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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | 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: 0-19395



SYBASE, INC.  (Exact name of registrant as Specified in its Charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or Other Jurisdiction of
Incorporation or Organization) |  | 94-2951005
(I.R.S. Employer
Identification No.)

One Sybase Drive, Dublin, California 94568
(Address of principal executive offices and Zip Code)

Registrants telephone number, including area code: (925) 236-5000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Preferred Share Purchase Rights

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

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

Indicate
by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [X] NO [ ]

The
aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the
common equity was last sold as of the last business day of the
Registrants most recently completed second fiscal quarter was
$1.03 billion. As of March 24, 2003, the Registrant had
95,150,464 shares of Common Stock outstanding.





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##### 



DOCUMENTS INCORPORATED BY REFERENCE

|                |  |                                                                                                                                                                            
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Form 10-K Parts |  | Document Incorporated by Reference                                                                                                                                         
|                |  |                                                                                                                                                                            
|III             |  | Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held May 22, 2003 (to be filed within 120 days of
Registrants fiscal year ended December 31, 2002)

FORWARD LOOKING STATEMENTS

This annual report contains forward looking statements that involve risk and
uncertainties that could cause the actual results of Sybase, Inc. and its
consolidated subsidiaries (Sybase, the Company, we or us) to differ
materially from those expressed or implied by such forward looking statements.
These risks include continued weakness in the U.S. and global economies; global
political unrest, including acts of terrorism and the war in the
Middle East; sales productivity, particularly in North America; possible
disruptive effects of organizational changes; shifts in customer or market
demand for our products and services; public perception of Sybase, our
technology vision and future prospects; rapid technological changes;
competitive factors; delays in scheduled product availability dates (which
could result from various occurrences including development or testing
difficulties, software errors, shortages in appropriately skilled software
engineers and project management problems); interoperability of our products
with other software products, risks inherent in completing the acquisition of
other companies, the ability to integrate acquired companies into our business,
and other risks detailed from time to time in our Securities and Exchange
Commission filings.

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

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TABLE OF CONTENTS



|                                           |                                                                                                         |  |  |  |  |  |  | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                    
|                                           | ITEM 1. BUSINESS                                                                                       
|                                           | ITEM 2. PROPERTIES                                                                                     
|                                           | ITEM 3. LEGAL PROCEEDINGS                                                                              
|                                           | 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                       
|                                           | ITEM 6. SELECTED FINANCIAL DATA                                                                        
|                                           | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          
|                                           | Item 5. OTHER EVENTS.                                                                                  
|                                           | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                    
|                                           | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    
|Notes to Consolidated Financial Statements
|                                           | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           
|PART III                                  
|                                           | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                                                
|                                           | ITEM 11. EXECUTIVE COMPENSATION                                                                        
|                                           | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|                                           | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|                                           | ITEM 14. CONTROLS AND PROCEDURES                                                                       
|PART IV                                   
|                                           | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                               
|SIGNATURES                                
|CERTIFICATION                             
|EXHIBIT INDEX                             
|Exhibit 10.9                              
|Exhibit 10.12                             
|Exhibit 10.24                             
|Exhibit 10.34                             
|Exhibit 10.35                             
|Exhibit 21                                
|Exhibit 23.1                              
|Exhibit 99.1                              
|Exhibit 99.2                              
|Exhibit 99.3                              




PART I




ITEM 1. BUSINESS

Sybase is the enterprise
infrastructure company that integrates heterogeneous
applications and infrastructure technologies. We are one of the largest independent software companies in the
world with an industry-leading Enterprise Portal, mobile and
embedded
solutions, essential integration products, high performance database management
systems, and solutions in such vertical markets as financial services,
telecommunications, healthcare and the public sector. Sybase was founded and
incorporated in California on November 15, 1984, and was re-incorporated in
Delaware on July 1, 1991.

During 2002, our business was organized into the following five principal
operating divisions, two of which are majority owned subsidiaries. Below is a
brief description of the business of each of these divisions:

     
Enterprise Solutions Division (ESD)products and solutions let
enterprises integrate, move and manage very large amounts of data and
applications across diverse computing environments. ESD also provides
technical support and professional services required by businesses to develop
and maintain operational systems, including e-Business infrastructures.

     
e-Business Division (eBD)integrates our core technology with emerging
solutions to offer advanced e-Business technology. Its products include
Sybases flagship Enterprise Portal product, tools for personalization,
globalization, integration, and high security, plus Sybases historical
infrastructure expertise. eBD focuses on certain products from our former Internet
Applications Division (IAD) and certain products formerly within ESD and New
Era of Networks, Inc. (NEN) which we acquired in April 2001.

     
iAnywhere Solutions, Inc. (iAS)mobile and embedded products
and solutions empower businesses with always-available access to
enterprise information. More than 10,000 customers worldwide,
including 78 of the Fortune 100, rely on iAnywhere
Solutions industry leading mobile, embedded and
workgroup databases, mobile middleware and m-Business solutions. iAS
is a majority owned subsidiary that continues the business of our
former mobile and embedded computing (MEC) division.

     
Business Intelligence Division (BID)products and solutions let
businesses consolidate and analyze large amounts of information from data
warehouses and data marts to facilitate better decision making and gain a
competitive edge in sales and marketing, customer satisfaction, trend and risk
analysis, and other mission-critical areas. BID products are portal-ready and
make portals scalable for business intelligence.

     
Financial Fusion, Inc. (FFI)provides banking, payment, and trade
messaging solutions to more than 200 of the worlds leading financial
institutions. FFI solutions enable banks to provide account access and payment
initiation on behalf of their consumer, small business and corporate clients.
For financial market customers, FFI messaging and integration solutions enable
straight-through processing (STP) of trading transactions. FFI is a majority
owned subsidiary created to extend the business of Home Financial Network, Inc.
(HFN), which was acquired in January 2000, and to develop certain products
formerly within NEN.

A summary of financial results for these divisions and subsidiaries is found in
Note Ten to the Consolidated Financial Statements, Part II, Item 8,
incorporated here by reference.

CUSTOMERS

Our customers are primarily Fortune 1000 companies in North America and their
equivalents in other geographic regions. Our primary markets include financial
services, insurance, telecommunications, healthcare, defense and government
agencies. No single customer accounted for more than 10% of total revenues
during 2002, 2001 or 2000. Our customers during 2002 included:

     
A leading telecom provider in China using Adaptive Server®
Enterprise for all billing and provisioning applications throughout all its
regions.

     
A leading securities firm in the United States using  Replication
Server® as the foundation for its data integration and
movement infrastructure.

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     
A leading provider of television ratings measurement using Adaptive
Server® IQ Multiplexas the cornerstone of its decision support system for its
audience data warehouse.

     The
FBI using SQL Anywhere® Studioand PowerBuilder®to update its mainframe and paper-based Violent Criminal
Apprehension database application
to make it affordable and portable enough to be distributed to and managed by
law enforcement agencies across the country.

     
A super-regional Midwest U.S. Bank using Financial Fusion® Consumer
Banking Solutionto create an online branch that is integrated with customer service and voice recognition
channels allowing consumers to view their bank accounts, pay bills and perform
daily banking activities with greater efficiency.

Our products are available on hardware platforms manufactured by
Hewlett-Packard, IBM, Sun Microsystems and others. We also make products that
connect these platforms to other hardware platforms with large installed bases.
Our products are also available for a wide range of operating systems
including various UNIX environments, Windows, Windows NT, and Linux. A
description of our principal products follows:

eBusiness (eBD)

Sybase® Enterprise Portal (EP)is an extensible portal environment that meets
next-generation e-Business requirements, with powerful capabilities for
extending the enterprise to trading partners and expanding its reach to mobile
workers. During 2002, Enterprise Portal 5.0 became generally available,
incorporating innovative portlet technology we obtained through our acquisition
of OnePage, Inc. earlier in the year

Sybase® EAServeris a highly scalable, robust application server for e-portal
and Internet business solutions. It provides best-of-class transaction and
security management and high availability, enabling customers to support highly
trafficked Web sites.

e-Biz Integratoris a suite of high-powered, e-Business integration software
designed to connect core operational systems and Web-interfacing applications
for seamless, effective integration.

New Era of Networks® Process Serveris an XML-based business process design
tool and execution server. It helps companies integrate new and existing IT
systems into a cohesive business process flow that speeds response times,
improves efficiency and reduces operational costs.

PowerDesigner®is the industrys first design tool with an enterprise-class
repository that simplifies UML object modeling and data modeling, including
Java and XML.

Enterprise Solutions (ESD)

Adaptive Server® Enterprise(ASE) is a high-performance, mission critical, and
web-services enabled information management system designed to
support the most demanding requirements of businesses today. It
enables organizations to lower their total cost of ownership though
technologies that minimize both human intervention and hardware
requirements. ASE offers a unique blend of advanced developer
features and an efficient, robust computing environment for all forms
of mission-critical transaction processing on numerous platforms
including Sun, IBM, HP, SGI, Windows, and Linux. Among its many
enterprise-class features is advanced support for XML, clusters for
highly-available computing, extensive dynamic tuning, and advanced
security systems such as row-based access control and SSL-based
communications.

Replication Server®and Replication Agentallow remote sites to share data
from a primary data site, and to automatically receive updated data from the
primary site. Replication Server uses store-and-forward asynchronous
replication that monitors and copies changes made at the primary data site,
then automatically forwards those changes to all replicated sites. Sybase
replication technology offers an innovative practical architecture for building
cost-effective, high-performance, robust distributed systems,

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and supplies a flexible approach to information delivery that can rapidly adapt
to changing business needs.

PowerBuilder® is a high productivity application development tool targeted for
the client/server and Web application markets.

EnterpriseConnect , DirectConnect  and Open Server are among Sybases core
data access and integration products. These products allow users to use a
single language to access varied types of data and applications (e.g.,
real-time data feeds, stored data) from multiple sources as if they were
contained in a single database.

iAnywhere Solutions (iAS)

SQL Anywhere® Studiois the industry-leading mobile and embedded database for use
on workgroup servers, laptops and handheld devices, and supports applications
used by single or multiple users. The UltraLite deployment option minimizes
memory and system requirements for applications found in devices such as smart
phones and intelligent appliances. SQL Anywhere Studio technology allows
scalable bi-directional synchronization of business information between
enterprise systems and remote devices. This means that remote or mobile users can send
and receive critical data ensuring that up-to-date information is always
available at their fingertips and at the head office.

Manage Anywhere Studioprovides secure, centralized management of
applications and hardware for PCs, laptops and mobile devices. Architected to handle remote and mobile
environments, Manage Anywhere Studio controls the cost of deploying applications to large numbers of users in multiple locations.
Self-healing and configuration enforcement features reduce downtime and ensure the security of hardware and
applications, while remote control capabilities increase the effectiveness of help desk support. Manage
Anywhere Studio also provides comprehensive hardware and software inventories to simplify asset management.

m-Business Studio is a comprehensive integrated software package for extending
the reach of e-Business applications, enterprise data, and Internet
connections to mobile and wireless devices, including smart phones,
PDAs and laptops.

Mail Anywhere Studiois
an out-of-the-box solution that provides simple, remote access to enterprise e-mail,
calendar, and contact and task information from Lotus Notes and Microsoft
Exchange, allowing users to receive and immediately respond to e-mail
anywhere, anytime.

Business Intelligence (BID)

Adaptive Server® IQpresents a new generation of capabilities for business
intelligence and Web enabled data warehousing, allowing data access, query
performance and data loading 10 to 100 times faster than traditional relational
databases. Multiplexing capabilities allow this product to maintain high
performance levels even with dramatic increases in the number of users and the
volume of data. Adaptive Server IQ Multiplex can compress even terabytes of data without the need for
continuous, laborious tuning and maintenance.

Industry Warehouse Studios (IWS) are prepackaged solutions that can be
customized for a variety of industries such as retail banking, capital markets,
insurance, healthcare and telecommunications to create a strategic, end-to-end
business intelligence infrastructure that encompasses data acquisition, data
modeling, metadata management, data analysis, data storage and analytic
applications. IWS provides the basic framework to enable an organization to
analyze customer behavior and trends and their impact on the business.

Financial Fusion, Inc. (FFI)

Financial Fusion Banking Solutionsenable financial institutions to offer
multiple-delivery channel support to their consumer, small business, and large
corporate clients. Features include account access, banking, cash management
services, imaging, bill payment and presentment, customer care, and
wireless
application support. Solutions are supported on an integrated platform driven
by Financial Fusion Server, using advanced Java technology and industry
protocols.

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Financial Fusion Financial Markets Solutionsare designed to meet the STP
connectivity and integration requirements of the trading industry.
FFI solutions
provide processing for transaction-intensive trading organizations such as
securities and investment firms, ECNs and network providers.
Out-of-the-box
protocol support includes FIX, FIXML, FpML, EMX, SWIFT, VMUs, and proprietary
protocols.

WORLDWIDE SERVICES

Technical Support.Our Customer Service and Support organization offers
technical support for our entire family of products. We currently maintain
regional support centers in North America, Europe, and Asia Pacific that can
provide 24 x 7 technical services (i.e., 24 hours a day, seven days a week) in
all time zones around the world. Our end users and partners have access to
technical information sources and newsgroups on our support Web site, including
a problem-solving library, a solved cases database, and certain software fixes
that can be downloaded. Customers generally can choose technical support
programs that best suit their business needs. All of the following support
programs are priced on a per-product basis and include updates and new version
releases that become available during the support period:



     
Basic Supportis generally geared toward smaller local enterprises, and
includes 24 x 7 support coverage for up to two customer support contacts.

     
Extended Supportis the minimum support level recommended for Sybase
database products, and includes 24 x 7 coverage for up to four customer support
contacts.

     
Enterprise Supportoffers personalized high-availability support for
companies with mission-critical projects. Services include designated
enterprise support team, account management and other specialized options.

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

Each of our divisions and subsidiaries also offer a variety of support
services to their partners, including value added resellers (VARs), systems
integrators (SIs), original equipment manufacturers (OEMs) and independent
software developers (ISVs).

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

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

SALES AND DISTRIBUTION

Licensing Model.Consistent with software industry practice, we do not sell or
transfer title to our software products to our customers. Instead, customers
generally purchase non-exclusive, nontransferable perpetual licenses in
exchange for a fee that varies depending on the mix of products and services,
the number and type of users, the number of servers, and the type of operating
system. License fees range from several hundred dollars for single user
desktop products to several million dollars for solutions that can support
hundreds or thousands of users. We also license many of our products for use

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in connection with customer applications on the Internet. Our products and
services are offered in a wide variety of configurations depending on each
customers needs and hardware environment.

Distribution Method.All Sybase products and services generally are sold
through our direct sales organization and our indirect sales channels. Indirect
channels include VARs, SIs, OEMs, international distributors and other
resellers.

International Business.In 2002, 40% of the Companys total revenues were from
operations outside North America, with European operations accounting for 26% of total
revenues, and intercontinental operations (principally Asia Pacific (including
Japan) and South America) accounting for 14% of total revenues. Most of our
international sales are made by foreign subsidiaries. However, certain sales
are made in international markets from the United States. We also license our
products through distributors and other resellers in those regions. A summary
of our geographical revenues is set forth in Managements Discussion and
Analysis of Financial Condition and Results of Operations (MD&A)  Geographical
Revenues, Part II, Item 7, and Note Ten to the Consolidated Financial
Statements, Part II, Item 8, incorporated here by reference. For a discussion
of the risks associated with our foreign operations, see MD&A  Future
Operating Results  International Operations, Part II, Item 7, incorporated
here by reference.

INTELLECTUAL PROPERTY RIGHTS

We rely on a combination of trade secret, copyright, patent and trademark laws,
as well as contractual terms, to protect our intellectual property rights. As
of March 24, 2003, we had 67 issued patents that expire in approximately 17
years from the date they are issued. These patents cover various aspects of
our technology. We believe that our patents and other intellectual property
rights have value, but no single patent is essential to Sybase as a whole.
Additionally, any of our proprietary rights could be challenged, invalidated or
circumvented, or may not provide significant competitive advantage. For a
discussion of additional risks associated with our intellectual property, see
MD&A  Future Operating Results  Intellectual Property, Part II, Item 7,
incorporated here by reference.

RESEARCH AND DEVELOPMENT

Since inception, we have made substantial investments in research and product
development. We believe that timely development of new products and
enhancements to our existing products is essential to maintaining a strong
position in our market. During 2002, we invested $117.8 million, or 14% of our
total revenue in research and development. We intend to continue to invest
heavily in these areas. However, future operations could be affected if we fail
to timely enhance existing products or introduce new products to meet customer
demands. For a further discussion of the risks associated with product
development, see MD&A  Future Operating Results  Product Development, Part
II, Item 7, incorporated here by reference. As is common in the software
industry, our backlog is typically small and is not material to an
understanding of our business.

COMPETITION

The market for our products and services is fast-paced, extremely competitive,
and is marked by dynamic customer demands, short product life cycles, and the
rapid emergence of the Internet marketplace. For a discussion of the risks
associated with competition, see MD&A  Future Operating Results 
Competition, Part II, Item 7, incorporated here by reference.

EMPLOYEES

As of March 24, 2003, Sybase and its subsidiaries had 3,917 employees. For
information regarding our executive officers, see Directors and Executive
Officers of the Registrant, Part III, Item 10 below.

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ITEM 2. PROPERTIES

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

In September 1999, the Company sold its facility in Concord, Massachusetts and
simultaneously entered into a sale-leaseback agreement on two other buildings
in Concord, which expires in June 2006. Under the terms of the sale-leaseback agreement, the Company entered into a seven-year operating
lease, which was amended in June 1, 2001 to extend the lease term an additional
six years. The termination date of this lease is October 31, 2012. For a
further discussion of our Dublin lease and our facilities in Concord, see Note
Six to Consolidated Financial Statements, Part II, Item 8, incorporated here by
reference.

We continue to maintain an engineering center in Milpitas, California, where we
will lease approximately 10,350 square feet of office space through 2003. We
also maintain engineering centers in Boulder, Colorado; Paris, France;
Waterloo, Canada; Beijing, China; and Singapore. The North American engineering
centers focus on product development, and the Singapore and Beijing facilities
focus primarily on product localization and development relating to our Asian
markets.

As of December 31, 2002, our field operations, professional service
organizations and subsidiaries occupied leased facilities in approximately 95
locations throughout North America, South America, Europe and Asia (including
Australia and New Zealand), aggregating approximately 2.2 million square feet.
In 1999, we sold a building in Concord, Massachusetts consisting of
approximately 44,600 square feet. In 1999, we sold a building consisting of
approximately 10,500 square feet located in Maidenhead, England. We continue to
lease additional premises in various locations.

ITEM 3. LEGAL PROCEEDINGS

No proceedings required to be disclosed under this item were terminated during
the fourth quarter of 2002. See also Note Twelve to Consolidated Financial
Statements, Part II, Item 8, incorporated here by reference.

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

No matters were submitted to a stockholder vote in the quarter ended December
31, 2002.

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PART II

ITEM
5.     
MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS

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

|                                 |  |      |       |     |  |   |       | 
|-------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                 |  | High |       | Low
|                                 |  |      |       |    
|Fiscal 2001                      |  |      |       |     |  |   |       | 
|Quarter ended March 31, 2001     |  | $    | 25.88 |     |  | $ | 15.00 | 
|Quarter ended June 30, 2001      |  | $    | 18.00 |     |  | $ | 12.94 | 
|Quarter ended September 30, 2001 |  | $    | 16.81 |     |  | $ | 8.58  | 
|Quarter ended December 31, 2001  |  | $    | 17.13 |     |  | $ | 9.05  | 
|Fiscal 2002                      |  |      |       |     |  |   |       | 
|Quarter ended March 31, 2002     |  | $    | 19.00 |     |  | $ | 15.81 | 
|Quarter ended June 30, 2002      |  | $    | 17.45 |     |  | $ | 10.40 | 
|Quarter ended September 30, 2002 |  | $    | 15.15 |     |  | $ | 9.35  | 
|Quarter ended December 31, 2002  |  | $    | 13.66 |     |  | $ | 11.05 | 

We have never paid cash dividends on our capital stock, and we do not
anticipate doing so in the foreseeable future. The closing sale price of our
stock on the New York Stock Exchange on March 24, 2003 was $14.00. The number
of stockholders of record on that date was 1,614, according to American Stock Transfer & Trust,
the Company's transfer agent.

The information required by this item regarding our securities authorized for
issuance under equity compensation plans is incorporated by reference to
Security Ownership of Certain Beneficial Owners and Management, Part III,
Item 12, incorporated here by reference.

In April 2001, we acquired all of the issued and outstanding common stock of
NEN in exchange for approximately 14,289,957 shares of our Common Stock. For
further discussion of this acquisition, see Note Eleven to the Consolidated
Financial Statements, Part II, Item 8, incorporated here by reference.

On January 20, 2000, we issued 7,817,471 shares of our Common Stock to the
former shareholders of HFN in exchange for all of the outstanding common stock
of HFN. The resale of our Common Stock issued in connection with this merger
transaction was registered under the Act. For further discussion of this
acquisition, see Note Eleven to the Consolidated Financial Statements, Part II,
Item 8, incorporated here by reference.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial information is not necessarily indicative of
the results of future operations. This data should be read in conjunction the
MD&A, Part II, Item 7, as well as the Consolidated Financial Statements and
related Notes included in Part II, Item 8, Financial Statements and
Supplementary Data of this Report on Form 10-K.

Consolidated Statements of Operations Data (1)

|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|------------------------------------------------------------------------------- | ------------------------------------------- | ---- | -------- | ------- |  | ---- | ------- | ------- |  | ---- | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | 
|(In thousands, except per share data)                                           |                                             | 2002 |          | 2001    |  | 2000 |         | 1999    |  | 1998
|                                                                                |                                             |      |          |         |  |      |         |         |  |     
|Revenues:                                                                       |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |        
|                                                                                | License fees                                |      | $        | 325,916 |  |      | $       | 389,038 |  |      | $       | 468,501 |   |   | $       | 421,645 |   |   | $       | 421,454 | 
|                                                                                | Services                                    |      |          | 503,945 |  |      |         | 538,885 |  |      |         | 494,662 |   |   |         | 452,526 |   |   |         | 451,186 | 
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Total revenues                                                                  |                                             |      | 829,861  |         |  |      | 927,923 |         |  |      | 963,163 |         |   |   | 874,171 |         |   |   | 872,640 |        
|Costs and expenses:                                                             |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |        
|                                                                                | Cost of license fees                        |      |          | 51,448  |  |      |         | 45,695  |  |      |         | 45,120  |   |   |         | 46,241  |   |   |         | 37,573  | 
|                                                                                | Cost of services                            |      |          | 190,067 |  |      |         | 240,779 |  |      |         | 248,542 |   |   |         | 219,591 |   |   |         | 240,745 | 
|                                                                                | Sales and marketing                         |      |          | 271,765 |  |      |         | 331,237 |  |      |         | 345,149 |   |   |         | 310,774 |   |   |         | 377,774 | 
|                                                                                | Product development and engineering         |      |          | 117,784 |  |      |         | 125,404 |  |      |         | 126,689 |   |   |         | 136,272 |   |   |         | 148,583 | 
|                                                                                | General and administrative                  |      |          | 84,938  |  |      |         | 76,885  |  |      |         | 67,267  |   |   |         | 68,876  |   |   |         | 65,406  | 
|                                                                                | Amortization
of goodwill(2)                 |      |          |        |  |      |         | 53,859  |  |      |         | 30,155  |   |   |         | 13,234  |   |   |         | 14,360  | 
|                                                                                | Amortization of other purchased
intangibles |      |          | 2,000   |  |      |         | 2,000   |  |      |         | 2,575   |   |   |         | 686     |   |   |         | 845     | 
|                                                                                | Goodwill
impairment(2)                      |      |          | 12,300  |  |      |         |        |  |      |         |        |   |   |         |        |   |   |         |        | 
|                                                                                | In-process research and development         |      |          |        |  |      |         | 18,500  |  |      |         | 8,000   |   |   |         |        |   |   |         |        | 
|                                                                                | Stock compensation expense                  |      |          | 1,937   |  |      |         | 1,334   |  |      |         |        |   |   |         |        |   |   |         |        | 
|                                                                                | Cost (reversal) of restructuring            |      |          | 40,446  |  |      |         | 48,751  |  |      |         | (791    | ) |   |         | (8,528  | ) |   |         | 74,167  | 
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Total costs and expenses                                                        |                                             |      | 772,685  |         |  |      | 944,444 |         |  |      | 872,706 |         |   |   | 787,146 |         |   |   | 959,453 |        
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Operating income (loss)                                                         |                                             |      | 57,176   |         |  |      | (16,521 | )       |  |      | 90,457  |         |   |   | 87,025  |         |   |   | (86,813 | )      
|Interest income and expense, net                                                |                                             |      | 14,033   |         |  |      | 17,529  |         |  |      | 17,035  |         |   |   | 13,773  |         |   |   | 7,748   |        
|Minority interest                                                               |                                             |      |         |         |  |      | (30     | )       |  |      | 94      |         |   |   |        |         |   |   |        |        
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Income (loss) before income taxes and
cumulative effect of an accounting
change |                                             |      | 71,209   |         |  |      | 978     |         |  |      | 107,586 |         |   |   | 100,798 |         |   |   | (79,065 | )      
|Provision for income taxes                                                      |                                             |      | 33,428   |         |  |      | 26,500  |         |  |      | 35,461  |         |   |   | 38,303  |         |   |   | 14,063  |        
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Income (loss) before cumulative
effect of an accounting change                  |                                             |      | 37,781   |         |  |      | (25,522 | )       |  |      | 72,125  |         |   |   | 62,495  |         |   |   | (93,128 | )      
|Cumulative effect of an accounting
change to adopt SFAS 142                     |                                             |      | (132,450 | )       |  |      |        |         |  |      |        |         |   |   |        |         |   |   |        |        
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Net income (loss)                                                               |                                             | $    | (94,669  | )       |  | $    | (25,522 | )       |  | $    | 72,125  |         |   | $ | 62,495  |         |   | $ | (93,128 | )      
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Income (loss) per share before
cumulative effect of an accounting
change        |                                             | $    | 0.39     |         |  | $    | (0.27   | )       |  | $    | 0.82    |         |   | $ | 0.76    |         |   | $ | (1.15   | )      
|Cumulative effect of an accounting
change                                       |                                             |      | (1.37    | )       |  |      |        |         |  |      |        |         |   |   |        |         |   |   |        |        
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Basic net income (loss) per share                                               |                                             | $    | (0.98    | )       |  | $    | (0.27   | )       |  | $    | 0.82    |         |   | $ | 0.76    |         |   | $ | (1.15   | )      
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Shares used in computing basic net
income (loss) per share                      |                                             |      | 96,844   |         |  |      | 94,592  |         |  |      | 87,711  |         |   |   | 81,817  |         |   |   | 80,893  |        
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Income (loss) per share before
cumulative
effect of an accounting change        |                                             | $    | 0.38     |         |  | $    | (0.27   | )       |  | $    | 0.78    |         |   | $ | 0.74    |         |   | $ | (1.15   | )      
|Cumulative effect of an accounting
change                                       |                                             |      | (1.33    | )       |  |      |        |         |  |      |        |         |   |   |        |         |   |   |        |        
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Diluted net income (loss) per share                                             |                                             | $    | (0.95    | )       |  | $    | (0.27   | )       |  | $    | 0.78    |         |   | $ | 0.74    |         |   | $ | (1.15   | )      
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 
|Shares used in computing diluted net
income (loss) per share                    |                                             |      | 99,584   |         |  |      | 94,592  |         |  |      | 92,150  |         |   |   | 84,156  |         |   |   | 80,893  |        
|                                                                                |                                             |      |          |         |  |      |         |         |  |      |         |         |   |   |         |         |   |   |         |         | 

(1)  Certain reclassifications have been made to prior fiscal year balances in
order to conform to the current fiscal year presentation for the
reimbursement of out-of-pocket expenses.

(2)  We implemented
Statement of Financial Accounting Standards (SFAS) No. 142 on
January 1, 2002, which states that goodwill (including assembled
workforce) can no longer be amortized, but must be tested for
impairment on at least an annual basis. For a further discussion of
SFAS 142, see Note One to the Consolidated Financial
Statements, Goodwill and Other Purchased Intangible
Assets, Part II, Item 8, incorporated here by
reference.

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##### 



Consolidated Balance Sheet Data
(In thousands)


|                                            |  |      |         |      |  |      |           |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------------------- |  | ---- | ------- | ---- |  | ---- | --------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                            |  | 2002 |         | 2001 |  | 2000 |           | 1999 |  | 1998
|                                            |  |      |         |      |  |      |           |      |  |     
|Cash, cash equivalents and
cash investments |  | $    | 387,180 |      |  | $    | 343,160   |      |  | $    | 354,612 |  |  | $ | 352,899 |  |  | $ | 249,613 | 
|Working capital                             |  |      | 107,914 |      |  |      | 108,571   |      |  |      | 157,486 |  |  |   | 127,229 |  |  |   | 84,179  | 
|Total assets                                |  |      | 992,749 |      |  |      | 1,133,242 |      |  |      | 915,040 |  |  |   | 737,335 |  |  |   | 696,604 | 
|Long-term obligations                       |  |      | 10,641  |      |  |      | 5,887     |      |  |      | 5,795   |  |  |   | 5,799   |  |  |   | 2,011   | 
|Stockholders equity                        |  |      | 580,374 |      |  |      | 716,519   |      |  |      | 490,752 |  |  |   | 336,110 |  |  |   | 301,072 | 

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##### 



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

Overview

We reported net income of $37.8 million for 2002, before consideration of a
$132.5 million charge for the cumulative effect of an accounting change,
compared to a net loss of ($25.5) million for 2001. See Cumulative Effect of
an Accounting Change to Adopt SFAS 142, below for a discussion of this
accounting change.

During 2002 our overall revenues
decreased by 11%, but this decrease was more
than fully offset by a 18% decrease in our overall costs and expenses.
Approximately 24% of the overall decrease was attributable to adoption of
Statement of Financial Accounting Standards No. 142 (SFAS 142) which ceased the
amortization of goodwill and defined the rules for recording impairment of
goodwill, effective January 1, 2002. The remaining reduction in our operating
expenses was largely the result of our restructuring activities, as more fully
described in Note Thirteen to the Consolidated Financial Statements, Part II,
Item 8, incorporated here by reference.

Our financial position remains strong. During 2002 we generated net cash from
operating activities of $164.3 million and had $387.2 million in cash, cash
equivalents and cash investments at year end. Days sales outstanding in
accounts receivable was 72 days for the quarter ended December 31, 2002
compared to 71 days for the quarter ended December 31, 2001.

During 2002, we were organized into five separate business segments, including
two majority owned subsidiaries, each of which focused on one of five key
market segments  Enterprise Solutions Division (ESD), e-Business Division
(eBD), Business Intelligence Division (BID), iAnywhere Solutions, Inc. (iAS)
and Financial Fusion, Inc. (FFI). For a discussion of each of these segments,
see Business, Part I, Item I, and Note Ten to the Consolidated Financial
Statements, Part II, Item 8, incorporated here by reference.

Critical Accounting Policies and Estimates

We prepare our financial statements in conformity with U.S. generally accepted
accounting principles (GAAP). These accounting principals require us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities at the
date of our financial statements. We are also required to make certain
judgments that affect the reported amounts of revenues and expenses during each
reporting period. We periodically evaluate our estimates including those
relating to revenue recognition, impairment of goodwill and
intangible assets, the allowance for doubtful accounts,
capitalized software, restructuring, income taxes,
and contingencies and litigation. We base our estimates on
historical experience and various other assumptions that we believe to be
reasonable based on specific circumstances. Our management has reviewed the
development, selection, and disclosure of these estimates with the Audit
Committee of our Board of Directors. These estimates and assumptions form the
basis for our judgments about the carrying value of certain assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from these estimates. See also Future Operating Results 
Financial Accounting Related Matters, below.

We believe the following critical accounting policies impact the most
significant judgments and estimates used in the preparation of our consolidated
financial statements:



| |  |  | Revenue Recognition                                                                                                                                                                                                                                                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | Revenue recognition rules for software companies are very complex. We
follow very specific and detailed guidance in measuring revenue. Certain
judgments, however, affect the application of our revenue policy.                                                                             
|
| |   |  | We recognize revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, and
in certain instances in accordance with SOP 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts.

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##### 





| |   |  | We license software under non-cancelable license agreements. License fees
revenues are recognized when a non-cancelable license agreement is in
force, the product has been shipped, the license fee is fixed or
determinable, and collection is reasonably assured. If the fee is not
fixed or determinable, revenue is recognized as payments become due from
the customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | Residual Method Accounting. In software arrangements that include
multiple elements (such as license rights and technical support
services), we allocate the total arrangement fee among each of the
elements using the residual method of accounting. Under this
method, revenue allocated to undelivered elements is based on
vendor-specific objective evidence of fair value of such undelivered
elements, and the residual revenue is allocated to the delivered
elements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |   |  | Percentage of Completion Accounting. Fees from licenses sold
together with consulting services are generally recognized upon shipment,
provided (i) the above criteria are met, (ii) payment of the license fees
are not dependent upon the performance of the services, and (iii) the
consulting services are not essential to the functionality of the
licensed software. If the services are essential to the functionality of
the software, or payment of license fees is dependent on performance of
services, both the software license and consulting fees are recognized
under the percentage of completion method of contract accounting.
Under this method, management is required to estimate the number of total
hours needed to complete a particular project, and revenues and profits
are recognized based on the percentage of total contract hours
completed. As a result, recognized revenues and profits are subject to revisions
as the contract phases are actually completed.
|
| |   |  | Sublicense Revenues. We recognize sublicense fees as reported to us
by our licensees. License fees revenue for certain application
development and data access tools are recognized upon direct shipment to
the end user or direct shipment to the reseller for resale to the end
user. If collection is not reasonably assured in advance, revenue is
recognized only when the fee is actually collected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |   |  | Technical
Support Revenues. Technical support revenues
are recognized ratably over the term of the related agreements, which in
most cases is one year. Revenues from consulting services under time and
materials contracts and for education are recognized as services are
performed. Revenues from other contract services are generally recognized
under the percentage of completion method of contract accounting
described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | Impairment of Goodwill and Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |   |  | Goodwill and intangible assets have generally resulted from our business
combinations accounted for as purchases. Prior to 2002, these assets
were generally recorded at amortized cost. The carrying values of these
intangible assets were reviewed on a periodic basis, under the accounting
rules then in effect, and our testing indicated no impairment of the
assets carrying value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |   |  | Beginning in 2002, new accounting rules issued by the Financial
Accounting Standards Board (FASB) provided that goodwill could no longer
be amortized, and had to be tested for impairment at least annually.
These rules further changed the method of evaluating goodwill from a
recoverability test based upon undiscounted cash flows to a fair value
approach. The application of these new rules resulted in a cumulative
effect of an accounting change of $132.5 million in the first quarter of
2002 and a goodwill impairment of $12.3 million in the fourth
quarter of 2002. See Note One to the Consolidated Financial Statements,
Goodwill and Other Purchased Intangibles, Part II, Item 8, incorporated
here by reference.                                                                                                                                                                                                                                                          
|
| |   |  | As of December 31, 2002, we had recorded $136.8 million of goodwill. The
review of goodwill for potential impairment is highly subjective and
requires us to make numerous estimates to determine both the fair values
and the carrying values of our reporting units to which goodwill is
assigned. For these purposes, our reporting units equate to our reported
segments (see Note                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

- 12 -



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##### 





| |   |  | Ten to the Consolidated Financial Statements, Part II, Item 8,
incorporated here by reference). If the estimated fair value of a
reporting unit is determined to be less than its carrying value, we are
required to perform an analysis similar to a purchase price allocation
for an acquired business in order to determine the amount of goodwill
impairment, if any. This analysis requires a valuation of certain
other intangible assets including in-process research and development,
and developed technology.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | Changes in our internal business structure, changes in our future revenue
and expense forecasts, and certain other factors that directly impact the
valuation of our reporting units could result in a future goodwill
impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |   |  | We continue to review our other intangible assets (purchased technology
and customer lists) for indications of impairment whenever events or
changes in circumstances indicate the carrying amount of such an asset
may not be recoverable. For these purposes, recoverability of these
assets is measured by comparing their carrying values to the future
undiscounted cash flows that the assets are expected to generate. This
methodology requires us to estimate future cash flows associated with
certain assets or groups of assets. Changes in these estimates could
result in impairment losses associated with other intangible assets.                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | Allowance for Doubtful Accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |   |  | We maintain an allowance for doubtful accounts to reflect the expected
non-collection of accounts receivable based on past collection history
and specific risks identified in our portfolio of receivables. Additional
allowances might be required if deteriorating economic conditions affect
our customers ability to make timely payments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | Capitalized Software                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |   |  | We capitalize certain software
development costs after a product
becomes technologically feasible and before its general release to
customers. Subjective judgment is required in determining when a product
becomes technologically feasible. Capitalized development costs are
then amortized over the products estimated life beginning upon the
general release. Periodically, we compare a products unamortized
capitalized cost to the products net realizable value. To the extent
unamortized capitalized cost exceeds net realizable value based on the
products estimated future gross revenues, (reduced by the estimated
future costs of completing and disposing of the product), the excess is
written off. This analysis requires us to estimate future gross revenues
associated with certain products, and the future costs of completing and
disposing of certain products. If these estimates change, write-offs of
capitalized software costs could result.                                                   
|
| |  |  | Restructuring                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |   |  | During 2002 and 2001, we recorded significant accruals in connection with
various restructuring activities. These accruals included estimated net
costs to settle certain lease obligations, based on the analysis of
independent real estate consultants. During 2002 we recorded an
additional restructuring charge relating to these lease obligations of
$5.4 million due to deteriorating market conditions associated with
certain properties originally identified as part of our 2001
restructuring plan. See Note Thirteen to the Consolidated Financial
Statements, Part II, Item 8, incorporated here by reference. While we do
not anticipate significant changes to these estimates in the future, the
actual costs may differ from the estimates. If we are unable to
negotiate affordable termination fees or if rental rates continue to
decrease in the markets where the properties are located, or it takes us
longer then expected to find suitable sublease tenants, the actual costs
could exceed our estimates.

