousands, except per share data)
    
    (Unaudited)
    
    (Unaudited)Revenue
    
    $
    963,225
    
    
    $
    904,540Net income
    
    $
    64,138
    
    
    $
    71,305Basic net income per share
    
    $
    0.72
    
    
    $
    0.79Diluted net income per share
    
    $
    0.69
    
    
    $
    0.76
   Note Twelve: Litigation
  - 90 -




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##### Table of Contents



Note Thirteen: Restructuring Costs
     Accrued
    
    
    
    
    
    
    
    
    
    AccruedLiabilities
    
    
    
    
    
    Amounts
    
    Liabilitiesat
    
    Amounts
    
    Accrued
    
    at12/31/05
    
    Paid
    
    (Reversed)
    
    12/31/062004 Plan
    
    
    5.1
    
    
    
    1.8
    
    
    
    0.9
    
    
    
    4.22003 Plan
    
    
    0.3
    
    
    
    0.1
    
    
    
    
    
    
    
    0.22002 Plan
    
    
    10.7
    
    
    
    3.3
    
    
    
    0.9
    
    
    
    8.32001 Plan
    
    
    3.6
    
    
    
    1.4
    
    
    
    (0.2
    )
    
    
    2.0AvantGo
    
    
    2.1
    
    
    
    1.2
    
    
    
    
    
    
    
    0.9
 - 91 -




---



##### Table of Contents



Note Fourteen: Guarantees
  Contingent Change of Control Provisions
  - 92 -




---



##### Table of Contents



Note Fifteen: Convertible Subordinated Notes
     - 93 -




---



##### Table of Contents



Quarterly Financial Information (Unaudited)
 Three months ended (in thousands,
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    Totalexcept per share and stock price data)
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006Revenues:License fees
    
    $
    66,888
    
    
    $
    83,141
    
    
    $
    76,338
    
    
    $
    100,384
    
    
    $
    326,751Services
    
    
    128,120
    
    
    
    132,418
    
    
    
    132,794
    
    
    
    137,840
    
    
    
    531,172Messaging
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,240
    
    
    
    18,240Total revenues:
    
    
    195,008
    
    
    
    215,559
    
    
    
    209,132
    
    
    
    256,464
    
    
    
    876,163Costs and expenses:Cost of license fees
    
    
    12,792
    
    
    
    11,930
    
    
    
    12,160
    
    
    
    13,658
    
    
    
    50,540Cost of services
    
    
    38,352
    
    
    
    38,338
    
    
    
    37,681
    
    
    
    38,591
    
    
    
    152,962Cost of messaging
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,097
    
    
    
    11,097Sales and marketing
    
    
    61,355
    
    
    
    67,833
    
    
    
    62,019
    
    
    
    72,074
    
    
    
    263,281Product development and engineering
    
    
    36,997
    
    
    
    37,543
    
    
    
    37,327
    
    
    
    37,643
    
    
    
    149,510General and administrative
    
    
    24,987
    
    
    
    25,947
    
    
    
    26,103
    
    
    
    28,988
    
    
    
    106,025Amortization of other purchased
intangibles
    
    
    1,546
    
    
    
    1,552
    
    
    
    1,573
    
    
    
    2,660
    
    
    
    7,331Cost of restructure
    
    
    34
    
    
    
    66
    
    
    
    39
    
    
    
    1,514
    
    
    
    1,653Total costs and expenses
    
    
    176,063
    
    
    
    183,209
    
    
    
    176,902
    
    
    
    206,225
    
    
    
    742,399Operating income
    
    
    18,945
    
    
    
    32,350
    
    
    
    32,230
    
    
    
    50,239
    
    
    
    133,764Interest income, expense, and other, net
    
    
    6,058
    
    
    
    7,217
    
    
    
    7,936
    
    
    
    6,423
    
    
    
    27,634Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )
    
    
    (81
    )Income before income taxes
    
    
    25,003
    
    
    
    39,567
    
    
    
    40,166
    
    
    
    56,581
    
    
    
    161,317Provision for income taxes
    
    
    7,751
    
    
    
    13,234
    
    
    
    15,081
    
    
    
    30,187
    
    
    
