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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 
 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to Commission file number: 1-16493 SYBASE, INC.  Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
    
    94-2951005
(I.R.S. Employer
Identification No.)
 One Sybase Drive, Dublin, California 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 þ NO o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). YES þ NO o 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 $1.3 billion. As of
March 1, 2005, the Registrant had 89,162,388 shares of Common Stock outstanding.   - 1 -




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED            STOCKHOLDER MATTERSITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL            CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON            ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-KSIGNATURESEXHIBIT INDEXEXHIBIT 10.15EXHIBIT 10.46EXHIBIT 21EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32    Table of Contents  DOCUMENTS INCORPORATED BY REFERENCE Form 10-K Parts
    
    Document Incorporated by ReferenceIII
    
    Definitive Proxy Statement for the Annual Meeting of Stockholders to be held
May 26, 2005 (to be filed within 120 days of Registrants fiscal year ended December
31, 2004 pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Exchange
Act)
 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 the performance of the global economy and growth
in software industry sales; market acceptance of the Companys products and services; possible
disruptive effects of organizational or personnel changes; shifts in our business strategy;
interoperability of our products with other software products; the success of certain business
combinations engaged in by us or by competitors; political unrest or acts of war; customer and
industry analyst perception of the Company and its technology vision and future prospects; and
other risks detailed from time to time in our Securities and Exchange Commission filings, including
those discussed in Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A)- Overview, and MD&A  Future Operating Results, Part II, Item 7 of this Annual
Report on Form 10-K. Expectations, forecasts, and projections that may be contained in this report are by nature
forward-looking statements, and future results cannot be guaranteed. The words anticipate,
believe, estimate, expect, intend, will, and similar expressions in this document, as
they relate to Sybase and our management, may identify forward-looking statements. Such statements
reflect the current views of our management with respect to future events and are subject to risks,
uncertainties and assumptions. Forward-looking statements that were true at the time made may
ultimately prove to be incorrect or false, or may vary materially from those described as
anticipated, believed, estimated, intended or expected. We do not intend to update these
forward-looking statements. - 2 -




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PART I 
 ITEM 1. BUSINESS Sybase enables the Unwired Enterprise through enterprise, mobile and wireless software solutions
for information management, development and data integration. Sybase solutions provide customers
with an information edge by integrating platforms, databases, and applications, and extending those
applications by moving critical information from data centers to mobile workers through mobile and
wireless technologies. Sybase information management solutions are widely recognized for superior
reliability, security and openness, allowing easy and effective development in heterogeneous
environments. Our targeted markets include commerce, communications, finance, government, defense,
manufacturing, transportation and healthcare. Sybase was founded and incorporated in California on
November 15, 1984, and was re-incorporated in Delaware on July 1, 1991. Our business is organized into three principal operating divisions, Infrastructure Platform Group
(IPG), iAnywhere Solutions, Inc. (iAS), and Financial Fusion, Inc. (FFI). Both iAS and FFI are
majority-owned subsidiaries. Below is a brief description of the business of each division:   Infrastructure Platform Group (IPG)focuses on information management with its enterprise
class database servers for mission-critical transactions, data warehousing and business analytics.
IPG products provide information delivery solutions including high-availability replication, data
movement, and data and message integration. IPG solutions help enterprises reduce the complexity of
managing their information environment, deliver timely and accurate information to point of action
while improving response times and lowering the total cost of operations. IPG products also
increase developer productivity by providing dramatically easier-to-use tools that cut time and
project complexity while improving collaboration. During 2004, the principal products of IPG
accounted for approximately 73 percent of our license revenue.   iAnywhere Solutions, Inc. (iAS)is a subsidiary of Sybase that enables success at the
frontlines of business and holds worldwide market leadership positions in mobile and embedded
databases, mobile management and security, and mobile middleware. iASs unique Always Available
computing model provides online and offline access to the information and applications users need,
when and where they need it most. Millions of subscribers, 15,000 customers, and 1,000 partners
rely on iASs award-winning technologies, including SQL Anywhere®, Afaria®, and the AvantGo® mobile
Internet service. We acquired AvantGo, Inc. in February 2003. In the second quarter of 2004 we
acquired and are integrating into iAS, XcelleNet, a developer of mobile device management software
and the assets of Dejima, a provider of natural language technology solutions for mobile access.
The principal products of iAS accounted for approximately 24 percent of our license revenue in
2004.   Financial Fusion, Inc. (FFI)provides banking, payment, cash management, and trade messaging
solutions to more than 200 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 was created to extend the business
of Home Financial Network, Inc. (HFN), which we acquired in January 2000, and to develop certain
products formerly within NEN. The principal products of FFI accounted for approximately 3 percent
of our license revenue in 2004. A summary of financial results for these divisions is found in Note Ten to Consolidated Financial
Statements, Part II, Item 8. UNWIRED ENTERPRISE We define the Unwired Enterprise as the free flow of information within an organization, whether
inside the office or on the road. An Unwired Enterprise breaks down information technology barriers
and delivers critical information and applications to employees, partners, and customers anytime,
anywhere providing our customers with an information edge. An Unwired Enterprise is more efficient,
more productive, and better able to capitalize on new opportunities because information is moved to
the point of action, increasing its relevance and enhancing the power of decisions and
transactions. Our Unwired Enterprise - 3 -




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offerings include: Replication Server, Real Time Data Services, Unwired Orchestrator, Unwired
Accelerator, SQL Anywhere Studio and Afaria. CUSTOMERS Our customers are primarily Fortune 1000 companies in North America and their equivalents around
the globe. Our targeted markets include commerce, communications, finance, government, defense,
manufacturing, transportation and healthcare. No single customer accounted for more than 10
percent of total revenues during 2004, 2003 or 2002. In 2004 our customers included:  
    One of the largest Federal government agencies employed our Enterprise Portal, ASE,
Replication Server, Adaptive Server IQ, PowerBuilder and other Sybase technology to build a
new data warehouse that enhanced the back-end of its rapidly growing online marketplace.
The back-end enhancements incorporated state-of-the art radio frequency (RF) technology and
the Sybase products significantly increased the systems scalability and efficiency,
resulting in large savings to taxpayers.
    For a new e-government initiative, the statistics bureau of a large Federal agency used
Sybase IQ to develop a high-performance solution to compress a large volume of data while
making it more accessible and reducing the time needed for data gathering. The bureaus
web page now receives over 25,000 hits per day and provides users a single point of access
for efficient searches and higher-quality analysis. The time needed to load and index new
data also significantly decreased. In recognition of its public impact, the e-government
initiative was selected as a finalist in the 2004 Computerworld Honors awards.
    One of the largest railroad networks in North America implemented iAS mobile database,
synchronization, and mobile device management technologies to allow mobile workers to
remotely use the railroads work order management and timekeeping application. The solution
reduced data entry time by up to 50%, resulted in significant data entry-related cost
savings, and allows thousands of workers to work in very remote places without needing a
connection to the railroads back-end system. Our products are available on hardware platforms manufactured by Dell, Hewlett-Packard, IBM, Sun
Microsystems, and others. We also make products that connect these platforms to other hardware
platforms with large installed bases. 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: Infrastructure Platform Group (IPG) Information Management Products Sybase IQis a highly efficient relational database optimized for outstanding query performance for
both structured and unstructured data in business intelligence, reporting environments, and large
data warehouses. Sybase IQ combines extraordinary speed and agility with a low cost of ownership. Sybase Adaptive Server® Enterprise(ASE) is a powerful data management platform for high
performance business applications especially in high-transaction, mission-critical environments.
ASE combines a low total cost of ownership with excellent reliability, security, and scalability. Replication Server®increases the flexibility and lowers the cost of managing multiple data
management platforms. It provides bi-directional, heterogeneous replication and synchronization
across enterprise, client/server, desktop, and mobile systems. Sybase Dynamic Archiveis an online database archiving solution that enables customers to
proactively manage runaway data growth by offloading inactive data from the production system while
keeping both the production and archived data fully available online. Sybase Dynamic Archive
allows customers to - 4 -




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reduce maintenance windows, lower storage costs, improve application performance, and comply with
regulatory requirements for long-term storage, fast access and data integrity. Sybase Real-Time Data Servicesis a simple, cost-effective way to give decision-makers immediate
insight into changing business events by proactively pushing time-critical data from heterogeneous
enterprise databases to messaging architectures, eliminating the information lags created by
batch updates or intermittent polling processes. Sybase Mirror Activatorimproves the economics of high-end storage replication systems by reducing
network costs, accelerating recovery time and guaranteeing data integrity. It also extends the
usefulness of standby systems by utilizing them for reporting and decision support. Sybase RepConnect, Open Server, Open Client, Open Switch, Replication Agent, MainframeConnect
and EnterpriseConnect Data Accessare among our core data access and integration products that
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. Integration and Access Sybase Unwired Acceleratorspeeds the mobilization of Web applications and data sources for
always-available access. Its rapid development tools can mobilize existing applications or create
new mobile applications. Sybase Unwired Orchestratorenables organizations to unwire enterprise applications making data
available to anyone, anywhere. Unwired Orchestrator facilitates rapid development of new
applications, especially composite applications, by combining graphically built process flows,
enterprise integration, process monitoring and notification, all within a standards-based
infrastructure platform and common toolset. This capability cuts cost and rigidity of
labor-intensive, hand-coded traditionally needed to extend enterprise applications. Sybase Enterprise Portal (EP)provides a consolidated, user-friendly look at all types of
information from multiple legacy systems. Sybase Content Captureand Sybase Mach Desktopare sold
through our OEM channel. Sybase HIPAA Audit Solution, Claims Solution, EDI Serverand Sybase e-Biz Impactare integration
products specifically designed for the healthcare industry. The HIPAA solution helps customers
manage their compliance and reporting obligations under the Health Insurance Portability and
Accountability Act of 1996. EDI Server is an integration product for organizations using electronic
data interchange (EDI) to exchange business information with trading partners. e-Biz Impact is a
proven integration solution for managing complex information routing, particularly in the
healthcare industry. Development and Modeling Tools Sybase PowerDesigner®is a leading data-modeling and application design tool for enterprises that
need to build or re-engineer applications quickly, cost-effectively and consistently (also sold as
Sybase PowerAMC). Sybase PowerBuilder® is an industry-leading rapid application development (RAD) tool that increases
developer productivity through tight integration of design, modeling, development, and management. Sybase DataWindow.Netboosts the performance of .Net application environments. Sybase PocketBuilderprovides a highly productive Integrated Development Environment (IDE) for
mobile application development. - 5 -