- 13 -



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##### 





| |  |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | We use the asset and liability approach to account for income taxes.
This methodology recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. We then
record a valuation allowance to reduce deferred tax assets to an amount
that likely will be realized. We consider future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance. At December 31, 2002, our net deferred
tax asset was $66.4 million, which included a valuation allowance of
$48.5 million. See Note Eight to the Consolidated Financial Statements,
Part II, Item 8, incorporated here by reference. If we determine during
any period that we could realize a larger net deferred tax asset than the
recorded amount, we would adjust the deferred tax asset to increase
income for the period. Conversely, if we determine that we would be
unable to realize a portion of our recorded deferred tax asset, we would
adjust the deferred tax asset to record a charge to income for the
period. Subjective judgment is required in assessing the future tax
consequences of events that have been recognized in the Companys
financial statements or tax returns. Fluctuations in the actual outcome
of these future tax consequences could materially impact our financial
position or results of operations.
|
| |  |  | Contingencies and Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |   |  | We are involved from time to time in various proceedings, lawsuits and
claims involving our customers, products, intellectual property,
stockholders and employees, among other things. When we reasonably
determine that a liability has been or will be incurred, and can
reasonably estimate the range of potential losses in these matters, then
we are required to adequately provide for these loss contingencies.
Even if we are not able to estimate the amount of potential loss in
these matters, in the case of a potential material matter we are required to disclose the fact that there is a
reasonable possibility that a loss has been incurred. Our financial
position or results of operation could be adversely affected if we have
grossly underestimated the scope of potential liability and/or the range
of a potential loss in any matter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Results of Operations

Revenues
(Dollars in millions)

|               |                              |   |       |    |        |  |      |    |        |   |       |    |   |  |     |    |  |   |       |    |  
|-------------- | ---------------------------- | - | ----- | -- | ------ |  | ---- | -- | ------ | - | ----- | -- | - |  | --- | -- |  | - | ----- | -- | -
|               |                              |   | 2002  |    | Change |  | 2001 |    | Change |   | 2000 
|               |                              |   |       |    |        |  |      |    |        |   |      
|License fees   |                              | $ | 325.9 |    |        |  | (16  | %) |        | $ | 389.0 |    |   |  | (17 | %) |  | $ | 468.5 |   
|               | Percentage of total revenues |   |       | 39 | %      |  |      |    |        |   |       | 42 | % |  |     |    |  |   |       | 49 | %
|Services       |                              | $ | 504.0 |    |        |  | (6   | %) |        | $ | 538.9 |    |   |  | 9   | %  |  | $ | 494.7 |   
|               | Percentage of total revenues |   |       | 61 | %      |  |      |    |        |   |       | 58 | % |  |     |    |  |   |       | 51 | %
|Total revenues |                              | $ | 829.9 |    |        |  | (11  | %) |        | $ | 927.9 |    |   |  | (4  | %) |  | $ | 963.2 |   

Total revenues for 2002 decreased 11 percent from total revenues in 2001 (which
had decreased 4 percent from 2000). The decrease in 2002 is primarily due to a
16 percent decline in license fees revenues as a result of a generally weak
global economy, and a tenuous IT market in which customers continued to delay
infrastructure investments requiring significant dollars and resources. The
decrease in total revenues was also due to a 31 percent decline in our
professional services revenues and education revenues. The declines in these
areas were partially attributable to the economic factors discussed above, and
partially due to our restructuring activities in 2002 and 2001 that
significantly reduced our professional services headcount. We reduced our
professional services headcount in order to de-emphasize building future
capacity, and to focus instead on current profitable engagements. These
decreases were offset somewhat by a 7% increase in technical support revenues
resulting from an overall increase in our installed base. Our installed based
increased, in part, when we acquired NEN and its customer base in 2001.

License fees revenues in 2002 decreased 16 percent from 2001 license fees
revenues (which had decreased 17 percent from 2000). The decrease in 2002 was
primarily due to a decline in license revenues from enterprise database and
mobile database products. Demand for these products continued

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to be affected by sluggish economic growth and a significant decrease in
overall IT spending, especially for larger enterprise systems. We also
experienced significantly less demand from the expansion of our existing
customers internally deployed applications. This decrease was partially
offset by an increase in license fees revenues of certain enterprise
application products. From a segment standpoint, enterprise database revenues
were primarily reflected as part of ESD revenues, mobile databases revenues were primarily
reflected as part of iAS revenues, and enterprise application revenues were primarily
reflected as part of eBD revenues.

The decrease in 2001 was largely due to decreased sales of our enterprise
database and enterprise application products. This resulted from a significant
slowdown in IT spending, primarily triggered by the weakened economy.

Services revenues (derived from technical support, education and professional
services) declined 6 percent in 2002 from 2001 (which had increased 9 percent
from 2000). The decrease in 2002 was due to a 31 percent decrease in education
and professional services revenues as a result of the economic factors
discussed above. The decrease was partially offset by a 7 percent increase in
technical support revenues. The 2001 increase was primarily due to a 19
percent increase in technical support revenues resulting largely from our
acquisition of NEN and its customer base. Partially offsetting this increase
was a 5 percent decrease in education and professional services revenues for
2001 compared to 2000.

For further discussion of our services, see Business  Worldwide Services,
Part I, Item 1, incorporated here by reference. As a percentage of total
revenues, our services revenues increased to 61 percent in 2002 from 58 percent
in 2001 and 51 percent in 2000.

Geographical Revenues
(Dollars in millions)

|                    |                              |                              |       |       |    |        |     |      |    |        |       |       |    |   |    |    |   |   |       |       |    |  
|------------------- | ---------------------------- | ---------------------------- | ----- | ----- | -- | ------ | --- | ---- | -- | ------ | ----- | ----- | -- | - | -- | -- | - | - | ----- | ----- | -- | -
|                    |                              |                              |       | 2002  |    | Change |     | 2001 |    | Change |       | 2000 
|                    |                              |                              |       |       |    |        |     |      |    |        |       |      
|North America       |                              | $                            | 495.4 |       |    |        | (8  | %)   |    | $      | 539.3 |       |    |   | (9 | %) |   | $ | 589.4 |      
|                    | Percentage of total revenues |                              |       | 60    | %  |        |     |      |    |        |       | 58    | %  |   |    |    |   |   |       | 61    | % 
|International:      |                              |                              |       |       |    |        |     |      |    |        |       |       |    |   |    |    |   |   |       |      
|                    | Europe                       |                              | $     | 213.6 |    |        |     | (15  | %) |        | $     | 251.6 |    |   |    | 2  | % |   | $     | 247.8 |   
|                    |                              | Percentage of total revenues |       |       | 26 | %      |     |      |    |        |       |       | 27 | % |    |    |   |   |       |       | 26 | %
|Intercontinental    |                              | $                            | 120.9 |       |    |        | (12 | %)   |    | $      | 137.0 |       |    |   | 9  | %  |   | $ | 126.0 |      
|                    |                              | Percentage of total revenues |       |       | 14 | %      |     |      |    |        |       |       | 15 | % |    |    |   |   |       |       | 13 | %
|Total International |                              | $                            | 334.5 |       |    |        | (14 | %)   |    | $      | 388.6 |       |    |   | 4  | %  |   | $ | 373.8 |      
|                    | Percentage of total revenues |                              |       | 40    | %  |        |     |      |    |        |       | 42    | %  |   |    |    |   |   |       | 39    | % 
|Total revenues      |                              | $                            | 829.9 |       |    |        | (11 | %)   |    | $      | 927.9 |       |    |   | (4 | %) |   | $ | 963.2 |      

North America revenues (United States, Canada and Mexico) decreased 8 percent
in 2002 from 2001 (which had decreased 9 percent from 2000), due to a 13
percent decline in license fees revenues and a 25 percent decline in education
and professional services revenues, that were partially offset by a 4 percent
increase in technical support revenues. The decrease in North America revenues
in 2001 was due to a 26 percent decline in license fees revenues and a 13
percent decline in education and professional services revenue, partially
offset by a 21 percent increase in technical support revenues. The decrease in
both 2002 and 2001 North America license revenues was attributable to a
decrease in enterprise database and mobile database products revenues, as
discussed under Revenues, above.
Total international revenues decreased 14 percent in 2002 from 2001 (which had
increased 4 percent from 2000), primarily due to a 20 percent decrease in
license fees revenues, and a 39 percent decrease in education and professional
services revenues. These declines were partially offset by a 14 percent
increase in technical support revenues. The decrease in license fees revenues
were largely attributable to decreases in enterprise database product revenues.

European revenues declined 15 percent in 2002 (which had increased 2 percent
in 2001) primarily due to a 22 percent decrease in license fees revenues and a
38 percent decrease in education and professional services revenues, partially
offset by a 16 percent increase in technical support revenues. The decrease in

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European license fees revenues primarily resulted from lower enterprise
database product revenue, and was largely attributable to the economic factors
discussed under Revenues, above.

Intercontinental revenues (principally Asia Pacific and South America)
decreased 12 percent in 2002 due to a 17 percent decrease in license fees
revenues primarily relating to our enterprise database products and a 43
percent decrease in education and services revenues. These reductions were
partially offset by an 11 percent increase in technical support revenues. The
decrease in Intercontinental revenues was largely the result of the economic
factors discussed under Revenues, above. In 2001, Intercontinental revenues
increased 9 percent due to a 6 percent increase in license fees revenues,
primarily associated with our enterprise application and mobile database
products, and a combined increase of 13 percent in services revenues.

In Europe and the Intercontinental region, most revenues and expenses are
denominated in local currencies. The effect of foreign currency exchange rate
changes on revenues and expenses was not material in 2002, 2001, or 2000.

Although we take into account changes in exchange rates over time in our
pricing strategy, our business and results of operations could be materially
and adversely affected by fluctuations in foreign currency exchange rates.
Changes in foreign currency exchange rates, the strength of local economies,
and the general volatility of software markets may result in a higher or lower
proportion of international revenues as a percentage of total revenues in the
future. For additional risks associated with currency fluctuation, see
Financial Risk Management  Foreign Exchange Risk and Future Operating
Results  Euro Currency, below.

Cost and Expenses
(Dollars in millions)

|                                            |                                     |   |       |    |        |  |      |    |        |   |       |    |   |  |     |    |  |   |       |    |  
|------------------------------------------- | ----------------------------------- | - | ----- | -- | ------ |  | ---- | -- | ------ | - | ----- | -- | - |  | --- | -- |  | - | ----- | -- | -
|                                            |                                     |   | 2002  |    | Change |  | 2001 |    | Change |   | 2000 
|                                            |                                     |   |       |    |        |  |      |    |        |   |      
|Cost of license fees                        |                                     | $ | 51.4  |    |        |  | 12   | %  |        | $ | 45.7  |    |   |  | 1   | %  |  | $ | 45.1  |   
|                                            | Percentage of license fees revenues |   |       | 16 | %      |  |      |    |        |   |       | 12 | % |  |     |    |  |   |       | 10 | %
|Cost of services                            |                                     | $ | 190.1 |    |        |  | (21  | %) |        | $ | 240.8 |    |   |  | (3  | %) |  | $ | 248.5 |   
|                                            | Percentage of services revenues     |   |       | 38 | %      |  |      |    |        |   |       | 45 | % |  |     |    |  |   |       | 50 | %
|Sales and marketing                         |                                     | $ | 271.8 |    |        |  | (18  | %) |        | $ | 331.2 |    |   |  | (4  | %) |  | $ | 345.1 |   
|                                            | Percentage of total revenues        |   |       | 33 | %      |  |      |    |        |   |       | 36 | % |  |     |    |  |   |       | 36 | %
|Product development and engineering         |                                     | $ | 117.8 |    |        |  | (6   | %) |        | $ | 125.4 |    |   |  | (1  | %) |  | $ | 126.7 |   
|                                            | Percentage of total revenues        |   |       | 14 | %      |  |      |    |        |   |       | 14 | % |  |     |    |  |   |       | 13 | %
|General and administrative                  |                                     | $ | 84.9  |    |        |  | 10   | %  |        | $ | 76.9  |    |   |  | 14  | %  |  | $ | 67.3  |   
|                                            | Percentage of total revenues        |   |       | 10 | %      |  |      |    |        |   |       | 8  | % |  |     |    |  |   |       | 7  | %
|Amortization of goodwill                    |                                     |   |      |    |        |  | *    |    |        | $ | 53.9  |    |   |  | 79  | %  |  | $ | 30.1  |   
|                                            | Percentage of total revenues        |   |       |   |        |  |      |    |        |   |       | 6  | % |  |     |    |  |   |       | 3  | %
|Amortization of other purchased intangibles |                                     | $ | 2.0   |    |        |  | 0    | %  |        | $ | 2.0   |    |   |  | (23 | %) |  | $ | 2.6   |   
|                                            | Percentage of total revenues        |   |       | *  |        |  |      |    |        |   |       | *  |   |  |     |    |  |   |       | *  |  
|Goodwill impairment                         |                                     | $ | 12.3  |    |        |  | *    |    |        |   |      |    |   |  | *   |    |  |   |      |   
|                                            | Percentage of total revenues        |   |       | 1  | %      |  |      |    |        |   |       |   |   |  |     |    |  |   |       |   |  
|In-process research and development         |                                     |   |      |    |        |  | *    |    |        | $ | 18.5  |    |   |  | 131 | %  |  | $ | 8.0   |   
|                                            | Percentage of total revenues        |   |       |   |        |  |      |    |        |   |       | 2  | % |  |     |    |  |   |       | 1  | %
|Stock compensation expense                  |                                     | $ | 1.9   |    |        |  | 46   | %  |        | $ | 1.3   |    |   |  | *   |    |  |   |      |   
|                                            | Percentage of total revenues        |   |       | *  |        |  |      |    |        |   |       | *  |   |  |     |    |  |   |       |   |  
|Cost (reversal) of restructuring            |                                     | $ | 40.4  |    |        |  | (17  | %) |        | $ | 48.8  |    |   |  | *   |    |  | $ | (0.8  | ) 
|                                            | Percentage of total revenues        |   |       | 5  | %      |  |      |    |        |   |       | 5  | % |  |     |    |  |   |       | *  |  



---

|* |  | Not meaningful
|- |  | --------------

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Cost of license fees

Cost of license fees consists primarily of product costs (media and
documentation), amortization of capitalized software development costs and
purchased technology, and third party royalty costs. The cost of license fees
expense increased 12 percent in 2002 over 2001. In 2001, these costs increased
1 percent from 2000. The 2002 increase was primarily due to an increase in
amortization of capitalized software development costs and the amortization of
purchased technology acquired in the NEN transaction, partially offset by a
decrease in third party royalties. The 2001 increase was primarily due to the
amortization of purchased technology acquired in the NEN transaction, partially
offset by decreases in amortization of capitalized software costs and third
party royalties. Cost of license fees was 16 percent of license fees revenues
in 2002, 12 percent in 2001, and 10 percent in 2000.

Amortization of capitalized software costs was $24.0 million in 2002, $17.8
million in 2001, and $22.4 million in 2000. In 2002, the increase in
amortization of capitalized software costs was primarily due to certain eBD and
ESD products that began amortization in 2002. In 2001, the decrease in
amortization of capitalized software costs was primarily due to certain eBD and
ESD products that became fully amortized at the end of 2000. Amortization of
purchased technology acquired was $14.9 million in 2002, $12.1 million in 2001
and $4.4 million in 2000.

Cost of services

Cost of services consists primarily of the cost to provide technical support,
consulting and education services and, to a lesser degree, services-related
product costs (media and documentation). These costs decreased 21 percent in
2002 compared to 2001, and decreased 3 percent in 2001 compared to 2000. These
costs decreased as a percentage of services revenues to 38 percent in 2002,
compared to 45 percent in 2001, and were 50 percent of services revenues in
2000. The decrease in cost of services in absolute dollars in 2002 over 2001
was primarily due to a reduction in consulting personnel as a result our
restructuring activities , and a decrease in costs associated with third party
consultants. The decrease in cost of services as a percentage of services
revenues in 2002 over 2001 primarily results from a larger percentage of
service revenues being comprised of technical support revenues compared to
revenues from consulting and education services. Our operating margin on
technical support revenue is generally much higher than our operating margin on
consulting and education revenue.

The decrease, in absolute dollars and as a percentage of services revenues in
2001 over 2000, was primarily due to a reduction in consulting personnel
resulting from our 2001 restructuring activities.  This decrease was
partially offset by an increase in the costs associated with third party
consultants, and consultants acquired in the NEN transaction.

Sales and marketing

Sales and marketing expense decreased 18 percent during 2002 compared to 2001
(which had decreased 4 percent from 2000). Sales and marketing expenses were
33 percent of total revenues in 2002 and remained consistent at 36 percent of
total revenues in 2001 and 2000. The decrease in sales and marketing expenses
in absolute dollars and as a percentage of total revenues in 2002 compared to
2001 was primarily due to a reduction in sales commissions (principally due to
lower license fees revenues), a reduction in discretionary spending on
marketing programs and a decrease in sales and marketing personnel as a result
of our 2002 and 2001 restructuring activities. This decrease was partially
offset by an increase in certain allocated common costs. The decrease in
absolute dollars from 2000 to 2001 was primarily due to a decrease in sales
commissions (principally due to lower license fees revenues) and a decrease in
certain allocated common costs. Partially offsetting these decreases were
sales and marketing expenses associated with NEN. We allocate various common
costs, primarily certain telecommunications and facilities related expenses, to
sales and marketing, product development and engineering, and general and
administrative expenses.

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Product development and engineering

Product development and engineering expenses (net of capitalized software
development costs) decreased 6 percent in 2002 from 2001 (which had decreased 1
percent from 2000). These expenses remained consistent at 14 percent of total
revenues in 2002 and 2001, and were 13 percent of total revenues in 2000. The
decrease in absolute dollars in 2002 over 2001 was primarily due to a reduction
in product development and engineering personnel through the further
integration of NEN and in connection with our 2002 and 2001 restructuring
actions. This decrease was partially offset by an increase in allocated common
costs. The decrease in absolute dollars in 2001 as compared to 2000 was
primarily due to an increase in capitalized software development costs, a
decrease in certain research and development (R&D) expenses due to a greater
percentage of R&D personnel employed in lower cost facilities, and a decrease
in allocated common costs, partially offset by costs attributable to NENs
product development and engineering efforts.

We capitalize product development and engineering costs during the period
between achievement of technological feasibility and general availability of a
product. Capitalized amounts totaled approximately $32.7 million in 2002,
$35.8 million in 2001, and $20.2 million in 2000. The significant increase in
amounts capitalized in 2001 compared to 2000 was primarily attributable to
capitalized costs associated with the development of products acquired in the
NEN transaction, and other products captured within eBD.

In 2002, capitalized software costs included costs incurred for the development
of the Adaptive Server® Enterprise 15.0,Business Process Integrator 3.9,
Connectivity 15.0,CeBS 1.0 and 1.5,Enterprise Application Server 4.1,
PowerBuilder® 9.0,and PowerDesigner® 9.5. In 2001, capitalized software costs
included costs incurred for the development of the Enterprise Portal 3.0,
Adaptive Server Enterprise 12.5 and 14.0, Adaptive Server IQ 12.4.3,
PowerBuilder 8.0, DirectConnect 12.5 and 14.0, MainframeConnect 12.5 and
14.0, Replication Server® 12.5, certain NEN adapters, and SQL Anywhere® 8.0.
In 2000, capitalized software costs included costs incurred for the development
of the Sybase Enterprise Portal 1.0, Sybase Enterprise Portal 2.0, Adaptive
Server Enterprise 12.5, Adaptive Server IQ 12.4.2 and 12.5, DirectConnect 12.0
and 12.5, Enterprise Application Server, and MainframeConnect 12.0 and 12.5.

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

General and administrative

General and administrative expenses increased 10 percent in 2002 compared to
2001 (which increased 14 percent from 2000). General and administrative
expenses represented 10 percent of total revenues in 2002 compared to 8 percent
2001, and 7 percent in 2000. The increase in absolute dollars and as a
percentage of total revenues in 2002 compared to 2001 was primarily due to the
increase in finance personnel resulting from the establishment of various
regional shared services centers that centralized finance functions within
specific geographic regions, an increase in executive personnel, and an
increase in allocated common costs associated, in part, with our move to new
corporate headquarters facilities in early 2002. The increase in absolute
dollars and as a percentage of total revenues in 2001 compared to 2000 was
primarily due to the added costs associated with the acquisition of NEN.

Amortization of goodwill

We adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, (SFAS 142) effective January 1, 2002. Under SFAS
142, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized but are subject to annual impairment tests. With the adoption
of SFAS 142, we ceased amortization of goodwill as of January 1, 2002. See
New Accounting Pronouncements, below, incorporated here by reference.
Amortization of goodwill increased 79 percent during 2001 compared to 2000.
These costs were 6 percent of total revenues in 2001 compared to 3

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percent in 2000. The increase in absolute dollars and as a percentage of total
revenues in 2001 compared to 2000 was primarily due to the amortization of
goodwill arising from the NEN acquisition.

Amortization of other purchased intangibles

In 2002 and 2001, amortization of other purchased intangibles primarily
reflects the amortization of the established customer list associated with the
acquisition in 2000 of HFN (now FFI) . The amortization of purchased technology
associated with the HFN and NEN acquisitions is contained in cost of license
fees. In 2000, amortization of other purchased intangibles consists of the
amortization of customer lists associated with the HFN acquisition and the
amortization of certain covenants not to compete.

Goodwill impairment

After the adoption of SFAS 142 in the
first quarter of 2002, we are required
to test goodwill annually or earlier if certain events or circumstances were
present. Prior to the fourth quarter of 2002, there were no indications of
impairment for our reporting units with goodwill, as they substantially
achieved their targeted results and there were no other prescribed events or
circumstances indicating an impairment. We conducted our annual impairment
testing required by SFAS 142 as of December 31, 2002 using an independent third
party appraiser to determine the fair value of our various reporting units. The
first step of this analysis required us to compare the fair values of our
various reporting units to their carrying values.

In order to determine the carrying values of our identified reporting units, we
assigned our assets and liabilities, including existing goodwill and other
intangible assets, between the various reporting units. The fair values of our
reporting units were determined using the income approach. The income approach
focuses on the income-producing capability of an asset, measuring the current
value of the asset by calculating the present value of its future economic
benefits such as cash earnings, cost savings, tax deductions, and proceeds from
disposition. Value indications are developed by discounting expected future
cash flows to their present value at a rate of return that incorporates the
risk-free rate for the use of funds, the expected rate of inflation, and risks
associated with the particular investment. Based on this analysis we
determined that there was a potential impairment of the goodwill associated
with the FFI reporting unit.

In the second step of this analysis, we allocated FFIs fair value to its
various assets and then compared the implied fair value of its goodwill to the
goodwills carrying value. Based on this comparison, we determined that the
carrying value of FFIs goodwill exceeded its implied value by $12.3 million.
This impairment loss was recognized during the quarter ended December 31, 2002.

The fair value of the FFI reporting unit as of December 31, 2002, was lower
than the fair value we had determined for this reporting unit in the first
quarter of 2002 (for purposes of the implementation of SFAS 142) primarily due
to a reduction in our estimated compound growth rates for FFIs future revenues
and expenses. Based on our analysis of market conditions and our expectations
for long term growth within the FFI reporting unit as of December 31, 2002,
we reduced the compound annual growth rates in revenues and expenses.

In-process research and development

NEN

In connection with our acquisition of NEN in the quarter ended June 30, 2001,
we allocated $18.5 million of the $339.3 million purchase price to in-process
research and development. These amounts were written off during the quarter
ended June 30, 2001. In analyzing this acquisition, the decision was made to
acquire technology, including in-process technology, rather than to develop it
internally. This decision was based on factors such as the amount of internal
expertise, time and cost it would take to bring the technology to market.

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NEN technologies enable e-Business and operational applications to share
critical information. NENs software solutions support integration of Internet
and core business packaged applications, application server platforms, industry
standard protocols, and proprietary systems. As of February 20, 2001 (the
acquisition date) NEN was undergoing development efforts to release the next
version of e-Biz Integrator, Process Server, adapters, and emerging products
(such as Open Business Interchange(SM)). These development efforts were all
proprietary, internal projects. At the acquisition date, the in-process
research and development projects had not yet reached technological
feasibility, and had no alternative future uses.

In assessing the qualification of NENs various ongoing research and
development projects, each project was examined to determine whether
technological feasibility had been established as of the acquisition date. Our
assessment was based on extensive interviews and a detailed analysis of
research and development plans. If a project required additional planning,
designing, coding or testing activities to determine whether the associated
product could be produced to meet its design specifications, we determined that
technological feasibility had not been achieved.

Due to the complexity and specialized features of the acquired research and
development, the technologies under development could only be used for specific
and intended purposes in the e-Business integration industry and no alternative
value could be realized if these projects failed in that context.
Accordingly, the value allocated to projects that had not achieved technological feasibility as of the acquisition date was immediately expensed.

We estimated the fair value of in-process research and development using an
income approach. This involved estimating the fair value of the in-process
research and development using risk-adjusted discount rates. The selection of
the discount rate was based on a weighted average cost of capital, adjusted to
reflect risks associated with the useful life of each technology, profitability
levels of each technology, the uncertainty of technology advances known at the
time, and each technologies degree of completion. Projected future net cash
flow attributable to NENs in-process research and development, assuming
successful development, were discounted to net present value using a discount
rate of 25 percent. We believe our estimated in-process research and
development amount represented fair value and does not exceed the
amount another third party would pay for the projects.

Revenue estimates in this context were based on relevant market size and growth
factors, expected industry trends, individual product sales cycles and the
estimated life of each products underlying technology. This analysis included
the revenues projected to result from the expected evolution of the technology
over time.

Operating expenses used in our analysis included selling, general and
administrative and research and development. These expenses were based on an
overall analysis of the business enterprise. Total research and development was
divided into the costs to complete the in-process research and development
projects and costs for developed products that had already been introduced to
the market. The allocation was based on an analysis of resources relating to
the development of research and development.

Costs to complete in-process projects were estimated by management, and
allocated based on anticipated completion efforts and expected completion
dates. Costs to complete were further allocated between in-process and future
revenues based on an analysis of how the technologies would evolve.

NEN expected to achieve a target margin of approximately 37 percent from its
in-process products. Profitability was expected to be significantly lower in
the first years of the products lifecycle due to anticipated higher levels of
sales and marketing expense in the earlier years as a percentage of revenue.
The financial forecasts included only results that were expected to be
generated by NEN on a standalone basis, and did not take into consideration
synergies resulting from our acquisition.

To properly analyze the research and development efforts that had been
accomplished as of the acquisition date, and to exclude the completion of
development efforts underway, it was necessary to

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adjust the overall forecasts associated with the research and development
projects to reflect only those accomplishments completed as of the acquisition
date. The relative contribution made by the completed research and development
efforts was assessed based on a variety of factors including absolute
development time, costs incurred to date, management estimates, a detailed
analysis of each of the primary tasks completed compared to the tasks required
to complete the efforts, and the associated risks. NENs in-process research
and development projects were estimated to be between 30 percent and 55 percent
complete as of the acquisition date depending on the project.

Development of the majority of the in-process technologies began in early 2000
and was substantially completed in the fall of 2001. At the acquisition date,
approximately 278 engineers were engaged in the development of NENs in-process
technologies. Completion of these projects was expected to require significant
efforts involving continued software development, as well as the testing and
re-qualification efforts required to turn the technologies into a set of
bug-free, commercial-ready products. These remaining tasks involved
substantial risk due to the complex nature of the activities involved.

HFN

In connection with the acquisition of HFN (now FFI) in 2000, we allocated $8.0
million of the $167.6 million purchase price to in-process research and
development. As part of the process of analyzing this acquisition, the
decision was made to buy technology that had not yet been commercialized rather
than to develop the technology internally. This decision was based on factors
such as the amount of time and costs it would take to bring the technology to
market.

HFN had been involved in the development of technologies that enable financial
institutions to deliver their services to customers via the Internet. On the
date we acquired HFN (January 20, 2000), HFN was conducting development and
qualification activities related to a suite of products encompassing bill
presentment, small business functions, alternate service delivery methods and
related underlying software technology. At that time, the in-process research
and development projects had not yet reached technological feasibility and had
no alternative future uses. Accordingly, the value allocated to these projects
was immediately expensed at the date of acquisition.

We estimated the fair value of in-process research and development using an
income approach. This involved estimating the fair value of the in-process
research and development by determining the present value of the estimated
after-tax cash flows expected to be generated by the purchased in-process
research and development, using risk adjusted discount rates. The selection of
the discount rate was based on a weighted average cost of capital, adjusted to
reflect risks associated with the useful life of each technology, profitability
levels of each technology, the uncertainty of technology advances known at the
time, and each technologies degree of completion. Projected future net cash
flows attributable to HFNs in-process research and development, assuming
successful development, were discounted to net present value using a discount
rate of 20 percent. We believe that the estimated in-process research and
development amount so determined represents fair value and does not exceed the
amount another third party would pay for the projects.

Revenue estimates were based on relevant market size and growth factors,
expected industry trends, individual product sales cycles and the estimated
life of each products underlying technology. The analysis of the in-process
technology was determined by incorporating the revenue related to the expected
evolution of the technology over time. Once developed, the estimated lifecycle
of the product suite was estimated to be approximately 5 to 7 years. As a
whole, HFN was expected to exhibit compound annual growth of approximately 38
percent in the period from 2000 through 2007.

It was projected that the suite of products resulting from the in-process
research and development efforts would begin generating revenue in 2000 and
positive cash flow in 2001. Operating expenses included selling, general and
administrative expenses, and research and development expenses. Total research
and development was divided into: (i) the costs to complete the in-process
research and development

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##### 



projects and (ii) costs for developed products that had already been introduced
to the market, including product technical support. Costs to complete in-process
projects were estimated by management. These costs were allocated based on an
analysis of expected project completion dates.

The resultant target margin that HFN expected to achieve from the in-process
products was approximately 37 percent. Profitability was expected to be
significantly lower in the first several years of the product suites lifecycle
compared to the latter years due to a higher level of sales and marketing
expenses as a percentage of revenue in the earlier years. The financial
forecasts only included results we expected HFN to generate on a standalone
basis, and did not take into consideration synergies resulting from our
acquisition.

To properly analyze the research and development efforts that had been
accomplished to date and exclude the effort to be completed on the development
efforts underway, it was necessary to adjust the overall forecasts associated
with the research and development projects to reflect only the accomplishments
made as of the date of the acquisition towards the ultimate completion of the
in-process R&D projects. The relative contribution made on the research and
development efforts was assessed based on a variety of factors including
absolute development time (costs) incurred to date, management estimates, and a
detailed analysis of each of the primary tasks completed compared to the tasks
required to complete the efforts and the associated risks. Overall, HFNs
in-process research and development projects were estimated to be approximately
75 percent complete. HFN estimated that the projects would be completed in
March 2000, after which time it expected to begin generating economic benefits
from the completed projects. As of the valuation date, approximately 86 man
months totaling $650,000 had been expended on the in-process research and
development projects. In total, costs to complete HFNs in-process research
and development were expected to be approximately $150,000 and require 23 man
months of work. Completion of these projects was expected to require
significant efforts involving continued software development as well as the
testing and re-qualification efforts required to turn a new-to-the-world
software suite into a set of bug-free, commercial-ready products. These
remaining tasks involved substantial risk due to the complex nature of the
activities involved. Historically, many of HFNs in-process research and
development projects have required rework and additional expenditures in
comparable stages of development.

Stock compensation expense

Stock compensation expense reflects non-cash compensation expense associated
with restricted stock granted to certain individuals in the second quarter of
2001, and the amortization of the value assigned to certain unvested stock
options assumed in the acquisition of NEN.

Cost (reversal) of restructuring

2002 Restructuring Activities

Entering 2002, we expected our revenues to increase during the second half of
the year as the U.S. economy shook off recessionary conditions and customers
resumed their investment in enterprise software projects. As we completed our
second quarter, however, it became apparent that general economic conditions
were not improving as anticipated, and that our revenues therefore were likely
to lag below expectations. Faced with this realization, we embarked on certain
restructuring activities during the third and fourth quarters (the 2002 Plan)
aimed at reducing our annual payroll and facilities-related expenses by
approximately $24 million. These activities included the termination of
approximately 400 employees worldwide, the closure or consolidation of
approximately 18 facilities worldwide, and the planned liquidation of approximately 9
foreign subsidiaries.

- 22 -



---



##### 



The amounts included in the 2002 Plan were as follows:

|                                                          |  |          |  |         |     |         |     |       |      |   |      |   |      |   |      | 
|--------------------------------------------------------- |  | -------- |  | ------- | --- | ------- | --- | ----- | ---- | - | ---- | - | ---- | - | ---- | 
|                                                          |  | Cash/    |  |         |     |         |     |       |      |   |      |   |      |  
|(Dollars in millions)                                     |  | Non Cash |  | Q3 2002 |     | Q4 2002 |     | Total
|                                                          |  |          |  |         |     |         |     |      
|Termination payments to employees and
other related costs |  | Cash     |  | $       | 6.6 |         |     | $     | 3.6  |   |      | $ | 10.2 |  
|Lease cancellations and commitments                       |  | Cash     |  |         |     |         |     |       | 25.1 |   |      |   | 25.1 |  
|Other  non cash charges                                  |  | Non-Cash |  |         |     |         |     |       | 1.0  |   |      |   | 1.0  |  
|Other  cash charges                                      |  | Cash     |  |         |     |         |     |       | 0.2  |   |      |   | 0.2  |  
|                                                          |  |          |  |         |     |         |     |       |      |   |      |   |      |   |      | 
|                                                          |  |          |  |         |     | $       | 6.6 |       |      | $ | 29.9 |   |      | $ | 36.5 | 
|                                                          |  |          |  |         |     |         |     |       |      |   |      |   |      |   |      | 

As of December 31, 2002, all affected employees had been notified of their
termination benefits and severance compensation of $7.5 million had been paid
to approximately 355 of these employees. Substantially all remaining severance
payments are expected to be made by the second quarter of 2003.