    66,253Net income
    
    $
    17,252
    
    
    $
    26,333
    
    
    $
    25,085
    
    
    $
    26,394
    
    
    $
    95,064Basic net income per share
    
    $
    0.19
    
    
    $
    0.30
    
    
    $
    0.28
    
    
    $
    0.29
    
    
    $
    1.06Diluted net income per share
    
    $
    0.19
    
    
    $
    0.29
    
    
    $
    0.27
    
    
    $
    0.28
    
    
    $
    1.03
 Three months ended (in thousands,
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    Totalexcept per share and stock price data)
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005Revenues:License fees
    
    $
    62,708
    
    
    $
    67,915
    
    
    $
    69,739
    
    
    $
    91,333
    
    
    $
    291,695Services
    
    
    129,203
    
    
    
    136,493
    
    
    
    129,588
    
    
    
    131,716
    
    
    
    527,000Total revenues:
    
    
    191,911
    
    
    
    204,408
    
    
    
    199,327
    
    
    
    223,049
    
    
    
    818,695Costs and expenses:Cost of license fees
    
    
    14,258
    
    
    
    11,721
    
    
    
    10,993
    
    
    
    14,584
    
    
    
    51,556Cost of services
    
    
    40,340
    
    
    
    39,928
    
    
    
    37,980
    
    
    
    38,077
    
    
    
    156,325Sales and marketing
    
    
    59,578
    
    
    
    65,360
    
    
    
    59,655
    
    
    
    65,410
    
    
    
    250,003Product development and engineering
    
    
    33,527
    
    
    
    34,305
    
    
    
    34,932
    
    
    
    36,247
    
    
    
    139,011General and administrative
    
    
    22,233
    
    
    
    23,077
    
    
    
    23,873
    
    
    
    22,923
    
    
    
    92,106Amortization of other purchased
intangibles
    
    
    1,677
    
    
    
    1,677
    
    
    
    1,677
    
    
    
    1,608
    
    
    
    6,639Cost (reversal) of restructure
    
    
    (8
    )
    
    
    289
    
    
    
    21
    
    
    
    813
    
    
    
    1,115Total costs and expenses
    
    
    171,605
    
    
    
    176,357
    
    
    
    169,131
    
    
    
    179,662
    
    
    
    696,755Operating income
    
    
    20,306
    
    
    
    28,051
    
    
    
    30,196
    
    
    
    43,387
    
    
    
    121,940Interest income, expense, and other, net
    
    
    3,108
    
    
    
    3,631
    
    
    
    3,881
    
    
    
    4,204
    
    
    
    14,824Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    (49
    )Income before income taxes
    
    
    23,414
    
    
    
    31,682
    
    
    
    34,077
    
    
    
    47,542
    
    
    
    136,715Provision for income taxes
    
    
    10,068
    
    
    
    15,827
    
    
    
    6,090
    
    
    
    19,147
    
    
    
    51,132Net income
    
    $
    13,346
    
    
    $
    15,855
    
    
    $
    27,987
    
    
    $
    28,395
    
    
    $
    85,583Basic net income per share
    
    $
    0.14
    
    
    $
    0.18
    
    
    $
    0.31
    
    
    $
    0.32
    
    
    $
    0.95Diluted net income per share
    
    $
    0.14
    
    
    $
    0.17
    
    
    $
    0.30
    
    
    $
    0.31
    
    
    $
    0.92
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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Report of Management on Internal Controls over Financial Reporting
  Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
 
 
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF REGISTRANT AND CORPORATE GOVERNANCE
 Current Executive Officers
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##### Table of Contents



Identification of Directors
  Compliance with Section 16(a) of the Exchange Act
  Audit Committee Financial Expert
  Standing Audit Committee
  Corporate Governance Guidelines
 www.sybase.com
 Certifications
  Code of Ethics
 www.sybase.com
 
 
 ITEM 11. EXECUTIVE COMPENSATION
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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
   
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Financial Statements
 Financial Statement Schedules
 Exhibits
 Exhibits
 (c) Schedules.Form 10-KPageII Valuation and Qualifying Accounts
    
    98
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##### Table of Contents



TranslationBeginning
    
    
    Charged to
    
    
    
    
    
    
    Adjustments and
    
    
    Ending(Dollars in thousands)
    