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Sybase EA Serveris an enterprise application server based on open standards for powering mission
critical applications. iAnywhere Solutions (iAS) SQL Anywhere® Studiois recognized as the industry leading data management and enterprise
synchronization solution for applications that typically operate without a traditional data center.
Offering high performance out of the box, with low maintenance requirements and a small footprint,
SQL Anywhere is an enterprise caliber database ideal for embedding in server, desktop, remote
office and mobile applications. m-Business Anywhereis a highly scalable platform for delivering Web-based applications and
content to mobile devices. Web developers can leverage their existing skill sets and open standards
to develop and deploy fully interactive always available Web applications with sync-and-go or
wireless capabilities. Pylonis a set of secure, flexible, feature-rich solutions that extends a companys existing Lotus
Notes and Microsoft Exchange infrastructure to hand-held devices. Pylon products enable
organizations to easily mobilize corporate e-mail, calendar, contacts, task lists, expenses and
custom Notes applications. Mobile Salesis a customizable software package that helps organizations accelerate the adoption
and return on investment of existing customer relationship management (CRM) solutions by enabling
sales professionals to access these systems from mobile devices, anywhere, at anytime. Mobile
Sales offers adaptors for Siebel and salesforce.com applications, and Mobile Pharma addresses the
mobile CRM needs of the pharmaceutical industry. AvantGo® Mobile Internet Serviceis a free service that delivers rich, personalized mobile Websites
to PDAs and smartphones. Today, hundreds of major brands, including American Airlines, CNET, GM,
Rolling Stoneand The New York Timesleverage AvantGo to target a highly desirable demographic of
millions of registered users. AvantGo offers the convenience of anywhere anytime access, seamlessly
supporting both wireless and sync and go connectivity. Answers Anywhereis a robust, carrier-grade middleware platform with powerful Natural Language and
context understanding capabilities that enables end-users  whether they are on a wireless phone,
using a handheld PDA, interacting with a customized console, or at a desktop computer  to ask for
information and transactions in their own words, in any language, and get accurate, relevant
answers back quickly and reliably. Afaria®proactively manages the remote and mobile devices, applications, data, and communications
critical to frontline success. Afaria software solutions keep technology simple and useful for
those on the front lines of business while providing headquarters with control and visibility. RFID Anywhereautomates the process of developing and deploying RFID applications and networks.
RFID Anywhere is a platform that addresses the physical requirements of the technology and even
provides the ability to simulate and troubleshot production RFID environments. RFID Anywhere
abstracts device interfaces and standards and manages them directly. RemoteWare®is an industry-leading polling, file transfer, and content distribution solution that
support a broad range of frontline systems and networking options. RemoteWare fully supports both
classic POS devices and contemporary software environments and is designed to move critical sales
data between retail or hospitality sites and headquarters. 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 - 6 -




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wireless application support. Solutions are supported on an integrated platform driven by
Financial Fusion Serverusing advanced Java technology and industry protocols. Financial Fusion® Financial Markets Solutionsare designed to meet the straight-through processing
connectivity and integration requirements of the trading industry. FFI solutions provide
processing for transaction intensive trading organizations such as securities and investment firms,
electronic communications networks and network providers. FFI solutions support a variety of
electronic messaging protocols including FIX, FIXML, FpML, EMX, SWIFT, VMUs, and certain
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 in all time zones around the
world. Our end users and partners have access to technical information sources and newsgroups on
our support website, including a problem-solving library, a solved cases database, and software
fixes that can be downloaded. Generally, customers can choose technical support programs that best
suit their business needs. All of the following support programs are priced on a per-product basis
and include updates and new version releases that become available during the support period.  Basic Supportis designed for 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 our enterprise database
products such as ASE 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 a designated enterprise support team, account
management, and other specialized options. In addition to the above support offerings, we offer several support services options geared toward
developers for designated workplace level and tools products. These programs are priced on a
flat-fee annual basis with updates and new version releases available for purchase separately. Each of our principal business divisions also offers a variety of support services to their
partners and resellers. 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 training providers also provide education 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 - 7 -




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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.Sybase products and services are generally licensed through our direct sales
organization and our indirect sales channels. Indirect sales channels include value added
resellers (VARs), systems integrators (SIs), original equipment manufacturers (OEMs) and
international distributors and resellers. International Business.In 2004, 42 percent of our total revenues were from operations outside
North America, with operations in EMEA (Europe, Middle East and Africa) accounting for 28 percent,
and operations in our Intercontinental region (Asia Pacific and Latin America) accounting for 14
percent. Most of our international sales are made by our foreign subsidiaries. However, certain
sales are made in international markets from the United States. We also license our products
through distributors and other resellers throughout the world. A summary of our geographical
revenues is set forth in MD&A  Geographical Revenues, Part II, Item 7, and Note Ten to
Consolidated Financial Statements, Part II, Item 8. For a discussion of the risks associated with
our foreign operations, see MD&A  Future Operating Results  We are subject to risks arising from
our international operations, Part II, Item 7. 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 1, 2005, we had 98
issued patents (92 U.S. and 6 non-U.S.) that expire approximately 20 years from the date they were
filed. These patents cover various aspects of our technology. We believe that our patents and
other intellectual property rights have value, but no single patent is critical to Sybase as a
whole. However, any of our proprietary rights could be challenged, invalidated or circumvented, or
may not provide us with significant competitive advantage. For a discussion of additional risks
associated with our intellectual property, see MD&A  Future Operating Results  If we are unable
to protect our intellectual property, or if we infringe or are alleged to infringe a third partys
intellectual property, our operating results may be adversely affected, Part II, Item 7. 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 2004, we invested $119.9 million,
or 15 percent of our total revenue in research and development.

These amounts compared to $116.9 million and 15 percent in 2003, and $117.8 million and 14
percent in 2002.

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  The ability
to rapidly develop and bring to market advanced products and services that are successful is
crucial to maintaining our competitive position, Part II, Item 7. COMPETITION The market for our products and services is extremely competitive due to various factors including
a maturing enterprise infrastructure software market, changes in customer IT spending habits, and
the trend toward consolidation of companies within the software industry. Our competitors by
product groups are described below. Information Management Products.Principal competitors to our Information Management Products
include Oracle, IBM and Microsoft. We also see compete with certain specialized vendors in niche
segments such as Teradata in data warehousing, and GoldenGate Software and Datamirror in the
replication software. Development and Integration.Principal competitors to our Integration and Access and
Development and Modeling Tools offering vary by product type. For Development and Modeling Tools,
we compete with Borland, BEA Systems and IBM. Our principal competitors to our Integration and
Access products are IBM, WebMethods, BEA Systems, SeeBeyond and Tibco. iAnywhere Solutions.Principal competitors to iAS vary by product type. For mobile and
embedded database products, we compete with Pervasive Software, Progress Software, Intersystems,
MySQL, IBM and Oracle. For mobile middleware products we compete with Extended Systems, IBM and
host of numerous small vendors. For mobile device management products, we compete with Intellisync,
Altiris, BMC through their recent acquisition of Marimba, iPass through their recent acquisition of
Mobile Automation and numerous small vendors. Financial Fusion, Inc.Principal competitors to FFI include Corillian, S1, Digital Insights
and Open Solutions. We believe that we compete favorably against our competitors in each of these areas. However, some
of our competitors have longer operating histories, greater name recognition, stronger
relationships with partners, larger technical staffs, established relationships with hardware
vendors and/or greater financial, technical and marketing resources. These factors may provide our
competitors with an advantage in penetrating markets. For a discussion of certain risks associated
with competition, see MD&A  Future Operating Results  Industry consolidation and other
competitive pressures could affect prices or demand for our products and services, and our business
may be adversely affected, Part II, Item 7. EMPLOYEES As of March 1, 2005, Sybase and its subsidiaries had approximately 3,568 regular employees. For
information regarding our executive officers, see Directors and Executive Officers of the
Registrant, Part III, Item 10. - 8 -




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ITEM 2. PROPERTIES As of December 31, 2004, our field operations, professional service organizations and subsidiaries
occupied leased facilities in approximately 61 separate locations throughout North America, Latin
America, Europe and the Asia Pacific region (including Australia and New Zealand), aggregating
approximately 1.4 million square feet. On January 28, 2000, we entered into a 15-year non-cancelable lease of our corporate headquarters
facility in Dublin, California. The 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 the third quarter of 2004 we commenced occupancy of a 105,000 square foot building housing
administrative, R&D and other facilities of our subsidiaries in Waterloo, Canada. This lease
expires in 2019 and we have a 10 year renewal option at the end of the lease at then-fair market
value. We occupy three buildings totaling approximately 167,000 square feet in Concord, Massachusetts
under a lease that terminates in October 2012. In the third quarter of 2004 we determined to
sublease one of these buildings, totaling approximately 44,600 square feet in connection with our
restructuring activities. For a further discussion of our leases in Dublin, Concord and Waterloo, see Note Six to
Consolidated Financial Statements, Part II, Item 8. We continue to lease space at other locations around the world that serve a variety of functions,
including professional services, sales, engineering, technical support, and general administration.
These include significant facilities in Maidenhead, England; Boulder, Colorado; and Alpharetta,
Georgia. In addition to the facilities noted above, we maintain engineering centers in Englewood,
Colorado; Paris, France; Pune, India, and Singapore. 
 ITEM 3. LEGAL PROCEEDINGS See Note Twelve to Consolidated Financial Statements, Part II, Item 8. 
 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, 2004. 
 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 (NYSE) on
May 22, 2001, under the symbol SY. Prior to that, our stock traded on the NASDAQ National Market
System under the symbol SYBS. Following is the range of low and high closing prices for our
stock as reported on the NYSE for the quarters indicated. High
    
    
    LowFiscal 2003Quarter ended March 31, 2003
    
    $
    14.97
    
    
    $
    12.95Quarter ended June 30, 2003
    
    $
    14.67
    
    
    $
    11.49Quarter ended September 30, 2003
    
    $
    17.59
    
    
    $
    13.80Quarter ended December 31, 2003
    
    $
    22.10
    
    
    $
    16.99
 - 9 -




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High
    
    
    LowFiscal 2004Quarter ended March 31, 2004
    
    $
    22.66
    
    
    $
    19.75Quarter ended June 30, 2004
    
    $
    20.88
    
    
    $
    16.46Quarter ended September 30, 2004
    
    $
    17.67
    
    
    $
    12.80Quarter ended December 31, 2004
    
    $
    19.95
    
    
    $
    13.93
 We have never paid cash dividends on our capital stock, and we do not anticipate doing so in
the foreseeable future. The closing sale price of our Common Stock on the NYSE on March 1, 2005
was $19.00. The number of stockholders of record on that date was 1,407, according to American
Stock Transfer and Trust, our transfer agent. The information required by this item regarding our securities authorized for issuance under equity
compensation plans is provided in Security Ownership of Certain Beneficial Owners and Management,
Part III, Item 12, which incorporates information to be disclosed in our 2005 Proxy Statement. Issuer Purchases of Equity Securities During the fourth quarter of 2004 we conducted the following repurchases  of our Common Stock pursuant to our
repurchase program: Number of shares
    
    
    Avg. PricePaid PerPeriod
    
    purchased
    
    
    ShareOctober 2004
    
    
    133,320
    
    
    $
    15.90November 2004
    
    
    235,995
    
    
    $
    16.75December 2004
    
    
    0
    
    
    
    0Total for Fourth Quarter 2004
    
    
    369,315
    
    
    $
    16.44
 After completing the repurchases noted above, $103.7 million remained authorized for
repurchase pursuant to our publicly announced repurchase program. - 10 -




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ITEM 6. SELECTED FINANCIAL DATA The following selected financial information is not necessarily indicative of the results of our
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 of this Report
on Form 10-K. Consolidated Statements of Operations Data (In thousands, except per share data)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Revenues:License fees
    
    $
    275,872
    
    
    $
    274,817
    
    
    $
    325,916
    
    
    $
    389,038
    
    
    $
    468,501Services
    
    
    512,664
    
    
    
    503,245
    
    
    
    503,945
    
    
    
    538,885
    
    
    
    494,662Total revenues
    
    
    788,536
    
    
    
    778,062
    
    
    
    829,861
    
    
    
    927,923
    
    
    
    963,163Costs and expenses:Cost of license fees
    
    
    60,795
    
    
    