During the year ended December 31, 2002, a total of $1.8 million in lease
cancellations and other related expenses was paid in connection with facilities
identified for consolidation or closure as part of the 2002 Plan. Our
payments toward the accruals relating to lease cancellations and commitments
are dependent upon market conditions and our ability to negotiate acceptable
lease buy-outs or locate suitable subtenants. These payments will be made over
a period not to exceed 7.5 years.

2001 Restructuring Activities

In connection with our acquisition of NEN and after announcement that first
quarter and 2001 revenues would be below expectations, we began to implement a
restructuring plan designed to eliminate certain personnel, assets and
facilities, and align our cost structure with anticipated revenues (2001 Plan).
We recorded a restructuring charge of $48.8 million during 2001 to reflect
these activities. The 2001 Plan called for the termination of approximately
880 employees worldwide, as well as the consolidation or closure of
approximately 30 facilities worldwide and the write-off of certain assets
abandoned as a result of the office closures. Additionally, based on
deterioration of real estate market conditions, our inability to sublease
certain properties previously included in the 2001 Plan resulted in additional
restructuring accruals of $5.4 million in the fourth quarter of 2002 that were
established for properties located in Colorado, Michigan and the United
Kingdom.

The amounts included in the 2001 Plan were as follows:

|                                                          |                                      |          |          |       |      |     |      |  | 
|--------------------------------------------------------- | ------------------------------------ | -------- | -------- | ----- | ---- | --- | ---- |  | 
|                                                          |                                      |          | Cash/    |       |      |     |     
|(Dollars in millions)                                     |                                      | Non Cash |          | Total
|                                                          |                                      |          |          |      
|Termination payments to employees and other related costs |                                      | Cash     |          | $     | 19.2 |    
|Lease cancellations and commitments                       |                                      | Cash     |          |       | 31.2 |    
|Write-downs of:                                           |                                      |          |          |       |      |     |      | 
|                                                          | Property, equipment and improvements |          | Non-cash |       |      | 3.2 |     
|Other                                                     |                                      | Cash     |          |       | 0.6  |    
|                                                          |                                      |          |          |       |      |     |      | 
|                                                          |                                      |          |          |       |      | $   | 54.2 | 
|                                                          |                                      |          |          |       |      |     |      | 

As of December 31, 2002, all employees affected by the 2001 Plan had been
terminated and $17.7 million in related severance payments and costs had been
paid as of that date. During 2002, we reversed $0.7 million of the termination
payment accrual (and made a corresponding credit to
restructuring

- 23 -



---



##### 



expense) primarily due to a labor tribunal ruling that we were required to pay
less in severance benefits that originally anticipated to certain non-US
employees.

As of December 31, 2002, we had paid a total of $11.1 million relating to
properties identified as part of the 2001 Plan. During 2002, we reversed $0.6
million of the restructuring accrual relating to lease cancellations (and made
a corresponding credit to restructuring expense) primarily because we were
required to pay less than expected to terminate our lease obligations on
facilities in Switzerland The remaining payments relating to lease
cancellations and commitments, which will be made over a period not to exceed 8
years, are dependent upon market conditions and our ability to negotiate
acceptable lease buy-outs or locate suitable sublease tenants.

Operating income/(loss)
(Dollars in millions)

|                        |                              |   |      |   |        |  |      |  |        |   |       |    |    |  |      |    |  |   |      |   |  
|----------------------- | ---------------------------- | - | ---- | - | ------ |  | ---- |  | ------ | - | ----- | -- | -- |  | ---- | -- |  | - | ---- | - | -
|                        |                              |   | 2002 |   | Change |  | 2001 |  | Change |   | 2000 
|                        |                              |   |      |   |        |  |      |  |        |   |      
|Operating income/(loss) |                              | $ | 57.2 |   |        |  | *    |  |        | $ | (16.5 | )  |    |  | (118 | %) |  | $ | 90.5 |  
|                        | Percentage of total revenues |   |      | 7 | %      |  |      |  |        |   |       | (2 | %) |  |      |    |  |   |      | 9 | %



---

|* |  | Not meaningful
|- |  | --------------

Operating income in 2002 was $57.2 million compared to an operating loss of
$16.5 million in 2001 and operating income of $90.5 million in 2000. Operating
income in 2002 includes $40.4 million in restructuring charges, while
operating loss in 2001includes $48.8 million in restructuring charges. In
2000, operating income included a reversal to restructuring charges of $0.8
million.

In 2002, the increase in operating income was primarily due to a $171.8 million
decrease in operating expenses resulting principally from the effects of our
restructuring activities in 2002 and 2001, and the elimination of goodwill
amortization upon the adoption of SFAS 142. This increase was partially offset
by a decline in total revenues of $98.1 million in 2002 from 2001. In 2001,
the decrease in operating income was primarily due to decreased license fees
revenues an the increase in certain operating expenses. These included
expenses associated with the amortization of goodwill and other purchased
intangibles, the $18.5 million write-off of in-process research and development
relating to the acquisition of NEN and our 2001 restructuring charges. These
decreases were partially offset by an increase in services revenues.

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

|                                |                              |   |      |   |        |  |      |    |        |   |      |   |   |  |    |    |  |   |      |   |  
|------------------------------- | ---------------------------- | - | ---- | - | ------ |  | ---- | -- | ------ | - | ---- | - | - |  | -- | -- |  | - | ---- | - | -
|                                |                              |   | 2002 |   | Change |  | 2001 |    | Change |   | 2000
|                                |                              |   |      |   |        |  |      |    |        |   |     
|Interest income                 |                              | $ | 11.7 |   |        |  | (31  | %) |        | $ | 17.0 |   |   |  | (5 | %) |  | $ | 17.9 |  
|                                | Percentage of total revenues |   |      | 1 | %      |  |      |    |        |   |      | 2 | % |  |    |    |  |   |      | 2 | %
|Interest expense and other, net |                              | $ | 2.4  |   |        |  | 300  | %  |        | $ | 0.6  |   |   |  | *  |    |  | $ | (0.8 | )
|                                | Percentage of total revenues |   |      | * |        |  |      |    |        |   |      | * |   |  |    |    |  |   |      | * |  
|Minority interest               |                              |   | *    |   |        |  | *    |    |        |   | *    |   |   |  | *  |    |  | $ | 0.1  |  
|                                | Percentage of total revenues |   |      | * |        |  |      |    |        |   |      | * |   |  |    |    |  |   |      | * |  



---

|* |  | Not meaningful
|- |  | --------------

In 2002, interest income decreased 31 percent from 2001 (which had decreased 5
percent from 2000). Interest income consists primarily of interest earned on
our investments. The decrease in interest income from 2000 to 2001, and from
2001 to 2002 is largely due to the decline in interest rate yields on the cash
balances invested.

Interest expense and other, net was $2.4 million in 2002, $0.6 million in 2001,
and $(0.8) million in 2000. Interest expense and other, net, includes gains
from the disposition of certain real estate and investments; net gains and
losses resulting from foreign currency transactions and the related hedging
activities; the

- 24 -



---



##### 






cost of hedging foreign currency exposures; interest expense from capital lease
obligations incurred in prior years; and bank fees. In 2002, the increase in
interest expense and other, net as compared to 2001 was primarily due to a gain
of approximately $2.5 million that we realized on the sale of certain NEN
Swiss subsidiaries that were primarily engaged in providing SAP consulting
services. The increase in interest expense and other, net during 2001 compared
to 2000 was primarily realized from gains on hedging activities that mitigated
the losses resulting from certain foreign currency transactions.

Provision for income taxes
(Dollars in millions)

|                           |  |      |      |        |  |      |    |        |  |      |      |  |  |  |     |    |  |   |      | 
|-------------------------- |  | ---- | ---- | ------ |  | ---- | -- | ------ |  | ---- | ---- |  |  |  | --- | -- |  | - | ---- | 
|                           |  | 2002 |      | Change |  | 2001 |    | Change |  | 2000
|                           |  |      |      |        |  |      |    |        |  |     
|Provision for income taxes |  | $    | 33.4 |        |  |      | 26 | %      |  | $    | 26.5 |  |  |  | (25 | %) |  | $ | 35.5 | 

In 2002, we recorded a provision for taxes equal to approximately 47 percent on
pre-tax income before the cumulative effect of an accounting change. Our 2002
effective tax rate differs from the statutory federal rate of 35 percent
primarily due to non-deductible charges associated with the impairment loss on
certain goodwill and the impact of state taxes.

In 2001, we recorded a $26.5 million provision for taxes on pre-tax income of
$1.0 million resulting largely from taxes on earnings generated in certain
international jurisdictions. In 2001, we had significant pre-tax earnings in
foreign jurisdictions and a significant pre-tax loss in the U.S. The 2001
U.S. pre-tax book loss primarily resulted from the non-deductible amortization
or write-off of intangibles acquired in various acquisitions and our 2001
restructuring activities. The significant amount of the expenses not deductible
for tax purposes, primarily the amortization or write off of intangibles
acquired in the NEN acquisition, made our effective tax rate meaningless in
2001.

In 2000, taxes were recorded at a rate of 33 percent on pre-tax income. The
effective rate was below the statutory rate primarily due to a reversal of
valuation allowances, and the benefit of certain earnings from operations in
lower-tax jurisdictions throughout the world for which no U.S. taxes were
provided because such earnings were to be reinvested indefinitely outside the
U.S. These benefits were partially offset by non-deductible charges for the
amortization of goodwill and in-process research and development primarily
associated with our acquisition of HFN.

The 2000 reversal of $9.7 million in a previously recorded valuation allowance
was related to the deferred tax asset associated with certain research and
development tax credits that we believe will generate a tax benefit in future
periods given their carryforward periods. The reversal of the valuation
allowance was a non-recurring benefit, and will not impact our provision for
income taxes in future years.

We had a net deferred tax asset of $66.4 million at December 31, 2002, which
included a valuation allowance of $48.5 million. As of December 31, 2002, the
gross deferred tax asset included research and development tax credits of $15.0
million, foreign tax credits of $8.5 million and an asset for certain net
operating losses of $39.9 million. The research and development tax credits
expire in years from 2005 through 2022, the foreign tax credits expire in years
from 2003 through 2005 and the net operating losses expire in years from 2006
and 2021. In order to realize our net deferred tax assets, we must generate
sufficient taxable income in future years in appropriate tax jurisdictions to
obtain a benefit from the reversal of temporary differences (i.e., between book
basis and tax basis), and from tax credit carryforwards. Specifically, realization of these assets is
dependent on our ability to generate approximately $164.0 million of future taxable income largely in the U.S.
We believe that sufficient income will be earned in the future to realize these assets. The amount of the
deferred tax assets considered realizable is subject to adjustment in future
periods if estimates of future taxable income are reduced. Any such
adjustments to the deferred tax assets would be charged to income in the period
such adjustment is made.

The valuation allowance primarily relates to the deferred tax assets associated
with net operating losses and foreign tax credits. Approximately $38.5 million
of the valuation allowance relates to deferred tax assets associated with net
operating losses acquired in the NEN acquisition. If the associated deferred
tax assets are realized, the associated benefit will reduce goodwill arising
from the NEN acquisition, rather than future income tax expense.

- 25 -



---



##### 



Our overall valuation allowance decreased by $5.9 million in 2002 primarily due
to our utilization of certain net operating losses acquired in the acquisition
of NEN and HFN, and the utilization of certain foreign tax credits.

Cumulative effect of an accounting change to adopt SFAS 142
(Dollars in millions)

|                                                            |  |      |       |        |  |      |   |        |  |  |   |  |  |      |   |  |  |  |  |  |  |  |   | 
|----------------------------------------------------------- |  | ---- | ----- | ------ |  | ---- | - | ------ |  |  | - |  |  | ---- | - |  |  |  |  |  |  |  | - | 
|                                                            |  | 2002 |       | Change |  | 2001 |   | Change |  |  |   |  |  | 2000
|                                                            |  |      |       |        |  |      |   |        |  |  |   |  |  |     
|Cumulative effect of an
accounting
change to adopt SFAS 142 |  | $    | 132.5 |        |  |      | * |        |  |  |  |  |  |      | * |  |  |  |  |  |  |  |  | 



---

| |  | Not meaningful
| |  | --------------

In accordance with SFAS 142, we performed the required two-step impairment
tests of goodwill and indefinite-lived intangible assets as of January 1, 2002
using an independent third party appraiser. In performing the first step of
the analysis, we first assigned our assets and liabilities, including existing
goodwill and other intangible assets, to our identified reporting units to
determine their carrying value. For this purpose, the reporting units were
determined to be our five business segments described in Note Ten to the
Consolidated Financial Statements, Part II, Item 8. The estimated fair value
of each reporting unit was then determined utilizing the income approach. Upon
comparing the carrying value of each reporting unit to its fair value, we
determined that goodwill attributable to the FFI and eBD reporting units was
impaired. The second step of comparing the implied fair values of the reporting
units goodwill to their respective carrying values, we recognized an
impairment loss of $132.5 million in the first quarter of 2002. Of this
impairment loss, $39.0 million related to FFI and $93.5 million related to eBD.
These losses were recognized as a cumulative effect of an accounting change.
The impairment loss had no income tax effect.

Our calculation of the fair value of eBD assumed compound annual growth rates
in revenues and expenses of approximately 21 percent and 17 percent,
respectively, as determined by management and an analysis of our industrys
long-term growth expectations. Our calculation of the fair value of
FFI assumed compound annual growth rates in revenues and expenses of
approximately 24 percent and 19 percent, respectively. For both calculations,
a discount rate of 21 percent was utilized.

In future periods, a reduction of our estimated fair values associated with
certain reporting units could result in a further impairment loss associated
with various intangible assets.

As required by SFAS 142, intangible assets that did not meet the criteria for
recognition apart from goodwill were reclassified. We transferred $7.9 million
of net assembled workforce to goodwill as of January 1, 2002. This amount was
partially offset by the reclassification of $3.2 million for an associated
deferred tax liability.

Net income (loss) per share
(Dollars and shares in millions)

|                  |                                                              |      |       |        |    |      |     |        |   |      |       |       |    |  |      |      |    |   |      |      |  
|----------------- | ------------------------------------------------------------ | ---- | ----- | ------ | -- | ---- | --- | ------ | - | ---- | ----- | ----- | -- |  | ---- | ---- | -- | - | ---- | ---- | -
|                  |                                                              | 2002 |       | Change |    | 2001 |     | Change |   | 2000
|                  |                                                              |      |       |        |    |      |     |        |   |     
|Net income (loss) |                                                              | $    | (94.7 | )      |    |      | 271 | %      |   | $    | (25.5 | )     |    |  | (135 | %)   |    | $ | 72.1 |     
|                  | Percentage of total revenues                                 |      |       | (11    | %) |      |     |        |   |      |       | (3    | %) |  |      |      |    |   |      | 7    | %
|Basic:            |                                                              |      |       |        |    |      |     |        |   |      |       |       |    |  |      |      |    |   |      |     
|                  | Net income (loss) per share                                  |      | $     | (0.98  | )  |      |     | 263    | % |      | $     | (0.27 | )  |  |      | (133 | %) |   | $    | 0.82 |  
|                  | Shares used in computing
basic net income (loss) per
share   |      |       | 96.8   |    |      |     | 2      | % |      |       | 94.6  |    |  |      | 8    | %  |   |      | 87.7 |  
|Diluted:          |                                                              |      |       |        |    |      |     |        |   |      |       |       |    |  |      |      |    |   |      |     
|                  | Net income (loss) per share                                  |      | $     | (0.95  | )  |      |     | 252    | % |      | $     | (0.27 | )  |  |      | (135 | %) |   | $    | 0.78 |  
|                  | Shares used in computing
diluted net income (loss)
per share |      |       | 99.6   |    |      |     | 5      | % |      |       | 94.6  |    |  |      | 3    | %  |   |      | 92.2 |  

- 26 -



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##### 



Our net loss in 2002 increased by 271 percent over 2001. This increase was
primarily related to the $132.5 million goodwill impairment recognized as
a cumulative effect of an accounting change in the first quarter of 2002, as
well as the factors discussed above. The basic and diluted net loss per share
was $0.98 and $0.95 per share, respectively in 2002. The basic and diluted net
loss per share was $0.27 in 2001. The basic and diluted net income per share
in 2000 was $0.82 and $0.78 per share, respectively. Shares used in computing
basic net income (loss) per share increased 2 percent in 2002 from 2001, and
increased 8 percent in 2001 from 2000. Shares used in computing diluted net
income (loss) per share increased 5 percent in 2002 from 2001, and increased 3
percent in 2001 from 2000. The share increases in all cases was attributable
to the ongoing exercise of employee stock options, as partially offset by share
repurchases under our Stock Repurchase Program (see discussion under Liquidity
and Capital Resources, below), and to the effect of our shares issued in 2001
in connection with our acquisition of NEN.

Liquidity and capital
resources
(Dollars in millions)

|                                            |  |      |       |        |  |      |     |        |  |      |       |  |  |  |     |    |  |   |       | 
|------------------------------------------- |  | ---- | ----- | ------ |  | ---- | --- | ------ |  | ---- | ----- |  |  |  | --- | -- |  | - | ----- | 
|                                            |  | 2002 |       | Change |  | 2001 |     | Change |  | 2000
|                                            |  |      |       |        |  |      |     |        |  |     
|Working capital                             |  | $    | 107.9 |        |  |      | (1  | %)     |  | $    | 108.6 |  |  |  | (31 | %) |  | $ | 157.5 | 
|Cash, cash equivalents and cash
investments |  | $    | 387.2 |        |  |      | 13  | %      |  | $    | 343.2 |  |  |  | (3  | %) |  | $ | 354.6 | 
|Net cash provided by operating activities   |  | $    | 164.3 |        |  |      | 76  | %      |  | $    | 93.1  |  |  |  | (46 | %) |  | $ | 171.1 | 
|Net cash used for investing activities      |  | $    | 110.1 |        |  |      | 381 | %      |  | $    | 22.9  |  |  |  | (81 | %) |  | $ | 123.0 | 
|Net cash used for financing activities      |  | $    | 66.2  |        |  |      | (12 | %)     |  | $    | 75.4  |  |  |  | 32  | %  |  | $ | 57.1  | 

Net cash provided by operating activities increased 76 percent between 2001 and
2002, and was used primarily to fund our Stock Repurchase Program (see
discussion below), and to make additional long-term cash investments. Net cash
provided by operating activities primarily resulted from lower operating
expenses incurred in 2002 due to the effects of the 2002 and 2001 restructuring
activities; the timing of payments made against other accrued liabilities
largely attributable to restructuring charges; and, an increase in deferred
revenue.

The decrease in net cash provided by operating activities between 2001 and 2000
is primarily due to a decrease in net income, deferred revenue and accrued
liabilities partially offset a reduction in accounts receivable and an increase
in non-cash expenses relating to amortization, depreciation and the write-off
of in-process research and development.

Net cash used for investing activities increased 381 percent between 2001 and
2002. The increase in net cash used for investing activities was primarily due
to $34.0 million of cash investment net purchases during 2002 compared to net
dispositions of cash investments of $29.5 million in 2001. In addition, there
was net cash gained from business combinations, primarily from the NEN
acquisition, of approximately $27.2 million during 2001, compared to $2.0
million net cash used for acquisitions during 2002. Net cash used for investing
activities decreased 81 percent between 2000 and 2001. The decrease in cash
used by investing activities was primarily due to net cash gained from the NEN
acquisition, compared to net cash used in business combinations, primarily in
connection with the HFN acquisition, for the same period in 2000.

Beginning in 1998, the Board of Directors authorized Sybase to repurchase its
outstanding Common Stock in open market and other transactions from time to
time, subject to price and other conditions (Stock Repurchase Program).
Through December 31 2002, aggregate amounts authorized under the Stock
Repurchase Program totaled $400.0 million. Under this program, we repurchased
6.7 million of our shares in 2002 at a cost if $89.8 million, 6.4 million
shares in 2001 at a cost of $106.9 million, and 3.9 million shares in 2000 at a
cost of $89.1 million.

- 27 -



---



##### 



Net cash used for financing activities decreased 12 percent between 2001 and
2002. The decrease in cash used for financing activities was primarily the
result of a decrease in the cash used to repurchase stock under our Stock
Repurchase Program during 2002, compared to the cash used for a similar
purpose during 2001. Net cash used for financing activities increased 32
percent between 2000 and 2001. The increases in cash used for financing
activities was primarily the result of an increase in the cash used to
repurchase our Common Stock during 2001, compared to the cash used for a
similar purpose during 2000.

We had no significant commitments for capital expenditures at December 31,
2002. We expect to fund expenditures for future capital requirements,
liquidity and strategic operating programs from a combination of available cash
balances and internally generated funds. We have no outside debt, and do not
have any plans to enter into borrowing arrangements.

We engage in global business operations and are therefore exposed to foreign
currency fluctuations. As of December 31, 2002, we had identifiable assets
totaling $231.2 million associated with our European operations and $85.4
million associated with our Asia and Latin American operations. We experience
foreign exchange transaction exposure on our net assets and liabilities
denominated in currencies other than the U.S. dollar. As these assets are
considered by Sybase Inc., the U.S. parent company, to be a permanent
investment in the respective subsidiaries, the related foreign currency
translation gains and losses are reflected in Accumulated other comprehensive
loss under Stockholders equity on the balance sheet. We also experience
foreign exchange translation exposure from certain balances that are
denominated in a currency other than the functional currency of the entity on
whose books the balances reside. We hedge certain of these short-term exposures
under a plan approved by the Board of Directors. See Financial Risk
Management, below.

Our contractual obligations at December 31, 2002, are summarized as follows:

|                                |  |                        |       |             |  |             |      |             |  |            |      |  |  |   |      |  |  |   |       | 
|------------------------------- |  | ---------------------- | ----- | ----------- |  | ----------- | ---- | ----------- |  | ---------- | ---- |  |  | - | ---- |  |  | - | ----- | 
|(Dollars in Millions)           |  | Payments Due by Period
|                                |  |                       
|                                |  |                        |       |             |  | 2003        |      | 2004-2005   |  | 2006-2007  |      |  |  |  
|Contractual Obligations         |  | Total                  |       | Commitments |  | Commitments |      | Commitments |  | After 2007
|                                |  |                        |       |             |  |             |      |             |  |           
|Operating leases                |  | $                      | 388.2 |             |  | $           | 48.5 |             |  | $          | 76.6 |  |  | $ | 64.0 |  |  | $ | 199.1 | 
|Third party royalty
commitments |  |                        | 4.8   |             |  |             | 3.0  |             |  |            | 1.8  |  |  |   |     |  |  |   |      | 
|                                |  |                        |       |             |  |             |      |             |  |            |      |  |  |   |      |  |  |   |       | 
|Total commitments               |  | $                      | 393.0 |             |  | $           | 51.5 |             |  | $          | 78.4 |  |  | $ | 64.0 |  |  | $ | 199.1 | 
|                                |  |                        |       |             |  |             |      |             |  |            |      |  |  |   |      |  |  |   |       | 

New Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure
(SFAS 148) effective for fiscal years ending after December 15, 2002. SFAS 148
amends SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), to
provide alternative methods of transition to the fair value method of
accounting for stock-based employee compensation. SFAS 148 also amends the
disclosure provisions of SFAS 123 to require disclosure in the summary of
significant accounting policies of the effects of an entitys accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. SFAS 148 does
not amend SFAS 123 to require companies to account for their employee
stock-based awards using the fair value method. The disclosure provisions are
required, however, for all companies with stock-based employee compensation,
regardless of whether they utilize the fair value method of accounting
described in SFAS 123 or the intrinsic value method described in Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. The adoption of this standard did not have a significant impact on
our financial condition or operating results.

In November 2002, the FASB issued
FIN 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires that the Company recognize the fair value
for guarantee and indemnification arrangements issued or modified by
the Company after December 31, 2002, if these arrangements are
within the scope of the interpretation. In addition, the Company must
continue to monitor the conditions that are subject to the guarantees
and indemnifications, as required under previously existing GAAP
principles in order to identify if a loss has occurred. If the
Company determines it is probable that a loss has occurred then any
such estimable loss would be recognized under those guarantees and
indemnifications. For further discussion of FIN 45, see Note One to
Consolidated Financial Statements, Other Recent Accounting
Pronouncements, Part II, Item 8, incorporated here by
reference.

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##### 



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146) effective for exit or disposal
activities initiated after December 31, 2002. SFAS 146 supersedes Emerging
Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs To Exit an Activity (Including
Certain Costs Associated with a Restructuring). Under SFAS 146 a liability
for the cost associated with an exit or disposal activity is recognized when
the liability is incurred. Under prior guidance, a liability for such costs
could be recognized at the date of commitment to an exit plan. SFAS 146 also
requires that the liability be measured and recorded at fair value.
Accordingly, the adoption of this standard may affect the timing of recognizing
future restructuring costs as well as the amounts recognized. The adoption of
this standard is not expected to have a significant impact on our financial
condition or operating results.

In November 2001, the FASB issued EITF No. 01-14, Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred (EITF 01-14) formerly named Topic D-103. EITF 01-14 establishes that
reimbursements received for out-of-pocket expenses should be characterized as
revenue in the statement of operations. We adopted the guidance on January 1,
2002. Prior to 2002, we recorded out-of-pocket expense reimbursements as a
reduction to operating expenses. Beginning in January 1, 2002, we have recorded
these reimbursements as service fees revenues, which has resulted in increased
revenue and increased operating expenses. Comparative financial statements for
prior year information have been reclassified to conform to the new
presentation. Prior to the reclassification, out-of-pocket expenses
reimbursements of $1.8 million and $2.7 million were recorded as a reduction of
cost of services during the years ended December 31, 2001 and 2000,
respectively. The provisions of EITF 01-14 did not have any impact on our
financial condition, operating results, or cash flow for the year ended
December 31, 2002.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets, (SFAS 144). SFAS 144, which superceded SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, (SFAS 121), established a single accounting model,
based on the framework established in SFAS 121, for long-lived assets to be
disposed of by sale. The statement was effective for financial statements
issued for fiscal years beginning after December 15, 2001. The adoption of
this standard did not have a significant impact on our financial condition or
operating results.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001. Under
SFAS 142, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized but subject to annual impairment tests. We adopted the
provisions of SFAS 142 beginning January 1, 2002. See Cumulative Effect of an
Accounting Change to Adopt SFAS 142 above, for more information.

Financial Risk Management

Foreign Exchange Risk

As a global concern, we face exposure to adverse movements in foreign currency
exchange rates. These exposures may change over time as business practices
evolve and could have a material adverse impact on our financial position and
results of operations. Historically, our primary exposures have related to non
U.S. dollar-denominated sales and expenses in Europe, Asia Pacific, and Latin
America. In order to reduce the effect of foreign currency fluctuations, we
utilize foreign currency forward exchange contracts (forward contracts) to
hedge certain foreign currency transaction exposures. Specifically, we enter
into foreign currency contracts with a maturity of approximately 30 days to
hedge against the foreign exchange exposure created by certain balances that
are denominated in a currency other than the principal reporting currency of
the entity recording the transaction. The gains and losses on the forward
contracts are meant to mitigate the gains and losses on these outstanding
foreign currency transactions. We do not enter into forward contracts for
trading purposes. All foreign currency transactions and all outstanding
forward contracts are marked-to-market at the end of the period with unrealized
gains and losses included in interest expense and other, net. The unrealized
gain (loss) on the outstanding forward contracts as of December 31, 2002 was
immaterial to our consolidated financial statements.

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##### 



The tables below provide information about our foreign currency forward
contracts as of December 31, 2002 and 2001. All of the outstanding forward
contracts had maturities of approximately 30 days. The fair value of these
outstanding forward contracts was not material as of December 31, 2002 and
2001.

(Amounts in thousands except exchange rates)

|                                                      |                   |          |        |               |  |  |  |        | 
|----------------------------------------------------- | ----------------- | -------- | ------ | ------------- |  |  |  | ------ | 
|                                                      |                   |          | US $   |               | 
|                                                      |                   | Notional |        | Average      
|Forward
Contracts  As of December 31, 2002           |                   | amount   |        | Contract rate
|                                                      |                   |          |        |              
|Contracts for the sale of US Dollars and purchase of: |                   |          |        |               |  |  |  |       
|                                                      | Canadian Dollars  |          | $      | 8,150         |  |  |  | 0.6318 | 
|                                                      | Euro              |          |        | 8,920         |  |  |  | 1.0494 | 
|                                                      | Singapore Dollars |          |        | 2,766         |  |  |  | 0.5762 | 
|Contracts for purchase of US Dollars and sale of:     |                   |          |        |               |  |  |  |       
|                                                      | Swiss Franc       |          |        | 1,667         |  |  |  | 1.3801 | 
|                                                      | Brazilian Real    |          |        | 2,849         |  |  |  | 0.2793 | 
|Contracts for purchase of Euros and sale of:          |                   |          |        |               |  |  |  |       
|                                                      | Swedish Krona     |          |        | 1,394         |  |  |  | 9.1177 | 
|                                                      | Swiss Franc       |          |        | 1,741         |  |  |  | 1.4483 | 
|                                                      | UK Pound          |          |        | 12,349        |  |  |  | 0.6550 | 
|                                                      | Norwegian Krone   |          |        | 4,489         |  |  |  | 7.3487 | 
|                                                      |                   |          |        |               |  |  |  |       
|Total                                                 |                   | $        | 44,325 |               |  |  |  |       

(Amounts in thousands except exchange rates)

|                                                      |                   |          |        |               |  |  |  |        | 
|----------------------------------------------------- | ----------------- | -------- | ------ | ------------- |  |  |  | ------ | 
|                                                      |                   |          | US $   |               | 
|                                                      |                   | Notional |        | Average      
|Forward
Contracts  As of December 31, 2001           |                   | amount   |        | Contract rate
|                                                      |                   |          |        |              
|Contracts for the sale of US Dollars and purchase of: |                   |          |        |               |  |  |  |       
|                                                      | Canadian Dollars  |          | $      | 4,140         |  |  |  | 0.6273 | 
|                                                      | Swedish Krona     |          |        | 1,526         |  |  |  | 0.0954 | 
|                                                      | Euro              |          |        | 9,177         |  |  |  | 0.8910 | 
|                                                      | Singapore Dollars |          |        | 703           |  |  |  | 0.5410 | 
|Contracts for purchase of US Dollars and sale of:     |                   |          |        |               |  |  |  |       
|                                                      | Swiss Franc       |          |        | 1,387         |  |  |  | 1.6584 | 
|Contracts for purchase of Euros and sale of:          |                   |          |        |               |  |  |  |       
|                                                      | Swedish Krona     |          |        | 382           |  |  |  | 9.3390 | 
|                                                      | Swiss Franc       |          |        | 2,414         |  |  |  | 1.4776 | 
|                                                      | UK Pound          |          |        | 15,953        |  |  |  | 0.6150 | 
|                                                      | Norwegian Krone   |          |        | 1,915         |  |  |  | 8.0116 | 
|                                                      |                   |          |        |               |  |  |  |       
|Total                                                 |                   | $        | 37,597 |               |  |  |  |       

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Interest Rate Risk

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

We mitigate default risk by investing in only the safest and highest investment
grade securities and by monitoring the credit rating of investment issuers.
The portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity. We have no cash flow exposure
due to rate changes for our investment portfolio, since all investments are
made in securities with fixed interest rates.

Future Operating Results

Our future operating results may vary substantially from period to period due
to a variety of significant risks, some of which are discussed below and
elsewhere in this Report on Form 10-K. We strongly urge current and prospective
investors to carefully consider the cautionary statements and risks contained
in this Report including those regarding forward looking statements described
on Page 1.

Revenue Related Factors

The post-9/11 decline of the U.S. and global economies, compounded by the
threat of imminent war in the Middle East, led to a significant overall
decrease in IT spending in 2002, especially for larger enterprise systems. These
factors contributed to a significant decline in our total revenues in 2002. We
will continue to pursue our business strategies, with an increased emphasis on
creating successful strategic and global alliances with key partners  such as
Sun Microsystems, Apple Computer, BearingPoint Consulting, Inc. and PeopleSoft,
Inc.  to provide customers with optimal solutions based on our leading-edge
technology and our partners capabilities in specific markets. However, if we
are unable to achieve these goals, or if we are unable to maintain and provide
desirable, innovative products and services to existing customers, our ability
to maintain or grow revenue may be significantly impaired. This, in turn,
could adversely impact our results of operations, even if we continue to
generate a profit and to maintain positive cash flows.

Furthermore, complex revenue recognition rules for software companies directly
affect our ability to measure revenue for any given accounting period. Such
rules are subject to constant review and revision by various bodies tasked with
the establishment of accounting standards. Therefore, modifications or new
interpretations of existing accounting guidance governing revenue recognition
in the software industry could have a material effect on our business. For a
general discussion of our current revenue recognition rules and other critical
accounting policies, see Critical Accounting Policies and Estimates, above,
and Changing Legal and Accounting Environment,  below, incorporated here by
reference.

In addition to the above factors, the timing and amount of our revenues are
subject to a number of factors that make it difficult to accurately estimate
revenues and operating results on a quarterly or annual basis. In our
experience, license fees revenues tend to decline between the fourth quarter of
one year and the first quarter of the next year. This has contributed to lower
total revenues and earnings in the first quarter compared to the prior fourth
quarter. We currently anticipate that this seasonal pattern will continue.

Since we operate with little or no backlog, quarterly revenues depend largely
on orders booked and shipped in that quarter. Historically, we have recorded
approximately 50% to 70% of our quarterly revenues in the last month of each
quarter, particularly during the final two weeks. Our customers include many
large enterprises that make substantial investments in our products and
services. Therefore, the inability to record one or more large orders from a
customer at the very end of a quarter could materially and adversely impact our
results of operations. Our operating expenses are based on projected annual
and quarterly revenue levels, and are generally incurred ratably throughout
each quarter. Since our operating expenses are relatively fixed

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in the short term, failure to realize projected revenues for a specified period
could impact operating results, causing an operating loss for that period.

In North America, we currently ship most of our products from our Dublin,
California facility near the site of our corporate headquarters. Because we
tend to record a high percentage of revenues during the last two weeks of each
quarter, disruption of operations at that facility (due to natural calamity or
systems failure, for example) could directly harm our ability to record
revenues for such quarter. This could, in turn, have an adverse impact on
operating results.

Changing Legal and Accounting Environment

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

In addition to the above, the US Congress enacted the Sarbanes-Oxley Act of
2002 (SOA) on July 30, 2002, largely in response to a recent rash of financial
scandals involving public companies such as Enron. The SOA provides for
sweeping and unprecedented corporate reforms, focusing on public company
financial reporting, corporate ethics, and oversight of the accounting
profession, among other areas, and establishing harsher civil and criminal
penalties for violation of U.S. securities laws. Certain provisions of the SOA
became effective immediately, and others required the SEC to enact rules and
regulations to carry out the purposes of the act. Many of these new
SEC-mandated rules and procedures (including rules requiring personal
certification of a companys SEC reports by the companys chief executive
officer and senior financial officers, accelerated filing of certain SEC
reports, and changes in the role and functions of a companys audit committee),
became effective during the latter half of 2002 and in early 2003, and many
additional rules and regulations will be enacted in 2003 and beyond. We
believe our corporate practices and standards meet or exceed the current rules
and regulations promulgated under the SOA. However, new or additional rules
that influence significant adjustments to our business practices and procedures
could result in increased administrative costs, lengthened sales cycles and
other changes that could adversely affect our results of operations.