    Balance
    
    
    Operations (A)
    
    
    Write-offs (B)
    
    
    Other
    
    
    BalanceYear ended December 31, 2006:Allowance for doubtful accounts
    
    $
    2,651
    
    
    $
    2,330
    
    
    $
    (1,277
    )
    
    $
    294
    
    
    $
    3,998Year ended December 31, 2005:Allowance for doubtful accounts
    
    $
    1,852
    
    
    $
    2,263
    
    
    $
    (1,480
    )
    
    $
    16
    
    
    $
    2,651Year ended December 31, 2004:Allowance for doubtful accounts
    
    $
    4,145
    
    
    $
    (595
    )
    
    $
    (2,022
    )
    
    $
    324
    
    
    $
    1,852
 
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SIGNATURES
  SYBASE, INC.By:
    
    /S/JOHN S. CHENMarch 1, 2007
    
    John S. ChenChairman of the Board, ChiefExecutive Officer and President
 POWER OF ATTORNEY
  Signature
    
    Title
    
    Date/S/ JOHN S. CHEN
    
    Chairman of the Board, Chief
    
    March 1, 2007(John S. Chen)
    
    Executive Officer (Principal Executive
Officer), President and Director/S/ PIETER A. VAN DER VORST
    
    Senior Vice President and
    
    March 1, 2007(Pieter A. Van der Vorst)
    
    Chief Financial Officer (Principal
Financial Officer)/S/ JEFFREY G. ROSS
    
    Vice President and Corporate
    
    March 1, 2007(Jeffrey G. Ross)
    
    Controller (Principal Accounting
Officer)/S/ RICHARD C. ALBERDING
    
    Director
    
    March 1, 2007(Richard C. Alberding)/S/ CECILIA CLAUDIO
    
    Director
    
    March 1, 2007(Cecilia Claudio)/S/ L. WILLIAM KRAUSE
    
    Director
    
    March 1, 2007(L. William Krause)/S/ ALAN B. SALISBURY
    
    Director
    
    March 1, 2007(Alan B. Salisbury)/S/ JACK E. SUM
    
    Director
    
    March 1, 2007(Jack E. Sum)/S/ ROBERT P. WAYMAN
    
    Director
    
    March 1, 2007(Robert P. Wayman)/S/ LINDA K. YATES
    
    Director
    
    March 1, 2007(Linda K. Yates)
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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description2.1 (1)
    
    Agreement and Plan of Reorganization dated as of November
29, 1999, among the Company, On-Line Financial Services, Inc., and Home
Financial Network, Inc.2.2 (2)
    
    Agreement and Plan of Merger dated as of February 20,
2001, among the Company, New Era of Networks, Inc., and Neel Acquisition Corp.2.3 (3)
    
    Agreement and Plan of Merger dated as of December 19,
2002, by and among the Company, Seurat Acquisition Corporation and AvantGo,
Inc.2.4 (12)
    
    Agreement and Plan of Merger dated as of July
28, 2005, by and among the Company, Ernst Acquisition Corporation and Extended
Systems Incorporated.2.5 (19)
    
    Agreement and Plan of Merger dated as of September 5,
2006, by and among Sybase, Inc., Monaco Acquisition Corporation, Mobile 365,
Inc., and with respect to Section 6.16(e), Article VIII and Article X only,
John Backus.3.1 (4)
    
    Restated Certificate of Incorporation of the Company, as
amended.3.2 (5)
    
    Bylaws of the Company, amended and restated as of February 4, 2004.4.1 (6)
    
    Preferred Share Rights Agreement dated as of July 31, 2002
between the Company and American Stock Transfer and Trust Co.4.2 (7)
    
    Amendment No. 1 dated as of February 14, 2005 to the
Preferred Share Rights Agreement dated as of July 31, 2002 between the Company
and American Stock Transfer and Trust Co.4.3 (8)
    
    Indenture dated as of February 22, 2005 between the
Company and U.S. Bank National Association, as Trustee (including form of
1.75% Convertible Subordinated Notes due 2025).4.4 (8)
    
    Registration Rights Agreement dated as of February 22,
2005 between the Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Lehman Brothers Inc.10.1 (9)*
    