    60,711
    
    
    
    51,448
    
    
    
    45,695
    
    
    
    45,120Cost of services
    
    
    161,848
    
    
    
    162,666
    
    
    
    190,067
    
    
    
    240,779
    
    
    
    248,542Sales and marketing
    
    
    242,431
    
    
    
    239,045
    
    
    
    271,765
    
    
    
    331,237
    
    
    
    345,149Product development and engineering
    
    
    119,877
    
    
    
    116,889
    
    
    
    117,784
    
    
    
    125,404
    
    
    
    126,689General and administrative
    
    
    87,115
    
    
    
    82,111
    
    
    
    84,938
    
    
    
    76,885
    
    
    
    67,267Amortization of goodwill (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,859
    
    
    
    30,155Amortization of other purchased
intangibles
    
    
    5,139
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,575Goodwill impairment (1)
    
    
    
    
    
    
    
    
    
    
    12,300
    
    
    
    
    
    
    
    In-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,500
    
    
    
    8,000Stock compensation expense
    
    
    4,599
    
    
    
    2,882
    
    
    
    1,937
    
    
    
    1,334
    
    
    
    Reversal of AvantGo restructuring
Accrual
    
    
    (2,677
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cost (reversal) of restructuring
    
    
    20,017
    
    
    
    7,429
    
    
    
    40,446
    
    
    
    48,751
    
    
    
    (791
    )Total costs and expenses
    
    
    699,144
    
    
    
    673,733
    
    
    
    772,685
    
    
    
    944,444
    
    
    
    872,706Operating income (loss)
    
    
    89,392
    
    
    
    104,329
    
    
    
    57,176
    
    
    
    (16,521
    )
    
    
    90,457Interest income and expense, net
    
    
    11,574
    
    
    
    13,766
    
    
    
    14,033
    
    
    
    17,529
    
    
    
    17,035Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    94Income before income taxes and
cumulative effect of an accounting change
    
    
    100,966
    
    
    
    118,095
    
    
    
    71,209
    
    
    
    978
    
    
    
    107,586Provision for income taxes
    
    
    33,016
    
    
    
    30,829
    
    
    
    33,428
    
    
    
    26,500
    
    
    
    35,461Income (Loss) before cumulative effect of
an accounting change
    
    
    67,950
    
    
    
    87,266
    
    
    
    37,781
    
    
    
    (25,522
    )
    
    
    72,125Cumulative effect of an accounting change
to adopt SFAS 142
    
    
    
    
    
    
    
    
    
    
    (132,450
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    67,950
    
    
    $
    87,266
    
    
    $
    (94,669
    )
    
    $
    (25,522
    )
    
    $
    72,125Income (Loss) per share before cumulative
effect of an accounting
change
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    0.39
    
    
    $
    (0.27
    )
    
    $
    0.82Cumulative effect of an accounting change
    
    
    
    
    
    
    
    
    
    
    (1.37
    )
    
    
    
    
    
    
    Basic net income (loss) per share
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    (0.98
    )
    
    $
    (0.27
    )
    
    $
    0.82Shares used in computing basic net
Income (loss) per share
    
    
    95,550
    
    
    
    94,833
    
    
    
    96,844
    
    
    
    94,592
    
    
    
    87,711Income (Loss) per share before cumulative
effect of an accounting change
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    0.38
    
    
    $
    (0.27
    )
    
    $
    0.78Cumulative effect of an accounting change
    
    
    
    
    
    
    
    
    
    
    (1.33
    )
    
    
    
    
    
    
    Diluted net income (loss) per share
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    (0.95
    )
    
    $
    (0.27
    )
    
    $
    0.78Shares used in computing diluted net
Income (loss) per share
    
    
    98,001
    
    
    
    97,582
    
    
    
    99,584
    
    
    
    94,592
    
    
    
    92,150
 - 11 -




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Stock compensation expense related to the following: Cost of services
    
    $
    160
    
    
    $
    30
    
    
    $
    
    
    
    $
    
    
    
    
    Sales and marketing
    
    
    335
    
    
    
    112
    
    
    
    77
    
    
    
    52
    
    
    
    Product development and engineering
    
    
    82
    
    
    
    78
    
    
    
    78
    
    
    
    56
    
    
    
    General and administrative
    
    
    4,022
    
    
    
    2,662
    
    
    
    1,782
    
    
    
    1,226
    
    
    
    $
    4,599
    
    
    $
    2,882
    
    
    $
    1,937
    
    
    $
    1,334
    
    
    
    
   (1)
    
    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 Consolidated Financial Statements  Goodwill and
Other Purchased Intangible Assets, Part II, Item 8 . Consolidated Balance Sheet Data (In thousands) 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Cash, cash equivalents and cash
investments
    
    $
    513,632
    
    
    $
    573,793
    
    
    $
    387,180
    
    
    $
    343,160
    
    
    $
    354,612Working capital
    
    
    290,237
    
    
    
    261,023
    
    
    
    112,296
    
    
    
    111,822
    
    
    
    160,560Total assets
    
    
    1,183,522
    
    
    
    1,151,356
    
    
    
    992,749
    
    
    
    1,133,242
    
    
    
    915,040Long-term obligations
    
    
    33,121
    
    
    
    15,129
    
    
    
    10,641
    
    
    
    5,887
    
    
    
    5,795Stockholders equity
    
    
    756,556
    
    
    
    741,469
    
    
    
    580,374
    
    
    
    716,519
    
    
    
    490,752
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Overview  
    Our BusinessWe are a global enterprise software company that derives revenues primarily from the sale and
support of enterprise and mobile software solutions to business and government users.Our value proposition involves enabling the Unwired Enterprise through integrated applications
and solutions designed to manage information across the enterprise, allowing customers to
extract more value from their information technology (IT) investments. Our solutions unlock,
integrate, and seamlessly deliver nearly all types of data, whether in a database, a
transaction, or an application, anywhere, anytime and on any platform. We deliver a full range
of mobile enterprise solutions that includes mobile databases, middleware, synchronization, and
management software.Our business is organized into three business segments: IPG, which principally focuses on
enterprise class database servers, integration and development products, iAS, which provides
mobile database and mobile enterprise solutions, and FFI, which delivers integrated banking,
payment and trade messaging solutions to large financial institutions. During 2004,
approximately 54 percent of our revenues were generated from the U.S. with the balance generated
from our non-U.S. operations. For further discussion of our business segments and principal
products, see Business, Part I, Item 1.On April 30, 2004 we acquired Xcellenet, Inc. (Xcellenet) a privately held provider of frontline
device management software. This acquisition was made to strengthen the Companys position in
the mobile middleware market and bring important enhancements to our Unwired Enterprise
offerings. See Note Eleven to Consolidated Financial Statements  Business combinations, Part
II, Item 8. - 12 -




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
    Our ResultsTotal revenues were $788.5 million for 2004, compared to $778.1 million for 2003, and $829.9
million for 2002. The increase in total revenues from 2003 to 2004 was primarily due to a $27.1
million (29 percent) increase in iAS revenues offset by a $18.0 million (2 percent) decline in
IPG revenues. Without consideration of XcelleNet the iAS revenue growth would have been $6.9
million (7 percent) for 2004. We believe our iAS revenues will remain strong as we continue to
integrate and leverage our XcelleNet acquisition, and as our Unwired Enterprise initiative gains
momentum. The decline in the revenue of our IPG segment was attributable to a 5 percent decline
in license revenues primarily those derived from our core database products. While we expect
the market for our core database products to remain challenging, we are encouraged that IPG
license revenues increased during both the third and fourth quarters of 2004 when compared to
the same periods in 2003, as well as the sales and interest generated by several products that
became generally available during the third quarter of 2004, including our real-time database
ASE 12.5.2 and Mirror Activator.We reported net income of $68.0 million for 2004, compared to net income of $87.3 million for
2003, and net income of $37.8 million in 2002 (before the cumulative effect of an accounting
change). Our 2004 operating margin was 11.3 percent compared to 13.4 percent in 2003. The
decrease was partially attributable a $12.6 million increase in restructuring costs incurred in
2004 compared to 2003 (see Note Thirteen to Consolidated Financial Statements, Part II, Item 8),
and partially attributable to the inclusion of operating losses of XcelleNet. The acquisition
of XcelleNet had an adverse impact of approximately $3.5 million on our 2004 operating margin.
The loss generated by Xcellenet was largely attributable to the purchase accounting write-down
of approximately $5.1 million in Xcellenets deferred revenues associated with technical support
services which otherwise would have been recognized in 2004.Our overall financial position remains strong. During 2004 we generated net cash from operating
activities of $176.2 million, and had $521.6 million in cash, cash equivalents and cash
investments (including restricted stock) at December 31, 2004. Our days sales outstanding in
accounts receivable was 65 days for the quarter ended December 31, 2004 compared to 60 days for
the quarter ended December 31, 2003, the largest factor contributing to this increase was our
increase in license revenues.For a discussion of certain factors that may impact our business and financial results, see
Future Operating Results, below.
    Business TrendsThe market for new sales of enterprise infrastructure software continues to be challenging due
to various factors, including a maturing enterprise infrastructure software market, and changing
patterns in information technology spending.As was the case in 2003, the majority of our license fee revenues during 2004 came from sales to
our existing customers. In recent years, fewer of our customers have undertaken large-scale
infrastructure investments requiring significant investment in our core enterprise database
products and related services (this also contributed to a decline in our consulting and
education revenues). We believe this is partly due to market saturation in some of our target
markets (including financial services, insurance and telecommunications) where large enterprises
have invested heavily in their core database infrastructures during the past 15 years. In the
future, we believe that much of the industrys growth will be generated by sales to middle
market companies. We believe we are positioned to exploit this growth opportunity with various
initiatives including our strategic partnership with SAP focused on providing enterprise level
software to small and medium sized businesses.We continue to observe a changing trend in historical IT spending patterns. Specifically, while
we continue to see an overall increase in our transaction volume for license revenues, the
average dollar value of these transactions is lower than historical amounts. This pattern
supports our view that fiscally cautious customers generally are continuing to purchase products
and services based more - 13 -




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on present need and less on fulfilling anticipated future needs. Overall, mixed signs of a
strong and sustained U.S. and global economic recovery make it difficult to project whether and
to what extent the overall market for enterprise infrastructure software will materially
improve. We do note, however, that while our results in the first two quarters of 2004 were
disappointing, we reported revenue growth and strong operating results in the third and fourth
quarters, both of which exceeded analyst expectations.Moving forward, we will continue to manage our operating expenses as we aggressively pursue our
Unwired Enterprise initiative and strategic alliances with our key partners including SAP,
Intel, and others. For further discussion of the effect of current business trends on our
results of operations, see Future Operation Results, below. We also believe that we are well
positioned to compete within several growing market segments including mobility solutions, data
analytic tools, and Linux based enterprise software. Critical Accounting Policies and Estimates We prepare our financial statements in accordance with U.S. generally accepted accounting
principles (GAAP). These accounting principles require us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and
liabilities at the date of our financial statements. We also are required to make certain judgments
that affect the reported amounts of revenues and expenses during each reporting period. We
periodically evaluate our estimates and assumptions including those relating to revenue
recognition, impairment of goodwill and intangible assets, the allowance for doubtful accounts,
capitalized software, restructuring, income taxes, stock-based compensation 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. Further, changes in accounting and legal standards could
adversely affect our future operating results (see Future Operating Results, below). Our
critical accounting policies include: revenue recognition, impairment of goodwill and other
intangible assets, allowance for doubtful accounts, capitalized software, restructuring, income
taxes, stock-based compensation, and contingencies and liabilities, each of which are discussed
below.  
    Revenue RecognitionRevenue recognition rules for software companies are very complex. We follow specific and
detailed guidance in measuring revenue, although certain judgments affect the application of our
revenue recognition policy. These judgments would include, for example, the determination of a
customers creditworthiness, whether two separate transactions with a customer should be
accounted for as a single transaction, or whether included services are essential to the
functionality of a product thereby requiring percentage of completion accounting rather than
software accounting.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. We license software under non-cancelable license agreements. License fee revenues
are recognized when (a) a non-cancelable license agreement is in force, (b) the product has been
delivered, (c) the license fee is fixed or determinable, and (d) collection is reasonably
assured. If the fee is not fixed or determinable, revenue is recognized as payments become due
from the customer. Residual Method Accounting. In software arrangements that include multiple elements
(e.g., license rights and technical support services), we allocate the total fees among each of
the elements using the residual method of accounting. Under this method, revenue allocated to
undelivered elements is based on vendor-specific objective evidence of fair value of such
undelivered elements, and the residual revenue is allocated to the delivered elements. Vendor
specific objective evidence of - 14 -