Stock Price Volatility

Our ability to exceed, or our failure to achieve, expected operating results
for any period could significantly impact our stock price. Inevitably, some
investors will experience gains while others will experience losses depending
on the timing of their investment. The market for our stock and for technology
stocks in general has been highly volatile, and the trading price of the
Companys Common Stock has fluctuated widely in recent years.

During the past two years, U.S. stock prices in general have experienced a
significant downturn, due, in part, to the collapse of dot.com stocks, the
continued weakening of the U.S. and global economic conditions, acts of
domestic and international terrorism, and the threat of imminent war in the
Middle East (see also Revenue Related Factors, above). Our stock price may
continue to fluctuate in the future in response to these and various other
factors, including our financial results, press and industry analyst reports,
market acceptance of our products and pricing policies, activities of
competitors, acquisitions of other businesses and technologies, and other
events. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations that have categorically affected the
market price for high technology companies, but which often have been unrelated
to the operating performance of these companies.

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Competition

The IT industry and the market for our products and services is fast-paced and
extremely competitive, and is marked by dynamic customer demands, short product
life cycles, and the rapid emergence of the e-Business marketplace. We have
numerous competitors, including large companies such as Oracle Corporation,
Microsoft Corporation, and IBM Corporation, and other smaller highly aggressive
firms. Many of these companies may have greater financial, technical, sales
and marketing resources, and a larger installed customer base than Sybase. In addition,
our competitors advertising and marketing efforts could adversely influence
customer perception of our products and services, and harm our business and
prospects as a result. To remain competitive, we must be able to develop new
products, enhance existing products and retain competitive pricing policies in
a timely manner. Our failure to compete successfully with new or existing
competitors could have a material adverse impact on our business, and on the
market price of our stock.

Product Development

Increased widespread use of the Internet and fast-growing market demand for
enterprise portals and mobile and embedded solutions may significantly alter
how we do business in the future. This could affect our ability to timely meet
the demand for new or enhanced products and services at competitive prices,
which could significantly impact our ability to generate future revenues.

We have released the Sybase Enterprise Portal, an industry leading
enterprise-class portal product designed to enable organizations to provide
personalized business interfaces to employees, customers, partners and
suppliers. With our acquisition of NEN in April 2001, we gained the ability to
offer enterprise application integrators that integrate Sybase Enterprise
Portal with other applications. Sybase Enterprise Portal solutions are
intended to enable successful e-Business strategies for organizations
transacting business via the Internet. When we acquired OnePage, Inc. in April
2002, we gained technology designed to further enhance our Sybase Enterprise
Portal offering. Our recent acquisition of AvantGo in 2003 allows us to
significantly enhance our iAS mobile and embedded products and solutions. We
believe our focus on enterprise portals, mobile and embedded solutions and
services and our other strategies will enhance revenues and profitability.
However, if the market does not continue to develop as anticipated, or if our
solutions and services do not successfully compete in the relevant markets, we
may not realize expected revenues and profitability.

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

Changes in Sales Model

Our sales model has evolved significantly during the past few years to keep
pace with new and developing business environments, such as the World Wide Web,
and changing customer demands in our targeted markets. If we have misjudged
demand for our products and services in our target markets, or if we are unable
to coordinate our sales efforts in a focused and efficient way, this could
materially and adversely affect our business and prospects.

In January 1999, we realigned our direct sales force, product teams and
professional services capabilities into four divisions. This reorganization was
intended to enhance overall revenues and profitability by providing increased
focus on each of four key markets: Enterprise Solutions, Mobile and Embedded
Computing, Internet Applications and Business Intelligence. In January 2000,
the acquisition of HFN (now Financial Fusion, Inc., a majority-owned
subsidiary) increased our focus on the financial services market. In May 2000,
we announced the launch of iAnywhere Solutions, Inc., a majority-owned
subsidiary formed to continue the business of the MEC division in mobile and
embedded e-Business products and services. eBD was created in the second
quarter of 2001 when we acquired NEN, and consists of certain operations of NEN
along with

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certain products previously in the ESD segment and certain products previously
in the former Internet Applications Division. In January 2003, we further
reorganized our sales focus with the creation of the Infrastructure Platform
Group (IPG), which will focus on increasing market presence and revenue through
solution partners (e.g., ISVs, VARs and OEMs) and delivery partners (e.g., SIs,
distributors and resellers). Our worldwide field organization will continue to
focus on end user customers, and will continue to provide field support to
promote growth of our business through partners. Further reorganization of our
sales model could have a direct affect on our results of operations. See
Revenue Related Factors, above.

International Operations

We currently derive a substantial portion of our revenues from our
international operations, and we plan to continue expanding our business in
international markets in the future. In 2002, revenues
outside North America represented 40% of our total revenues. Because of this, global political
unrest, acts of terrorism and the current war in the Middle East
could have a material impact on our international revenues and
operations. See Revenue Related Factors, above.

As a global concern, we also face exposure to adverse movements in foreign
currency exchange rates. For a discussion of risks associated with currency
fluctuation, see Financial Risk Management  Foreign Exchange Risk above,
incorporated here by reference.

Our revenues outside North America could also fluctuate due to the
relative immaturity of some markets, rapid growth in other markets, and
organizational changes we have made to accommodate these conditions. For
example, during 2002, we centralized finance functions within specific
geographic regions (rather than maintaining them on a country-by-country
basis), closed a subsidiary in the Czech Republic, and dissolved New
Era of Networks, Inc. as well as several of its majority-owned and
wholly owned subsidiaries. In February 2001, we acquired our distributor in Denmark and in
September 2000, we acquired certain assets and assumed certain liabilities of
our distributor in Mexico. During 1999 and 2000, we closed various
subsidiaries including Chile and Peru. Several
significant management and organizational changes occurred during the same
periods, including the resignation or replacement of regional management in
Europe and Asia.

Other factors that could significantly impact aspects of our international
operations include:



| |  |  | Changes in political, regulatory, or economic conditions
| | - |  | --------------------------------------------------------
|
| |  |  | Changes or limitations in trade protection laws         
|
| |  |  | Changes in tax treaties or laws favorable to Sybase     
|
| |  |  | Natural disasters                                       

Intellectual Property

Our inability to obtain adequate copyright, patent or trade secret protection
for our products in certain countries may have a material adverse impact on
future operating results. In addition, as the number of software products and
associated patents increase, it is possible that software developers will
become subject to more frequent infringement claims.

In the past, third parties have claimed that their patents or other proprietary
rights were violated by Sybase products. It is possible that such claims will
be asserted in the future. In addition, to the extent we acquire other
technologies, whether directly from third parties or through acquisitions of
other companies, we face the possibility that such intellectual property will
be found to infringe or violate the proprietary rights of others. For example,
a trademark infringement and dilution case filed in 1999 against NEN, a
wholly-owned subsidiary, resulted in a multi-million dollar judgment against
NEN and an injunction against NENs use of the trade name NEON. The action
was settled in September 2001 for a lesser amount as well as certain other
concessions. Regardless of whether these claims have merit, they can be time
consuming and expensive to defend or settle, and can harm the Companys
business and reputation. We do not

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believe our products infringe any third party patents or proprietary rights,
but there is no guarantee that we can avoid claims or findings of infringement
in the future.

Changes in Management; Human Resources

In recent years, we have added to our executive management team. For example, In January 2003,
Thomas Volk joined the Company as Executive Vice President, Infrastructure
Platform Group, and in the second quarter of 2002, Michael Bealmear joined the
Company as Executive Vice President, Worldwide Field Operations. Richard
Moore, who was named President of FFI in August 2002, joined the Company in July 2001
as Senior Vice President and General Manager of the v-Business Group. In
October 2001, Billy Ho, our Senior Vice President and General Manager of eBD,
replaced George F. (Rick) Adam, former CEO of NEN who had previously been
appointed to the position when we acquired NEN in April 2001. Further
changes involving executives and managers resulting from acquisitions, mergers
and other events could increase the current rate of employee turnover,
particularly in consulting, engineering and sales. Changes in our Board
membership could also affect the Companys current strategic business plans.

Additionally, our inability to hire and retain qualified technical, managerial,
sales and other employees could affect our product development and sales
efforts, other aspects of our operations, and our financial results.
Competition for highly skilled personnel in the software industry is typically
intense. Our financial and stock price performance relative to the companies
with whom we compete for employees, and the high cost of living in the San
Francisco Bay Area, where our headquarters is located, could also impact the
degree of future employee turnover.

Acquisitions and Strategic Relationships

We regularly explore possible acquisitions and other strategic ventures to
expand and enhance our business. We have recently acquired or invested in a
number of companies and formed certain strategic relationships, and will likely
continue to do so in the future. For example, in February 2003 we completed
our acquisition of AvantGo, Inc., a leading provider of mobile enterprise
software, and in April 2002, we acquired all of the issued and outstanding
stock of OnePage, Inc., a leading provider of technology and applications for
building the information components  portlets  of corporate, consumer and
wireless portals. During 2001, we acquired NEN, a developer of enterprise
application integration software, as well as our distributor in Denmark.
During 2000, we acquired certain assets of our distributor in Mexico, and the
stock of Home Financial Network, Inc. (now FFI). In 1999, we acquired Data
Warehouse Network, a provider of industry-specific business intelligence
application.

We may not achieve the desired benefits of our acquisitions and investments.
For example, we may be unable to successfully assimilate an acquired companys
management team, business infrastructure, company culture, or other important
factors. Also, dedication of additional resources to handle these integration
tasks could temporarily divert attention from other important business. Such
acquisitions could also result in costs, liabilities, or additional expenses
that could harm our results of operations and financial condition. With
respect to our investments in other companies, we may not realize a return on
our investments, or the value of our investments may decline if the businesses
in which we invest are not successful.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is incorporated by reference to MD&A 
Financial Risk Management, Part II, Item 7, incorporated here by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

|                                                                                                     |  |      |    | 
|---------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                     |  | Page
|                                                                                                     |  |     
|Report of Independent Auditors                                                                       |  |      | 37 | 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                         |  |      | 38 | 
|Consolidated Statements of Operations for the Years Ended December
31, 2002, 2001 and 2000           |  |      | 39 | 
|Consolidated Statements of Stockholders Equity for the Years Ended
December 31, 2002, 2001 and 2000 |  |      | 40 | 
|Consolidated Statements of Cash Flows for the Years Ended December
31, 2002, 2001 and 2000           |  |      | 41 | 
|Notes to Consolidated Financial Statements                                                           |  |      | 42 | 

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Report of Independent Auditors

The Board of Directors and Stockholders
Sybase, Inc.

We have audited the accompanying consolidated balance sheets of Sybase, Inc.,
as of December 31, 2002 and 2001 and the related consolidated statements of
operations, stockholders equity and cash flows for each of the three years in
the period ended December 31, 2002. Our audits also included the financial
statement schedule for the year ended December 31, 2002 listed in the index at
Item 15 (a). These financial statements and schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sybase, Inc. at December 31, 2002 and 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.

As discussed in Note One and Note Four to the consolidated financial statements, in 2002
Sybase, Inc. changed its method of accounting for goodwill and other purchased
intangible assets.

/s/ ERNST & YOUNG LLP

Palo Alto, California
January 28, 2003, except for Note Fourteen
as to which the date is February 25, 2003

- 37 -



---



##### 



Consolidated Balance Sheets

|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |          |         |   |           | 
|-------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------- | ------------------------------------------ | ------- | ---- | ------- | -------- | ------- | - | --------- | 
|(Dollars in thousands, except share and per share data)                                |                                                                                                                                                                                                 | December 31,                                                
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         | 2002 |         | 2001    
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|Assets                                                                                 |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|Current assets:                                                                        |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|                                                                                       | Cash and cash equivalents                                                                                                                                                                       |                                                              | $       | 231,267                                    |         |      | $       | 222,793  |        
|                                                                                       | Short-term cash investments                                                                                                                                                                     |                                                              |         | 63,740                                     |         |      |         | 64,216   |        
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|                                                                                       |                                                                                                                                                                                                 | Total cash, cash equivalents and short-term cash investments |         |                                            | 295,007 |      |         |          | 287,009 |  
|                                                                                       | Restricted cash                                                                                                                                                                                 |                                                              |         | 5,653                                      |         |      |         | 3,426    |        
|                                                                                       | Accounts receivable, less allowance for doubtful accounts of $10,307
(2001 - $19,706)                                                                                                           |                                                              |         | 169,193                                    |         |      |         | 185,786  |        
|                                                                                       | Deferred income taxes                                                                                                                                                                           |                                                              |         | 20,097                                     |         |      |         | 16,746   |        
|                                                                                       | Prepaid expenses and other current assets                                                                                                                                                       |                                                              |         | 14,669                                     |         |      |         | 21,411   |        
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|                                                                                       |                                                                                                                                                                                                 | Total current assets                                         |         |                                            | 504,619 |      |         |          | 514,378 |  
|Long-term cash investments                                                             |                                                                                                                                                                                                 |                                                              | 92,173  |                                            |         |      | 56,151  |         
|Property, equipment and improvements, net                                              |                                                                                                                                                                                                 |                                                              | 70,402  |                                            |         |      | 76,150  |         
|Deferred income taxes                                                                  |                                                                                                                                                                                                 |                                                              | 46,295  |                                            |         |      | 25,208  |         
|Capitalized software, net                                                              |                                                                                                                                                                                                 |                                                              | 62,266  |                                            |         |      | 53,589  |         
|Goodwill, less accumulated amortization of $129,855 in 2001                            |                                                                                                                                                                                                 |                                                              | 136,826 |                                            |         |      | 299,950 |         
|Other purchased intangibles, less accumulated amortization
of $46,227 (2001  $30,381) |                                                                                                                                                                                                 |                                                              | 50,473  |                                            |         |      | 75,319  |         
|Other assets                                                                           |                                                                                                                                                                                                 |                                                              | 29,695  |                                            |         |      | 32,497  |         
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|                                                                                       |                                                                                                                                                                                                 |                                                              |         | Total assets                               |         | $    | 992,749 |          |         | $ | 1,133,242 | 
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|Liabilities and stockholders equity                                                   |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|Current liabilities:                                                                   |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|                                                                                       | Accounts payable                                                                                                                                                                                |                                                              | $       | 13,085                                     |         |      | $       | 14,179   |        
|                                                                                       | Accrued compensation and related expenses                                                                                                                                                       |                                                              |         | 36,671                                     |         |      |         | 44,530   |        
|                                                                                       | Accrued income taxes                                                                                                                                                                            |                                                              |         | 34,023                                     |         |      |         | 37,485   |        
|                                                                                       | Other accrued liabilities                                                                                                                                                                       |                                                              |         | 112,468                                    |         |      |         | 115,448  |        
|                                                                                       | Deferred revenue                                                                                                                                                                                |                                                              |         | 200,458                                    |         |      |         | 194,165  |        
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |          |        
|                                                                                       |                                                                                                                                                                                                 | Total current liabilities                                    |         |                                            | 396,705 |      |         |          | 405,807 |  
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|Other liabilities                                                                      |                                                                                                                                                                                                 |                                                              | 10,641  |                                            |         |      | 5,887   |         
|Minority interest                                                                      |                                                                                                                                                                                                 |                                                              | 5,029   |                                            |         |      | 5,029   |         
|Commitments and contingent liabilities                                                 |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|Stockholders equity:                                                                  |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|                                                                                       | Preferred stock, $0.001 par value, 8,000,000 shares authorized; none
issued or outstanding                                                                                                      |                                                              |         |                                           |         |      |         |         |        
|                                                                                       | Common stock, $0.001 par value; 200,000,000 shares authorized;
105,337,362 shares issued and 94,660,056 shares outstanding (2001 
105,113,402 shares issued and 98,725,140 shares outstanding) |                                                              |         | 105                                        |         |      |         | 105      |        
|                                                                                       | Additional paid-in capital                                                                                                                                                                      |                                                              |         | 929,064                                    |         |      |         | 925,709  |        
|                                                                                       | Accumulated deficit                                                                                                                                                                             |                                                              |         | (189,936                                   | )       |      |         | (68,723  | )      
|                                                                                       | Accumulated other comprehensive loss                                                                                                                                                            |                                                              |         | (8,673                                     | )       |      |         | (27,994  | )      
|                                                                                       | Cost of 10,677,306 shares of treasury stock (2001  6,388,262 shares)                                                                                                                           |                                                              |         | (146,816                                   | )       |      |         | (107,175 | )      
|                                                                                       | Unearned stock compensation                                                                                                                                                                     |                                                              |         | (3,370                                     | )       |      |         | (5,403   | )      
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|                                                                                       |                                                                                                                                                                                                 | Total stockholders equity                                   |         |                                            | 580,374 |      |         |          | 716,519 |  
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         
|                                                                                       |                                                                                                                                                                                                 |                                                              |         | Total liabilities and stockholders equity |         | $    | 992,749 |          |         | $ | 1,133,242 | 
|                                                                                       |                                                                                                                                                                                                 |                                                              |         |                                            |         |      |         |         

See accompanying notes.

- 38 -



---



##### 



Consolidated Statements of Operations

|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------------------------------------------------- | ------------------------------------------- | -------------------------------- | -------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                |                                             | For the years ended December 31,
|(In thousands, except per share data)                                           |                                             | 2002                             |          | 2001    |         | 2000
|                                                                                |                                             |                                  |          |         |         |      |         |        
|Revenues:                                                                       |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|                                                                                | License fees                                |                                  | $        | 325,916 |         |      | $       | 389,038 |         |   | $       | 468,501 |        
|                                                                                | Services                                    |                                  |          | 503,945 |         |      |         | 538,885 |         |   |         | 494,662 |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|                                                                                |                                             | Total revenues                   |          |         | 829,861 |      |         |         | 927,923 |   |         |         | 963,163 | 
|Costs and expenses:                                                             |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|                                                                                | Cost of license fees                        |                                  |          | 51,448  |         |      |         | 45,695  |         |   |         | 45,120  |        
|                                                                                | Cost of services                            |                                  |          | 190,067 |         |      |         | 240,779 |         |   |         | 248,542 |        
|                                                                                | Sales and marketing                         |                                  |          | 271,765 |         |      |         | 331,237 |         |   |         | 345,149 |        
|                                                                                | Product development and engineering         |                                  |          | 117,784 |         |      |         | 125,404 |         |   |         | 126,689 |        
|                                                                                | General and administrative                  |                                  |          | 84,938  |         |      |         | 76,885  |         |   |         | 67,267  |        
|                                                                                | Amortization of goodwill                    |                                  |          |        |         |      |         | 53,859  |         |   |         | 30,155  |        
|                                                                                | Amortization of other purchased intangibles |                                  |          | 2,000   |         |      |         | 2,000   |         |   |         | 2,575   |        
|                                                                                | Goodwill impairment                         |                                  |          | 12,300  |         |      |         |        |         |   |         |        |        
|                                                                                | In-process research and development         |                                  |          |        |         |      |         | 18,500  |         |   |         | 8,000   |        
|                                                                                | Stock compensation expense                  |                                  |          | 1,937   |         |      |         | 1,334   |         |   |         |        |        
|                                                                                | Cost (reversal) of restructuring            |                                  |          | 40,446  |         |      |         | 48,751  |         |   |         | (791    | )      
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|                                                                                |                                             | Total costs and expenses         |          |         | 772,685 |      |         |         | 944,444 |   |         |         | 872,706 | 
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|Operating income (loss)                                                         |                                             |                                  | 57,176   |         |         |      | (16,521 | )       |         |   | 90,457  |        
|Interest
income                                                                 |                                             |                                  | 11,674   |         |         |      | 16,952  |         |         |   | 17,857  |        
|Interest expense and other income, net                                          |                                             |                                  | 2,359    |         |         |      | 577     |         |         |   | (822    | )      
|Minority interest                                                               |                                             |                                  |         |         |         |      | (30     | )       |         |   | 94      |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|Income (loss) before income taxes and cumulative
effect of an accounting change |                                             |                                  | 71,209   |         |         |      | 978     |         |         |   | 107,586 |        
|Provision for income taxes                                                      |                                             |                                  | 33,428   |         |         |      | 26,500  |         |         |   | 35,461  |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|Income (loss) before cumulative effect of an
accounting change                  |                                             |                                  | 37,781   |         |         |      | (25,522 | )       |         |   | 72,125  |        
|Cumulative effect of an accounting change to
adopt SFAS 142                     |                                             |                                  | (132,450 | )       |         |      |        |         |         |   |        |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|                                                                                |                                             | Net income (loss)                |          | $       | (94,669 | )    |         | $       | (25,522 | ) |         | $       | 72,125  | 
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |         |        
|Income (loss) per share before cumulative effect
of an accounting change        |                                             | $                                | 0.39     |         |         | $    | (0.27   | )       |         | $ | 0.82    |        
|Cumulative effect of an accounting change                                       |                                             |                                  | (1.37    | )       |         |      |        |         |         |   |        |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|Basic net income (loss) per share                                               |                                             | $                                | (0.98    | )       |         | $    | (0.27   | )       |         | $ | 0.82    |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |         |        
|Shares used in computing basic net income (loss)
per share                      |                                             |                                  | 96,844   |         |         |      | 94,592  |         |         |   | 87,711  |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |         |        
|Income (loss) per share before cumulative effect
of an accounting change        |                                             | $                                | 0.38     |         |         | $    | (0.27   | )       |         | $ | 0.78    |        
|Cumulative effect of an accounting change                                       |                                             |                                  | (1.33    | )       |         |      |        |         |         |   |        |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |        
|Diluted net income (loss) per share                                             |                                             | $                                | (0.95    | )       |         | $    | (0.27   | )       |         | $ | 0.78    |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |         |        
|Shares used in computing diluted net income
(loss) per share                    |                                             |                                  | 99,584   |         |         |      | 94,592  |         |         |   | 92,150  |        
|                                                                                |                                             |                                  |          |         |         |      |         |         |         |   |         |         |        

See accompanying notes.

- 39 -



---



##### 



Consolidated Statements of Stockholders Equity

|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|-------------------------------------------------------------------------------------------------- | ------------ | ----------------------------------- | ------ | ----- |  | ---------- | --- | ----------- |  | ------------- | ------- | -------- |  | ------------ | -------- | ----- |  | ----------- | ------- | - |  | - | -------- | - |  | - | ------ | - |  | - | -------- | -
|                                                                                                   |              | Three years ended December 31, 2002
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  | Accumulated |         |   |  |   |          |   |  |   |        |   |  |  
|                                                                                                   | Common stock |                                     |        |       |  | Additional |     |             |  |               |         | Other    |  |              |          |       |  | Unearned    |         |   |  |  
|                                                                                                   |              | Outstanding                         |        | Par   |  | paid-in    |     | Accumulated |  | Comprehensive |         | Treasury |  | Stock        |          |       |  |            
|(Dollars and shares in thousands)                                                                  |              | Shares                              |        | Value |  | capital    |     | Deficit     |  | Loss          |         | Stock    |  | Compensation |          | Total
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |      
|Balances at December 31, 1999                                                                      |              |                                     | 80,921 |       |  | $          | 83  |             |  | $             | 432,352 |          |  | $            | (48,037  | )     |  | $           | (16,426 | ) |  | $ | (31,862  | ) |  | $ |       |   |  | $ | 336,110  |  
|Common stock issued in connection with
business combinations                                       |              |                                     | 7,594  |       |  |            | 8   |             |  |               | 144,057 |          |  |              |         |       |  |             |        |   |  |   |         |   |  |   |       |   |  |   | 144,065  |  
|Common stock issued and treasury
stock reissued under stock option
and stock purchase plans        |              |                                     | 3,073  |       |  |            |    |             |  |               | 44      |          |  |              | (31,028  | )     |  |             |        |   |  |   | 57,937   |   |  |   |       |   |  |   | 26,953   |  
|Acquisition of treasury stock                                                                      |              |                                     | (3,932 | )     |  |            |    |             |  |               |        |          |  |              |         |       |  |             |        |   |  |   | (89,141  | ) |  |   |       |   |  |   | (89,141  | )
|Tax benefit of exercise of stock options                                                           |              |                                     |       |       |  |            |    |             |  |               | 6,519   |          |  |              |         |       |  |             |        |   |  |   |         |   |  |   |       |   |  |   | 6,519    |  
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Subtotal                                                                                           |              |                                     | 87,656 |       |  |            | 91  |             |  |               | 582,972 |          |  |              | (79,065  | )     |  |             | (16,426 | ) |  |   | (63,066  | ) |  |   |       |   |  |   | 424,506  |  
|Net income                                                                                         |              |                                     |       |       |  |            |    |             |  |               |        |          |  |              | 72,125   |       |  |             |        |   |  |   |         |   |  |   |       |   |  |   | 72,125   |  
|Foreign currency translation adjustments                                                           |              |                                     |       |       |  |            |    |             |  |               |        |          |  |              |         |       |  |             | (5,879  | ) |  |   |         |   |  |   |       |   |  |   | (5,879   | )
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Comprehensive income                                                                               |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   | 66,246   |  
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Balances at December 31, 2000                                                                      |              |                                     | 87,656 |       |  |            | 91  |             |  |               | 582,972 |          |  |              | (6,940   | )     |  |             | (22,305 | ) |  |   | (63,066  | ) |  |   |       |   |  |   | 490,752  |  
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Common stock issued in connection with
business combinations                                       |              |                                     | 14,567 |       |  |            | 14  |             |  |               | 336,124 |          |  |              |         |       |  |             |        |   |  |   |         |   |  |   | (1,166 | ) |  |   | 334,972  |  
|Common stock issued and treasury
stock reissued under stock option
and stock purchase plans        |              |                                     | 2,494  |       |  |            |    |             |  |               | 3       |          |  |              | (27,143  | )     |  |             |        |   |  |   | 53,665   |   |  |   |       |   |  |   | 26,525   |  
|Treasury stock reissued under
restricted stock option plan                                         |              |                                     | 384    |       |  |            |     |             |  |               | 5,571   |          |  |              | (9,118   | )     |  |             |        |   |  |   | 9,156    |   |  |   | (5,571 | ) |  |   | 38       |  
|Acquisition of treasury stock                                                                      |              |                                     | (6,376 | )     |  |            |    |             |  |               |        |          |  |              |         |       |  |             |        |   |  |   | (106,930 | ) |  |   |        |   |  |   | (106,930 | )
|Amortization of unearned
stock compensation                                                        |              |                                     |        |       |  |            |    |             |  |               |        |          |  |              |         |       |  |             |        |   |  |   |          |   |  |   | 1,334  |   |  |   | 1,334    |  
|Tax benefit of exercise of stock options                                                           |              |                                     |       |       |  |            |    |             |  |               | 1,039   |          |  |              |         |       |  |             |        |   |  |   |         |   |  |   |       |   |  |   | 1,039    |  
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Subtotal                                                                                           |              |                                     | 98,725 |       |  |            | 105 |             |  |               | 925,709 |          |  |              | (43,201  | )     |  |             | (22,305 | ) |  |   | (107,175 | ) |  |   | (5,403 | ) |  |   | 747,730  |  
|Net loss                                                                                           |              |                                     |       |       |  |            |    |             |  |               |        |          |  |              | (25,522  | )     |  |             |        |   |  |   |         |   |  |   |       |   |  |   | (25,522  | )
|Foreign currency translation adjustments                                                           |              |                                     |       |       |  |            |    |             |  |               |        |          |  |              |         |       |  |             | (6,257  | ) |  |   |         |   |  |   |       |   |  |   | (6,257   | )
|Unrealized gains/(losses) on
marketable securities                                                 |              |                                     |       |       |  |            |    |             |  |               |        |          |  |              |         |       |  |             | 568     |   |  |   |         |   |  |   |       |   |  |   | 568      |  
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Comprehensive loss                                                                                 |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   | (31,211  | )
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Balances at December 31, 2001                                                                      |              |                                     | 98,725 |       |  |            | 105 |             |  |               | 925,709 |          |  |              | (68,723  | )     |  |             | (27,994 | ) |  |   | (107,175 | ) |  |   | (5,403 | ) |  |   | 716,519  |  
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Common stock issued and treasury
stock reissued under stock option, stock purchase plans and other |              |                                     | 2,633  |       |  |            |    |             |  |               |        |          |  |              | (26,690  | )     |  |             |        |   |  |   | 50,332   |   |  |   |       |   |  |   | 23,642   |  
|Treasury stock repurchased due to
forfeiture in restricted stock
option plan                       |              |                                     | (6     | )     |  |            |     |             |  |               | (95     | )        |  |              | 146      |       |  |             |        |   |  |   | (147     | ) |  |   | 95     |   |  |   | (1       | )
|Acquisition of treasury stock                                                                      |              |                                     | (6,692 | )     |  |            |    |             |  |               |        |          |  |              |         |       |  |             |        |   |  |   | (89,826  | ) |  |   |        |   |  |   | (89,826  | )
|Amortization of unearned stock
compensation                                                        |              |                                     |        |       |  |            |    |             |  |               |        |          |  |              |         |       |  |             |        |   |  |   |          |   |  |   | 1,938  |   |  |   | 1,938    |  
|Tax benefit of exercise of stock options                                                           |              |                                     |       |       |  |            |    |             |  |               | 3,450   |          |  |              |         |       |  |             |        |   |  |   |         |   |  |   |       |   |  |   | 3,450    |  
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Subtotal                                                                                           |              |                                     | 94,660 |       |  |            | 105 |             |  |               | 929,064 |          |  |              | (95,267  | )     |  |             | (27,994 | ) |  |   | (146,816 | ) |  |   | (3,370 | ) |  |   | 655,722  |  
|Net loss                                                                                           |              |                                     |       |       |  |            |    |             |  |               |        |          |  |              | (94,669  | )     |  |             |        |   |  |   |         |   |  |   |       |   |  |   | (94,669  | )
|Foreign currency translation adjustments                                                           |              |                                     |       |       |  |            |    |             |  |               |        |          |  |              |         |       |  |             | 18,826  |   |  |   |         |   |  |   |       |   |  |   | 18,826   |  
|Unrealized gains/(losses) on
marketable securities                                                 |              |                                     |       |       |  |            |    |             |  |               |        |          |  |              |         |       |  |             | 495     |   |  |   |         |   |  |   |       |   |  |   | 495      |  
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Comprehensive loss                                                                                 |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   | (75,348  | )
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  
|Balances at December 31, 2002                                                                      |              |                                     | 94,660 |       |  | $          | 105 |             |  | $             | 929,064 |          |  | $            | (189,936 | )     |  | $           | (8,673  | ) |  | $ | (146,816 | ) |  | $ | (3,370 | ) |  | $ | 580,374  |  
|                                                                                                   |              |                                     |        |       |  |            |     |             |  |               |         |          |  |              |          |       |  |             |         |   |  |   |          |   |  |   |        |   |  |   |          |  

See accompanying notes.

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##### 



Consolidated Statements of Cash Flows

|                                                               |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |        |          |         |         |  
|-------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | -------- | ------- | ------- | ------- | -------- | ------- | -------- | ------ | -------- | ------- | ------- | -
|                                                               |                                                                                          | For the years ended December 31,                                               
|(Dollars in thousands)                                         |                                                                                          | 2002                                                                            |                                                    | 2001                                      |          | 2000   
|                                                               |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |        
|Cash and cash equivalents, beginning of year                   |                                                                                          | $                                                                               | 222,793                                            |                                           |          | $       | 235,588 |         |          | $       | 250,103  |       
|Cash flows from operating activities:                          |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|                                                               | Net income (loss)                                                                        |                                                                                 |                                                    | (94,669                                   | )        |         |         | (25,522 | )        |         |          | 72,125 |         
|                                                               | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |        |         
|                                                               |                                                                                          |                                                                                 | Depreciation and amortization                      |                                           |          | 81,342  |         |         |          | 136,482 |          |        |          | 107,879 |        
|                                                               |                                                                                          |                                                                                 | Write-off of in-process research and development   |                                           |          |         |         |         |          | 18,500  |          |        |          | 8,000   |        
|                                                               |                                                                                          |                                                                                 | Write-off of assets in restructuring               |                                           |          | 992     |         |         |          | 3,188   |          |        |          |        |        
|                                                               |                                                                                          |                                                                                 | Minority interest in income (loss) of subsidiaries |                                           |          |         |         |         |          | 30      |          |        |          | (94     | )      
|                                                               |                                                                                          |                                                                                 | (Gain) Loss on disposal of assets                  |                                           |          | (3,004  | )       |         |          | (962    | )        |        |          | 754     |        
|                                                               |                                                                                          |                                                                                 | Goodwill impairment                                |                                           |          | 144,750 |         |         |          |         |          |        |          |         |        
|                                                               |                                                                                          |                                                                                 | Deferred income taxes                              |                                           |          | (4,771  | )       |         |          | (1,563  | )        |        |          | (6,551  | )      
|                                                               |                                                                                          |                                                                                 | Tax benefit from exercise of stock options         |                                           |          | 3,451   |         |         |          | 1,039   |          |        |          | 6,519   |        
|                                                               |                                                                                          |                                                                                 | Amortization of deferred stock-based compensation  |                                           |          | 1,938   |         |         |          | 1,334   |          |        |          |        |        
|                                                               |                                                                                          |                                                                                 | Changes in assets and liabilities:                 |                                           |          |         |         |         |          |         |          |        |          |         |        
|                                                               |                                                                                          |                                                                                 |                                                    | Accounts receivable                       |          |         | 16,234  |         |          |         | 58,184   |        |          |         | (31,633 | )
|                                                               |                                                                                          |                                                                                 |                                                    | Other current assets                      |          |         | 6,648   |         |          |         | 4,163    |        |          |         | (3,397  | )
|                                                               |                                                                                          |                                                                                 |                                                    | Accounts payable                          |          |         | 33      |         |          |         | (8,687   | )      |          |         | 4,411   |  
|                                                               |                                                                                          |                                                                                 |                                                    | Accrued compensation and related expenses |          |         | (7,472  | )       |          |         | (19,794  | )      |          |         | (3,783  | )
|                                                               |                                                                                          |                                                                                 |                                                    | Accrued income taxes                      |          |         | 4,555   |         |          |         | (1,422   | )      |          |         | 19      |  
|                                                               |                                                                                          |                                                                                 |                                                    | Other accrued liabilities                 |          |         | 1,359   |         |          |         | (44,127  | )      |          |         | (2,234  | )
|                                                               |                                                                                          |                                                                                 |                                                    | Deferred revenues                         |          |         | 7,940   |         |          |         | (28,054  | )      |          |         | 19,117  |  
|                                                               |                                                                                          |                                                                                 |                                                    | Other liabilities                         |          |         | 4,953   |         |          |         | 305      |        |          |         | (34     | )
|                                                               |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|Net cash provided by operating activities                      |                                                                                          |                                                                                 | 164,277                                            |                                           |          |         | 93,094  |         |          |         | 171,098  |       
|Cash flows from investing activities:                          |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|                                                               |                                                                                          | Increase in restricted cash                                                     |                                                    |                                           | (2,227   | )       |         |         | (3,426   | )       |          |        |         |        
|                                                               |                                                                                          | Purchases of available-for-sale cash investments                                |                                                    |                                           | (234,754 | )       |         |         | (119,745 | )       |          |        | (128,668 | )      
|                                                               |                                                                                          | Maturities of available-for-sale cash investments                               |                                                    |                                           | 43,857   |         |         |         | 82,497   |         |          |        | 81,149   |        
|                                                               |                                                                                          | Sales of available-for-sale cash investments                                    |                                                    |                                           | 156,916  |         |         |         | 66,768   |         |          |        | 29,291   |        
|                                                               |                                                                                          | Business combinations, net of cash acquired                                     |                                                    |                                           | (2,106   | )       |         |         | 27,166   |         |          |        | (33,573  | )      
|                                                               |                                                                                          | Purchases of property, equipment and improvements                               |                                                    |                                           | (40,476  | )       |         |         | (38,985  | )       |          |        | (30,398  | )      
|                                                               |                                                                                          | Proceeds from sale of fixed assets                                              |                                                    |                                           | 1,068    |         |         |         | 568      |         |          |        | 154      |        
|                                                               |                                                                                          | Capitalized software development costs                                          |                                                    |                                           | (32,729  | )       |         |         | (35,783  | )       |          |        | (20,210  | )      
|                                                               |                                                                                          | (Increase) decrease in other assets                                             |                                                    |                                           | 327      |         |         |         | (1,971   | )       |          |        | (20,778  | )      
|                                                               |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|Net cash used for investing activities                         |                                                                                          |                                                                                 | (110,124                                           | )                                         |          |         | (22,911 | )       |          |         | (123,033 | )     
|Cash flows from financing activities:                          |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|                                                               |                                                                                          | Minority Interest                                                               |                                                    |                                           |         |         |         |         | 3,133    |         |          |        | 1,960    |        
|                                                               |                                                                                          | Net proceeds from the issuance of common stock and
reissuance of treasury stock |                                                    |                                           | 23,641   |         |         |         | 28,401   |         |          |        | 30,049   |        
|                                                               |                                                                                          | Purchases of treasury stock                                                     |                                                    |                                           | (89,826  | )       |         |         | (106,930 | )       |          |        | (89,141  | )      
|                                                               |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|Net cash used for financing activities                         |                                                                                          |                                                                                 | (66,185                                            | )                                         |          |         | (75,396 | )       |          |         | (57,132  | )     
|Effect of exchange rate changes on cash                        |                                                                                          |                                                                                 | 20,506                                             |                                           |          |         | (7,582  | )       |          |         | (5,448   | )     
|                                                               |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|Net increase (decrease) in cash and cash equivalents           |                                                                                          |                                                                                 | 8,474                                              |                                           |          |         | (12,795 | )       |          |         | (14,515  | )     
|Cash and cash equivalents, end of year                         |                                                                                          |                                                                                 | 231,267                                            |                                           |          |         | 222,793 |         |          |         | 235,588  |       
|                                                               |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|Cash investments, end of year                                  |                                                                                          |                                                                                 | 155,913                                            |                                           |          |         | 120,367 |         |          |         | 119,024  |       
|Total cash, cash equivalents and cash investments, end of year |                                                                                          | $                                                                               | 387,180                                            |                                           |          | $       | 343,160 |         |          | $       | 354,612  |       
|                                                               |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|Supplemental disclosures:                                      |                                                                                          |                                                                                 |                                                    |                                           |          |         |         |         |          |         |          |       
|                                                               | Interest paid                                                                            |                                                                                 | $                                                  | 198                                       |          |         | $       | 276     |          |         | $        | 339    |         
|                                                               | Income taxes paid                                                                        |                                                                                 | $                                                  | 31,693                                    |          |         | $       | 22,702  |          |         | $        | 33,725 |         

See accompanying notes.