    New Era of Networks, Inc. Amended and Restated 1995 Stock
Option Plan.10.2 (9)*
    
    New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan.10.3 (9)*
    
    Convoy Corporation 1997 Stock Option Plan.10.4 (9)*
    
    Microscript, Inc. 1997 Stock Option Plan.10.5 (10)*
    
    1988 Stock Option Plan and Forms of Incentive Stock
Option Agreements and Nonstatutory Stock Option Agreements, as amended.10.6 (11)*
    
    1991 Employee Stock Purchase Plan and 1991 Foreign
Subsidiary Employee Stock Purchase Plan, as amended.10.7 (22)*
    
    Sybase, Inc. 401(k) Plan, as amended.10.8 (22)*
    
    Amendment No. 2 to the Sybase, Inc. 401(k) Plan dated
December 22, 2005.10.9 (14)*
    
    Sybase, Inc. 1992 Director Stock Option Plan, as amended.10.10 (9)*
    
    Sybase, Inc. 2001 Director Stock Option Plan.
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##### Table of Contents



Exhibit No.
    
    Description10.11 (5)*
    
    Executive Deferred Compensation Plan, as amended December 5, 2003.10.12 (22)*
    
    Amendment No. 1 to the Executive Deferred Compensation
Plan, dated November 3, 2005.10.13 (9)*
    
    Sybase, Inc. 1996 Stock Plan, as amended.10.14 (21)*
    
    Form of Indemnification Agreement10.15 (14)*
    
    Form of Amended and Restated Change of Control
Agreement (standard version).10.16 (14)*
    
    Form of Amended and Restated Change of Control
Agreement (enhanced version).10. 17(20)*
    
    Amended and Restated 1991 Employee Stock Purchase
Plan, as amended February 2, 2005 and Amended and Restated 1991 Foreign
Subsidiary Employee Stock Purchase Plan, as amended February 2, 2005.10.18 (14)*
    
    Amended and Restated Employment Agreement between the
Company and John S. Chen dated as of June 11, 2001.10.19 (13)*
    
    Addendum to John Chen Amended and Restated Employment
Agreement dated August 20, 2002.10.20 (18)*
    
    Amended and Restated Sybase, Inc. 1999 Nonstatutory
Stock Plan.10.21 (16)*
    
    InphoMatch, Inc. 2000 Equity Incentive Plan, Mobile
365, Inc. 2004 Equity Incentive Plan and MobileWay, Inc. 2000 Stock Option
Plan.10.22 (17)
    
    Corporate Headquarters Lease, dated January 28, 2000,
between the Company and WDS-Dublin, LLC, as amended on November 29, 2000, and
December 13, 2001.10.23 (14)
    
    Amendment to Corporate Headquarters Lease, dated December
13, 2001, between the Company and WDS-Dublin, LLC.10.24 (17)
    
    Trust Agreement dated May 1, 2000 between Fidelity
Management Trust Company and the Company for administration of 401(k) Plan.10.25 (5)
    
    First Amendment to May 1, 2000 Trust Agreement between
Fidelity Management Trust Company and the Company for administration of the
Sybase 401(k) plan, dated as of April 1, 2002.10.26 (22)
    
    Second Amendment to May 1, 2000 Trust Agreement between
Fidelity Management Trust Company and the Company for administration of the
Sybase 401(k) plan, dated as of February 11, 2005.10.27 (5)
    
    November 17, 2003 Letter Agreement between Fidelity
Management Trust Company and the Company for administration of the Sybase
401(k) plan.10.28 (17)
    
    Trust Agreement dated May 1, 2000 between Fidelity
Management Trust Company and the Company for administration of the Sybase
Executive Deferred Compensation Plan.10.29 (5)
    
    First Amendment to Trust Agreement between Fidelity
Management Trust Company and the Company for administration of Sybase
Executive Deferred Compensation Plan.
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##### Table of Contents



Exhibit No.
    