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fair value for such undelivered elements is based upon the price we charge for such product
or service when it is sold separately. We may modify our pricing practices in the future, which
would result in changes to our vendor specific objective evidence. As a result, future revenue
associated with multiple element arrangements could differ significantly from our historical
results. Percentage of Completion Accounting. Fees from licenses sold together with
consulting services are generally recognized upon shipment of the licenses, provided (i) the
criteria described in subparagraphs (a) through (d) above are met, (ii) payment of the license
fee is not dependent upon performance of the consulting services, and (iii) the consulting
services are not essential to the functionality of the licensed software. If the services are
essential to the functionality of the software, or performance of services is a condition to
payment of license fees, both the software license and consulting fees are recognized under the
percentage of completion method of contract accounting. Under this method, we are required to
estimate the number of total hours needed to complete a project, and revenues and profits are
recognized based on the percentage of total contract hours as they are completed. Due to the
complexity involved in the estimating process, revenues and profits recognized under the
percentage of completion method of accounting are subject to revision as contract phases are
actually completed. Historically, these revisions have not been material. Sublicense Revenues. We recognize sublicense fees as reported to us by our
licensees. License fees for certain application development and data access tools are recognized
upon direct shipment by us to the end user or upon direct shipment to the reseller for resale to
the end user. If collection is not reasonably assured in advance, revenue is recognized only
when sublicense fees are actually collected. Service Revenues. Technical support revenues are recognized ratably over the term
of the related support agreement, which in most cases is one year. Revenues from consulting
services under time and materials contracts, and for education, are recognized as services are
performed. Revenues from other contract services are generally recognized under the percentage
of completion method of contract accounting described above.  
    Impairment of Goodwill and Other Intangible AssetsGoodwill and intangible assets have generally resulted from our business combinations accounted
for as purchases. We are required to test amounts recorded as goodwill or recorded as intangible
assets with indeterminate lives, at least annually for impairment. The review of goodwill and
indeterminate lived intangibles for potential impairment is highly subjective and requires us to
make numerous estimates 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 Ten to Consolidated Financial Statements, Part II, Item 8. 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. Our impairment testing resulted in the first quarter of 2002, in a
cumulative effect of an accounting change of $132.5 million and in the fourth quarter of 2002, a
goodwill impairment of $12.3 million. As of December 31, 2004, our goodwill balance totaled
$214.1 million.We performed our annual impairment analysis as of December 31, 2004 for each of our reporting
units and for each indeterminate lived intangible. This analysis indicated that the estimated
fair value of each reporting unit or indeterminate lived intangible exceeded its carrying value.
Therefore, we were not required to recognize an impairment loss in 2004. However, 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
impairment charge. A goodwill impairment charge is based on the value of a reporting unit at the
testing date. Accordingly, reporting units that previously reported an impairment charge (as was
the case with FFI in 2002) are particularly prone to additional impairment charges if future
revenue and expense forecasts or market conditions - 15 -




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worsen after the testing date. This is because any subsequent reduction of fair value after a
testing date would have a strong likelihood of triggering an additional impairment charge.  We continue to review our other intangible assets (e.g., purchased technology, trade names and
customer lists) for indications of impairment whenever events or changes in circumstances
indicate the carrying amount of any such asset may not be recoverable. For these purposes,
recoverability of these assets is measured by comparing their carrying values to the future
undiscounted cash flows the assets are expected to generate. This methodology requires us to
estimate future cash flows associated with certain assets or groups of assets. Changes in these
estimates could result in impairment losses associated with other intangible assets. See Note
One to Consolidated Financial Statements  Goodwill and Other Purchased Intangible Assets, Part
II, Item 8.
    Allowance for Doubtful AccountsWe 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 or other factors affect our customers ability to make timely payments.
    Capitalized SoftwareWe capitalize certain software development costs after a product becomes technologically
feasible and before its general release to customers. Significant judgment is required in
determining when a product becomes technologically feasible. Capitalized development costs are
then amortized over the products estimated life beginning upon general release of the product.
Quarterly, we compare a products unamortized capitalized cost to the products net realizable
value. To the extent unamortized capitalized cost exceeds net realizable value based on the
products estimated future gross revenues (reduced by the estimated future costs of completing
and selling the product) the excess is written off. This analysis requires us to estimate future
gross revenues associated with certain products and the future costs of completing and selling
certain products. Changes in these estimates could result in write-offs of capitalized software
costs.
    RestructuringWe have recorded significant accruals in connection with various restructuring activities. These
accruals include estimated net costs to settle certain lease obligations based on analysis of
independent real estate consultants. While we do not anticipate significant changes to these
estimates in the future, the actual costs may differ from estimates. For example, if we are able
to negotiate more affordable termination fees, if rental rates increase in the markets where the
properties are located, or if we are able to locate suitable sublease tenants more quickly than
expected, the actual costs could be lower than our estimates. In that case, we would reduce our
restructuring accrual with a corresponding credit to cost of restructuring. Alternatively, if we
are unable to negotiate affordable termination fees, if rental rates decrease in the markets
where the properties are located, or if it takes us longer than expected to find suitable
sublease tenants, the actual costs could exceed our estimates. For example, in the fourth
quarter of 2004 we added approximately $0.7 million to our facility related restructuring
accruals due to revisions to expected sublease income provided by our real estate consultants
with respect to a property located in Colorado. See Note Thirteen to Consolidated Financial
Statements, Part II, Item 8.
    Income TaxesWe 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 - 16 -




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valuation allowance. 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 and record a
corresponding reduction to our income tax expense 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 and record a charge to income tax expense for the period. Our gross
deferred tax asset at December 31, 2004 was $174.3 million upon which we have recorded a
corresponding valuation allowance of $96.3 million. Significant 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 (e.g,, the income we earn within the United States) could materially impact our
financial position or results of operations. See Note Eight to Consolidated Financial
Statements, Part II, Item 8.  
    Stock-Based CompensationSFAS 123, Accounting for Stock-Based Compensation, currently encourages, but does not require,
companies to record compensation cost for stock-based employee compensation plans at fair value.
We have continued to account for stock-based employee compensation using the intrinsic value
method. Under that method, 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. However, as of July 1, 2005, we will
be required to apply FASB Statement 123R, Share-Based Payment, which will require us to measure
compensation cost for all share-based payments at fair value. See Note One to Consolidated
Financial Statements  Stock-Based Compensation, and Other Recent Accounting Pronouncements,
Part II, Item 8. - 17 -




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
    Contingencies and LiabilitiesWe are involved from time to time in various proceedings, lawsuits and claims involving our
customers, products, intellectual property, stockholders and employees, among other things. We
routinely review the status of each significant matter and assess our potential financial
exposure. When we reasonably determine that a loss associated with any of these matters is
probable, and can reasonably estimate the loss, we record a reserve to provide for such loss
contingencies. If we are unable to record a reserve because we are not able to estimate the
amount of a potential loss in a matter, or if we determine that a loss is not probable, we are
nevertheless required to disclose certain information regarding such matter if we determine that
there is a reasonable possibility that a loss has been incurred. Because of the inherent
uncertainties related to these types of matters, we base our loss reserves on the best
information available at the time. As additional information becomes available, we may
reevaluate our assessment regarding the probability of a matter or its expected loss. Our
financial position or results of operations could be materially and adversely affected by such
revisions in our estimates. For further discussion of contingencies and liabilities, see Future
Operating Results, below. Results of Operations Revenues(Dollars in millions) 2004
    
    
    Change
    
    
    2003
    
    
    Change
    
    
    2002License fees by segment:IPG
    
    $
    225.3
    
    
    
    (5
    %)
    
    $
    237.7
    
    
    
    (18
    %)
    
    $
    290.5IAS
    
    
    70.7
    
    
    
    26
    %
    
    
    56.3
    
    
    
    (2
    %)
    
    
    57.2FFI
    
    
    7.3
    
    
    
    87
    %
    
    
    3.9
    
    
    
    (48
    %)
    
    
    7.5Eliminations
    
    
    (27.4
    )
    
    
    
    
    
    
    (23.1
    )
    
    
    
    
    
    
    (29.3
    )Total license fees
    
    $
    275.9
    
    
    
    *
    
    
    $
    274.8
    
    
    
    (16
    %)
    
    $
    325.9Percentage of total revenues
    
    
    35
    %
    
    
    
    
    
    
    35
    %
    
    
    
    
    
    
    39
    %Services by segment:IPG
    
    $
    475.5
    
    
    
    (1
    %)
    
    $
    481.0
    
    
    
    (1
    %)
    
    $
    485.5IAS
    
    
    48.6
    
    
    
    35
    %
    
    
    35.9
    
    
    
    65
    %
    
    
    21.8FFI
    
    
    20.2
    
    
    
    20
    %
    
    
    16.8
    
    
    
    (13
    %)
    
    
    19.3Eliminations
    
    
    (31.7
    )
    
    
    
    
    
    
    (30.4
    )
    
    
    
    
    
    
    (22.6
    )Total services
    
    $
    512.6
    
    
    
    2
    %
    
    $
    503.3
    
    
    
    *
    
    
    $
    504.0Percentage of total revenues
    
    
    65
    %
    
    
    
    
    
    
    65
    %
    
    
    
    
    
    
    61
    %Total revenues
    
    $
    788.5
    
    
    
    1
    %
    
    $
    778.1
    
    
    
    (6
    %)
    
    $
    829.9
   *
    
    Not meaningfulTotal license fees for 2004 increased slightly from total license fees in 2003 (which had decreased
16 percent from 2002). The increase in license fees revenues during 2004 was primarily attributable
to $9.2 million in iAS license revenues generated by products acquired in the XcelleNet acquisition
along with a $4.5 million increase in license revenues from the iAS segments SQL Anywhere®
product. This increase was partially offset by a $13.6 million decline in IPG license revenues
from our Adaptive Server® Enterprise product. Reasons for the decline in IPG license revenues for
2004 are discussed above in Overview, above, and Future Operating Results below.As noted above, a decline in license revenues relating to our Adaptive Server® Enterprise product
was the biggest contributer to the overall decline in IPG license fees. Partially offsetting this
decline was increased license revenues from our Replication Server® and Adaptive Server® IQ
products. - 18 -