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Notes to Consolidated Financial Statements

Note One: Summary of Significant Accounting Policies

The Company

Sybase, Inc. (Sybase, or the Company) provides enterprise infrastructure that
bridges heterogeneous technologies. The Company provides products that help
companies integrate, manage and deliver applications, content and data anywhere
they are needed. Sybases software products and professional consulting
services provide a comprehensive platform for delivering the integrated
solutions businesses need to be successful.

During 2002, the Company was organized into five separate business segments, each of which
maintains financial accountability for its operating results, dedicated product
development and engineering, product marketing, partner relationship management
and customer support teams.

The Enterprise Solutions Division (ESD) delivers products, technical support
and professional services required to develop and maintain a variety of
operational systems including e-Business infrastructures that allow enterprises
to integrate, move and manage very large amounts of data and applications
across diverse computing environments. iAnywhere Solutions, Inc. (iAS), is a
subsidiary that provides mobile and embedded solutions to empower
businesses with always-available access to enterprise information. The e-Business Division (eBD) delivers an end-to-end
e-Business platform and enterprise application integration capabilities outside
a companys firewall and across the supply chain.The Business Intelligence
Division (BID) delivers industry specific database management systems to let
businesses consolidate and analyze large amounts of information from data
warehouses and data marts to facilitate better decision making and gain a
competitive edge in mission-critical areas. Financial Fusion, Inc. (FFI),
formerly HFN, is a wholly owned subsidiary that delivers e-Finance solutions to
leading financial institutions, fusing applications and middleware on a single
integrated platform.

Principles of Consolidation

The consolidated financial statements include the accounts of Sybase and its
majority owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Management is also required to make certain judgments that affect
the reported amounts of revenues and expenses during the reporting period.
Sybase periodically evaluates its estimates including those relating to revenue
recognition, the allowance for doubtful accounts, capitalized software,
investments, intangible assets, income taxes, restructuring, litigation and
other contingencies. The Company bases its estimates on historical experience
and various other assumptions that are believed to be reasonable based on the
specific circumstances. The Companys management has discussed these estimates
with the Audit Committee of Sybases Board of Directors. These estimates and
assumptions form the basis for making judgments about the carrying value of
certain assets and liabilities that are not readily apparent from other
sources. Actual results could differ from these estimates.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist primarily of amounts due to the Company from its
normal business activities. The Company maintains an allowance for doubtful
accounts to reflect the expected non-collection of accounts receivable based on
past collection history and specific risks identified in the portfolio. If the
financial condition of the Companys customers were to deteriorate resulting in
an impairment of their

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ability to make payments, or if payments from customers are significantly
delayed, additional allowances might be required.

Capitalized Software

The Company capitalizes software development costs in accordance with SFAS No.
86, Accounting for Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, (SFAS 86), under which certain software development costs incurred
subsequent to the establishment of technological feasibility may be capitalized
and amortized over the estimated lives of the related products. The Company
determines technological feasibility to be established upon the internal
release of a working model or a detailed program design as specified by SFAS
86. Upon the general release of the product to customers, development costs for
that product are amortized over periods not exceeding three years, based on the
estimated economic life of the product. Capitalized software costs amounted to
$186.7 million and $154.9 million, at December 31, 2002 and 2001, respectively,
and related accumulated amortization was $124.5 million, and $101.4 million,
respectively. Software amortization charges included in cost of license fees
were $24.0 million, $17.8 million and $22.4 million for 2002, 2001 and 2000,
respectively.

SFAS 86 also requires that the unamortized capitalized costs of a computer
software product be compared to the net realizable value of such product at
each reporting date. To the extent the unamortized capitalized cost exceeds
the net realizable value of a software product based upon its estimated future
gross revenues reduced by estimated future costs of completing and disposing of
the product, the excess is written off. If the estimated future gross revenue
associated with certain of the Companys software products were to be reduced,
write-offs of capitalized software costs might be required.

Property, Equipment and Improvements

Property, equipment and improvements are stated at cost less accumulated
depreciation. Major renewals and improvements are capitalized, and minor
replacements, maintenance and repairs are charged to current operations.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets, while leasehold improvements are
amortized over the shorter of the estimated useful life of the asset or the
associated lease term.

Goodwill and Other Purchased Intangible Assets

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, 
(SFAS 142) on January 1, 2002. Under SFAS 142 goodwill and intangible
assets deemed to have indefinite lives are no longer amortized but are subject
to annual impairment tests. With the adoption of SFAS 142, the Company ceased
amortization of goodwill as of January 1, 2002. Prior to this point, goodwill
was amortized using the straight-line method over its estimated useful life.

In accordance with SFAS 142, the Company performed the first of the required
two-step impairment tests of goodwill and indefinite-lived intangible assets as
of January 1, 2002. In performing the first step of this analysis, the Company
first assigned its assets and liabilities, including existing goodwill and
other intangible assets, to its identified reporting units to determine their
carrying value. For this purposes, the Companys reporting units equate to its
five business segments discussed in Note Ten below. Based on the analysis of
an independent third party appraiser, the Company then estimated the fair value
of each reporting unit utilizing various valuation techniques including
discounted cash flow and comparative market analysis. Step one of this analysis
was then completed by comparing the carrying value of each reporting unit to
its fair value. This comparison indicated a possible goodwill impairment within
the FFI and eBD reporting units and necessitated step two of the analysis.

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In step two of the analysis the Company allocated the fair value of FFI and eBD
to their respective assets and then compared the implied value of their
goodwill to such goodwills carrying value. Based on the completed analysis,
the Company recognized an impairment loss of $132.4 million in the first
quarter of 2002. This loss was recognized as a cumulative effect of an
accounting change. The impairment loss had no income tax effect.

As required by SFAS 142, intangible assets that did not meet the criteria for
recognition apart from goodwill were reclassified. The Company transferred
$7.9 million of net assembled workforce to goodwill as of January 1, 2002.
This amount was partially offset by the reclassification of $3.2 million of an
associated deferred tax liability.

The Company conducted the annual impairment testing required by SFAS 142 as of
December 31, 2002. Based on this analysis, Sybase recognized an impairment
loss of $12.3 million on the goodwill associated with the FFI division. The
impairment loss primarily resulted from a reduction in the Companys estimates
of future cash flows generated by this reporting unit. The Companys estimates
were reduced from those used at the beginning of the year based on its analysis
of current and future market conditions for the FFI division. After
consideration of the impairment loss, the carrying value of the goodwill
associated with the FFI division was $29.3 million. In future years, a
reduction of the Companys estimated future economic benefits to be generated
by certain reporting units could result in a further impairment loss associated
with various intangible assets.

Other purchased intangible assets which have generally resulted from business
combinations accounted for as purchase, see Note Eleven below, are recorded at
amortized cost. Amortization is computed using the straight-line method over
periods of 3 to 10 years.

Impairment of Long-Lived Assets

On January 1, 2002, the Company
adopted the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, (SFAS 144) which
generally requires impairment losses to be recorded on long-lived
assets (excluding goodwill) used in operations, such as property,
equipment and improvements, and intangible assets, when indicators of
impairment are present and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amount of the
assets. The provisions of this statement did not have a significant
impact on the Companys financial condition or operating results.

Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position (SOP)
97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, and
in certain instances in accordance with SOP 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts.

The Company licenses software under non-cancelable license agreements. License
fees revenues are recognized when a non-cancelable license agreement is in
force, the product has been shipped, the license fee is fixed or determinable,
and collectibility is reasonably assured. If the fee is not fixed or
determinable, revenue is recognized as payments become due from the customer.
In software arrangements that include rights to multiple software products
and/or services, the Company allocates the total arrangement fee among each of
the deliverables using the residual method, under which revenue is allocated to
undelivered elements based on vendor-specific objective evidence of fair value
of such undelivered elements and the residual amounts of revenue are allocated
to delivered elements.

Fees from licenses sold together with consulting services are generally
recognized upon shipment provided that the above criteria are met, payment of
the license fees are not dependent upon the performance of the services, and
the consulting services are not essential to the functionality of the licensed
software. If the services are essential to the functionality of the software,
or payment of the license fees are dependent upon the performance of the
services, both the software license and consulting fees are recognized under
the percentage of completion method of contract accounting using labor hours
to measure the completion percentage. In order to apply the percentage of
completion of method, management is required to estimate the number of hours
needed to complete a particular project. As a result, recognized revenues and
profits are subject to revisions as the contract progresses to completion.

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Sublicense fees are recognized as reported to the Company by its licensees.
License fees revenue for certain application development and data access tools
is recognized upon direct shipment to the end user or direct shipment to the
reseller for the end user. If collectibility is not reasonably assured,
revenue is recognized when the fee is collected.

Technical support revenues are recognized ratably over the term of the
related agreements, which in most cases is one year. Revenues from consulting
services under time and materials contracts and for education are recognized as
services are performed. Revenues from other contract services are generally
recognized under the percentage-of-completion method described above.

Business Combinations

The Company has accounted for all its recent acquisitions using the purchase
method of accounting. In the case of its material acquisitions, the Company
based its purchase price allocation and useful life estimates on an analysis
performed by an independent third party. See Note Eleven for specific details.

Foreign Currencies

The Company translates the accounts of its foreign subsidiaries using the local
foreign currency as the functional currency. For foreign subsidiaries in
countries with highly inflationary economies, the accounts are translated as if
the U.S. dollar was the functional currency. The assets and liabilities of
foreign subsidiaries are translated into U.S. dollars using current exchange
rates, and gains and losses from this translation process are credited or
charged to the accumulated other comprehensive loss account included in
stockholders equity. Foreign currency transaction gains and losses, which
historically have not been material, are included in interest expense and
other, net in the consolidated statements of operations.

In order to reduce the effect of foreign currency fluctuations on its results
of operations, the Company hedges its exposure on certain transactional
balances that are denominated in foreign currencies through the use of
short-term foreign currency forward exchange contracts. For the most part,
these exposures consist of inter-company balances between Sybase entities
resulting from software license royalties and certain management, research, and
administrative services. These exposures are denominated in Canadian, European
and Asia Pacific currencies, primarily the Canadian dollar, Yen, Euro and the
Hong Kong dollar. These forward exchange contracts are recorded at fair value
and the resulting gains or losses, as well as the associated premiums or
discounts, are recorded in interest expense and other, net in the consolidated
statements of operations and are offset by corresponding gains and losses from
foreign exchange contracts on hedged balances. All foreign exchange contracts
have a life of approximately 30 days and are marked-to-market at the end each
reporting period with unrealized gains and losses included in other income.

Income Taxes

The asset and liability approach is used to account for income taxes by
recognizing deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
base of assets and liabilities. The Company records a valuation allowance to
reduce deferred tax assets to the amount that is more likely than not to be
realized. The Company has considered future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for the valuation
allowance. If the company were to determine that it would be able to realize
its deferred tax asset in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would be made in the period of such
determination. The adjustment to the deferred tax asset would increase income
unless it related to certain deferred tax assets associated with tax attributes
acquired in the NEN acquisition, in which case the associated benefit would
reduce goodwill. Similarly, if the Company determines that it is unable to
realize a portion of its recorded deferred tax asset, an adjustment to the
deferred tax asset would be charged to income in the period made.

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##### 



Stock Based Compensation

SFAS 123, Accounting for Stock Based Compensation, encourages, but does not
require, companies to record compensation cost for stock based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock based employee compensation using the intrinsic value method
prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and Related Interpretations. Accordingly,
compensation cost for stock options granted to employees is measured as the
excess, if any, of the quoted market price of the Company stock at the date of
the grant over the amount an employee must pay to acquire the stock.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure (SFAS 148) effective for fiscal years
ending after December 15, 2002. SFAS 148 amends SFAS 123, to provide
alternative methods of transition to the voluntary fair value method of
accounting for stock-based employee compensation. SFAS 148 also amends the
disclosure provisions of SFAS 123 to require that disclosure of the pro forma
effect of using the fair value method of accounting for stock-based employee
compensation be displayed in tabular format within a Companys summary of
significant accounting policies. Had compensation cost been charged
to expense for grants to employees under the Companys fixed stock
option plans (including the FFI and iAS Plans) and its employee stock
purchase plan based on the fair value at the grant dates for awards
under those plans, consistent with the method encouraged by SFAS
No. 123, the Companys net income/(loss) and net income/(loss)
per share would have been adjusted to the pro forma amounts indicated
below:

|                                                                                                              |             |      |          |       |   |      |         |       |   |   |         |      |  | 
|------------------------------------------------------------------------------------------------------------- | ----------- | ---- | -------- | ----- | - | ---- | ------- | ----- | - | - | ------- | ---- |  | 
|(Dollars in thousands, except per share data)                                                                 |             | 2002 |          | 2001  |   | 2000
|                                                                                                              |             |      |          |       |   |     
|As reported net income/(loss)  stock-based employee
compensation determined using the intrinsic value method |             | $    | (94,669  | )     |   | $    | (25,522 | )     |   | $ | 72,125  |     
|Add: Stock-based employee compensation cost, net of tax,
included in net income as reported                   |             | $    | 1,937    |       |   |      | 1,334   |       |   |   |        |     
|Less: Pro-forma stock-based employee compensation cost,
net of tax, determined under the fair value method    |             | $    | (35,626  | )     |   | $    | (38,358 | )     |   | $ | (30,931 | )   
|                                                                                                              |             |      |          |       |   |      |         |       |   |   |         |     
|Pro-forma net income/(loss)  stock-based employee
compensation determined under the fair value method        |             | $    | (128,358 | )     |   | $    | (62,546 | )     |   | $ | 41,194  |     
|Basic net income/(loss) per share                                                                             |             |      |          |       |   |      |         |       |   |   |         |     
|                                                                                                              | As reported |      | $        | (0.98 | ) |      | $       | (0.27 | ) |   | $       | 0.82 | 
|                                                                                                              | Pro forma   |      |          | (1.33 | ) |      |         | (0.66 | ) |   |         | 0.47 | 
|Diluted net income/(loss) per share                                                                           |             |      |          |       |   |      |         |       |   |   |         |     
|                                                                                                              | As reported |      | $        | (0.95 | ) |      | $       | (0.27 | ) |   | $       | 0.78 | 
|                                                                                                              | Pro forma   |      |          | (1.28 | ) |      |         | (0.66 | ) |   |         | 0.45 | 

The fair value employee compensation cost was determined using the
Black-Scholes option pricing model. Additional information regarding the
valuation of the stock options is provided in Note Seven below.

Net Income (Loss) Per Share

Shares used in computing basic and diluted net income (loss) per share are
based on the weighted average shares outstanding in each period, excluding
treasury stock. Basic net income (loss) per share excludes any dilutive
effects of stock options. Diluted net income (loss) per share includes the
dilutive effect of the assumed exercise of stock options, warrants and
restricted stock using the treasury stock method. However, the effect of
outstanding stock options has been excluded from the calculation of diluted net
loss per share in 2001, as their inclusion would be antidilutive. Accordingly,
the calculation of diluted net loss per share does not include the common stock
equivalent effect (using the treasury stock method) of 2,787,807 shares of
Common Stock that were granted under outstanding stock options at December 31,
2001.

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The following shows the computation of basic and diluted net income (loss) per
share at December 31:

|                                                             |  |      |         |      |  |      |         |      |  |   |        | 
|------------------------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------ | 
|(In thousands, except per share data)                        |  | 2002 |         | 2001 |  | 2000
|                                                             |  |      |         |      |  |     
|Net income (loss)                                            |  | $    | (94,669 | )    |  | $    | (25,522 | )    |  | $ | 72,125 | 
|Shares used in computing basic net income
(loss) per share   |  |      | 96,844  |      |  |      | 94,592  |      |  |   | 87,711 | 
|Effect of dilutive securities  stock options                |  |      | 2,740   |      |  |      | (a      | )    |  |   | 4,439  | 
|Shares used in computing diluted net income
(loss) per share |  |      | 99,584  |      |  |      | 94,592  |      |  |   | 92,150 | 
|Basic net income (loss) per share                            |  | $    | (0.98   | )    |  | $    | (0.27   | )    |  | $ | 0.82   | 
|Diluted net income (loss) per share                          |  | $    | (0.95   | )    |  | $    | (0.27   | )(a) |  | $ | 0.78   | 

(a)  The effect of outstanding stock options is excluded from the calculation of
diluted net loss per share, as their inclusion would be antidilutive.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net earnings (loss) and other changes to
stockholders equity not reflected in net income (loss). The Companys
components of other comprehensive income (loss) consist of foreign currency
translation adjustments and unrealized gain/loss on available-for-sale
securities.

Other Recent Accounting Pronouncements

In November 2002, the FASB issued
FIN 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, including indirect Guarantees of Indebtedness of
Others. FIN 45 requires that the Company recognize the fair
value for guarantee and indemnification arrangements issued or
modified by the Company after December 31, 2002, if these
arrangements are within the scope of the interpretation. In addition,
the Company must continue to monitor the conditions that are subject
to the guarantees and indemnifications, as required under previously
existing generally accepted accounting principles, in order to
identify if a loss has occurred. If the Company determines it is
probable that a loss has occurred then any such estimable loss would
be recognized under those guarantees and indemnifications. Some of
the software licenses granted by the Company contain provisions that
indemnify licensees of the Company's software from damages and costs
resulting from claims alleging that the Company's software infringes
the intellectual property rights of a third party. The Company has
historically received only a limited number of requests for
indemnification under these provisions and has not been required
to make material payments pursuant to these provisions. Accordingly,
the Company has not recorded a liability related to these
indemnification provisions. The Company does to have any guarantees
or indemnification arrangements other than the indemnification clause
in some of its software licenses. The Company will be required to
implement the provisions of FIN 45 as of January 1, 2003
and does not believe that FIN 45 will have a material impact on
its financial position, results of operations or cash flows.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS 146) effective for exit or disposal
activities initiated after December 31, 2002. Under SFAS 146 a liability for
the cost associated with an exit or disposal activity is recognized when the
liability is incurred. Under prior guidance, a liability for such costs could
be recognized at the date of commitment to an exit plan. SFAS 146 also requires
that the liability be measured and recorded at fair value. Accordingly, the
adoption of this standard may affect the timing of recognizing future
restructuring costs as well as the amounts recognized. The Company will adopt
the provisions of SFAS 146 prospectively for all restructuring activities
initiated after December 31, 2002.

In November 2001, the FASB issued Emerging Issues Task Force No. 01-14, Income
Statement Characterization of Reimbursements Received for Out-of-Pocket
Expenses Incurred (EITF 01-14) formerly named Topic D-103. EITF 01-14
establishes that reimbursements received for out-of-pocket expenses should be
characterized as revenue in the statement of operations. The Company adopted
the guidance on January 1, 2002. Prior to 2002, the Company had recorded
out-of-pocket expense reimbursements as a reduction to operating expenses.
Beginning in January 1, 2002, such reimbursements were recorded as service fees
revenue, which resulted in increased revenue and increased operating expenses.
Comparative financial statements for prior year information have been
reclassified to conform to the new presentation. Prior to the reclassification,
out-of-pocket expenses reimbursements of $1.8 million and $2.7 million were
recorded as a reduction of cost of services during

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##### 



the years ended December 31, 2001 and 2000, respectively. The provisions of
EITF 01-14 did not have any impact on the Companys financial condition,
operating results, or cash flow for the year ended December 31, 2002.

Note Two: Financial Instruments

Cash, Cash Equivalents and Cash Investments

Cash and cash equivalents consist of highly liquid investments that are
comprised principally of taxable, short-term money market instruments with
original maturities of three months or less at the time of purchase and demand
deposits with financial institutions. These instruments carry insignificant
interest rate risk because of the short term maturities. Cash equivalents are
stated at amounts that approximate fair value based on quoted market prices.
Cash investments consist principally of commercial paper, corporate bonds, U.S.
Government bonds and taxable municipal bonds with maturities between 90 days
and up to three years and are stated at amounts that approximate fair value,
based on quoted market - prices. No individual investment security equaled or
exceeded two percent of total assets.

In accordance with SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities, (SFAS 115) management determines the appropriate
classification of debt and equity securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. At December 31,
2002, the Company has classified all of its debt and equity securities as
available-for-sale pursuant to SFAS 115. Such securities are recorded at fair
value and unrealized holding gains and losses, net of the related tax effect,
if any, are not reflected in earnings but are reported as a separate component
of other comprehensive income (loss) until realized. Unrealized gains and
losses at December 31, 2002 were not significant. Realized gains and losses are determined on the specific
identification method and are reflected in income.

At December 31, cash equivalents and amortized cost of investments in
marketable securities and their approximate fair values are as follows:

|                                                             |  |           |         |            |  |            |       |             |  |   |      |   |  |   |         | 
|------------------------------------------------------------ |  | --------- | ------- | ---------- |  | ---------- | ----- | ----------- |  | - | ---- | - |  | - | ------- | 
|                                                             |  | Amortized |         | Unrealized |  | Unrealized |       | Fair Market
|(Dollars in thousands)                                       |  | Cost      |         | Gains      |  | (Losses)   |       | Value      
|                                                             |  |           |         |            |  |            |       |            
|December 31, 2002:                                           |  |           |         |            |  |            |       |             |  |   |      |   |  |   |         | 
|Cash and cash equivalents                                    |  | $         | 231,267 |            |  | $          |      |             |  | $ |     |   |  | $ | 231,267 | 
|Short-term cash investments
(maturities of one year or less) |  |           | 63,502  |            |  |            | 241   |             |  |   | (3   | ) |  |   | 63,740  | 
|Long-term cash investments
(maturities over one year)        |  |           | 90,849  |            |  |            | 1,326 |             |  |   | (2   | ) |  |   | 92,173  | 
|                                                             |  |           |         |            |  |            |       |             |  |   |      |   |  |   |         | 
|                                                             |  | $         | 385,618 |            |  | $          | 1,567 |             |  | $ | (5   | ) |  | $ | 387,180 | 
|                                                             |  |           |         |            |  |            |       |             |  |   |      |   |  |   |         | 
|December 31, 2001:                                           |  |           |         |            |  |            |       |             |  |   |      |   |  |   |         | 
|Cash and cash equivalents                                    |  | $         | 222,793 |            |  | $          |      |             |  | $ |     |   |  | $ | 222,793 | 
|Short-term cash investments
(maturities of one year or less) |  |           | 63,773  |            |  |            | 444   |             |  |   | (1   | ) |  |   | 64,216  | 
|Long-term cash investments
(maturities over one year)        |  |           | 55,721  |            |  |            | 534   |             |  |   | (104 | ) |  |   | 56,151  | 
|                                                             |  |           |         |            |  |            |       |             |  |   |      |   |  |   |         | 
|                                                             |  | $         | 342,287 |            |  | $          | 978   |             |  | $ | (105 | ) |  | $ | 343,160 | 
|                                                             |  |           |         |            |  |            |       |             |  |   |      |   |  |   |         | 

Restricted Cash

At December 31, 2002, the Company had $5.7 million in restricted cash set aside
for a guarantee against certain payroll and leases in the United Kingdom.

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Foreign Currency Forward Exchange Contracts

At December 31, 2002, the Company had outstanding forward contracts, all having
maturities of approximately 30 days, to exchange various foreign currencies for
U.S. dollars in the amounts of $4.5 million, and to exchange U.S. dollars and
Euros into various foreign currencies in the amounts of $19.8 million and
$20.0 million, respectively. At December 31, 2001, the Company had outstanding
forward exchange contracts, all having maturities of approximately 30 days, to
exchange various foreign currencies for U.S. dollars in the amounts of $1.4
million and to exchange U.S. dollars and Euros into various foreign currencies
in the amounts of $15.5 million and $20.7 million, respectively. Neither the
cost nor the fair value of these foreign currency forward contracts was
material at December 31, 2002 or 2001. All foreign currency forward contracts
are marked-to-market at the end of each reporting period with unrealized gains and
losses included in other income. One of two major U.S. multinational banks is
counter party to all of these contracts during both 2002 and 2001.

Note Three: Property, Equipment and Improvements

|                                         |  |      |          |      |  |              |          |   |  |            |  | 
|---------------------------------------- |  | ---- | -------- | ---- |  | ------------ | -------- | - |  | ---------- |  | 
|                                         |  |      |          |      |  |              |          |   |  | Estimated 
|(Dollars in thousands)                   |  | 2002 |          | 2001 |  | useful lives
|                                         |  |      |          |      |  |             
|Computer equipment and software          |  | $    | 289,876  |      |  | $            | 269,664  |   |  | 3 years   
|Furniture and fixtures                   |  |      | 86,400   |      |  |              | 78,989   |   |  | 5 years   
|Leasehold improvements                   |  |      | 51,470   |      |  |              | 50,634   |   |  | lease term
|                                         |  |      |          |      |  |              |          |   |  |            |  | 
|                                         |  |      | 427,746  |      |  |              | 399,287  |   |  |            |  | 
|Less accumulated depreciation            |  |      | (357,344 | )    |  |              | (323,137 | ) |  |            |  | 
|                                         |  |      |          |      |  |              |          |   |  |            |  | 
|Net property, equipment and improvements |  | $    | 70,402   |      |  | $            | 76,150   |   |  |            |  | 
|                                         |  |      |          |      |  |              |          |   |  |            |  | 

Depreciation expense amounted to $37.9 million, $39.8 million and $43.5 million
in 2002, 2001 and 2000, respectively.

Note Four: Goodwill and Other Purchased Intangibles

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

|                                                 |  |     |       |     |  |     |         |     |  |     |   |              |  |  |  |  |  |   |         |   |  |   |    |  |  |   |          |  
|------------------------------------------------ |  | --- | ----- | --- |  | --- | ------- | --- |  | --- | - | ------------ |  |  |  |  |  | - | ------- | - |  | - | -- |  |  | - | -------- | -
|                                                 |  |     |       |     |  |     |         |     |  |     |   | Consolidated
|(In thousands)                                   |  | ESD |       | EBD |  | BID |         | FFI |  | IAS |   | Total       
|                                                 |  |     |       |     |  |     |         |     |  |     |   |             
|Balance at January 1, 2002                       |  | $   | 7,162 |     |  | $   | 211,384 |     |  |     | $ | 113          |  |  |  |  |  | $ | 85,865  |   |  |   |   |  |  | $ | 304,524  |  
|Reduction in liabilities in
purchase accounting  |  |     |      |     |  |     | (1,299  | )   |  |     |   |             |  |  |  |  |  |   |        |   |  |   |    |  |  |   | (1,299   | )
|Reduction for utilization of
acquired tax assets |  |     |       |     |  |     | (19,307 | )   |  |     |   |              |  |  |  |  |  |   | (5,319  | ) |  |   |    |  |  |   | (24,626  | )
|Additions                                        |  |     |      |     |  |     | 2,017   |     |  |     |   |             |  |  |  |  |  |   |        |   |  |   | 89 |  |  |   | 2,106    |  
|Foreign currency translation
Adjustments         |  |     | 871   |     |  |     |        |     |  |     |   |             |  |  |  |  |  |   |        |   |  |   |    |  |  |   | 871      |  
|Impairment loss                                  |  |     |       |     |  |     |         |     |  |     |   |              |  |  |  |  |  |   | (12,300 | ) |  |   |    |  |  |   | (12,300  | )
|Accounting change                                |  |     |      |     |  |     | (93,485 | )   |  |     |   |             |  |  |  |  |  |   | (38,965 | ) |  |   |    |  |  |   | (132,450 | )
|                                                 |  |     |       |     |  |     |         |     |  |     |   |              |  |  |  |  |  |   |         |   |  |   |    |  |  |   |          |  
|Balance at December 31,
2002                     |  | $   | 8,033 |     |  | $   | 99,310  |     |  |     | $ | 113          |  |  |  |  |  | $ | 29,281  |   |  | $ | 89 |  |  | $ | 136,826  |  
|                                                 |  |     |       |     |  |     |         |     |  |     |   |              |  |  |  |  |  |   |         |   |  |   |    |  |  |   |          |  

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As required by SFAS 142, intangible assets that did not meet the criteria for
recognition apart from goodwill were reclassified. We transferred $7.9 million
of net assembled workforce to goodwill as of January 1, 2002. This amount was
partially offset by the reclassification of $3.2 million of an associated
deferred tax liability.

The following table reflects intangible assets subject to amortization as of
December 31, 2002 and December 31, 2001:

|                     |  |          |        |              |  |              |         |          |  |              |        |              |  |   |         |  |  |   |         |   |  |   |        | 
|-------------------- |  | -------- | ------ | ------------ |  | ------------ | ------- | -------- |  | ------------ | ------ | ------------ |  | - | ------- |  |  | - | ------- | - |  | - | ------ | 
|                     |  | Gross    |        |              |  |              |         |          |  |              |        | Gross        |  |   |         |  |  |   |         |  
|                     |  | Carrying |        | Accumulated  |  | Net Carrying |         | Carrying |  | Accumulated  |        | Net Carrying
|                     |  | Amount   |        | Amortization |  | Amount       |         | Amount   |  | Amortization |        | Amount      
|(In thousands)       |  | 12/30/02 |        | 12/30/02     |  | 12/30/02     |         | 12/31/01 |  | 12/31/01     |        | 12/31/01    
|                     |  |          |        |              |  |              |         |          |  |              |        |             
|Purchased technology |  | $        | 76,700 |              |  | $            | (40,338 | )        |  | $            | 36,362 |              |  | $ | 76,700  |  |  | $ | (25,413 | ) |  | $ | 51,287 | 
|Assembled workforce  |  |          |       |              |  |              |        |          |  |              |       |              |  |   | 9,000   |  |  |   | (1,079  | ) |  |   | 7,921  | 
|Customer lists       |  |          | 20,000 |              |  |              | (5,889  | )        |  |              | 14,111 |              |  |   | 20,000  |  |  |   | (3,889  | ) |  |   | 16,111 | 
|                     |  |          |        |              |  |              |         |          |  |              |        |              |  |   |         |  |  |   |         |   |  |   |        | 
|Totals               |  | $        | 96,700 |              |  | $            | (46,227 | )        |  | $            | 50,473 |              |  | $ | 105,700 |  |  | $ | (30,381 | ) |  | $ | 75,319 | 
|                     |  |          |        |              |  |              |         |          |  |              |        |              |  |   |         |  |  |   |         |   |  |   |        | 

Purchased technology is generally amortized over a period of 4 to 7 years;
covenant not to compete is generally amortized over a period of 7 years;
customer lists are generally amortized over a period of 10 years.

Estimated amortization expense for other purchased intangibles in each of the
next five years ending December 31, is as follows (dollars in thousands):

|     |  |  |         | 
|---- |  |  | ------- | 
|2003 |  |  | $16,925 | 
|2004 |  |  | 16,925  | 
|2005 |  |  | 8,346   | 
|2006 |  |  | 2,167   | 
|2007 |  |  | 2,000   | 

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The following financial information reflects consolidated results adjusted as
though the accounting for goodwill and other intangible assets was consistent
in all comparable periods presented:

|                                                                                          |  |                                  |        |      |  |      |         |   |  |   |         | 
|----------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | 
|                                                                                          |  | For the years ended December 31,
|(Dollars in thousands, except per share data)                                             |  | 2002                             |        | 2001 |  | 2000
|                                                                                          |  |                                  |        |      |  |     
|Reported income (loss) before
cumulative effect of an accounting change                   |  | $                                | 37,781 |      |  | $    | (25,522 | ) |  | $ | 72,125  | 
|Add back goodwill (including assembled
workforce) amortization, net of tax                |  |                                  |       |      |  |      | 53,859  |   |  |   | 30,155  | 
|                                                                                          |  |                                  |        |      |  |      |         |   |  |   |         | 
|Adjusted income before cumulative effect
of an accounting change                          |  | $                                | 37,781 |      |  | $    | 28,337  |   |  | $ | 102,280 | 
|                                                                                          |  |                                  |        |      |  |      |         |   |  |   |         | 
|Adjusted basic net income (loss) per share:                                               |  |                                  |        |      |  |      |         |   |  |   |         | 
|Reported basic income (loss) per share before
cumulative effect of an accounting change   |  | $                                | 0.39   |      |  | $    | (0.27   | ) |  | $ | 0.82    | 
|Add back goodwill (including assembled
workforce) amortization, net of tax                |  |                                  |       |      |  |      | 0.57    |   |  |   | 0.34    | 
|                                                                                          |  |                                  |        |      |  |      |         |   |  |   |         | 
|Adjusted basic income per share before
cumulative effect of an accounting change          |  | $                                | 0.39   |      |  | $    | 0.30    |   |  | $ | 1.16    | 
|                                                                                          |  |                                  |        |      |  |      |         |   |  |   |         | 
|Adjusted diluted net income (loss) per share:                                             |  |                                  |        |      |  |      |         |   |  |   |         | 
|Reported diluted income (loss) per share before
cumulative effect of an accounting change |  | $                                | 0.38   |      |  | $    | (0.26   | ) |  | $ | 0.78    | 
|Add back goodwill amortization, net of tax                                                |  |                                  |       |      |  |      | 0.55    |   |  |   | 0.33    | 
|                                                                                          |  |                                  |        |      |  |      |         |   |  |   |         | 
|Adjusted diluted income per share before
cumulative effect of an accounting change        |  | $                                | 0.38   |      |  | $    | 0.29    |   |  | $ | 1.11    | 
|                                                                                          |  |                                  |        |      |  |      |         |   |  |   |         | 

Note Five: Other Assets

Other assets consist of the following (in thousands):

|         |  |      |        |      |  |   |        | 
|-------- |  | ---- | ------ | ---- |  | - | ------ | 
|         |  | 2002 |        | 2001
|         |  |      |        |     
|Deposits |  | $    | 23,167 |      |  | $ | 23,582 | 
|Other    |  |      | 6,528  |      |  |   | 8,915  | 
|         |  |      |        |      |  |   |        | 
|         |  | $    | 29,695 |      |  | $ | 32,497 | 
|         |  |      |        |      |  |   |        | 

Deposits include an $18.0 million security deposit on a 15-year non-cancelable
lease for the Companys Dublin, California facility (see Note Six).