    Description10.30 (22)
    
    Second Amendment to May 1, 2000 Trust Agreement between
Fidelity Management Trust Company and the Company for administration of Sybase
Executive Deferred Compensation Plan, dated as of February 11, 2005.10.31 (5)
    
    November 17, 2003 Letter Agreement between Fidelity
Management Trust Company and Sybase, Inc. for administration of the Sybase
Executive Deferred Compensation Plan.10.32 (17)*
    
    Financial Fusion, Inc. 2000 Stock Option Plan.10.33 (14)*
    
    Financial Fusion, Inc. 2001 Stock Option Plan.10.34 (14)*
    
    iAnywhere Solutions, Inc. Stock Option Plan.10.35 (14)*
    
    Form of Notice of Grant and Restricted Stock Purchase Agreement.10.37*
    
    Letter dated February 23, 2007 to
John S. Chen regarding 2007 compensation.10.38 (5)*
    
    Executive Financial Planning and Services Program for
Section 16 Officers, effective as of February 5, 2003.10.39 (5)*
    
    Summary Plan Description for Sabbatical Leave Plan of
Sybase, Inc., as Amended and Restated as of May 1, 2003.10.40 (16)*
    
    Amended and Restated Sybase, Inc. 2003 Stock Plan.10.41*
    
    Letter dated February 26, 2007 to
Pieter Van der Vorst regarding
2007 compensation.10.42*
    
    Letter dated February 26, 2007 to Marty Beard regarding
2007 compensation.10.43*
    
    Letter dated February 26, 2007 to Raj Nathan regarding
2007 compensation.10.44*
    
    Letter dated February 26, 2007 to
Steve Capelli
regarding 2007 compensation.10.45*
    
    Summary of vesting terms for 2007 grants to Chen, Van der Vorst,
Beard, Nathan and Capelli.10.46 (21)
    
    Purchase Agreement, dated February 15, 2005 between the
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lehman
Brothers Inc.10.47*
    
    Amendment No. 1 to the Sybase, Inc. 401(k) Plan dated March 28, 2005.10.48*
    
    Amendment No. 3 to the Sybase, Inc. 401(k) Plan dated August 22, 2006.10.49*
    
    Amendment No. 4 to the Sybase, Inc. 401(k) Plan dated November 11, 2006.12
    
    Computation of Ratio of Earnings to Fixed Charges21
    
    Subsidiaries of the Company23.1
    
    Consent of Independent Registered Public Accounting Firm24 (23)
    
    Powers of Attorney31.1
    
    Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rule 13a-14 or 15d-14, as adopted pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002.
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##### Table of Contents



Exhibit No.
    
    Description31.2
    
    Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rule 13a-14 or 15d-14, as adopted pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002.32
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Indicates Management Contract or Compensatory Plan.(1)
    
    Incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form S-3
filed on January 31, 2000.(2)
    
    Incorporated by reference to Exhibit 2(a) to the Companys Registration Statement on Form S-4
filed March 15, 2001.(3)
    
    Incorporated by reference to Exhibit 1 to the Companys Schedule 13D filed with the
Securities and Exchange Commission on December 30, 2002.(4)
    
    Incorporated by reference to Amendment No. 1 to the Companys Registration Statement on Form
S-4 filed March 9, 1994 (file no. 33-75462), as amended by the Amended and Restated
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating
Preferred Stock of Sybase, Inc., attached as Exhibit 3.3 to Form 8-A filed on August 5, 2002.(5)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2003.(6)
    
    Incorporated by reference to Exhibit 4.1 to the Companys Report on Form 8-K filed on
August 5, 2002.(7)
    
    Incorporated by reference to Exhibit 4.2 to the Companys Report on Form 8-K filed on
February 17, 2005.(8)
    
    Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K
filed on February 22, 2005.(9)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed June 19,
2001.(10)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 1997.(11)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 (file no.
333-83271) filed July 20, 1999.(12)
    
    Incorporated by reference to the Exhibits filed with the Schedule 13D the Company filed
August 8, 2005.(13)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2002.(14)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2001.(15)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed August
20, 1999.(16)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed on
November 9, 2006.(17)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2000.(18)
    
    Incorporated by reference to the Exhibits filed with the Companys Registration Statement on
Form S-8 filed on August 25, 2004.(19)
    
    Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on September 9, 2006.(20)
    
    Incorporated by reference to the Exhibits filed with the Companys Registration Statement on
Form S-8 filed on July 29, 2005.(21)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2004.(22)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2005.(23)
    
    Incorporated by reference to the signature page of this Report on Form 10-K. - 103 -