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##### Table of Contents



The increase in iAS license revenues was primarily attributable to products discussed above. Before
consideration of license revenues from products acquired in the XcelleNet acquisition, the license
revenues of the iAS segment would have increased 9 percent for 2004. FFI license revenues are largely dependent upon closing large (multi-million dollar) transactions.
As a result, the year-over-year results for FFI tend to fluctuate greatly. The increase in FFI
license revenues for 2004 was primarily attributable to increased sales of the segments core
banking application in North America. In 2003, the most significant decline in license fees revenues resulted from a decline the sales of
certain IPG Integration and Access products largely due a major shift in the business of one of our
largest North American resellers that significantly lowered the resellers need to use our
technology as part of its offering. Our revenues from this reseller continued to decline in 2004
and are no longer significant. Segment revenues includes transactions between the segments, and in the most common instance
relates to the sale of iAS and FFI products and services by the IPG segment. In the case of such a
transaction, the segment recording the sale also records an intercompany expense on the
transaction, with a corresponding intercompany revenue amount recorded by the segment whose product
was sold. The net amount retained by the segment that recorded the sale is intended to reflect the
costs incurred by such transferring segment. The total transfers between the segments are captured
in Eliminations. Total service revenues for 2004 (which include revenues from technical support, education, and
professional services) increased 2 percent from total service revenues in 2003.This increase was
primarily due to $9.3 million in technical support revenues associated with the XcelleNet business,
and a 75 percent increase ($3.9 million) in FFI professional services revenues that primarily
resulted from several large consulting engagements in North America. XcelleNet contributed $10.5
million to the iAS segments service revenues (primarily technical support) in 2004. Technical support revenue for 2004 increased 3 percent ($10.7 million) from the 2003 total and the
deferred revenue related to technical support contracts at December 31, 2004 was up 11 percent from
the deferred revenue related to such contracts at December 31, 2003. Approximately 77 percent of
services revenues in each of 2004 and 2003 related to technical support revenues. Other services revenues declined 1 percent in 2004 from 2003. The increase in FFIs professional
services revenues discussed above was largely offset by a 3 percent decline ($3.1 million) in IPG
professional services revenues and a 17 percent ($2.8 million) decline in education services. The slight decline in 2003 services revenues was due to a drop in IPG and FFI consulting and
education revenues, partially offset by an increase in IPG and iAS technical support revenues. The
decrease in consulting and education revenues was primarily attributable to the reasons discussed
in the Business Trends section in Overview, above. The technical support revenues were driven
by new license revenues combined with a steady level of support renewals by existing customers. For a description of our technical support, consulting and education services, see Business 
Worldwide Services, Part I, Item 1. - 19 -




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##### Table of Contents



Geographical
Revenues
(Dollars in millions) 2004
    
    
    Change
    
    
    2003
    
    
    Change
    
    
    2002North America
    
    $
    453.5
    
    
    
    *
    
    
    $
    455.0
    
    
    
    (8
    %)
    
    $
    495.4Percentage of total revenues
    
    
    58
    %
    
    
    
    
    
    
    59
    %
    
    
    
    
    
    
    60
    %International:EMEA (Europe, Middle East and
Africa)
    
    $
    220.4
    
    
    
    4
    %
    
    $
    212.8
    
    
    
    *
    
    
    $
    213.6Percentage of total revenues
    
    
    28
    %
    
    
    
    
    
    
    27
    %
    
    
    
    
    
    
    26
    %Intercontinental (Asia Pacific
and Latin America)
    
    $
    114.6
    
    
    
    4
    %
    
    $
    110.3
    
    
    
    (9
    %)
    
    $
    120.9Percentage of total revenues
    
    
    14
    %
    
    
    
    
    
    
    14
    %
    
    
    
    
    
    
    14
    %Total Outside North America
    
    $
    335.0
    
    
    
    4
    %
    
    $
    323.1
    
    
    
    (3
    %)
    
    $
    334.5Percentage of total revenues
    
    
    42
    %
    
    
    
    
    
    
    41
    %
    
    
    
    
    
    
    40
    %Total revenues
    
    $
    788.5
    
    
    
    1
    %
    
    $
    778.1
    
    
    
    (6
    %)
    
    $
    829.9
   *
    
    Not meaningfulIn 2004, North American revenues (United States, Canada and Mexico) decreased slightly from 2003
primarily due to a $9.9 million decline in license fees revenues from our enterprise database
products and a $3.6 million decline in third party royalties associated with certain integration
products included in the IPG segment. This decrease was largely offset by a $9.1 million increase
in license fees revenues from products included in the iAS segment and a $4.1 million increase in
consulting revenues. In 2003, the decline in North America revenues was primarily due to the
decline in license fees from IPG integration products. As discussed in Revenues, above, we
believe a major shift in the business of one of our largest North American resellers during 2003
resulted in significantly lower sales of certain integration products during 2003 as well as a
continued decline in such revenues for 2004.EMEA (Europe, Middle East and Africa) revenues for 2004 increased 4 percent from 2003. The increase
was due to a $6.0 million increase in license fees revenues from products included in the iAS
segment and a $8.5 million increase in technical support services revenues. These increases were
partially offset by a $2.6 million drop in license fees revenues from products included in the IPG
segment and a $3.9 million decline in professional services revenues. Increased revenues in the UK
contributed most to the overall increase for 2004. In 2003, the slight decline in EMEA revenues was
attributable to lower revenues from Integration and Access products, largely offset by an increase
in revenues from our enterprise database products.The increase in Intercontinental (Asia Pacific and Latin America) revenues for 2004 was primarily
due to a $1.8 million increase in license fees revenues from enterprise database products and a
$2.4 million increase in technical support and professional services revenues. The results of our
operations in China, Australia, India, Korea, and New Zealand contributed most significantly to the
increased revenue, offsetting lower revenues in Japan and Hong Kong. The 9 percent decrease in
2003 Intercontinental revenues compared to 2002 was due a drop in license fees and services
revenues from our enterprise database products. The results of our operations in Brazil, China,
Korea, and Taiwan contributed most significantly to the decline in revenues, offset by increased
revenues in Japan.In EMEA and the Intercontinental region, most revenues and expenses are denominated in local
currencies. The cumulative impact of changes in foreign currency exchange rates from 2003 to 2004
resulted in a 3 percent increase in our revenues and a 2 percent increase in our operating
expenses. The cumulative impact of changes in foreign currency exchange rates from 2002 to 2003
resulted in a 5 percent increase in our revenues and a 3 percent increase in our operating
expenses. The change for both comparable periods was primarily due to the weakness of the U.S.
dollar against certain European currencies. - 20 -




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##### Table of Contents



Our business and results of operations could be materially and adversely affected by fluctuations
in foreign currency exchange rates, even though we take into account changes in exchange rates over
time in our pricing strategy. Additionally, changes in foreign currency exchange rates, the
strength of local economies, and the general volatility of worldwide software markets could result
in a higher or lower proportion of international revenues as a percentage of total revenues in the
future. For additional risks associated with currency fluctuation, see Financial Risk Management
 Foreign Exchange Risk, below. Cost and Expenses
(Dollars in millions) 2004
    
    
    Change
    
    
    2003
    
    
    Change
    
    
    2002Cost of license fees
    
    $
    60.8
    
    
    
    *
    
    
    $
    60.7
    
    
    
    18
    %
    
    $
    51.4Percentage of license fee revenues
    
    
    22
    %
    
    
    
    
    
    
    22
    %
    
    
    
    
    
    
    16
    %Cost of services
    
    $
    161.8
    
    
    
    (1
    %)
    
    $
    162.7
    
    
    
    (14
    %)
    
    $
    190.1Percentage of services revenues
    
    
    32
    %
    
    
    
    
    
    
    32
    %
    
    
    
    
    
    
    38
    %Sales and marketing
    
    $
    242.4
    
    
    
    1
    %
    
    $
    239.0
    
    
    
    (12
    %)
    
    $
    271.8Percentage of total revenues
    
    
    31
    %
    
    
    
    
    
    
    31
    %
    
    
    
    
    
    
    33
    %Product development and engineering
    
    $
    119.9
    
    
    
    3
    %
    
    $
    116.9
    
    
    
    (1
    %)
    
    $
    117.8Percentage of total revenues
    
    
    15
    %
    
    
    
    
    
    
    15
    %
    
    
    
    
    
    
    14
    %General and administrative
    
    $
    87.1
    
    
    
    6
    %
    
    $
    82.1
    
    
    
    (3
    %)
    
    $
    84.9Percentage of total revenues
    
    
    11
    %
    
    
    
    
    
    
    11
    %
    
    
    
    
    
    
    10
    %Amortization of other purchased intangibles
    
    $
    5.1
    
    
    
    155
    %
    
    $
    2.0
    
    
    
    0
    %
    
    $
    2.0Percentage of total revenues
    
    
    1
    %
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *Goodwill impairment
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    $
    12.3Percentage of total revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    %Stock compensation expense
    
    $
    4.6
    
    
    
    59
    %
    
    $
    2.9
    
    
    
    53
    %
    
    $
    1.9Percentage of total revenues
    
    
    1
    %
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *Reversal of AvantGo restructuring accrual.
    
    $
    (2.7
    )
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    Percentage of total revenues
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cost of restructuring
    
    $
    20.0
    
    
    
    170
    %
    
    $
    7.4
    
    
    
    (82
    %)
    
    $
    40.4Percentage of total revenues
    
    
    3
    %
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    5
    %
   *
    
    Not meaningful Cost of license fees Cost of license fees consists primarily of product costs (media and documentation), amortization of
capitalized software development costs and purchased technology, and third party royalty costs.
The cost of license fees increased slightly in 2004 over 2003, and increased 18 percent in 2003
over 2002. The 2004 increase was primarily due to a $2.5 million increase in amortization of
capitalized software development costs and amortization of $2.6 million on purchased technology
acquired as a result of the XcelleNet acquisition, partially offset by a $4.6 million decrease in
third-party royalties. The 2003 increase was primarily due to an increase in amortization of
capitalized software development costs. Amortization of capitalized software costs was $33.6 million in 2004, $31.1 million in 2003, and
$24.0 million in 2002. In 2004, the increase in amortization of capitalized software costs was
primarily due to certain products included in the IPG segment that we began amortizing in the
second half of 2003 and in 2004. In 2003, the increase in amortization of capitalized software
costs was primarily due to certain enterprise database products that we began amortizing in 2003
and certain enterprise application products that we began amortizing in 2003 and in the second half
of 2002. Amortization of purchased
technology acquired was $17.8 million in 2004, $15.3 million in 2003, and $14.9 million in 2002.
See Note One to the Consolidated Financial Statements  Capitalized Software, Part II, Item 8. - 21 -