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Note Six: Lease Obligations and Other Liabilities and Commitments

The Company leases, or has committed to lease, certain office facilities and
certain furniture and equipment under operating leases expiring through 2017,
which generally require Sybase to pay operating costs, including property
taxes, insurance and maintenance. These facility leases generally contain
renewal options and provisions adjusting the lease payments based upon changes
in the consumer price index, increases in real estate taxes and operating
expenses or in fixed increments. Rent expense is reflected on a straight-line
basis over the term of the lease. Capital lease obligations incurred for
equipment acquisitions have not been material.

On January 28, 2000, the Company entered into a 15-year non-cancellable lease
of a new facility built in Dublin, California. The company began fully
occupying the Dublin property in February 2002. Payments under this lease
commenced on December 21, 2001. The Company has the option to renew the lease
for up to two five-year extensions, subject to certain conditions. The lease
provides for 4 percent yearly increases in the base rent, commencing on the
month following the anniversary of the first completion date and thereafter on
each anniversary date of the adjustment date. The lease generally requires
Sybase to pay operating costs, including property taxes, insurance and
maintenance in addition to ordinary operating expenses (such as utilities). The
Company has not entered into an agreement that allows for purchase of the
facilities at the end of the initial lease or at the end of either five-year
lease extension.

In September 1999, the Company sold its facility in Concord, Massachusetts and
simultaneously entered into a sale-leaseback agreement. Under the terms of
this agreement, the Company entered into a seven-year operating lease, which
was amended in June 1, 2001 to extend the lease term an additional six years.
The termination date of this lease is October 31, 2012. The sales price of
$5.3 million resulted in a gain of $2.8 million, which is being amortized on a
straight-line basis over the original lease period.

Future minimum lease payments under non-cancellable operating leases having
initial terms in excess of one year as of December 31, 2002 are as follows

|                              |  |   |         | 
|----------------------------- |  | - | ------- | 
|(dollars in thousands):       |  |   |         | 
|2003                          |  | $ | 48,483  | 
|2004                          |  |   | 43,012  | 
|2005                          |  |   | 33,584  | 
|2006                          |  |   | 32,704  | 
|2007                          |  |   | 31,337  | 
|Thereafter                    |  |   | 199,040 | 
|                              |  |   |         | 
|Total minimum lease payments* |  | $ | 388,160 | 
|                              |  |   |         | 

*     Minimum payments have not been reduced by minimum sublease rentals of $11.4
million due in the future under noncancellable subleases.

The following schedule shows the
composition of total rental expense for all operating leases:

|                        |  |                          |        |      |  |      |        |  |  |   |        |  |  |  |  | 
|----------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  |  |  | 
|                        |  | Year ending December 31,
|                        |  |                         
|(dollars in thousands): |  | 2002                     |        | 2001 |  | 2000 |        |  |  |  
|                        |  |                          |        |      |  |      |        |  |  |  
|Minimum rentals         |  | $                        | 50,369 |      |  | $    | 39,382 |  |  | $ | 36,361 | 
|Less: sublease rentals  |  |                          | 5,708  |      |  |      | 3,789  |  |  |   | 4,173  | 
|                        |  |                          |        |      |  |      |        |  |  |   |        | 
|                        |  | $                        | 44,661 |      |  | $    | 35,593 |  |  | $ | 32,188 | 
|                        |  |                          |        |      |  |      |        |  |  |   |        | 

At December 31, 2002, the Company had outstanding letters of credit in the
amount of $1.1 million. The letters of credit relate to certain
professional services engagements and certain operating leases.

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Note Seven: Stockholders Equity

Pursuant to a Preferred Stock Rights Agreement between the Company and American
Stock Transfer and Trust Company, as rights agent, the Companys Board of
Directors declared a dividend of one right (a Right) to purchase one
one-thousandth share of the Companys Series A Participating Preferred Stock
for each outstanding share of the Companys Common Stock outstanding on August
15, 2002. Each Right entitles the registered holder to purchase one
one-thousandth of a share of Series A Participating Preferred Stock at an
exercise price of $90, subject to certain adjustments, upon the
acquisition of, or
announcement of the intent to acquire, 15 percent of the Companys Common Stock
by a person or group of affiliated or associated persons. The Rights plan is
intended to maximize the value of the Company in the event of an unsolicited
attempt to take over the Company in a manner or on terms not approved by
Sybases Board of Directors.

Restricted Stock Grants

During the year ended December 31, 2001, the Company issued rights to purchase
an aggregate of 383,667 shares of its Common Stock as restricted stock under
the 1996 Stock Plan to certain senior executives at a price of $0.10 per share.
All of these rights were timely exercised, and the restricted shares were
issued. The restricted shares are subject to repurchase by the Company a
period of 3- or 4-years from the date of grant (Repurchase Period), depending
on the terms of the particular grant. The Company has amortized the
difference between fair market value of the underlying shares on the
date the restricted stock purchase rights were granted, and the
exercise price of such shares, pro rata over the term of the
applicable Repurchase Period. The Companys right to repurchase is
triggered in the event a restricted shareholders recipients employment is
terminated any time before the relevant Repurchase Period has expired. In
2002, 6,000 restricted shares were repurchased by the Company. As of December
31, 2002, 377,667 restricted shares were outstanding, and all were
subject to repurchase.

Stock Option Plans

Pursuant to the terms of the Companys 1988 Stock Plan (1988 Stock Plan), an
aggregate of 17,930,480 shares of Common Stock have been issued or reserved for
issuance at December 31, 2002 upon the exercise of options granted to qualified
employees and consultants of the Company. The Board of Directors, directly or
through committees, administers the Plan and establishes the terms of option
grants. The exercise price per share of all incentive stock options granted
under the 1988 Stock Plan must be at least equal to the fair market value of
the shares at the date of the grant. The exercise price of all non-statutory
options granted under the 1988 Stock Plan must be at least 85% of the fair
market value of the Common Stock on the date granted. Only employees are
eligible to receive non-statutory option grants. Options granted prior to
January 1, 1997 expire ten years from the grant date, or one month after
termination of employment, or six months after death or permanent disability of
the optionee. Options granted subsequent to January 1, 1997 expire ten years
from the grant date, or three months after termination of employment, or two
years after death, or one year after permanent disability of the optionee.
Options in all of these cases are exercisable to the extent vested. Vesting
generally occurs at the rate of 12.5 percent after 6 months and the balance in
equal installments over the following 42 months. The 1988 Stock Plan expired in
June 1998, in accordance with its terms. As of that time, no further options
were granted under the 1988 Stock Plan, but optionees are able to exercise
their vested options before those options expire. All unexercised options are
cancelled upon expiration. As of December 31, 2002, there were 3,116,184
unexercised options outstanding under the 1988 Stock Plan.

Pursuant to the Companys 1996 Stock Plan (1996 Stock Plan), at December 31,
2002, an aggregate of 16,727,000 shares of Common Stock have been issued or
reserved for issuance upon the exercise of options granted to qualified
employees and consultants of the Company. The Board of Directors, directly or
through committees, administers the Plan and establishes the terms of option
grants. The exercise price per share of all incentive stock options granted
under the Plan must be at least equal to the fair market value of the shares at
the date of the grant. The exercise price of all non-statutory stock options
granted under the 1996 Stock Plan must be at least 85% of the fair market value
of the Common Stock on the date granted. Options generally expire ten years
from the grant date, or three months after termination of employment, or two
years after death, or one year after permanent disability. Options are

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##### 



exercisable to the extent vested. Vesting generally occurs at the rate of 12.5
percent after 6 months and the balance in equal installments over the following
42 months.

Pursuant to the 1999 Nonstatutory Stock Plan (1999 Stock Plan), at December 31,
2002, an aggregate of 7,000,000 shares of Common Stock have been issued or
reserved for issuance upon the exercise of options granted to qualified
employees and consultants of the Company. Employees (i) who are officers of the
Company within the meaning of Section 16 of the Securities Exchange Act of
1934, or (ii) who hold the title of vice president or above, are not eligible
to receive options under the 1999 Stock Plan. The Board of Directors, directly
or through committees, administers the Plan and establishes the terms of option
grants. The exercise price of all stock options granted under the 1999 Stock
Plan must be at least 85% of the fair market value of the Common Stock on the
date granted. Options expire on terms set forth in the grant notice (generally
with 10 years from the grant date), or three months after termination of
employment, or two years after death, or one year after permanent disability.
Options are exercisable to the extent vested. Vesting occurs at various rates
and over various time periods.

An aggregate of 700,000 shares of Common Stock have been issued or reserved for
issuance under the 1992 Director Option Plan, as amended (the 1992 Director
Plan), as of December 31, 2002. All options under the 1992 Director Plan are
non-statutory, and may be granted only to non-employee directors. The exercise
price of all options granted under the 1992 Director Plan must be the fair
market value of the shares at the date of grant. Options expire ten years from
the date of grant and vest ratably over four years from the grant date. The
1992 Director Plan expired in February 2002, and no further options are
available for grant under the 1992 Director Plan, but optionees are able to
exercise their vested options before those options expire.

An aggregate of 300,000 shares of Common Stock has been issued or reserved for
issuance under the 2001 Director Option Plan (the 2001 Director Plan) as of
December 31, 2002. All options under the 2001 Director Plan are non-statutory.
All grants of options under the 2001 Director Plan are automatic and
non-discretionary and may be granted only to non-employee directors. The
exercise price of all options granted under the 2001 Director Plan must be the
fair market value of the shares at the date of grant. Options expire ten years
from the date of grant and vest ratably over four years from the grant date.

Price data and activity for the Companys option plans, including options
assumed by the Company in mergers with other companies (adjusted for the merger
exchange ratio) are summarized as follows:

|                             |  |                     |            |                |  |                  |       | 
|---------------------------- |  | ------------------- | ---------- | -------------- |  | ---------------- | ----- | 
|                             |  |                     |            |                |  | Weighted average
|                             |  | Outstanding options |            | exercise price
|                             |  | number of shares    |            | per share     
|                             |  |                     |            |               
|Balance at December 31, 1999 |  |                     | 13,094,346 |                |  | $                | 9.34  | 
|Granted                      |  |                     | 7,452,447  |                |  |                  | 19.56 | 
|Exercised                    |  |                     | (2,837,408 | )              |  |                  | 7.06  | 
|Cancelled                    |  |                     | (2,322,220 | )              |  |                  | 12.97 | 
|                             |  |                     |            |                |  |                  |       | 
|Balance at December 31, 2000 |  |                     | 15,387,165 |                |  | $                | 14.16 | 
|Granted                      |  |                     | 11,268,170 |                |  |                  | 16.40 | 
|Exercised                    |  |                     | (1,782,592 | )              |  |                  | 9.32  | 
|Cancelled                    |  |                     | (3,112,298 | )              |  |                  | 23.82 | 
|                             |  |                     |            |                |  |                  |       | 
|Balance at December 31, 2001 |  |                     | 21,760,445 |                |  | $                | 14.32 | 
|Granted                      |  |                     | 2,950,161  |                |  |                  | 11.26 | 
|Exercised                    |  |                     | (1,604,503 | )              |  |                  | 9.01  | 
|Cancelled                    |  |                     | (1,779,379 | )              |  |                  | 17.09 | 
|                             |  |                     |            |                |  |                  |       | 
|Balance at December 31, 2002 |  |                     | 21,326,724 |                |  | $                | 14.09 | 
|                             |  |                     |            |                |  |                  |       | 

The total number of shares granted in 2001 includes 2,764,136 options assumed
by the Company due to its acquisition of NEN. The total number of shares
granted in 2000 includes 1,135,307 options assumed by the Company due to its
acquisition of HFN. At December 31, 2002, options to purchase 11,485,287

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shares were exercisable at prices ranging from $0.10 to $148.27. Shares
available for grant totaled 4,473,101 at December 31, 2002.

The income tax benefits that accrue to the Company from exercises of
nonqualified stock options and disqualifying dispositions of incentive stock
options are recorded as additional paid-in capital.

The following table summarizes information about the Companys fixed stock
options outstanding at December 31, 2002:

|                   |  |                     |            |                     |  |             |      |           |  |       |       |  |  |           |            |  |  |   |       | 
|------------------ |  | ------------------- | ---------- | ------------------- |  | ----------- | ---- | --------- |  | ----- | ----- |  |  | --------- | ---------- |  |  | - | ----- | 
|                   |  | Options outstanding |            | Options exercisable
|                   |  |                     |            |                    
|                   |  |                     |            |                     |  | Weighted-   |      |           |  |       |       |  |  |           |            |  |  |  
|                   |  |                     |            |                     |  | Average     |      | Weighted- |  |       |       |  |  | Weighted-
|                   |  |                     |            |                     |  | Remaining   |      | Average   |  |       |       |  |  | Average  
|Ranges of          |  |                     |            |                     |  | Contractual |      | Exercise  |  |       |       |  |  | Exercise 
|Exercisable prices |  | Shares              |            | Life                |  | Price       |      | Shares    |  | Price
|                   |  |                     |            |                     |  |             |      |           |  |      
|$0.10 to $10.10    |  |                     | 8,715,002  |                     |  |             | 7.65 |           |  | $     | 8.65  |  |  |           | 4,205,016  |  |  | $ | 8,22  | 
|$10.38 to $15.52   |  |                     | 5,353,823  |                     |  |             | 7.50 |           |  | $     | 12.82 |  |  |           | 3,008,031  |  |  | $ | 11.51 | 
|$15.55 to $23.94   |  |                     | 5,857,459  |                     |  |             | 7.03 |           |  | $     | 20.30 |  |  |           | 3,508,444  |  |  | $ | 20.57 | 
|$24.75 to $148.27  |  |                     | 1,400,440  |                     |  |             | 7.23 |           |  | $     | 26.88 |  |  |           | 763,796    |  |  | $ | 27.84 | 
|                   |  |                     |            |                     |  |             |      |           |  |       |       |  |  |           |            |  |  |   |       | 
|$0.10 to $148.27   |  |                     | 21,326,724 |                     |  |             | 7.42 |           |  | $     | 14.09 |  |  |           | 11,485,287 |  |  | $ | 14.16 | 
|                   |  |                     |            |                     |  |             |      |           |  |       |       |  |  |           |            |  |  |   |       | 

FFI Stock Option Plans

In February of 2000, the Company established the 2000 FFI Stock Option Plan
(2000 FFI Plan). At December 31, 2002, an aggregate of 4,264,230 shares of
Common Stock have been reserved for issuance upon the exercise of options
granted to qualified employees and consultants of FFI, a majority owned
subsidiary of the Company, and certain employees of Sybase, Inc. FFIs Board of
Directors, directly or through committees, administers the 2000 FFI Plan and
establishes the terms of option grants. The exercise price per share of all
incentive stock options granted under the 2000 FFI Plan must be at least equal
to the fair market value of the shares at the date of the grant. The exercise
price of all non-statutory stock options granted under the 2000 FFI Plan must
be at least 85% of the fair market value of the common stock on the date
granted. As FFI is not a public company, the fair market value of the shares
issued under the plan has been determined by FFIs Board of Directors and
supported by a valuation prepared by an independent valuation expert. All
options issued under the 2000 FFI Plan were granted at the estimated fair
market value of the option at the date of grant. Options expire over ten years
from the grant date, three months after termination of employment, two years
after death or one year after permanent disability. Options are exercisable to
the extent vested. Vesting generally occurs at the rate of 12.5 percent after 6
months and the balance in equal installments over the following 42 months. In
March 2001, the 2000 FFI Plan was terminated and no further options were
granted under the Plan. Optionees holding unexpired options are able to
exercise such options before those options expire. At that time, any
unexercised options expire and are cancelled. As of December 31, 2002, there
were 3,896,391 unexercised options outstanding under the 2000 Plan.

In March 2001, FFI established the 2001 FFI Stock Option Plan (2001 FFI Plan).
At December 31, 2002, an aggregate of 9,000,000 shares of FFIs common stock
have been reserved for issuance upon the exercise of options granted to
qualified employees and consultants of FFI, and certain employees of Sybase,
Inc. FFIs Board of Directors, directly or through committees, administers the
2001 FFI Plan and establishes the terms of option grants. The exercise price
per share of all incentive stock options granted under the 2001 FFI Plan must
be at least equal to the fair market value of the shares at the date of the
grant. The exercise price of all non-statutory stock options granted under the
2001 FFI Plan must be at least 85% of the fair market value of the common stock
on the date granted. As FFI is not a public company, the fair market value of
the shares issued under the plan has been determined by FFIs Board of
Directors and supported by a valuation prepared by an independent valuation
expert. All

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options issued during 2002 were granted at the estimated fair market value of
the option at the date of grant. Options expire ten years from the grant date,
or three months after termination of employment, or two years after death, or
one year after permanent disability. Options are exercisable to the extent
vested. Vesting occurs at the rate of at least 20 percent per year over 5 years
from the date options are granted.

Price data and activity for the FFI Plan are summarized as follows:

|                             |  |                     |            |                |  |                  |      | 
|---------------------------- |  | ------------------- | ---------- | -------------- |  | ---------------- | ---- | 
|                             |  |                     |            |                |  | Weighted average
|                             |  | Outstanding options |            | Exercise price
|                             |  | number of shares    |            | per share     
|                             |  |                     |            |               
|Granted                      |  |                     | 14,285,220 |                |  | $                | 5.00 | 
|Exercised                    |  |                     | (8,754     | )              |  |                  | 5.00 | 
|Cancelled                    |  |                     | (2,566,692 | )              |  |                  | 5.00 | 
|                             |  |                     |            |                |  |                  |      | 
|Balance at December 31, 2000 |  |                     | 11,709,774 |                |  | $                | 5.00 | 
|Granted                      |  |                     | 1,600,484  |                |  | $                | 5.00 | 
|Cancelled                    |  |                     | (4,985,775 | )              |  |                  | 5.00 | 
|                             |  |                     |            |                |  |                  |      | 
|Balance at December 31, 2001 |  |                     | 8,324,483  |                |  | $                | 5.00 | 
|Granted                      |  |                     | 841,900    |                |  | $                | 5.00 | 
|Cancelled                    |  |                     | (3,387,344 | )              |  |                  | 5.00 | 
|                             |  |                     |            |                |  |                  |      | 
|Balance at December 31, 2002 |  |                     | 5,779,039  |                |  | $                | 5.00 | 
|                             |  |                     |            |                |  |                  |      | 

At December 31, 2002 there were 3,184,946 shares exercisable under the FFI
Plans at a weighted average exercise price of $5.00 per share. The weighted
average remaining contractual life of the options outstanding at December 31,
2002 was 7.81 years.

iAS Stock Option Plan

In March 2001, iAS established the 2001 iAS Stock Option Plan (iAS Plan) and
reserved for issuance an aggregate of 11,250,000 shares of iAS common stock
upon the exercise of options granted to qualified employees and consultants of
iAnywhere Solutions, Inc., a majority owned subsidiary of the Company, and
certain employees of Sybase, Inc. iASs Board of Directors, directly or through
committees, administers the iAS Plan and establishes the terms of option
grants. The exercise price of all stock options granted under the iAS Plan
must be at least 85% of the fair market value of the common stock on the date
granted. As iAS is not a public company, the fair market value of the shares
issued under the plan has been determined by iASs Board of Directors and
supported by a valuation prepared by the Company. All options issued during
2002 were granted at the estimated fair market value of the option at the date
of grant. Options expire ten years from the grant date, or three months after
termination of employment, or two years after death, or one year after
permanent disability. Options are exercisable to the extent vested. Vesting
occurs at the rate of at least 20 percent per year over 5 years from the date
options are granted.

Price data and activity for the iAS Plan are summarized as follows:

|                             |  |                     |           |                |  |                  |      | 
|---------------------------- |  | ------------------- | --------- | -------------- |  | ---------------- | ---- | 
|                             |  |                     |           |                |  | Weighted average
|                             |  | Outstanding options |           | exercise price
|                             |  | number of shares    |           | per share     
|                             |  |                     |           |               
|Granted                      |  |                     | 8,397,875 |                |  | $                | 2.51 | 
|Cancelled                    |  |                     | (89,000   | )              |  |                  | 2.51 | 
|                             |  |                     |           |                |  |                  |      | 
|Balance at December 31, 2001 |  |                     | 8,308,875 |                |  | $                | 2.51 | 
|Granted                      |  |                     | 1,432,149 |                |  | $                | 2.51 | 
|Cancelled                    |  |                     | (214,866  | )              |  |                  | 2.51 | 
|                             |  |                     |           |                |  |                  |      | 
|Balance at December 31, 2002 |  |                     | 9,526,158 |                |  | $                | 2.51 | 

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At December 31, 2002 there were 2,897,795 shares exercisable under the iAS Plan
at a weighted average exercise price of $2.51 per share. The weighted average
remaining contractual life of the options outstanding at December 31, 2002 was
8.72 years.

Employee Stock Purchase Plans

The Companys 1991 Employee Stock Purchase Plan and 1991 Foreign Subsidiary
Employee Stock Purchase Plan, as amended (collectively the ESPP), allow
eligible employees to purchase our Common Stock through payroll deductions. The
ESPP consists of 6-month exercise periods. The shares can be purchased at the
lower of 85% of the fair market value of the Common Stock at the first day of
each 6-month exercise period or at the last day of each 6-month exercise
period. Purchases are limited to 10 percent of an employees eligible
compensation, subject to an annual maximum, as defined in the ESPP.

As of December 31, 2002, an aggregate of 11,800,000 shares of Common Stock had
been reserved under the ESPP, of which 1,640,542 shares remained available for
issuance. Employees purchased 807,295 shares in 2002, 710,312 shares in 2001,
and 675,118 shares in 2000.

Pro Forma Disclosures of the Effect of Stock Based Compensation Plans

The Company applies the intrinsic value based method set forth by APB 25 and
related Interpretations in accounting for grants to employees under its
stock-based compensation plans, described above. Under this method,
compensation expense is recognized only when options are granted with a
discounted exercise price. Any resulting compensation expense is then
generally recognized over the vesting period of the option. Compensation cost
for the estimated fair value of grants to non-employee consultants of
stock-based compensation has not been material.

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:

|                         |  |                    |  |                |  |      |       |   |  |  |       |      |  |      |       |      |  |  |  |  |  |  |       |   |  |  |       |   |  |  |       |  
|------------------------ |  | ------------------ |  | -------------- |  | ---- | ----- | - |  |  | ----- | ---- |  | ---- | ----- | ---- |  |  |  |  |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                         |  | Stock option plans |  | Purchase plans
|                         |  | 2002               |  | 2001           |  | 2000 |       |   |  |  |       | 2002 |  | 2001 |       | 2000
|                         |  |                    |  |                |  |      |       |   |  |  |       |      |  |      |       |     
|Expected volatility      |  |                    |  |                |  |      | 67.65 | % |  |  | 72.08 | %    |  |      | 70.93 | %    |  |  |  |  |  |  | 67.65 | % |  |  | 72.08 | % |  |  | 70.93 | %
|Risk-free interest rates |  |                    |  |                |  |      | 3.46  | % |  |  | 4.32  | %    |  |      | 6.18  | %    |  |  |  |  |  |  | 1.82  | % |  |  | 3.41  | % |  |  | 6.18  | %
|Expected lives (years)   |  |                    |  |                |  |      | 4.25  |   |  |  | 4.25  |      |  |      | 4.25  |      |  |  |  |  |  |  | .50   |   |  |  | .50   |   |  |  | .50   |  
|Expected dividend yield  |  |                    |  |                |  |      |      |   |  |  |      |      |  |      |      |      |  |  |  |  |  |  |      |   |  |  |      |   |  |  |      |  

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The weighted average grant date fair value of options (excluding FFI and iAS
options) granted in 2002, 2001 and 2000 was $6.18, $7.38, and $12.81 per share,
respectively. The weighted average grant date fair value of the FFI options
granted in 2002, 2001 and 2000 was $2.75, $2.92, and $2.97 per share,
respectively. The weighted-average grant-date fair value of the iAS options
granted in 2002 and 2001 was $1.38 and $1.46 per share, respectively. The pro
forma compensation expense shown above is net of tax assuming a tax benefit
would be generated at a rate of 40 percent.

Note Eight: Income Taxes

The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and income tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse.

The following is a geographical breakdown of consolidated income (loss) before
the cumulative effect of an accounting change, and income taxes (including
intercompany royalties and expenses) by income tax jurisdiction (dollars in
thousands):

|              |  |      |        |      |  |      |         |   |  |   |         | 
|------------- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | 
|              |  | 2002 |        | 2001 |  | 2000
|              |  |      |        |      |  |     
|United States |  | $    | (8,958 | )    |  | $    | (81,175 | ) |  | $ | 25,674  | 
|Foreign       |  |      | 80,167 |      |  |      | 82,158  |   |  |   | 81,912  | 
|              |  |      |        |      |  |      |         |   |  |   |         | 
|Total         |  | $    | 71,209 |      |  | $    | 983     |   |  | $ | 107,586 | 
|              |  |      |        |      |  |      |         |   |  |   |         | 

The provisions (credits) for income taxes consist of the following (dollars in
thousands):

|        |          |   |        |         |      |   |        |        |   |   |        |        |  
|------- | -------- | - | ------ | ------- | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|        |          |   | 2002   |         | 2001 |   | 2000  
|        |          |   |        |         |      |   |       
|Federal |          |   |        |         |      |   |        |        |   |   |        |       
|        | Current  |   | $      | 29,464  |      |   | $      | 1,166  |   |   | $      | 11,542 |  
|        | Deferred |   |        | (20,237 | )    |   |        | (613   | ) |   |        | (6,935 | )
|        |          |   |        |         |      |   |        |        |   |   |        |       
|        |          |   | 9,227  |         |      |   | 553    |        |   |   | 4,607  |       
|State   |          |   |        |         |      |   |        |        |   |   |        |       
|        | Current  |   |        | 1,406   |      |   |        | 987    |   |   |        | 2,888  |  
|        | Deferred |   |        | 740     |      |   |        | (728   | ) |   |        | 640    |  
|        |          |   |        |         |      |   |        |        |   |   |        |       
|        |          |   | 2,146  |         |      |   | 259    |        |   |   | 3,528  |       
|Foreign |          |   |        |         |      |   |        |        |   |   |        |       
|        | Current  |   |        | 23,748  |      |   |        | 25,921 |   |   |        | 27,071 |  
|        | Deferred |   |        | (1,693  | )    |   |        | (233   | ) |   |        | 255    |  
|        |          |   |        |         |      |   |        |        |   |   |        |       
|        |          |   | 22,055 |         |      |   | 25,688 |        |   |   | 27,326 |       
|        |          |   |        |         |      |   |        |        |   |   |        |       
|Total   |          | $ | 33,428 |         |      | $ | 26,500 |        |   | $ | 35,461 |       
|        |          |   |        |         |      |   |        |        |   |   |        |        |  

- 58 -



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##### 



The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes. The sources
and tax effects of the differences are as follows (dollars in thousands):

|                                                           |  |      |        |      |  |      |        |   |  |   |        |  
|---------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                           |  | 2002 |        | 2001 |  | 2000
|                                                           |  |      |        |      |  |     
|Tax (credit) at U.S. statutory rate                        |  | $    | 24,923 |      |  | $    | 344    |   |  | $ | 37,655 |  
|State tax, net of federal benefit                          |  |      | 2,146  |      |  |      | 259    |   |  |   | 3,528  |  
|Effect of foreign operations                               |  |      | (505   | )    |  |      | (295   | ) |  |   | (7,277 | )
|Amortization/impairment of intangible assets               |  |      | 5,339  |      |  |      | 25,025 |   |  |   | 13,875 |  
|Research and development tax credits                       |  |      | (500   | )    |  |      | (500   | ) |  |   | (750   | )
|Utilization of net operating loss and credit
Carryforwards |  |      | (1,153 | )    |  |      |       |   |  |   | (2,261 | )
|Effect of valuation allowance                              |  |      |       |      |  |      |       |   |  |   | (9,725 | )
|Other                                                      |  |      | 3,178  |      |  |      | 1,667  |   |  |   | 416    |  
|                                                           |  |      |        |      |  |      |        |   |  |   |        |  
|Total                                                      |  | $    | 33,428 |      |  | $    | 26,500 |   |  | $ | 35,461 |  
|                                                           |  |      |        |      |  |      |        |   |  |   |        |  

Deferred income taxes result principally from temporary differences between
years in the recognition of certain revenue and expense items for financial and
tax reporting purposes. Significant components of the Companys net deferred
tax assets were as follows at December 31 (dollars in thousands):

|                                              |                                |   |         |        |  |      |         |        |  | 
|--------------------------------------------- | ------------------------------ | - | ------- | ------ |  | ---- | ------- | ------ |  | 
|                                              |                                |   |         | 2002   |  | 2001
|                                              |                                |   |         |        |  |     
|Depreciation                                  |                                | $ | 7,566   |        |  | $    | 19,137  |       
|Deferred revenue                              |                                |   | 2,604   |        |  |      | 498     |       
|Accrued expenses                              |                                |   | 25,957  |        |  |      | 20,609  |       
|Allowance for doubtful accounts               |                                |   | 251     |        |  |      | 2,852   |       
|Capitalized R&D expenses                      |                                |   | 24,711  |        |  |      |        |       
|Purchased software                            |                                |   | 1,211   |        |  |      | 1,654   |       
|Net operating loss carryovers and tax credits |                                |   |         |        |  |      |         |       
|                                              | Carryforwards                  |   |         | 68,187 |  |      |         | 78,951 | 
|                                              | Intangible assets              |   |         | 7,789  |  |      |         | 11,593 | 
|Other assets                                  |                                |   | 8,105   |        |  |      | 10,971  |       
|                                              |                                |   |         |        |  |      |         |       
|Gross deferred tax asset                      |                                |   | 146,381 |        |  |      | 146,265 |       
|Unremitted foreign earnings                   |                                |   | (19,489 | )      |  |      | (18,110 | )     
|Capitalized R&D expenses                      |                                |   |        |        |  |      | (11,032 | )     
|Acquired Intangibles                          |                                |   | (11,152 | )      |  |      | (19,289 | )     
|Other liabilities                             |                                |   | (861    | )      |  |      | (1,457  | )     
|                                              |                                |   |         |        |  |      |         |       
|Gross deferred tax liability                  |                                |   | (31,502 | )      |  |      | (49,888 | )     
|Total before valuation allowance              |                                |   | 114,879 |        |  |      | 96,377  |       
|Valuation allowance                           |                                |   | (48,488 | )      |  |      | (54,423 | )     
|                                              |                                |   |         |        |  |      |         |       
|Net deferred tax assets                       |                                | $ | 66,391  |        |  | $    | 41,954  |       
|Recorded as:                                  |                                |   |         |        |  |      |         |       
|                                              | Current deferred tax assets    |   | $       | 20,097 |  |      | $       | 16,746 | 
|                                              | Noncurrent deferred tax assets |   |         | 46,295 |  |      |         | 25,208 | 
|                                              |                                |   |         |        |  |      |         |       
|                                              |                                | $ | 66,392  |        |  | $    | 41,954  |       
|                                              |                                |   |         |        |  |      |         |       

The valuation allowance decreased by $5.9 million in 2002. This allowance is
associated with the deferred tax asset for certain net operating losses and
foreign tax credits. The movement in the allowance primarily resulted
from the utilization of certain net operating losses acquired in the
acquisition of New Era of Networks and Home Financial Network, and certain
foreign tax credits. Each of the deferred tax assets associated with these
attributes utilized were subject to a full valuation allowance.

- 59 -



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##### 



Approximately $38.5 million of the valuation allowance relates to deferred tax
assets associated with net operating losses acquired in the NEN acquisition.
If the associated deferred tax assets are realized, the associated benefit will
reduce goodwill arising from the NEN acquisition rather than future income tax
expense.

Deferred tax assets relating to carryforwards as of December 31, 2002 include
approximately $3.5 million associated with stock option activity for which any
subsequently recognized tax benefits would be credited directly to stockholders
equity. As of December 31, 2002, the Company had research and development tax
credits of $15.0 million, which expire in years from 2005 through 2022, foreign
tax credits of $8.5 million expiring in years from 2003 through 2006, and an
asset of $39.9 million associated with certain net operating losses which
expire in the years from 2006 and 2021

Realization of the Companys net deferred tax assets is dependent upon the
Company generating sufficient taxable income in future years in appropriate tax
jurisdictions to obtain benefit from the reversal of temporary differences and
from tax credit carryforwards. The amount of deferred tax assets considered
realizable is subject to adjustment in future periods if estimates of future
taxable income are reduced.

No provision has been made for income taxes and foreign withholding taxes on
approximately $74 million of undistributed earnings from non-US operations as
of December 31, 2002 because the Company currently plans to permanently
reinvest all such earnings. If the Company did not plan on
permanently reinvesting these earnings, the additional deferred tax
liability would be approximately $16.4 million. When excess cash accumulates in the Companys
non-US subsidiaries, the subsidiarys earnings are remitted if it is
advantageous for business, tax and foreign exchange reasons.

The Internal Revenue Service (IRS) has examined the Companys income tax
returns for all years through 1997. During the year, the IRS audit of
the Companys tax returns for the years ended 1995 through 1997
was completed. There was no significant impact on the Companys
applicable accruals relating to these tax years. The IRS is currently examining the
Companys income tax returns for the years 1998 through 2000. The Company
believes that it has provided adequate accruals for all open tax years.

Note Nine: Retirement Plan

The Company maintains a defined contribution retirement plan pursuant to
Section 401(k) of the Internal Revenue Code (the 401(k) Plan) that allows
eligible employees to contribute up to a certain percentage of their annual
compensation to the Plan, subject to the annual IRS limit. Starting
in 2002, 401(k) Plan participants who (i) attained the age of 50
during the calendar year and (ii) had made the maximum plan or
IRS pre-tax contribution were able to make an additional
catch-up contribution up to a maximum of $1,000. In 2002, 2001 and
2000, the Company matched employee contribution at a rate of $0.50
for each dollar up to the first $3,000 of salary contributed by the employee, with a
maximum employer match of $1,500 for the year fully vested. The Plan also
allows the Company to make discretionary contributions. There were no such
discretionary contributions made in 2002, 2001 or 2000.

Note Ten: Segment and Geographical Information

During 2002, the Company was organized into five separate business segments, each of which
maintains financial accountability for its operating results, dedicated product
development and engineering, sales and product marketing, partner relationship
management and customer support teams.

The Enterprise Solutions Division (ESD) delivers products, technical support
and professional services required to develop and maintain a variety of
operational systems including e-Business infrastructures that allow enterprises
to integrate, move and manage very large amounts of data and applications
across diverse computing environments. iAnywhere Solutions, Inc. (iAS), is a
subsidiary that provides mobile and embedded solutions to empower
businesses with always-available access to enterprise information. The e-Business Division (eBD) delivers an end-to-end
e-Business platform and enterprise application integration capabilities outside
a companys firewall and across the supply chain.The Business Intelligence
Division (BID) delivers industry specific database management systems to let
businesses consolidate and analyze large amounts of information from data
warehouses and data marts to facilitate better decision making and gain a
competitive edge in mission-critical areas. Financial Fusion, Inc. (FFI),
formerly HFN, is a wholly owned subsidiary that delivers e-Finance solutions to
leading financial institutions, fusing applications and middleware on a single
integrated platform.