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##### Table of Contents



Cost of services Cost of services consists primarily of the cost of our personnel who provide technical support,
education and professional services and, to a lesser degree, services-related product costs (media
and documentation). These costs decreased 1 percent in 2004 compared to 2003, primarily due to a
reduction in technical support and professional services headcount as a result of our 2004
restructuring activities offset by a $3.3 million increase in consultants utilized by the FFI
segment and $2.2 million in expenses associated with the XcelleNet service and support
organizations. Our average headcount reflected in this expense category decreased approximately 10
percent in 2004 from 2003. These costs decreased 14 percent in 2003 compared to 2002, primarily due
to a reduction in consulting and technical support personnel as a result of our restructuring
activities in the second half of 2002 and 2003, and a decrease in costs associated with third-party
consultants. Our average headcount reflected in this expense category decreased approximately 19
percent in 2003 from 2002. For further discussion of the effect of our restructuring activities,
see Note Thirteen to Consolidated Financial Statements, Part II, Item 8. Sales and marketing Sales and marketing expense increased 1 percent in 2004 compared to 2003 due to $7.3 million in
sales and marketing costs associated with the XcelleNet organization and a $2.8 million increase in
certain allocated common costs offset by a $5.8 million reduction in marketing expenses. We
believe that much of the decrease in our spending on marketing resulted from a more effective use
of our marketing dollars including the utilization of coordinated market programs with our
strategic partners and a more focused internal coordination of marketing programs and messages. 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. The 12 percent decrease in sales and marketing expense in 2003 compared to 2002 was primarily due
to a substantial decrease in spending on marketing programs, a decrease in sales and marketing
personnel as a result of our 2003 and 2002 restructuring activities, and a reduction in sales
commissions (principally due to lower license fees revenues), and a decrease in certain allocated
common costs. For further discussion of the effect of our restructuring activities, see Note Thirteen to
Consolidated Financial Statements, Part II, Item 8. Product development and engineering Product development and engineering expenses (net of capitalized software development costs  see
discussion below) increased 3 percent in 2004 from 2003, primarily due to a $10.4 million increase
in headcount related expenses including a $5.3 million increase for XcelleNet product development
and engineering personnel, and a $3.0 million increase in certain allocated common costs. These
increases are partially offset by an $8.6 million increase in capitalized software development
costs. The 1 percent decrease in product development and engineering expenses in 2003 over 2002 was
primarily due to a decrease in allocated common cost partially offset by the addition of product
development and engineering personnel resulting from our acquisition of AvantGo, Inc. in February
2003. We capitalize product development and engineering costs during the period between a products
achievement of technological feasibility and its general availability. Our capitalized software
cost increased during 2004 as we increased our efforts to bring new products and capabilities to
the market. In 2004, our capitalized software costs of $36.5 million included costs incurred for
the development of Adaptive Server® Enterprise 12.5.2 and 15.0, Financial Fusion® Corporate Banking
Solutions 2.20, EA
Server 5.2, EDI Server 4.2, Sybase® IQ 12.6, PowerBuilder® 10.0, PowerDesigner® 11.0, and Unwired
Orchestrator 4.5. In 2003, our capitalized software costs of $28.0 million included costs incurred
for the development of Corporate Banking 2.1, EA Server 5.0, Sybase Enterprise Portal 6.0,
Integration Orchestrator 4.3, and PowerDesigner 10.0. In 2002, capitalized software costs of $32.7
million 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, EA Server 4.1, PowerBuilder
9.0, and PowerDesigner 9.5. - 22 -




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##### Table of Contents



We believe product development and engineering expenditures are essential to technology and product
leadership and expect product development and engineering expenditures to continue to be
significant, both in absolute dollars and as a percentage of total revenues. General and administrative General and administrative expenses, which include IT, legal, business operations, finance, and
administrative functions, increased 6 percent in 2004 compared to 2003, primarily due to an
increase in the total number of general and administrative personnel attributable in part to our
acquisition of XcelleNet ($2.3 million addition) and a $1.7 million increase in legal expenses. Also included in the 2004 total were approximately $2.0 million in external costs associated with Sarbanes-Oxley compliance. The
3 percent decrease in 2003 compared to 2002 was primarily due to decreases in allocated common
costs and a 5 percent decrease in the average number of G&A personnel resulting from our 2003
restructuring activities (see Note Thirteen to Consolidated Financial Statements, Part II, Item 8. Amortization of other purchased intangibles Amortization of other purchased intangibles reflects the amortization of the established customer
list associated with our acquisition in 2000 of Home Financial Network, Inc. (now FFI) and the
amortization of the established customer list and covenant not to compete associated with our
acquisition of XcelleNet in 2004. The amortization of purchased technology associated with our
acquisitions of Home Financial Network, New Era of Networks, AvantGo, Dejima, and XcelleNet is
included in cost of license fees. See Note One to Consolidated Financial Statements  Goodwill and
Other Purchased Intangible Assets, Part II, Item 8. Goodwill impairment Following our adoption of SFAS 142 in the first quarter of 2002, we conducted the annual impairment
testing required by SFAS 142 as of December 31, 2004, December 31, 2003 and December 31, 2002. See
Note One to Consolidated Financial Statements  Goodwill and Other Purchased Intangible Assets,
Part II, Item 8. 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. Our 2004 and 2003 analysis of goodwill impairment did not
indicate an impairment loss for any of the Companys reporting units. See Critical Accounting
Policies and Estimates, above, and Future Operating Results below. We may encounter
difficulties completing or integrating our acquisitions and strategic relationships and may incur
acquisition-related charges that could adversely affect our operating results. Stock compensation expense Stock compensation expense primarily reflects non-cash compensation expense associated with
restricted stock purchase rights granted to certain Sybase executives in the second quarter of
2001, in the first quarter of 2003, and in the first and third quarters of 2004 (see Note Seven to
Consolidated Financial Statements  Restricted Stock Grants, Part II, Item 8). Reversal of AvantGo restructuring accrual In connection with the 2003 acquisition of AvantGo, we assumed certain liabilities associated with
AvantGos 2001 and 2002 restructuring programs, primarily related to excess space at AvantGos
Hayward, California and Chicago, Illinois facilities. At the time of acquisition, we also accrued
additional
amounts for lease obligations, net of the expected sublease revenue, associated with AvantGos
remaining facilities in Hayward which would be vacated upon the expected move of all personnel to
Sybases facilities in Dublin, California. During the quarter ended September 30, 2004, we were
able to sublease the Hayward facilities on terms much better than those anticipated when the
applicable accruals were recorded. As a result, we reversed accrued restructuring liabilities
related to this facility. - 23 -




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##### Table of Contents



Cost (reversal) of restructuring 2004 Restructuring Actions. In the third quarter of 2004, after two straight quarters of
failing to meet revenue and earnings expectations, we embarked on a restructuring plan (2004 Plan)
aimed at reducing our annual expenses (primarily employee and facility related) by approximately
$15 million. Of this amount, approximately $13 million in annual savings is expected to result
from headcount reductions and approximately $2 million in annual savings is expected to result from
facility consolidation and the avoidance of software maintenance costs. 2004 Plan activities
included the termination of approximately 140 employees worldwide, the closure or consolidation of
approximately 5 facilities worldwide and the write-off of certain enterprise software purchased
from a third party. It is anticipated that the total costs, once the restructuring activities
prescribed under the 2004 Plan are fully completed, will be $20.9 million. 2003, 2002 and 2001 Restructuring Activities. We also undertook restructuring activities
in 2003, 2002 and 2001 as a means of managing our operating expenses and assumed certain
restructuring program liabilities of AvantGo when we acquired that company in 2003. For descriptions of each restructuring plan, see Note Thirteen to Consolidated Financial
Statements, Part II, Item 8. Operating income/(loss)
(Dollars in millions) 2004
    
    
    Change
    
    
    2003
    
    
    Change
    
    
    2002Operating income by segment:IPG
    
    $
    83.5
    
    
    
    3
    %
    
    $
    81.4
    
    
    
    (6
    %)
    
    $
    86.7IAS
    
    
    12.7
    
    
    
    (34
    %)
    
    
    19.2
    
    
    
    (13
    %)
    
    
    22.1FFI
    
    
    (7.0
    )
    
    
    (26
    %)
    
    
    (9.5
    )
    
    
    (49
    %)
    
    
    (18.8
    )Unallocated cost savings
    
    
    0.2
    
    
    
    (98
    %)
    
    
    13.2
    
    
    
    *
    
    
    
    (32.8
    )Total operating income
    
    $
    89.4
    
    
    
    (14
    %)
    
    $
    104.3
    
    
    
    82
    %
    
    $
    57.2Percentage of total revenues
    
    
    11.3
    %
    
    
    
    
    
    
    13.4
    %
    
    
    
    
    
    
    7
    %
   *
    
    Not meaningful Operating income in 2004 was $89.4 million compared to operating income of $104.3 million in 2003
and operating income of $57.2 million in 2002. The decline in the operating margin to 11.3
percent in 2004 compared to 13.4 percent in 2003 was primarily the result of the accrual of
expenses relating to our 2004 restructuring plan, and partially attributable to the 2004 results of
XcelleNet. The increase in operating income in the IPG segment for 2004 compared to 2003 was
primarily due to the decrease in employee and facilities related operating expenses as a result of
our restructuring activities in 2003 and 2004 partially offset by a decline in license fees
revenues as a result of factors discussed under Revenues, above. The operating margin for this
segment was 11.9 percent for 2004 compared to 11.3 percent for 2003. The decrease in operating
income in the IPG segment for 2003 compared to 2002 was primarily due to the decline in license
fees revenues from Integration and Access products as a result of the factors discussed under
Revenues above, partially offset by the decrease in operating expenses resulting from the 2002
restructuring activities. The decline in operating income for the iAS segment in 2004 compared to 2003 was primarily due to
an increase in operating expenses largely attributable to the XcelleNet and Dejima transactions,
offset by an increase in total revenues. The operating margin associated with XcelleNet and Dejima
in 2004 was
($4.5) million, of which ($5.6) million was related to the amortization of intangibles acquired in
these acquisitions. The operating margin for this segment was 10.7 percent for 2004 compared to
20.8 percent for 2003. The results of XcelleNet and Dejima accounted for approximately 69 percent
of the 2004 decline in iASs operating margin. The decline in operating income for the iAS segment
in 2003 compared to 2002 was primarily due to an increase in operating expenses largely
attributable to the AvantGo acquisition, offset by an increase in total revenues. The operating
margin associated with AvantGo in - 24 -




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##### Table of Contents



2003 was ($5.1) million, of which ($0.3) million was related to
the amortization of purchased technology acquired in the acquisition. The decrease in FFIs operating loss of 2004 primarily resulted from the increase in revenues
discussed above. The operating loss in the FFI segment dropped in 2003 compared to 2002 due
primarily to the $12.3 million goodwill impairment charge incurred in 2002. Certain common costs and expenses are allocated to the various segments based on measurable drivers
of expense. Unallocated expenses represent corporate expenditures or cost savings that are not
specifically allocated to the segment including reversals or restructuring expenses associated with
restructuring activities undertaken prior to 2003. Other income (expense), net
(Dollars in millions) 2004
    
    
    Change
    
    
    2003
    
    
    Change
    
    
    2002Interest income
    
    $
    10.9
    
    
    
    (3
    %)
    
    $
    11.2
    
    
    
    (4
    %)
    
    $
    11.7Percentage of total revenues
    
    
    1
    %
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %Interest expense and other, net
    
    $
    0.7
    
    
    
    (72
    %)
    
    $
    2.5
    
    
    
    4
    %
    
    $
    2.4Percentage of total revenues
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *
   *
    