- 60 -



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##### 



The Company reports its iAS and FFI subsidiaries and ESD, eBD and BID divisions
as reportable segments in accordance with SFAS 131, Disclosures about Segments
of an Enterprise and Related Information. The FFI segment was added to report
the results of HFN, which was acquired by the Company in 2000. eBD was created
in the second quarter of 2001, and incorporates operations of NEN, certain
products previously reported in ESD (primarily the Sybase Enterprise Portal),
and certain products previously reported in the former Internet Application
Division (IAD) (primarily Enterprise Application Server, PowerDesigner® and PowerJ®). IAD is no longer reported as a separate segment.
The Company has restated all earlier periods reported to reflect the segment
changes made in the second quarter of 2001.

The Companys Chief Operating Decision Maker (CODM), which is the President
and Chief Executive Officer, evaluates performance based upon a measure of
segment operating profit or loss that includes an allocation of common
expenses, but excludes certain unallocated expenses including restructuring
expense. Segment revenue includes transactions between the segments. These
revenues are transferred to the applicable segments less amounts retained,
which are intended to reflect the costs incurred by the transferring segment.
Allocated common costs and expenses are allocated based on measurable drivers
of expense. Unallocated expenses represent corporate expenditures or cost
savings that are not specifically allocated to the segments. The Companys
CODM does not view segment results below operating profit (loss) before
unallocated expenses, and therefore unallocated expenses, interest income,
interest expense and other, net and the provision for income taxes are not
broken out by segment. The Company does not account for, or report to the
CODM, its assets or capital expenditures by segment.

A summary of the segment financial information reported to the CODM for the
year ended December 31, 2002 is presented below (in thousands):

|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |         | 
|------------------------------------------------------------------------------------------------------- | ------------ |  | ------- | ------- | --- |  | ------- | ------ | --- |  | ------ | ------ | ----------- |  | ------------ | ----- |  |  | ------- | ------ |  |  | -------- | - |  | - | ------- | ------- | 
|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  | Consolidated
|                                                                                                        |              |  | ESD     |         | EBD |  | iAS     |        | BID |  | FFI    |        | Elimination |  | total       
|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |             
|Revenues:                                                                                               |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|                                                                                                        | License fees |  | $       | 267,024 |     |  | $       | 20,237 |     |  | $      | 30,365 |             |  | $            | 3,058 |  |  | $       | 5,232  |  |  |          |  |  |   | $       | 325,916 | 
|                                                                                                        | Services     |  |         | 456,732 |     |  |         | 27,983 |     |  |        | 2,844  |             |  |              | 681   |  |  |         | 15,705 |  |  |          |  |  |   |         | 503,945 | 
|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Direct revenues from external
customers                                                                 |              |  | 723,756 |         |     |  | 48,220  |        |     |  | 33,209 |        |             |  | 3,739        |       |  |  | 20,937  |        |  |  |         |   |  |   | 829,861 |        
|Intersegment revenues                                                                                   |              |  | 242     |         |     |  | 61,285  |        |     |  | 45,855 |        |             |  | 18,930       |       |  |  | 5,790   |        |  |  | (132,102 | ) |  |   |        |        
|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Total revenues                                                                                          |              |  | 723,998 |         |     |  | 109,505 |        |     |  | 79,064 |        |             |  | 22,669       |       |  |  | 26,727  |        |  |  | (132,102 | ) |  |   | 829,861 |        
|Total allocated costs and
expenses before amortization of
purchased intangibles and
goodwill impairment |              |  | 619,685 |         |     |  | 108,858 |        |     |  | 56,952 |        |             |  | 29,218       |       |  |  | 28,010  |        |  |  | (132,102 | ) |  |   | 710,621 |        
|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Operating income (loss) before
amortization of purchased
intangibles and goodwill
impairment loss       |              |  | 104,313 |         |     |  | 647     |        |     |  | 22,112 |        |             |  | (6,549       | )     |  |  | (1,283  | )      |  |  |         |   |  |   | 119,240 |        
|Amortization of purchased
Intangibles                                                                   |              |  |        |         |     |  | 11,679  |        |     |  |       |        |             |  |             |       |  |  | 5,245   |        |  |  |         |   |  |   | 16,924  |        
|Goodwill impairment                                                                                     |              |  |        |         |     |  |        |        |     |  |       |        |             |  |             |       |  |  | 12,300  |        |  |  |          |   |  |   | 12,300  |        
|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Operating income (loss) before
unallocated expenses                                                     |              |  | 104,313 |         |     |  | (11,032 | )      |     |  | 22,112 |        |             |  | (6,549       | )     |  |  | (18,828 | )      |  |  |         |   |  |   | 90,016  |        
|Unallocated expenses                                                                                    |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   | 32,840  |        
|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Operating income                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   | 57,176  |        
|Interest income, interest expense
And other, net                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   | 14,033  |        
|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Income before income taxes and
cumulative effect of an
accounting
change                                |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  | $ | 71,209  |        
|                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        

- 61 -



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##### 



A summary of the segment financial information reported to the CODM for the
year ended December 31, 2001 is presented below (in thousands):

|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------- | ------------ |  | ------- | ------- | --- |  | ------- | ------ | --- |  | ------ | ------ | ----------- |  | ------------ | ----- |  |  | ------- | ------ |  |  | -------- | - |  | - | ------- | ------- | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  | Consolidated
|                                                                                                                                      |              |  | ESD     |         | EBD |  | iAS     |        | BID |  | FFI    |        | Elimination |  | total       
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |             
|Revenues:                                                                                                                             |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|                                                                                                                                      | License fees |  | $       | 316,201 |     |  | $       | 21,325 |     |  | $      | 41,515 |             |  | $            | 3,756 |  |  | $       | 6,241  |  |  |          |  |  |   | $       | 389,038 | 
|                                                                                                                                      | Services     |  |         | 489,258 |     |  |         | 30,557 |     |  |        | 2,154  |             |  |              | 1,547 |  |  |         | 15,369 |  |  |          |  |  |   |         | 538,885 | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Direct revenues from external
customers                                                                                               |              |  | 805,459 |         |     |  | 51,882  |        |     |  | 43,669 |        |             |  | 5,303        |       |  |  | 21,610  |        |  |  |         |   |  |   | 927,923 |        
|Intersegment revenues                                                                                                                 |              |  | 622     |         |     |  | 32,350  |        |     |  | 45,753 |        |             |  | 17,809       |       |  |  | 6,495   |        |  |  | (103,029 | ) |  |   |        |        
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Total revenues                                                                                                                        |              |  | 806,081 |         |     |  | 84,232  |        |     |  | 89,422 |        |             |  | 23,112       |       |  |  | 28,105  |        |  |  | (103,029 | ) |  |   | 927,923 |        
|Total allocated costs and
expenses before amortization of
purchased intangibles and write-
off of in-process research and
development |              |  | 658,654 |         |     |  | 119,576 |        |     |  | 61,891 |        |             |  | 35,889       |       |  |  | 49,574  |        |  |  | (103,029 | ) |  |   | 822,555 |        
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Operating income (loss) before
amortization of purchased
intangibles and write off of in-
process research and
development            |              |  | 147,427 |         |     |  | (35,344 | )      |     |  | 27,531 |        |             |  | (12,777      | )     |  |  | (21,469 | )      |  |  |         |   |  |   | 105,368 |        
|Amortization of purchased
intangibles                                                                                                 |              |  | 5,518   |         |     |  | 38,312  |        |     |  | 41     |        |             |  | 2,104        |       |  |  | 21,987  |        |  |  |         |   |  |   | 67,962  |        
|Write off of in-process research
And development                                                                                      |              |  |        |         |     |  | 18,500  |        |     |  |       |        |             |  |             |       |  |  |        |        |  |  |         |   |  |   | 18,500  |        
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Operating income (loss) before
unallocated expenses                                                                                   |              |  | 141,909 |         |     |  | (92,156 | )      |     |  | 27,490 |        |             |  | (14,881      | )     |  |  | (43,456 | )      |  |  |         |   |  |   | 18,906  |        
|Unallocated expenses                                                                                                                  |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   | 35,427  |        
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Operating loss                                                                                                                        |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   | (16,521 | )      
|Interest income, interest expense
And other, net                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   | 17,529  |        
|Minority Interest                                                                                                                     |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   | (30     | )      
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        
|Income before income taxes                                                                                                            |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  | $ | 978     |        
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |          |   |  |   |         |        

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##### 



A summary of the segment financial information reported to the CODM for the
year ended December 31, 2000 is presented below (in thousands):

|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   |         |         |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------- | ------------ |  | ------- | ------- | --- |  | ------- | ------ | --- |  | ------ | ------ | ----------- |  | ------------ | ----- |  |  | ------- | ------ |  |  | ------- | - |  | - | ------- | ------- |  |  |  |  | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  | Consolidated
|                                                                                                                                      |              |  | ESD     |         | eBD |  | iAS     |        | BID |  | FFI    |        | Elimination |  | total       
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |             
|Revenues:                                                                                                                             |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   |         |         |  |  |  | 
|                                                                                                                                      | License fees |  | $       | 389,843 |     |  | $       | 19,647 |     |  | $      | 49,062 |             |  | $            | 500   |  |  | $       | 9,449  |  |  |         |  |  |   | $       | 468,501 |  |  |  |  | 
|                                                                                                                                      | Services     |  |         | 476,934 |     |  |         | 613    |     |  |        | 1,538  |             |  |              | 1,828 |  |  |         | 13,749 |  |  |         |  |  |   |         | 494,662 |  |  |  |  | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   |         |         |  |  |  | 
|Direct revenues from external
customers                                                                                               |              |  | 866,777 |         |     |  | 20,260  |        |     |  | 50,600 |        |             |  | 2,328        |       |  |  | 23,198  |        |  |  |        |   |  |   | 963,163 |         |  |  |  | 
|Intersegment revenues                                                                                                                 |              |  | 2,096   |         |     |  | 24,267  |        |     |  | 41,445 |        |             |  | 19,223       |       |  |  | 5,737   |        |  |  | (92,768 | ) |  |   |        |         |  |  |  | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   |         |         |  |  |  | 
|Total revenues                                                                                                                        |              |  | 868,873 |         |     |  | 44,527  |        |     |  | 92,045 |        |             |  | 21,551       |       |  |  | 28,935  |        |  |  | (92,768 | ) |  |   | 963,163 |         |  |  |  | 
|Total allocated costs and
expenses before amortization of
purchased intangibles and write-
off of in-process research and
development |              |  | 704,455 |         |     |  | 67,314  |        |     |  | 66,515 |        |             |  | 33,625       |       |  |  | 49,187  |        |  |  | (92,768 | ) |  |   | 828,328 |         |  |  |  | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   |         |         |  |  |  | 
|Operating income (loss) before
amortization of purchased
intangibles and write off of in-
process research and
development            |              |  | 164,418 |         |     |  | (22,787 | )      |     |  | 25,530 |        |             |  | (12,074      | )     |  |  | (20,252 | )      |  |  |        |   |  |   | 134,835 |         |  |  |  | 
|Amortization of purchased
intangibles                                                                                                 |              |  | 8,311   |         |     |  | 3,773   |        |     |  | 81     |        |             |  | 3,983        |       |  |  | 20,987  |        |  |  |        |   |  |   | 37,135  |         |  |  |  | 
|Write off of in-process research
and development                                                                                      |              |  |        |         |     |  |        |        |     |  |       |        |             |  |             |       |  |  | 8,000   |        |  |  |        |   |  |   | 8,000   |         |  |  |  | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   |         |         |  |  |  | 
|Operating income (loss) before
unallocated expenses                                                                                   |              |  | 156,107 |         |     |  | (26,560 | )      |     |  | 25,449 |        |             |  | (16,057      | )     |  |  | (49,239 | )      |  |  |        |   |  |   | 89,700  |         |  |  |  | 
|Unallocated expenses                                                                                                                  |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   | (757    | )       |  |  |  | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   |         |         |  |  |  | 
|Operating income                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   | 90,457  |         |  |  |  | 
|Interest income, interest expense
and other, net                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   | 17,035  |         |  |  |  | 
|Minority Interest                                                                                                                     |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   | 94      |         |  |  |  | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   |         |         |  |  |  | 
|Income before income taxes                                                                                                            |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  | $ | 107,586 |         |  |  |  | 
|                                                                                                                                      |              |  |         |         |     |  |         |        |     |  |        |        |             |  |              |       |  |  |         |        |  |  |         |   |  |   |         |         |  |  |  | 



(1)  Certain previously reported amounts have been reclassified to conform to
current period presentation format.

The Company operates in one industry segment (the development and marketing of
computer software and related services) and markets its products and services
internationally through both foreign subsidiaries and distributors located in
the United States, Canada, Europe, Asia, Australia, New Zealand, and Latin
America. Other includes operations in Asia, Australia, Canada, New Zealand and
Latin America.

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##### 



The following table presents a summary of operating information and certain
year-end balance sheet information by geographic region (in thousands):

|                        |                         |               |       |         |         |         |      |         |         |         |   |         |         |         | 
|----------------------- | ----------------------- | ------------- | ----- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                        |                         |               |       |         | 2002    |         | 2001 |         | 2000   
|                        |                         |               |       |         |         |         |      |         |        
|Revenues:               |                         |               |       |         |         |         |      |         |         |         |   |        
|                        | Unaffiliated customers: |               |       |         |         |         |      |         |         |         |   |         |        
|                        |                         | United States |       | $       | 465,601 |         |      | $       | 504,632 |         |   | $       | 555,157 |        
|                        |                         | Europe        |       |         | 213,543 |         |      |         | 251,570 |         |   |         | 247,809 |        
|                        |                         | Other         |       |         | 150,717 |         |      |         | 171,721 |         |   |         | 160,197 |        
|                        |                         |               |       |         |         |         |      |         |         |         |   |        
|                        |                         |               | Total |         | $       | 829,861 |      |         | $       | 927,923 |   |         | $       | 963,163 | 
|                        |                         |               |       |         |         |         |      |         |         |         |   |         |         |        
|Long-lived assets, net: |                         |               |       |         |         |         |      |         |         |         |   |        
|                        | United States           |               | $     | 291,603 |         |         | $    | 483,680 |         |         | $ | 221,049 |        
|                        | Europe                  |               |       | 20,443  |         |         |      | 13,659  |         |         |   | 11,472  |        
|                        | Other                   |               |       | 7,922   |         |         |      | 7,668   |         |         |   | 8,082   |        
|                        |                         |               |       |         |         |         |      |         |         |         |   |        
|                        |                         | Total         |       | $       | 319,968 |         |      | $       | 505,007 |         |   | $       | 240,603 |        
|                        |                         |               |       |         |         |         |      |         |         |         |   |         |         |        

Note Eleven: Business Combinations and Investments

On February 20, 2001, the Company agreed to acquire New Era of Networks, Inc.
(NEN), a publicly-traded e-Business application integration company, in
a stock-for-stock transaction valued at $339.3 million, and accounted for as a
purchase.

The following unaudited pro forma financial information presents the combined
results of operations of Sybase as if the acquisition of NEN had occurred as of
the beginning of 2001. The pro forma financial information gives effect to
certain adjustments, including amortization of goodwill and other intangible
assets, but excluding the non-recurring charge for the write-off of $18.5
million in in-process research and development acquired in the NEN acquisition.
The pro forma financial information does not necessarily reflect the results
of operations that would have occurred had these companies constituted a single
entity during such periods.

|                                      |  |          |          |     
|------------------------------------- |  | -------- | -------- | ----
|                                      |  | Twelve  
|                                      |  | Months  
|                                      |  | Ended   
|(In thousands, except per share data) |  | 12/31/01
|                                      |  |         
|Revenue                               |  | $        | 972,348  |     
|Net loss                              |  |          | (113,029 | )   
|Basic loss per share                  |  |          | ( 1.14   | )   
|Diluted net loss per share (a)        |  |          | (1.14    | )(a)

(a)  The effect of outstanding stock options is excluded from the calculation of
diluted net loss per share, as their inclusion would be anti-dilutive.

On January 20, 2000, the Company acquired Home Financial Network (HFN), a
privately-held Internet financial services company specializing in the
development of customized e-Finance Web sites for approximately $168 million.
HFN subsequently was renamed Financial Fusion, Inc. This transaction was
accounted for as a purchase.

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##### 



On February 1, 2001, the Company acquired Sybase A/S, a privately held
distributor of Sybase products in Denmark, for approximately $3.5 million in
cash. The acquisition was accounted for using the purchase method of
accounting, and a significant portion of the purchase price was allocated to
intangible assets. The results of operations of the Denmark entity have not
been material in relation to those of our company as a whole and are included
in the consolidated results of operations for periods subsequent to the
acquisition date.

In September 2000, the Company acquired certain assets of its distributor in
Mexico for approximately $4.0 million, and assumed certain of its liabilities.
In addition, pursuant to the relevant agreements, the Company is obligated to
make certain contingent payments in subsequent years based on certain
agreed-upon performance criteria. The aggregate maximum additional contingent
amount payable in 2001 and 2002 is $5.2 million. This transaction has been
accounted for as a purchase. The results of operations of the Mexico entity
have not been material in relation to those of the Company and are included in
the consolidated results of operations for periods subsequent to the
acquisition date.

Note Twelve: Litigation

In January 2001, several class action lawsuits were filed in Federal District
Court for the State of Colorado against New Era of Networks, Inc. (NEN), a
company acquired by Sybase in April 2001, alleging violation of federal
securities laws. Certain of NENs current and former officers also were named
as defendants. All cases were consolidated into a single case with a class
period of October 18, 2000 to November 21, 2000. Although NEN believes this
class action lawsuit is without merit, NEN agreed to settle the lawsuit for
$5.0 million in order to avoid protracted and expensive litigation and the
uncertainty of trial. NEN was responsible for $0.9 million of such settlement
amount plus its accumulated legal expenses, and NENs insurers are responsible
for the balance. The Stipulation of Settlement was finally approved by the
Court on July 25, 2002. The settlement had no material adverse effect on our
consolidated financial condition or results of operations.

Sybase is a party to various other legal disputes and proceedings arising in
the ordinary course of business. In the opinion of management, resolution of
those matters is not expected to have a material adverse effect on our
consolidated financial position or results of operations. However, depending
on the amount and timing of such resolution, an unfavorable resolution of some
or all of these matters could materially affect our future results of
operations or cash flows in a particular period. The Company believes it has
adequately accrued for these matters at December 31, 2002.

Note Thirteen: Restructuring Costs

2002 Restructuring Activities

In response to the continued economic slowdown, the Company embarked on certain
restructuring actions during the third and fourth quarters (the 2002 Plan)
aimed at reducing our annual payroll and facilities related expenses by
approximately $24 million. These activities included the termination of
approximately 400 employees worldwide, the closure or consolidation of
approximately 18 facilities worldwide, and the liquidation of approximately 9
foreign subsidiaries.

The amounts included in the 2002 Plan were as follows:

|                                                          |  |          |  |      |     |      |     |       |      |   |      |   |      |   |      | 
|--------------------------------------------------------- |  | -------- |  | ---- | --- | ---- | --- | ----- | ---- | - | ---- | - | ---- | - | ---- | 
|                                                          |  | Cash/    |  | Q3   |     | Q4   |     |      
|(Dollars in millions)                                     |  | Non Cash |  | 2002 |     | 2002 |     | Total
|                                                          |  |          |  |      |     |      |     |      
|Termination payments to employees and
other related costs |  | Cash     |  | $    | 6.6 |      |     | $     | 3.6  |   |      | $ | 10.2 |  
|Lease cancellations and commitments                       |  | Cash     |  |      |    |      |     |       | 25.1 |   |      |   | 25.1 |  
|Other  non cash charges                                  |  | Non-Cash |  |      |    |      |     |       | 1.0  |   |      |   | 1.0  |  
|Other  cash charges                                      |  | Cash     |  |      |    |      |     |       | 0.2  |   |      |   | 0.2  |  
|                                                          |  |          |  |      |     |      |     |       |      |   |      |   |      |   |      | 
|                                                          |  |          |  |      |     | $    | 6.6 |       |      | $ | 29.9 |   |      | $ | 36.5 | 
|                                                          |  |          |  |      |     |      |     |       |      |   |      |   |      |   |      | 

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##### 



Termination payments to employees and other related costs

During the 3rd and 4th quarter of 2002, the Company incurred restructuring
charges of $10.2 million for severance payments, termination benefits and
related expenses provided in connection with the termination of approximately
400 Sybase employees. All employee levels, business functions, operating units
and geographic regions were represented in the employees terminated. Severance
payments and termination benefits were accrued and charged to restructuring
costs in the period that amounts were determined and communicated to the
affected employees.

Lease cancellations and commitments

As part of the termination of employees referred to above, and in connection
with further streamlining the Companys infrastructure to align with decreased
growth projections, the Company had excess space. During the fourth quarter
2002, Sybase recorded restructuring charges of $25.1 million for facilities
consolidated or closed in California, Texas, Georgia, Colorado, Netherlands,
France, Switzerland, Norway, and the UK.

The offices included above were primarily used for the sale of Sybase software
products, professional services and customer support, and in certain instances
research and development. These restructuring charges reflect the remaining
contractual obligations under the facility leases and certain costs associated
with the expected sublease of the facilities, net of anticipated sublease
income from the date of abandonment to the end of the lease term. The amounts
recorded were based upon the analysis of an independent real estate consultant.
Certain facilities described above continued in use during the completion of
the restructuring. The Company continued to record monthly rent expense on
these facilities as an operating expense until the facilities were abandoned.

Other

During the 4th quarter of 2002, the Company incurred restructuring charges of
$1.2 million associated with the closure of various subsidiaries. The Company
liquidated various subsidiaries that management had determined were no longer
core to its future business plans. The restructuring charge for the
liquidation includes the non-cash write-off of the cumulative translation
adjustment carried on the balance sheet of the respective subsidiaries, and the
legal and accounting costs estimated to effect the liquidations.

The cost savings associated with the closure of the above subsidiaries are
largely internal costs associated with maintaining the separate companies, and
certain costs associated with the ability to forego statutory filing
requirements.

The following table summarized the activity related to the 2002 Plan.

|                                                          |  |         |      |         |  |             |     |          |  |   |     |  |  |             |      | 
|--------------------------------------------------------- |  | ------- | ---- | ------- |  | ----------- | --- | -------- |  | - | --- |  |  | ----------- | ---- | 
|                                                          |  |         |      |         |  |             |     |          |  |   |     |  |  | Accrued    
|                                                          |  |         |      |         |  |             |     |          |  |   |     |  |  | liabilities
|                                                          |  | Total   |      | Amounts |  | Amounts     |     | at      
|(Dollars in millions)                                     |  | Charges |      | Paid    |  | written-off |     | 12/31/02
|                                                          |  |         |      |         |  |             |     |         
|Termination payments to employees
and other related costs |  | $       | 10.2 |         |  | $           | 7.5 |          |  |   |    |  |  | $           | 2.7  | 
|Lease cancellations and commitments                       |  |         | 25.1 |         |  |             | 1.8 |          |  |   |    |  |  |             | 23.3 | 
|Other                                                     |  |         | 1.2  |         |  |             |     |          |  | $ | 1.0 |  |  |             | 0.2  | 
|                                                          |  |         |      |         |  |             |     |          |  |   |     |  |  |             |      | 
|                                                          |  | $       | 36.5 |         |  | $           | 9.3 |          |  | $ | 1.0 |  |  | $           | 26.2 | 
|                                                          |  |         |      |         |  |             |     |          |  |   |     |  |  |             |      | 

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##### 



As of December 31, 2002, all affected employees had been notified of their
termination benefits and severance compensation of $7.5 million had been paid
to approximately 355 of these employees. Substantially all remaining severance
payments are expected to be made by the second quarter of 2003.

During the year ended December 31, 2002, a total of $1.8 million in lease
cancellations and other related expenses was paid in connection with facilities
identified for consolidation or closure as part of the 2002 Plan. Our
payments toward the accruals relating to lease cancellations and commitments
are dependent upon market conditions and our ability to negotiate acceptable
lease buy-outs or locate suitable subtenants. These payments will be made over
a period not to exceed 7.5 years.

2001 Restructuring Actions

In connection with the Companys acquisition of NEN and after announcement that
first quarter and 2001 revenues would be below expectations, it began to
implement a restructuring plan designed to eliminate certain personnel, assets
and facilities, and align its cost structure with anticipated revenues (2001
Plan). The Company recorded a restructuring charge of $48.8 million during
2001 to reflect these activities. The 2001 Plan called for the termination of
approximately 880 employees worldwide, as well as the consolidation or closure
of approximately 30 facilities worldwide and the write-off of certain assets
abandoned as a result of the office closures. Additionally, based on
deterioration of real estate market conditions, the Companys inability to
sublease certain properties previously included in the 2001 Plan resulted in
additional restructuring accruals of $5.4 million in the fourth quarter of 2002
that were established for properties located in Colorado, Michigan and the
United Kingdom.

The following table summarized the activity associated with the balance of the
accrued restructuring charges associated with the 2001 Plan through December
31, 2002:

|                                                          |  |             |      |         |  |         |      |          |  |          |     |  |  |   |     |             |  |   |      | 
|--------------------------------------------------------- |  | ----------- | ---- | ------- |  | ------- | ---- | -------- |  | -------- | --- |  |  | - | --- | ----------- |  | - | ---- | 
|                                                          |  | Accrued     |      |         |  |         |      |          |  |          |     |  |  |   |     | Accrued    
|                                                          |  | liabilities |      |         |  |         |      |          |  |          |     |  |  |   |     | liabilities
|                                                          |  | at          |      | Amounts |  | Amounts |      | Amounts  |  | at      
|(Dollars in millions)                                     |  | 12/31/01    |      | paid    |  | accrued |      | reversed |  | 12/31/02
|                                                          |  |             |      |         |  |         |      |          |  |         
|Termination payments to employees
and other related costs |  | $           | 5.7  |         |  | $       | 4.2  |          |  |          |     |  |  | $ | 0.7 |             |  | $ | 0.8  | 
|Lease cancellations and
commitments                       |  |             | 22.7 |         |  |         | 8.0  |          |  | $        | 5.4 |  |  |   | 0.6 |             |  |   | 19.5 | 
|Other                                                     |  |             | 0.2  |         |  |         | 0.1  |          |  |          |     |  |  |   | 0.1 |             |  |   |     | 
|                                                          |  |             |      |         |  |         |      |          |  |          |     |  |  |   |     |             |  |   |      | 
|                                                          |  | $           | 28.6 |         |  | $       | 12.3 |          |  | $        | 5.4 |  |  | $ | 1.4 |             |  | $ | 20.3 | 
|                                                          |  |             |      |         |  |         |      |          |  |          |     |  |  |   |     |             |  |   |      | 

The remaining restructuring accrual primarily relates to certain lease payments
the Company is contractually required to make on certain closed facilities, net
of estimated associated sublease amounts, and certain remaining termination
benefits payable to employees terminated as part of the 2001 Plan. The payments
of accruals related to lease cancellations and commitments which are dependent
upon market conditions and the Companys ability to negotiate acceptable lease
buy-outs or locate suitable sublease tenants, will be paid over a period not to
exceed eight years. All the remaining termination payments are expected to be
paid during 2003.

During 2002, an excess of $1.4 million was reversed by a corresponding credit
to restructuring expense. The credit to the severance accrual primarily
related to foreign employees paid less than the amount originally provided
after a legal proceeding to determine the severance amount as required under
local law. The credit to the lease cancellations and commitments accrual
primarily related to facilities in Switzerland from which we were able to
terminate our lease obligation for an amount less than that provided. The
other restructuring credits primarily related to certain legal expenses
associated with various exit activities, and certain amounts no longer payable
by the Company.

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##### 



On December 20, 2002, the Company
agreed to acquire AvantGo, a publicly traded provider of mobile
enterprise software, for approximately $40.4 million in cash
including $1.4 million in merger-related transaction expenses.
On February 25, 2003, the AvantGo shareholders approved the
transaction. The preliminary estimated excess of the purchase price over the fair
value of the net assets acquired is expected to be approximately
$22.5 million. This amount is subject to change pending the
final analysis of the fair value of the assets acquired and the
liabilities assumed.

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##### 



Quarterly Financial Information (Unaudited)

|                                                                         |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |         | 
|------------------------------------------------------------------------ | ------------------------------------------- | --------- | -------- | -------- | - | ------------ | ------- | ----------- | - | ---- | ------- | ------- |  | - | ------- | ------- |  | - | -------- | ------- | 
|Three months ended (in thousands,                                        |                                             | March 31, |          | June 30, |   | September 30 |         | December 31 |   |      |         |        
|except per share and stock price data)                                   |                                             | 2002      |          | 2002     |   | 2002         |         | 2002        |   | 2002
|                                                                         |                                             |           |          |          |   |              |         |             |   |     
|Revenues:                                                                |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |        
|                                                                         | License fees                                |           | $        | 83,848   |   |              | $       | 77,449      |   |      | $       | 78,754  |  |   | $       | 85,865  |  |   | $        | 325,916 | 
|                                                                         | Services                                    |           |          | 127,188  |   |              |         | 127,814     |   |      |         | 124,255 |  |   |         | 124,688 |  |   |          | 503,945 | 
|                                                                         |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |        
|Total revenues:                                                          |                                             |           | 211,036  |          |   |              | 205,263 |             |   |      | 203,009 |         |  |   | 210,553 |         |  |   | 829,861  |        
|Costs and expenses:                                                      |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |        
|                                                                         | Cost of license fees                        |           |          | 11,464   |   |              |         | 13,225      |   |      |         | 12,766  |  |   |         | 13,993  |  |   |          | 51,448  | 
|                                                                         | Cost of services                            |           |          | 52,085   |   |              |         | 48,344      |   |      |         | 46,524  |  |   |         | 43,114  |  |   |          | 190,067 | 
|                                                                         | Sales and marketing                         |           |          | 70,888   |   |              |         | 66,962      |   |      |         | 65,865  |  |   |         | 68,050  |  |   |          | 271,765 | 
|                                                                         | Product development and engineering         |           |          | 30,939   |   |              |         | 28,530      |   |      |         | 28,046  |  |   |         | 30,269  |  |   |          | 117,784 | 
|                                                                         | General and administrative                  |           |          | 22,262   |   |              |         | 20,428      |   |      |         | 20,819  |  |   |         | 21,429  |  |   |          | 84,938  | 
|                                                                         | Amortization of other purchased
Intangibles |           |          | 500      |   |              |         | 500         |   |      |         | 500     |  |   |         | 500     |  |   |          | 2,000   | 
|                                                                         | Goodwill impairment                         |           |          |         |   |              |         |            |   |      |         |        |  |   |         | 12,300  |  |   |          | 12,300  | 
|                                                                         | Stock compensation expense                  |           |          | 497      |   |              |         | 497         |   |      |         | 497     |  |   |         | 446     |  |   |          | 1,937   | 
|                                                                         | Cost (reversal) of restructure              |           |          | (115     | ) |              |         | (795        | ) |      |         | 6,334   |  |   |         | 35,022  |  |   |          | 40,446  | 
|                                                                         |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |         | 
|Total costs and expenses                                                 |                                             |           | 188,520  |          |   |              | 177,691 |             |   |      | 181,351 |         |  |   | 225,123 |         |  |   | 772,685  |        
|                                                                         |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |        
|Operating income (loss)                                                  |                                             |           | 22,516   |          |   |              | 27,572  |             |   |      | 21,658  |         |  |   | (14,570 | )       |  |   | 57,176   |        
|Interest income and expense, net                                         |                                             |           | 2,962    |          |   |              | 5,478   |             |   |      | 3,250   |         |  |   | 2,343   |         |  |   | 14,033   |        
|                                                                         |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |        
|Income before income taxes and
cumulative effect of an accounting
change |                                             |           | 25,478   |          |   |              | 33,050  |             |   |      | 24,908  |         |  |   | (12,227 | )       |  |   | 71,209   |        
|Provision for income taxes                                               |                                             |           | 9,427    |          |   |              | 12,889  |             |   |      | 13,561  |         |  |   | (2,449  | )       |  |   | 33,428   |        
|                                                                         |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |        
|Income before cumulative effect of an
accounting change                  |                                             |           | 16,051   |          |   |              | 20,161  |             |   |      | 11,347  |         |  |   | (9,778  | )       |  |   | 37,781   |        
|Cumulative effect of an accounting change
to adopt SFAS 142              |                                             |           | (132,450 | )        |   |              |        |             |   |      |        |         |  |   |        |         |  |   | (132,450 | )      
|                                                                         |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |         | 
|Net income (loss)                                                        |                                             | $         | (116,399 | )        |   | $            | 20,161  |             |   | $    | 11,347  |         |  | $ | (9,778  | )       |  | $ | (94,669  | )      
|                                                                         |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |         | 
|Basic net income (loss) per share                                        |                                             | $         | (1.18    | )        |   | $            | 0.21    |             |   | $    | 0.12    |         |  | $ | (0.10   | )       |  | $ | (0.98    | )      
|Diluted net income (loss) per share                                      |                                             | $         | (1.14    | )        |   | $            | 0.20    |             |   | $    | 0.12    |         |  | $ | (0.10   | )       |  | $ | (0.95    | )      
|Stock prices:                                                            |                                             |           |          |          |   |              |         |             |   |      |         |         |  |   |         |         |  |   |          |        
|                                                                         | High                                        |           | $        | 19.00    |   |              | $       | 17.45       |   |      | $       | 15.15   |  |   | $       | 13.66   |  |   | $        | 19.00   | 
|                                                                         | Low                                         |           | $        | 15.81    |   |              | $       | 10.40       |   |      | $       | 9.35    |  |   | $       | 11.05   |  |   | $        | 9.35    | 

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##### 



|                                       |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |         | 
|-------------------------------------- | ------------------------------------------- | --------- | ------- | -------- |  | ------------ | ------- | ----------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|Three months ended (in thousands,      |                                             | March 31, |         | June 30, |  | September 30 |         | December 31 |  |      |         |        
|except per share and stock price data) |                                             | 2001      |         | 2001     |  | 2001         |         | 2001        |  | 2001
|                                       |                                             |           |         |          |  |              |         |             |  |     
|Revenues:                              |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |        
|                                       | License fees                                |           | $       | 98,792   |  |              | $       | 94,741      |  |      | $       | 90,613  |  |   | $       | 104,892 |  |   | $       | 389,038 | 
|                                       | Services                                    |           |         | 130,895  |  |              |         | 139,984     |  |      |         | 136,198 |  |   |         | 131,808 |  |   |         | 538,885 | 
|                                       |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |        
|Total revenues:                        |                                             |           | 229,687 |          |  |              | 234,725 |             |  |      | 226,811 |         |  |   | 236,700 |         |  |   | 927,923 |        
|Costs and expenses:                    |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |        
|                                       | Cost of license fees                        |           |         | 8,593    |  |              |         | 11,489      |  |      |         | 11,366  |  |   |         | 14,247  |  |   |         | 45,695  | 
|                                       | Cost of services                            |           |         | 62,332   |  |              |         | 62,927      |  |      |         | 60,198  |  |   |         | 55,322  |  |   |         | 240,779 | 
|                                       | Sales and marketing                         |           |         | 85,149   |  |              |         | 83,545      |  |      |         | 82,872  |  |   |         | 79,671  |  |   |         | 331,237 | 
|                                       | Product development and engineering         |           |         | 29,468   |  |              |         | 33,645      |  |      |         | 30,794  |  |   |         | 31,497  |  |   |         | 125,404 | 
|                                       | General and administrative                  |           |         | 17,528   |  |              |         | 19,072      |  |      |         | 20,063  |  |   |         | 20,222  |  |   |         | 76,885  | 
|                                       | Amortization of goodwill                    |           |         | 6,673    |  |              |         | 15,472      |  |      |         | 15,130  |  |   |         | 16,584  |  |   |         | 53,859  | 
|                                       | Amortization of other purchased
intangibles |           |         | 500      |  |              |         | 500         |  |      |         | 500     |  |   |         | 500     |  |   |         | 2,000   | 
|                                       | In-process research and development         |           |         |         |  |              |         | 18,500      |  |      |         |        |  |   |         |        |  |   |         | 18,500  | 
|                                       | Stock compensation expense                  |           |         |         |  |              |         | 333         |  |      |         | 504     |  |   |         | 497     |  |   |         | 1,334   | 
|                                       | Cost (reversal) of restructure              |           |         |         |  |              |         | 25,162      |  |      |         | 10,307  |  |   |         | 13,282  |  |   |         | 48,751  | 
|                                       |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |         | 
|Total costs and expenses               |                                             |           | 210,243 |          |  |              | 270,645 |             |  |      | 231,734 |         |  |   | 231,822 |         |  |   | 944,444 |        
|                                       |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |        
|Operating income (loss)                |                                             |           | 19,444  |          |  |              | (35,920 | )           |  |      | (4,923  | )       |  |   | 4,878   |         |  |   | (16,521 | )      
|Interest income and expense, net       |                                             |           | 4,228   |          |  |              | 4,686   |             |  |      | 3,318   |         |  |   | 5,297   |         |  |   | 17,529  |        
|Minority interest                      |                                             |           | (8      | )        |  |              | 6       |             |  |      |        |         |  |   | (28     | )       |  |   | (30     | )      
|                                       |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |        
|Income (Loss) before income taxes      |                                             |           | 23,664  |          |  |              | (31,228 | )           |  |      | (1,605  | )       |  |   | 10,147  |         |  |   | 978     |        
|Provision for income taxes             |                                             |           | 8,756   |          |  |              | 8,244   |             |  |      | 5,500   |         |  |   | 4,000   |         |  |   | 26,500  |        
|                                       |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |         | 
|Net income (loss)                      |                                             | $         | 14,908  |          |  | $            | (39,472 | )           |  | $    | (7,105  | )       |  | $ | 6,147   |         |  | $ | (25,522 | )      
|                                       |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |         | 
|Basic net income (loss) per share      |                                             | $         | 0.17    |          |  | $            | (0.42   | )           |  | $    | (0.07   | )       |  | $ | 0.06    |         |  | $ | (0.27   | )      
|Diluted net income (loss) per share    |                                             | $         | 0.16    |          |  | $            | (0.42   | )           |  | $    | (0.07   | )       |  | $ | 0.06    |         |  | $ | (0.27   | )      
|Stock prices:                          |                                             |           |         |          |  |              |         |             |  |      |         |         |  |   |         |         |  |   |         |        
|                                       | High                                        |           | $       | 25.88    |  |              | $       | 18.00       |  |      | $       | 16.81   |  |   | $       | 17.13   |  |   | $       | 25.88   | 
|                                       | Low                                         |           | $       | 15.00    |  |              | $       | 12.94       |  |      | $       | 8.58    |  |   | $       | 9.05    |  |   | $       | 8.58    | 

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##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The information required by this item with respect to identification of
directors is incorporated by reference to Election of Directors in our
definitive Proxy Statement for the Annual Meeting of Stockholders to be held
May 22, 2003 (Proxy Statement). The Proxy Statement will be filed with the
Commission within 120 days after our fiscal year ended December 31, 2002.