    Not meaningful In 2004, interest income decreased 3 percent from 2003. Interest income consists primarily of
interest earned on our investments. The decrease in interest income for 2004 compared to 2003 is
primarily due to the decrease in the cash balances invested. Our invested cash balances declined
as a result of cash used in our stock repurchase program and for the XcelleNet and Dejima
acquisitions. See Consolidated Statements of Cash Flows, Part II, Item 8. The 4 percent decrease
in interest income from 2002 to 2003 was largely due to the decline in interest rate yields on
invested cash balances. Interest expense and other, net, primarily includes: net gains and losses resulting from foreign
currency transactions and the related hedging activities; the cost of hedging foreign currency
exposures; bank fees; and gains from the disposition of certain real estate and investments. The
net decrease in interest expense and other, net for 2004 compared to 2003 was primarily due to a
gain of approximately $3.2 million recorded in 2003 relating to the realization of a note
receivable originally generated from our sale of certain Swiss subsidiaries. Interest expense and
other, net for 2002 included a gain of approximately $2.5 million that we realized on the initial
sale of these Swiss subsidiaries. Provision for Income Taxes
(Dollars in millions) 2004
    
    
    Change
    
    
    2003
    
    
    Change
    
    
    2002Provision for income taxes
    
    $
    33.0
    
    
    
    7
    %
    
    $
    30.8
    
    
    
    (8
    %)
    
    $
    33.4
 In 2004 a provision for income taxes was recorded at a rate of approximately 33 percent on income
before taxes. Our effective tax rate differed from the statutory federal rate of 35 percent
primarily due to adjustments for the difference between estimated amounts recorded and actual
liabilities resulting from the filing of prior years tax returns, the utilization of Japanese net
operating losses, additional tax
reserves relating primarily to foreign transfer pricing exposures and the release of tax reserves
upon the completion of various tax audits. Without the benefit of the Japanese net operating
losses, adjustments for the difference resulting from the filing of the prior years tax returns
and for tax reserves, our effective tax rate for the year would have been approximately 39 percent. - 25 -




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##### Table of Contents



In 2003 a provision for income taxes was recorded at a rate of approximately 26 percent on income
before taxes. Our effective tax rate differed from the statutory federal rate of 35 percent
primarily due to the utilization of certain foreign tax credits upon which a full valuation
allowance was provided, the release of certain deferred tax liabilities which were made unnecessary
when we were able to restructure certain earnings of a foreign subsidiaries in a manner to allow
for their repatriation free from the withholding taxes we provided for with the deferred tax
liability, and the release of certain tax reserves upon the completion of various tax audits. In 2002 a provision for income taxes was recorded at a rate of approximately 47 percent on income
before taxes and the cumulative effect of an accounting change. Our 2002 effective tax rate
differed 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. We had a net deferred tax asset of $50.6 million at December 31, 2004. This deferred tax asset is
net of a valuation allowance of $96.3 million. As of December 31, 2004, the gross deferred tax
asset included a research and development tax credit of $17.7 million, foreign tax credits of $5.8
million and an asset for certain net operating losses of $63.5 million. The research and
development tax credits expire from 2010 through 2024, the foreign tax credits expire from 2010
through 2014, and the net operating losses expire from 2007 through 2024. In order to realize our
net deferred tax assets we must generate sufficient taxable income in future years in appropriate
tax jurisdictions to obtain the recorded benefit from the reversal of temporary differences (i.e.,
between book and tax basis), and from tax credit carryforwards. Specifically, realization of these
assets is dependent on our ability to generate approximately $163.6 million of future taxable
income, largely in the U.S. Based on the plans and estimates we are using to manage the underlying
business we believe that sufficient income will be earned in the future to realize these assets.
The amount of the deferred tax assets considered realizable is subject to adjustment in future
periods if estimates of future taxable income are reduced. Any such adjustments to the deferred
tax assets would be charged to income in the period such adjustment was made. The valuation allowance primarily relates to the deferred tax assets associated with acquired net
operating losses, net operating loss and capital loss carryforwards, tax assets associated with
stock option activity, and foreign tax credits. Approximately $72.6 million of the valuation
allowance relates to deferred tax assets associated with net operating losses and capital losses
acquired in, or attributable to, the NEN and AvantGo acquisitions. If the associated deferred tax
assets are realized, the benefit from their realization will reduce goodwill carried on our books
associated with these acquisitions. The valuation allowance also includes approximately $17.1
million associated with stock option activity for which any recognized tax benefits will be
credited directly to shareholders equity. Cumulative effect of an accounting change to adopt SFAS 142
(Dollars in millions) 2004
    
    
    Change
    
    
    2003
    
    
    Change
    
    
    2002Cumulative effect of an
accounting
change to adopt SFAS 142
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    $
    132.5
   *
    
    Not meaningful - 26 -




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##### Table of Contents



For a discussion of the cumulative effect of an accounting change to adopt SFAS 142, see Note One
to Consolidated Financial Statements  Goodwill and Other Purchased Intangibles, Part II, Item 8. Net income (loss) per share
(Dollars and shares in millions) 2004
    
    
    Change
    
    
    2003
    
    
    Change
    
    
    2002Net income (loss)
    
    $
    68.0
    
    
    
    (22
    %)
    
    $
    87.3
    
    
    
    *
    
    
    $
    (94.7
    )Percentage of total revenues
    
    
    9
    %
    
    
    
    
    
    
    11
    %
    
    
    
    
    
    
    (11%
    )Basic:Net income (loss) per share
    
    $
    0.71
    
    
    
    (23
    %)
    
    $
    0.92
    
    
    
    *
    
    
    $
    (0.98
    )Shares used in computing
basic net income (loss) per
share
    
    
    95.6
    
    
    
    1
    %
    
    
    94.8
    
    
    
    (2
    %)
    
    
    96.8Diluted:Net income (loss) per share
    
    $
    0.69
    
    
    
    (22
    %)
    
    $
    0.89
    
    
    
    *
    
    
    $
    (0.95
    )Shares used in computing
diluted net income (loss)
per share
    
    
    98.0
    
    
    
    *
    
    
    
    97.6
    
    
    
    (2
    %)
    
    
    99.6
   *
    
    Not meaningful We reported net income of $68.0 million in 2004, net income of $87.3 million in 2003, and net loss
of $94.7 million in 2002. In 2004, the decrease in net income compared to 2003 was due to the
various factors discussed above. In 2003, the increase in our net income was primarily related to
the absence of any goodwill impairment loss as compared to the $132.5 million impairment loss
recognized in 2002 as a cumulative effect of an accounting change (see Note One to Consolidated
Financial Statements  Goodwill and Other Purchased Intangibles, Part II, Item 8), and the factors
discussed in Operating Income, above. In 2004, the increase in shares used for computing basic and diluted net income per share was due
primarily to the ongoing exercise of employee stock options, partially offset by shares repurchased
under our Stock Repurchase Program (described in Liquidity and Capital Resources, below). In
2003, the decrease in shares used for computing basic and diluted net income per share was
primarily from shares repurchased under our Stock Repurchase Program. These repurchases primarily
occurred during the early part of 2003. The decrease was partially offset by the exercise of
employee stock options (which primarily occurred during the later part of 2004) and the issuance of
approximately 0.7 million shares of our Common Stock during the third quarter of 2003 to an
unrelated third party in connection with an agreement for marketing services (see Note Seven to
Consolidated Financial Statements  Issuance of Company Stock for Certain Services, Part II, Item
8). See also Consolidated Statements of Stockholders Equity, Part II, Item 8. Liquidity and capital resources
(Dollars in millions) 2004
    
    
    Change
    
    
    2003
    
    
    Change
    
    
    2002Working capital
    
    $
    290.2
    
    
    
    11
    %
    
    $
    261.0
    
    
    
    132
    %
    
    $
    112.3Cash, cash equivalents and cash
Investments
    
    $
    513.6
    
    
    
    (10
    %)
    
    $
    573.8
    
    
    
    48
    %
    
    $
    387.2Net cash provided by operating activities
    
    $
    176.2
    
    
    
    (13
    %)
    
    $
    202.1
    
    
    
    23
    %
    
    $
    164.3Net cash used for investing activities
    
    $
    82.8
    
    
    
    (54
    %)
    
    $
    178.7
    
    
    
    62
    %
    
    $
    110.1Net cash provided by (used for) financing activities
    
    $
    (102.2
    )
    
    
    *
    
    
    $
    25.0
    
    
    
    *
    
    
    $
    (66.2
    )
   *
    
    Not meaningful - 27 -




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##### Table of Contents



Net cash provided by operating activities decreased 13 percent in 2004 compared to 2003
primarily due to a $12.6 million decrease in net income before consideration of depreciation,
amortization and asset write-offs, and the impact in 2003 of aggressive collection efforts which
significantly reduced our accounts receivables (DSO was reduced from 72 days in Q4 2002 to 60 days
in Q4 2003). This decrease was partially offset by a larger reduction of accrued liabilities in
2003 compared to 2004, with the 2003 decrease principally related to restructuring related facility
accruals. Net cash provided by operating activities increased 23 percent between 2002 and 2003, primarily due
to a $40.7 million increase in net income before consideration of depreciation, amortization and an
impairment loss. The increase also resulted from increased cash of $24.5 million associated with
our improved collections in EMEA. Net cash used for investing activities decreased 54 percent between 2003 and 2004 primarily due to
net dispositions of cash investments of $65.0 million compared to net purchases of cash investments
of $102.9 million in 2003. For further discussion of our investment portfolio, see Interest Rate
Risk, below. The decrease was partially offset by the net cash outlay of $81.3 million for the
XcelleNet and Dejima transactions in the second quarter of 2004, as compared to the $13.9 million
in net cash was used for the acquisition of AvantGo during the first quarter of 2003. Net cash used for investing activities increased 62 percent between 2002 and 2003 primarily due to
net purchases of cash investments of $102.9 million in 2003 compared to $34.0 million in 2002. Substantially all our financing activities from 2002 through 2004 related to purchases under the
Stock Repurchase Program (discussed below) and the utilization of treasury stock issued upon
exercise of stock options under certain of our employee stock plans. Net cash used for financing
activities in 2004 was $102.2 million compared to net cash provided by financing activates of $25.0
million in 2003. The shift from net cash provided by financing activities to net cash used for
financing activities was primarily the result of a $84.7 million increase in the cash used to
repurchase our stock during 2004, compared to the cash used for a similar purpose during 2003. In
addition, we paid off $22.2 million of long-term obligations assumed as part of the XcelleNet
acquisition during the second quarter of 2004. The shift from net cash used for financing
activities in 2002 to net cash provided by financing activities in 2003 was primarily due to the
fact that we repurchased fewer shares under the Stock Repurchase Program in 2003 compared to 2002. Beginning in 1998, our Board of Directors authorized the repurchase of our outstanding Common Stock
from time to time, subject to price and other conditions (Stock Repurchase Program). Through
December 31, 2004, aggregate amounts authorized under the Stock Repurchase Program totaled $600.0
million. During 2004, we repurchased 6.4 million shares at a cost of $115.6 million. In 2003, we
repurchased 2.3 million shares at a cost of $30.9 million, and in 2002 we repurchased 6.7 million
shares at a cost of $89.8 million. Approximately $103.7 million remained in the Stock Repurchase Program at December 31, 2004. The
average price per share of the shares repurchased under the Stock Repurchase Program during 2004
was $18.06, compared to $13.24 in 2003, and $13.42 in 2002. We had no significant commitments for
capital expenditures at December 31, 2004. 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. At December 31, 2004 we had no debt to unrelated parties,
however, on February 22, 2005 we issued $460 million in aggregate principal amount of convertible
notes. See Note Fifteen to Consolidated Financial Statements, Part II, Item 8. We engage in global business operations and are therefore exposed to foreign currency fluctuations
that can affect the overall value of the assets (including cash.) and liabilities reflected on our
balance sheet. For a further discussion of the effect of foreign currency fluctuations on our
financial condition, see Financial Risk Management  Foreign Exchange Risk, below. - 28 -