The information required by this item with respect to the information required
under Item 405 of Regulation S-K is incorporated by reference to Section 16(a)
Beneficial Ownership Reporting Compliance in the Proxy Statement.

The executive officers of the Company are as follows:

|                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|John S. Chen
Chairman, Chief Executive Officer and
President
Age 47           |  | Mr. Chen has served in his
present capacity since November
1998. From February through
November 1998, he served as
co-Chief Executive Officer. Mr.
Chen joined Sybase in August 1997
as Chief Operating Officer and
served in that capacity until
February 1998. From March 1995
to July 1997, Mr. Chen was
President of the Open Enterprise
Computing Division of Siemens
Nixdorf, a computer and
electronics company, and Chief
Executive Officer and Chairman of
Siemens Pyramid, a subsidiary of
Siemens Nixdorf. He is also a
current director of The CIT Group, Inc.,
a commercial leasing and finance
corporation.                                                                                                                                                                                                                                                                                                                               
|                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Michael Bealmear
Executive Vice President
Worldwide Field Organization
Age 55 |  | Mr. Bealmear has served in his
present capacity since May 2002.
From November 2001 through April
2002, he was an independent
business consultant and angel
investor and, immediately prior
to that, he served as Chief
Executive Officer and a director
of Covansys, Inc., a global
consulting and technology
services, from May 2000 through
November 2001. Before joining
Covansys, Mr. Bealmear served as
Chief Executive Officer of Spear
Technologies, Inc., an enterprise
application software company from
September 1999 through April
2000. From September 1998
through August 1999, he was an
independent private equity
investor, and from August 1997
through September 1998 he held the
position of Executive Vice
President at Cadence
Design Systems, Inc., a supplier
of electronics design
technologies. From November 1994
through July 1997, Mr.
Bealmear held the position of
Senior Vice President, Worldwide
Services at Sybase.
|                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Thomas Volk
Executive Vice President
Infrastructure Platform Group
Age 45     |  | Mr. Volk has served in his
present capacity since January
2003. For 18 years prior to
that, Mr. Volk worked for
Hewlett-Packard Company, a
computer and electronics company,
and most recently served as Vice
President and General Manager of
HPs manufacturing industry
business unit. Mr. Volk also
held a number of worldwide sales
and business management positions
during his tenure at HP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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##### 



|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Marty Beard
Senior Vice President
Corporate Development and Marketing
Age 40 |  | Mr. Beard has served in his
present capacity since February 2003. From August 2002 through
January 2003, Mr. Beard was Vice President, Corporate Development. Before joining Sybase, Mr.
Beard was Vice President of
Oracle Online, a division of
Oracle Corporation, a database
software company, from June 1999
through July 2000. Prior to that
he served as Senior Director,
Mid-Market Business Solutions for
Oracle beginning in July 1997.
From June 1993 through June 1997,
Mr. Beard was Staff Director,
Corporate Strategy and
Development for Pacific Telesis
Group, a telecommunications
company.
|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Daniel R. Carl
Vice President and
General Counsel
Age 50                     |  | Mr. Carl has served in his
present capacity since April
1999. Immediately prior to that,
he served as Director of European
Legal Affairs beginning in
January 1997. Mr. Carl has been
a Vice President of Sybase since
May 1996, and served as Associate
General Counsel from 1992 to
April 1999.                                                                                                                                                                                                                                                                                                            
|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Pamela J. George
Sr. Vice President
Corporate Affairs
Age 57                 |  | Ms. George has served in her
present capacity since August
2001, and immediately prior to
that served as Vice President,
Corporate Marketing beginning in
April 1999. Prior to that, she
was Vice President of Corporate
Communications at Maxager
Technology, a software company,
starting in December 1997.                                                                                                                                                                                                                                                                                                
|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Martin J. Healy
Vice President and Corporate Controller
Age 40               |  | Mr. Healy has served in his
present capacity since January
1999. Between January 1997 and
January 1999, he served as Vice
President, Intercontinental
Operations. Mr. Healy was
Director of Finance, Asia
(excluding Japan) from January
1994 to December 1997, and prior
to that held various positions
within the Companys finance
organization. Before joining
Sybase in 1989, Mr. Healy was
Financial Reporting Manager at
WordStar International.                                                                                                                                                      
|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Billy Ho
Sr. Vice President & GM
e-Business Division
Age 46                  |  | Mr. Ho has served in his present
capacity since October 2001.
Prior to that, he held the
position of Senior Vice President
of Product Development and
Marketing, e-Business Division
from July 2001 to October 2001.
Before that, he held the position
of Vice President of Product
Development, Enterprise Solutions
Division, from October 1998 to
July 2001. Mr. Ho joined Sybase
in 1997 as Director of
Engineering.                                                                                                                                                                                     
|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Eric L. Miles
Sr. Vice President & GM
Business Intelligence Division
Age 56  |  | Mr. Miles has served in his
present capacity since December
1998. Between December 1997,
when he joined Sybase, and
December 1998, he was Senior Vice
President, Product Operations.
From November 1995 until he
joined Sybase, Mr. Miles served
as Vice President, Product
Development at Informix
Corporation, a database software
company.                                                                                                                                                                                                                                                                
|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Richard J. Moore
President
Financial Fusion, Inc.
Age 50                     |  | Mr. Moore has served in his
present capacity since July 2001.
Before joining Sybase, he served
as co-CEO of Cygent, Inc., a San
Francisco based
telecommunications company, from
November 2000 to March 2001, and
was Cygents Senior Vice
President of Worldwide Sales from
December 1999 to October 2001.
From December 1998 to December
1999, Mr. Moore served as
Executive Vice President of
Worldwide Sales for DataCore
Software Corp., a storage area
networking company.                                                                                                                             
|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Raj Nathan
Sr. Vice President & GM
Enterprise Solutions Division
Age 49      |  | Dr. Nathan has served in his
present capacity since December
2000. Joining Sybase in November
1997, he served as Senior Vice
President, Corporate Program
Office and later as Senior Vice
President and General Manager of
the Internet Applications
Division until December 2000.
From May through November 1997,
he served as President and Chief
Executive Officer of Siemens
Pyramid, a subsidiary of Siemens Nixdorf, a computer and electronics
company, and held a number of
executive positions with Siemens
Pyramid prior to that.                                                                  
|                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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|                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Terry Stepien
President
iAnywhere Solutions, Inc.
Age 44                   |  | Mr. Stepien has served in his
present capacity since May 2000.
Prior to that he had served as
Senior Vice President and General
Manager of Sybases Mobile and
Embedded Computing Division (MEC)
since March 1999. From September
1998 to March 1999, he was Vice
President and General Manager of
MEC. From September 1996 to
September 1998, he served as Vice
President, Marketing for Database
Products. Mr. Stepien was Vice
President, Marketing for
Workplace Database Products from
February 1995 to September 1996.
|                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Pieter Van der Vorst
Sr. Vice President and
Chief Financial Officer
Age 48 |  | Mr. Van der Vorst has served in
his current position since March
2002. Prior to that, he held the
title of Vice President and Chief
Financial Officer starting in
January 1999. Between November
1997 and January 1999, he served
as Corporate Controller, and
prior to that, he served as Vice
President, Tax and Corporate
Accounting beginning in April
1997. Mr. Van der Vorst has held
various other positions since
joining Sybase in 1991.                                                                           
|                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Nita C. White-Ivy
Vice President Worldwide Human
Resources
Age 56          |  | Ms. White-Ivy has served in her
present capacity since March
1998. Prior to that, she was a
human resources consultant to
Sybase beginning in January 1998.
Before joining Sybase, she was
with Siemens Pyramid, a computer
and electronics company, serving
as Vice President of Worldwide
Human Resources from February
1994 to October 1997.                                                                                                                                                                             

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to
Executive Compensation in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER
MATTERS

The information required by this item is incorporated by reference to Stock
Ownership of Management and Beneficial Owners in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to
Employment Agreements and Certain Transactions in the Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES

Within 90 days prior to the filing of this Report on Form 10-K (Evaluation
Date), we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures under the supervision and
with the participation of our management including our CEO and CFO, pursuant to
Exchange Act Rule 13a-14(c) and 15d-14(c). Based on this evaluation, our
management, including our CEO and CFO, concluded that our disclosure controls
and procedures were effective in timely alerting them to all material
information required to be included in our periodic SEC filings.

In addition to the foregoing, there have been no significant changes in our
internal controls or in other factors that could significantly affect our
disclosure controls and procedures subsequent to the Evaluation Date.
Therefore, no corrective actions have been necessitated or taken.

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##### 



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



|(a) |  | The following documents are filed as part of this Report on Form 10-K:
|--- |  | ----------------------------------------------------------------------



1.     Financial Statements. See financial statements listed in the table of
contents at the beginning of Part II, Item 8, incorporated here by reference.

2.     Financial Statement Schedules. The following financial statement
schedules of Sybase, Inc. for the years ended December 31, 2002, 2001, and 2000
are filed as part of this Report on Form 10-K and should be read in conjunction
with the Consolidated Financial Statements in Part II, Item 8, and related
Notes.

3.     
Exhibits. Item 15(c) below is incorporated here by reference. All
management contracts and compensatory plans filed as exhibits (or incorporated
by reference into this Report) pursuant to Item 601 of Regulation S-K are as
follows:

|            |  |                                                                                                                                                                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                         
|10.1 (1)    |  | New Era of Networks, Inc. Amended and
Restated 1995 Stock Option Plan                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                         
|10.2 (1)    |  | New Era of Networks, Inc. Amended and
Restated 1997 Director Option Plan                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                         
|10.3 (1)    |  | New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                         
|10.4 (1)    |  | Century Analysis Inc. 1996 Equity Incentive Plan                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                         
|10.5 (1)    |  | Convoy Corporation 1997 Stock Option Plan                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                         
|10.6 (1)    |  | Microscript, Inc. 1997 Stock Option Plan                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                         
|10.7 (3)    |  | 1988 Stock Option Plan and Forms of
Incentive Stock Option Agreements and Nonstatutory Stock
Option Agreements, as amended                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                         
|10.8        |  | 1991 Employee Stock Purchase Plan and 1991
Foreign Subsidiary Employee Stock Purchase Plan, as amended
(incorporated by reference to the Registrants Registration
Statement on Form S-8 filed July 20,
1999                                                                            
|            |  |                                                                                                                                                                                                                                                                                         
|10.9        |  | Sybase, Inc. 401(k) Plan (incorporated by
reference to exhibits filed in response to Item 6(a),
Exhibits, of the Companys Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001), as amended by
Amendment No. 1 to the Sybase, Inc. 401(k) Plan dated
December 20, 2002.
|            |  |                                                                                                                                                                                                                                                                                         
|10.10 (6)   |  | 1992 Director Stock Option Plan, as amended                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                         
|10.11 (1)   |  | 2001 Director Stock Option Plan                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                         
|10.12       |  | Executive Deferred Compensation Plan, as amended February 5, 2003                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                         
|10.13 (1)   |  | 1996 Stock Plan, as amended                                                                                                                                                                                                                                                             

- 74 -



---



##### 



|          |  |                                                                                                                                                                                                                   
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14 (7) |  | Form of Indemnification Agreement                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                                   
|10.15 (6) |  | Form of Amended and Restated Change of
Control Agreement (standard version)                                                                                                                                       
|          |  |                                                                                                                                                                                                                   
|10.16 (6) |  | Form of Amended and Restated Change of
Control Agreement (enhanced version)                                                                                                                                       
|          |  |                                                                                                                                                                                                                   
|10.17 (2) |  | Powersoft Corporation Form of Incentive
Option Granted under the 1984 Incentive Stock Option Plan                                                                                                                 
|          |  |                                                                                                                                                                                                                   
|10.18 (2) |  | Powersoft Corporation 1994 Amended and
Restated Incentive and Non-Qualified Stock Option Plan                                                                                                                     
|          |  |                                                                                                                                                                                                                   
|10.19 (2) |  | Powersoft Corporation Forms of Incentive
and Non-Qualified Stock Option Granted under the 1994 Amended
and Restated Incentive and Non-Qualified Stock Option Plan                                                 
|          |  |                                                                                                                                                                                                                   
|10.20 (2) |  | Powersoft Corporation 1994 Amended and
Restated Employee Stock Purchase Plan                                                                                                                                      
|          |  |                                                                                                                                                                                                                   
|10.21(6)  |  | Offer Letter to Richard J. Moore dated June 8, 2001                                                                                                                                                               
|          |  |                                                                                                                                                                                                                   
|10.23(6)  |  | Amended and Restated Employment Agreement
between Sybase, Inc. and John S. Chen dated as of June 11,
2001                                                                                                         
|          |  |                                                                                                                                                                                                                   
|10.24     |  | Addendum to John Chen Amended and Restated
Employment Agreement dated August 20, 2002                                                                                                                             
|          |  |                                                                                                                                                                                                                   
|10.25     |  | 1999 Nonstatutory Stock Plan, and form of Stock
Option Agreement (incorporated by reference to the
Registrants Registration Statement on Form S-8 (file no.
333-85637) filed August 20, 1999)                    
|          |  |                                                                                                                                                                                                                   
|10.26     |  | Home Financial Network, Inc. 1995 Stock Plan,
and form of Stock Option Agreement (incorporated by reference
to the Registrants Registration Statement on Form S-8 (file
no. 333-95079) filed on January 20, 2000)
|          |  |                                                                                                                                                                                                                   
|10.27     |  | [Not applicable]                                                                                                                                                                                                  
|          |  |                                                                                                                                                                                                                   
|10.28     |  | [Not applicable]                                                                                                                                                                                                  
|          |  |                                                                                                                                                                                                                   
|10.29     |  | [Not applicable]                                                                                                                                                                                                  
|          |  |                                                                                                                                                                                                                   
|10.30 (5) |  | Financial Fusion, Inc. 2000 Stock Option Plan                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                   
|10.31 (6) |  | Financial Fusion, Inc. 2001 Stock Option Plan                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                   
|10.32 (6) |  | iAnywhere Solutions, Inc. Stock Option Plan                                                                                                                                                                       
|          |  |                                                                                                                                                                                                                   
|10.33 (6) |  | Notice of Grant and Restricted Stock Purchase Agreement                                                                                                                                                           
|          |  |                                                                                                                                                                                                                   
|10.34     |  | Offer Letter to Michael Bealmear dated May 1, 2002                                                                                                                                                                
|          |  |                                                                                                                                                                                                                   
|10.35     |  | Offer Letter of Thomas Volk dated September 5, 2002                                                                                                                                                               

- 75 -



---



##### 



(1)     Incorporated by reference to the Companys Registration Statement on Form
S-8 filed June 19, 2001.

(2)     
Incorporated by reference to the Companys Registration Statement on Form
S-8 filed on February 10, 1995 (file no. 33-89334).

(3)     
Incorporated by reference to exhibits filed in response to Item 16(a),
Exhibits, of the Companys Annual Report on Form 10-K for the year ended
December 31, 1997 (file no. 000-19395).

(4)     
[This footnote has been intentionally left blank.]

(5)     
Incorporated by reference to exhibits filed in response to Item 14(a),
Exhibits, of the Companys Annual Report on Form 10-K for the year ended
December 31, 2000.

(6)     
Incorporated by reference to exhibits filed in response to Item 14(a)
Exhibits, of the Companys Annual Report on Form 10-K for the year ended
December 31, 2001.

(7)     
Incorporated by reference to exhibits filed in response to Item 16(a),
Exhibits, of the Companys Annual Report on Form 10-K for the year ended
December 31, 1998 (file no. 000-19395).

(b)     
Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended December 31,
2002.

(c)     Exhibits. The exhibits required by Item 601 of Regulation S-K are listed
in the Exhibit Index to this Report on Form 10-K, and are incorporated here by
reference.

|    |  |                                      |  |          
|--- |  | ------------------------------------ |  | ---------
|(d) |  | Schedules                            |  | Form 10-K
|    |  |                                      |  | Page     
|    |  |                                      |  |          
|    |  | II Valuation and Qualifying Accounts |  | 77       

Schedules not listed above have been omitted because they are either (i) not
applicable or are not required, or (ii) the information is included in the
Consolidated Financial Statements and related Notes, Part II, Item 8.

- 76 -



---



##### 



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

SYBASE,
INC.

(Dollars in thousands)

|                              |                               |                                 |  |          |        |              |  |               |    |           |  |   |        |  |  |            |        |  |  |   |        |  |  | 
|----------------------------- | ----------------------------- | ------------------------------- |  | -------- | ------ | ------------ |  | ------------- | -- | --------- |  | - | ------ |  |  | ---------- | ------ |  |  | - | ------ |  |  | 
|COL. A                        |                               | COL. B                          |  | COL. C   |        | COL. D       |  | COL. E       
|                              |                               |                                 |  |          |        |              |  |               |    | Additions |  |   |        |  |  |            |        | 
|                              |                               |                                 |  |          |        |              |  |               |    |           |  |   |        |  |  |            |        | 
|                              |                               |                                 |  |          |        |              |  |               |    | Charged   |  |   |        |  |  |            |        |  |  |   |        | 
|                              |                               |                                 |  |          |        | Balance at   |  | to Costs      |    | Charged   |  |   |        |  |  | Balance at
|                              |                               |                                 |  |          |        | Beginning    |  | and           |    | to Other  |  |   |        |  |  | End of    
|Description                   |                               | of Period                       |  | Expenses |        | Accounts (A) |  | Deletions (B) |    | Period   
|                              |                               |                                 |  |          |        |              |  |               |    |          
|Year ended December 31, 2002: |                               |                                 |  |          |        |              |  |               |    |           |  |   |        |  |  |            |        |  |  |  
|                              | Deducted from asset accounts: |                                 |  |          |        |              |  |               |    |           |  |   |        |  |  |            |        |  |  |   |       
|                              |                               | Allowance for doubtful accounts |  | $        | 19,706 |              |  |               |   |           |  | $ | 6,230  |  |  | $          | 15,629 |  |  | $ | 10,307 | 
|Year ended December 31, 2001: |                               |                                 |  |          |        |              |  |               |    |           |  |   |        |  |  |            |        |  |  |  
|                              | Deducted from asset accounts: |                                 |  |          |        |              |  |               |    |           |  |   |        |  |  |            |        |  |  |   |       
|                              |                               | Allowance for doubtful accounts |  | $        | 22,313 |              |  |               |   |           |  | $ | 18,731 |  |  | $          | 21,338 |  |  | $ | 19,706 | 
|Year ended December 31, 2000: |                               |                                 |  |          |        |              |  |               |    |           |  |   |        |  |  |            |        |  |  |  
|                              | Deducted from asset accounts: |                                 |  |          |        |              |  |               |    |           |  |   |        |  |  |            |        |  |  |   |       
|                              |                               | Allowance for doubtful accounts |  | $        | 31,452 |              |  | $             | 14 |           |  | $ | 3,003  |  |  | $          | 12,156 |  |  | $ | 22,313 | 

A    Sales returns and
credit memos allowances
B    Uncollectible accounts written off and recoveries

The required information regarding the valuation allowance for deferred tax assets is included in Note Eight to the Consolidated Financial Statements.

- 77 -



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K
to be signed on its behalf of the undersigned, thereunto duly authorized.

|               |  |                                                                          
|-------------- |  | -------------------------------------------------------------------------
|               |  | SYBASE, INC.                                                             
|               |  |                                                                          
|               |  | By:  /S/JOHN S. CHEN                                                     
|               |  |                                                                          
|March 28, 2003 |  | John S. Chen
Chairman of the Board, Chief
Executive Officer and President

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John S. Chen, Pieter Van der Vorst and
Teresa D. Chuh, jointly and severally, his or her attorneys-in-fact, each with
the power of substitution, for him or her in any and all capacities, to sign
any amendment to this Report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof. Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report on Form 10-K has been signed by the following persons in
the capacities and on the dates indicated:

|                                                      |  |                                                                                                      |  |               
|----------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                             |  | Title                                                                                                |  | Date          
|                                                      |  |                                                                                                      |  |               
|/S/ JOHN S. CHEN
(John S. Chen)                       |  | Chairman of the Board, Chief
Executive Officer (Principal Executive
Officer), President and Director |  | March 28, 2003
|                                                      |  |                                                                                                      |  |               
|/S/ PIETER A. VAN DER VORST
(Pieter A. Van der Vorst) |  | Senior Vice President and
Chief Financial Officer (Principal
Financial Officer)                      |  | March 28, 2003
|                                                      |  |                                                                                                      |  |               
|/S/ MARTIN J. HEALY
(Martin J. Healy)                 |  | Vice President and Corporate
Controller (Principal Accounting
Officer)                               |  | March 28, 2003
|                                                      |  |                                                                                                      |  |               
|/S/ RICHARD C. ALBERDING
(Richard C. Alberding)       |  | Director                                                                                             |  | March 28, 2003
|                                                      |  |                                                                                                      |  |               
|/S/ CECILIA CLAUDIO
(Cecilia Claudio)                 |  | Director                                                                                             |  | March 28, 2003
|                                                      |  |                                                                                                      |  |               
|/S/ L. WILLIAM KRAUSE
(L. William Krause)             |  | Director                                                                                             |  | March 28, 2003
|                                                      |  |                                                                                                      |  |               
|/S/ ALAN B. SALISBURY
(Alan B. Salisbury)             |  | Director                                                                                             |  | March 28, 2003
|                                                      |  |                                                                                                      |  |               
|/S/ ROBERT P. WAYMAN
(Robert P. Wayman)               |  | Director                                                                                             |  | March 28, 2003
|                                                      |  |                                                                                                      |  |               
|/S/ LINDA K. YATES
(Linda K. Yates)                   |  | Director                                                                                             |  | March 28, 2003

- 78 -



---



##### 



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

I, John S. Chen, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Sybase, Inc. on Form 10-K for the fiscal year ended December 31, 2002
fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such Annual
Report of Form 10-K fairly presents in all material respects the financial
condition and results of operations of Sybase, Inc.

By: /s/ JOHN S. CHENName:  John S. Chen
Title:  Chief Executive Officer and President


I, Pieter A. Van der Vorst, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Sybase, Inc. on Form 10-K for the fiscal year December 31,
2002 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such Annual
Report on Form 10-K fairly presents in all material respects the financial
condition and results of operations of Sybase, Inc.

By: /s/ PIETER A. VAN DER VORSTName:  Pieter A. Van der Vorst
Title:    Senior Vice President and
          
  Chief Financial Officer


- 79 -



---



##### 



CERTIFICATION

I, John S. Chen, certify that:

1.     I have reviewed this annual report on Form 10-K of Sybase, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

|                                                                   
|-------------------------------------------------------------------
|/s/ JOHN S. CHEN
John S. Chen
Chief Executive Officer and President

- 80 -



---



##### 



CERTIFICATION

I, Pieter A Van der Vorst, certify that:

1.     I have reviewed this annual report on Form 10-K of Sybase, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

|                                                                                                     
|-----------------------------------------------------------------------------------------------------
|/s/ PIETER A. VAN DER VORST
Pieter A. Van der Vorst
Senior Vice President and
Chief Financial Officer

- 81 -



---



##### 



EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                 
|2.1         |  | Agreement and Plan of Reorganization dated as of
November 29, 1999, among Sybase, On-Line Financial Services,
Inc., and Home Financial Network, Inc. (incorporated herein
by reference to Exhibit 2.1 to the Registrants Registration
Statement on Form S-3 filed on January 31, 2000)         
|            |  |                                                                                                                                                                                                                                                                                                 
|2.2         |  | Agreement and Plan of Merger dated as of
February 20, 2001, among Sybase, New Era of Networks, Inc.,
and Neel Acquisition Corp. (incorporated herein by reference
to Exhibit 2(a) to the Registrants Registration Statement on
Form S-4 filed March 15, 2001)                                  
|            |  |                                                                                                                                                                                                                                                                                                 
|2.3(11)     |  | Agreement and Plan of Merger dated as of
December 19, 2002 by and among Sybase, Inc., Seurat
Acquisition Corporation (a wholly-owned subsidiary of Sybase)
and AvantGo, Inc.                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                 
|3.1(9)      |  | Restated Certificate of Incorporation of
Registrant, as amended                                                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                 
|3.2 (8)     |  | Bylaws of Registrant, as amended                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                 
|4.1         |  | Agreement of Substitution and Amendment of
Preferred Shares Rights Agreement dated as of January 29,
2001, between Registrant and American Stock Transfer and
Trust Company (incorporated by reference to Exhibit 4.3 to
Registrants Report on Form 10-Q for the quarter ended March
31, 2001).
|            |  |                                                                                                                                                                                                                                                                                                 
|4.2 (10)    |  | Preferred Share Rights Agreement dated as
of July 31, 2002 between Registrant and American Stock
Transfer and Trust Co.                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                 
|10.1 (6)    |  | New Era of Networks, Inc. Amended and
Restated 1995 Stock Option Plan                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                 
|10.2 (6)    |  | New Era of Networks, Inc. Amended and
Restated 1997 Director Option Plan                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                 
|10.3 (6)    |  | New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                 
|10.4 (6)    |  | Century Analysis Inc. 1996 Equity Incentive Plan                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                 
|10.5 (6)    |  | Convoy Corporation 1997 Stock Option Plan                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                 
|10.6 (6)    |  | Microscript, Inc. 1997 Stock Option Plan                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                 
|10.7 (3)    |  | 1988 Stock Option Plan and Forms of
Incentive Stock Option Agreements and Nonstatutory Stock
Option Agreements, as amended                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                 
|10.8        |  | 1991 Employee Stock Purchase Plan and 1991
Foreign Subsidiary Employee Stock Purchase Plan, as amended
(incorporated by reference to the Registrants Registration
Statement on Form S-8 (file no. 333-83271) filed July 20,
1999                                                               

- 82 -



---



##### 



|           |  |                                                                                                                                                                                                                                                                                                     
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9       |  | Sybase, Inc. 401(k) Plan, as amended
(incorporated by reference to exhibits filed in response to
Item 6(a), Exhibits, of the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 2001), as amended
by Amendment No. 1 to the Sybase, Inc. 401(k) Plan dated
December 20, 2002.
|           |  |                                                                                                                                                                                                                                                                                                     
|10.10 (12) |  | 1992 Director Stock Option Plan, as amended                                                                                                                                                                                                                                                         
|           |  |                                                                                                                                                                                                                                                                                                     
|10.11 (6)  |  | 2001 Director Stock Option Plan                                                                                                                                                                                                                                                                     
|           |  |                                                                                                                                                                                                                                                                                                     
|10.12      |  | Executive Deferred Compensation Plan, as amended February 5, 2003                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                     
|10.13 (6)  |  | 1996 Stock Plan, as amended                                                                                                                                                                                                                                                                         
|           |  |                                                                                                                                                                                                                                                                                                     
|10.14 (8)  |  | Form of Indemnification Agreement                                                                                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                     
|10.15 (12) |  | Form of Amended and Restated Change of
Control Agreement (standard version)                                                                                                                                                                                                                         
|           |  |                                                                                                                                                                                                                                                                                                     
|10.16 (12) |  | Form of Amended and Restated Change of
Control Agreement (enhanced version)                                                                                                                                                                                                                         
|           |  |                                                                                                                                                                                                                                                                                                     
|10.17 (2)  |  | Powersoft Corporation Form of Incentive
Option Granted under the 1984 Incentive Stock Option Plan                                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                     
|10.18 (2)  |  | Powersoft Corporation 1994 Amended and
Restated Incentive and Non-Qualified Stock Option Plan                                                                                                                                                                                                       
|           |  |                                                                                                                                                                                                                                                                                                     
|10.19 (2)  |  | Powersoft Corporation Forms of Incentive
and Non-Qualified Stock Option Granted under the 1994 Amended
and Restated Incentive and Non-Qualified Stock Option Plan                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                     
|10.20 (2)  |  | Powersoft Corporation 1994 Amended and
Restated Employee Stock Purchase Plan                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                     
|10.21(12)  |  | Offer Letter to Richard J. Moore dated June 8, 2001                                                                                                                                                                                                                                                 
|           |  |                                                                                                                                                                                                                                                                                                     
|10.23 (12) |  | Amended and Restated Employment Agreement
between Sybase, Inc. and John S. Chen dated as of June 11,
2001                                                                                                                                                                                           
|           |  |                                                                                                                                                                                                                                                                                                     
|10.24      |  | Addendum to John Chen Amended and Restated
Employment Agreement dated August 20, 2002                                                                                                                                                                                                               
|           |  |                                                                                                                                                                                                                                                                                                     
|10.25      |  | 1999 Nonstatutory Stock Plan, and form of Stock
Option Agreement (incorporated by reference to the
Registrants Registration Statement on Form S-8 filed August 20, 1999)                                                                                                                           
|           |  |                                                                                                                                                                                                                                                                                                     
|10.26      |  | Home Financial Network, Inc. 1995 Stock Plan,
and form of Stock Option Agreement (incorporated by reference
to the Registrants Registration Statement on Form S-8 filed on January 20, 2000)                                                                                                       
|           |  |                                                                                                                                                                                                                                                                                                     
|10.27 (5)  |  | Corporate Headquarters Lease, dated January
28, 2000, between Sybase, Inc. and WDS-Dublin, LLC, as
amended on November 29, 2000, and December 13, 2001.                                                                                                                                             

- 83 -



---



##### 



|           |  |                                                                                                                                                                              
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.28 (5)  |  | Trust Agreement dated May 1, 2000, between
Sybase, Inc. 401(k) Plan and Fidelity Management Trust
Company                                                                    
|           |  |                                                                                                                                                                              
|10.29 (5)  |  | Trust Agreement dated May 1, 2000 between
Sybase, Inc. and Fidelity Management Trust Company for
administration of Executive Deferred Compensation Plan.                     
|           |  |                                                                                                                                                                              
|10.30 (5)  |  | Financial Fusion, Inc. 2000 Stock Option Plan                                                                                                                                
|           |  |                                                                                                                                                                              
|10.31 (12) |  | Financial Fusion, Inc. 2001 Stock Option Plan                                                                                                                                
|           |  |                                                                                                                                                                              
|10.32 (12) |  | iAnywhere Solutions, Inc. Stock Option Plan                                                                                                                                  
|           |  |                                                                                                                                                                              
|10.33 (12) |  | Notice of Grant and Restricted Stock Purchase Agreement                                                                                                                      
|           |  |                                                                                                                                                                              
|10.34      |  | Offer Letter to Michael Bealmear dated May 1, 2002                                                                                                                           
|           |  |                                                                                                                                                                              
|10.35      |  | Offer Letter of Thomas Volk dated September 5, 2002                                                                                                                          
|           |  |                                                                                                                                                                              
|13.1 (1)   |  | Proxy Statement for 2003 Annual Meeting of Stockholders                                                                                                                      
|           |  |                                                                                                                                                                              
|21         |  | Subsidiaries of Registrant                                                                                                                                                   
|           |  |                                                                                                                                                                              
|23.1       |  | Consent of Independent Auditors                                                                                                                                              
|           |  |                                                                                                                                                                              
|24 (7)     |  | Powers of Attorney                                                                                                                                                           
|           |  |                                                                                                                                                                              
|99.1       |  | 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
|           |  |                                                                                                                                                                              
|99.2       |  | 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  
|           |  |                                                                                                                                                                              
|99.3       |  | 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  

(1)     
To be filed with Securities and Exchange Commission not later than 120
days after the end of the period covered by this Report on Form 10-K.

(2)     
Incorporated by reference to the Companys Registration Statement on Form
S-8 filed on February 10, 1995 (file no. 33-89334).

(3)     
Incorporated by reference to exhibits filed in response to Item 16(a),
Exhibits, of the Companys Annual Report on Form 10-K for the year ended
December 31, 1997 (file
no. 000-19395).

(4)     
[This footnote has been intentionally left blank.]

(5)     
Incorporated by reference to exhibits filed in response to Item 14(a),
Exhibits, of the Companys Annual Report on Form 10-K for the year ended
December 31, 2000.

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##### 



(6)     
Incorporated by reference to the Companys Registration Statement on Form
S-8 filed June 19, 2001.

(7)     
Incorporated by reference to the signature page of this Report on Form
10-K.

(8)     
Incorporated by reference to exhibits filed in response to Item 16(a),
Exhibits, of the Companys Annual Report on Form 10-K for the year ended
December 31, 1998 (file
no. 000-19395).

(9)     
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.

(10)     
Incorporated by reference to Exhibit 4.1 to the Companys Report on Form
8-K filed on August 5, 2002.

(11)     
Incorporated by reference to Exhibit 1 to the Companys Schedule 13D filed
with the Securities and Exchange Commission on December 30, 2002.

(12)     
Incorporated by reference to exhibits filed in response to Item 14(a)
Exhibits, of the Companys Annual Report on Form 10-K for the year ended
December 31, 2001.

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