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##### Table of Contents



Contractual Obligations Our contractual obligations at December 31, 2004 are summarized as follows: Payments Due by Period(Dollars in Millions)
    
    
    
    
    
    2005
    
    
    2006-2007
    
    
    2008-2009Contractual Obligations
    
    Total
    
    
    Commitments
    
    
    Commitments
    
    
    Commitments
    
    
    After 2009Operating leases
    
    $
    346.2
    
    
    $
    45.1
    
    
    $
    81.5
    
    
    $
    69.4
    
    
    $
    150.2Capital lease
    
    
    15.6
    
    
    
    1.1
    
    
    
    2.1
    
    
    
    2.1
    
    
    $
    10.3Third party royalties
/Software license &
maintenance
commitments
    
    
    5.5
    
    
    
    4.2
    
    
    
    1.3
    
    
    
    
    
    
    
    Total commitments
    
    $
    367.3
    
    
    $
    50.4
    
    
    $
    84.9
    
    
    $
    71.5
    
    
    $
    160.5
 Subsequent to December 31, 2004 we issued $460 million in convertible notes. The company will
treat this obligation as a debt obligation due on February 22, 2010. We have used approximately
$125 million of the proceeds to repurchase 6.7 million shares of Sybase stock. We intend to use
the remaining proceeds for working capital and general corporate purposes which may include the
acquisition of businesses, products, product rights or technologies, strategic investments or
additional purchases of our common stock. See Note Fifteen to Consolidated Financial Statements,
Part II, Item 8. New Accounting Pronouncements On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123
(revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. Statement 123® supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123® is similar to the approach described in Statement 123. However,
Statement 123® requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Disclosure in
financial footnotes of the pro forma impact of the fair value of share-based payments, as permitted
by APB 25, is not a permitted alternative under Statement 123®. We are required to apply Statement 123® beginning July 1, 2005 and could choose, but will
decline, to apply Statement 123® retroactively from January 1, 2005 to June 30, 2005. The
cumulative effect of adoption, if any, will be measured and recognized on July 1, 2005. See Note
One to Consolidated Financial Statements  Other Recent Accounting Pronouncements, Part II, Item 8. Financial Risk Management Foreign Exchange Risk We experience foreign exchange translation exposure on our net assets and liabilities denominated
in currencies other than the U.S. dollar. The related foreign currency translation gains and losses
from translating these amounts into U.S. dollars for subsidiaries that conduct their business in a
currency other than the U.S. dollar, are reflected in Accumulated other comprehensive
income/(loss) under Stockholders equity on the balance sheet. As of December 31, 2004, we had
identifiable net assets totaling $225.4 million associated with our EMEA operations and $73.9
million associated with our Intercontinental operations. As a global concern, we face exposure to adverse movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could have material adverse
or beneficial impacts on our financial position and results of operations. Historically, our
primary
exposures have related sales and expenses in EMEA, Asia Pacific, and Latin America which are
denominated in a - 29 -




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##### Table of Contents



currency other than the functional currency of the subsidiary recording the
transaction. In order to reduce the effect of foreign currency fluctuations, we utilize foreign
currency forward exchange contracts (forward contracts) to hedge certain foreign currency
transaction exposures. Specifically, we enter into forward contracts with a maturity of
approximately 30 days to hedge against the foreign exchange exposure created by certain balances
that are denominated in a currency other than the principal reporting currency of the entity
recording the transaction. The gains and losses on the forward contracts are meant to mitigate the
gains and losses on these outstanding foreign currency transactions. 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 our outstanding forward
contracts as of December 31, 2004 was immaterial to our consolidated financial statements. The
tables below provide information about our forward contracts as of December 31, 2004 and 2003. (Amounts in thousands except exchange rates) US $
    
    
    AverageForward Contracts - As of December 31, 2004
    
    Notional amount
    
    
    Contract rateContracts for the sale of US Dollars and purchase of:Canadian Dollars
    
    $
    249
    
    
    
    0.8302British Pounds
    
    $
    957
    
    
    
    1.9135Euro
    
    $
    15,609
    
    
    
    1.3573Singapore Dollars
    
    $
    6,611
    
    
    
    0.6121Mexican Pesos
    
    $
    313
    
    
    
    0.0893Contracts for the purchase of US Dollars and sale of:Japanese Yen
    
    $
    1,761
    
    
    
    102.2300Swiss Franc
    
    $
    1,924
    
    
    
    1.1433Korean Won
    
    $
    4,415
    
    
    
    1039.5000Contracts for the purchase of Euros and sale of:Swedish Krona
    
    $
    603
    
    
    
    9.0011Swiss Franc
    
    $
    2,186
    
    
    
    1.5518UK Pound
    
    $
    7,270
    
    
    
    0.7093Norwegian Krone
    
    $
    2,049
    
    
    
    8.2802Total
    
    $
    43,947
 (Amounts in thousands except exchange rates) US $
    
    
    AverageForward Contracts - As of December 31, 2003
    
    Notional amount
    
    
    Contract rateContracts for the sale of US Dollars and purchase of:Canadian Dollars
    
    $
    7,157
    
    
    
    0.7695Euro
    
    $
    17,732
    
    
    
    1.2576Singapore Dollars
    
    $
    5,235
    
    
    
    0.5882Contracts for the purchase of US Dollars and sale of:Swiss Franc
    
    $
    1,613
    
    
    
    1.2403Contracts for the purchase of Euros and sale of:Swedish Krona
    
    $
    1,262
    
    
    
    9.0769Swiss Franc
    
    $
    1,452
    
    
    
    1.5598UK Pound
    
    $
    9,065
    
    
    
    0.7080Norwegian Krone
    
    $
    1,603
    
    
    
    8.4020Total
    
    $
    45,119
 - 30 -




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##### Table of Contents



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 have no cash flow exposure due to rate changes for our investment portfolio, since
all investments are made in securities with fixed interest rates. Default Risk We place our investments with high quality credit issuers and, by policy, limit the amount of
credit exposure with any one issuer.We mitigate default risk by investing in safe, high investment
grade securities and by monitoring the credit rating of investment issuers. The portfolio includes
only marketable securities with active secondary or resale markets to ensure portfolio liquidity.
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 2. Significant variation in the timing and amount of our revenues may cause fluctuations in our
quarterly operating results and accurate estimation of our revenues is difficult. Our operating results have varied from quarter to quarter in the past and may vary in the future
depending upon a number of factors described below, including many that are beyond our control. As
a result, we believe that quarter-to-quarter comparisons of our financial results should not be
relied on to indicate our future performance. We operate with little or no backlog, and our
quarterly license revenues depend largely on orders booked and shipped in that quarter.
Historically, we have recorded a majority of our quarterly license revenues in the last month of
each quarter, particularly during the final two weeks. In recent periods, we have experienced
fluctuations in the purchasing patterns of our customers. For example, during 2003 and the first
half of 2004, we experienced an overall increase in the volume of license revenue transactions but
an overall decrease in the average dollar value of these transactions. During the fourth quarter of
2004, our average dollar value for these transactions increased significantly
over the fourth quarter of 2003, but the total number of orders declined. Although many of our
customers are larger enterprises, an apparent trend toward more conservative IT spending could
result in fewer of these customers making substantial investments in our products and services in
any given period. Therefore, if one or more significant orders do not close in a particular
quarter, our results of operations could be materially and adversely affected, as was the case in
the first and second quarters of 2004. Our operating expenses are based on projected annual and quarterly revenue levels, and are
generally incurred ratably throughout each quarter. Since our operating expenses are relatively
fixed in the short term, failure to realize projected revenues for a specified period could
adversely impact operating results, reducing net income or causing an operating loss for that
period. The deferral or non-occurrence of such revenues would materially adversely affect our
operating results for that quarter and could impair our business in future periods. Because we do
not know when, or if, our potential customers will place orders and finalize contracts, we cannot
accurately predict our revenue and operating results for future quarters. In addition to the above factors, the timing and amount of our revenues are subject to a number of
factors that make it difficult to accurately estimate revenues and operating results on a quarterly
or annual basis. For example, in the first and second quarters of fiscal 2004, our results fell
short of our previously announced forecasts for those periods. In our experience revenues in the
fourth quarter benefit from large enterprise customers placing orders before the expiration of
budgets tied to the calendar year. As a result, revenues from license fees tend to decline from the
fourth quarter of one year to the first quarter of the - 31 -




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next year. In the past, this seasonality has
contributed to lower total revenues and earnings in the first quarter compared to the prior fourth
quarter. We cannot assure you that estimates of our revenues and operating results can be made with
certain accuracy or predictability. Fluctuations in our operating results may contribute to
volatility in our stock price. Economic conditions in the U.S. and worldwide could adversely affect our revenues. Our revenues and operating results depend on the overall demand for our products and services.
General weakening of the U.S. and worldwide economy in recent years contributed to a decrease in
our revenues from 2000 to 2003. Economic uncertainty caused many of our customers to delay or
significantly reduce discretionary spending for larger infrastructure IT projects, which
contributed to the decline in our revenues from 2000 to 2003. In part due to improvements in the
worldwide economy, our 2004 revenues exceeded 2003 revenues by 1.3%. If the U.S. and worldwide
economies do not continue to stabilize and improve, or if these economies weaken, either alone or
in tandem with other factors beyond our control (including war, political unrest, shifts in market
demand for our products, etc.), we may not be able to maintain or expand our recent revenue growth. If we fail to maintain or expand our relationships with strategic partners and indirect
distribution channels our license revenues could decline. We currently derive a significant portion of our license revenues from sales of our products and
services through non-exclusive distribution channels, including strategic partners, systems
integrators (SIs), original equipment manufacturers (OEMs) and value-added resellers (VARs). We
generally anticipate that sales of our products through these channels will account for a
substantial portion of our license revenues in the foreseeable future. Because most of our channel
relationships are non-exclusive, there is a risk that some or all of them could promote or sell our
competitors products instead of ours, or that they will be unable to effectively sell new products
that we may introduce. Additionally, if we are unable to expand our indirect channels, or these
indirect channels fail to generate significant revenues in the future, our business could be
harmed. Our development, marketing and distribution strategies also depend in part on our ability to form
strategic relationships with other technology companies. If these companies change their business
focus, enter into strategic alliances with other companies or are acquired by our competitors or
others, support for our products could be reduced or eliminated, which could have a material
adverse effect on our business and financial condition. Industry consolidation and other competitive pressures could affect prices or demand for our
products and services, and our business may be adversely affected. The IT industry and the market for our core database infrastructure products and services is
becoming increasingly competitive due to a variety of factors including a maturing enterprise
infrastructure software market, changes in customer IT spending habits, and mixed economic recovery
in the U.S. There also appears to be a growing trend toward consolidation in the software industry,
as evidenced by Oracles recent acquisition of PeopleSoft, Symantecs announcement that it will
acquire Veritas, PeopleSofts 2003 acquisition of J.D. Edwards, and IBMs 2001 acquisition of the
Informix database business. Continued consolidation within the software industry could create
opportunities for larger software companies, such as IBM, Microsoft and Oracle, to increase their
market share through the acquisition of companies that dominate certain lucrative market niches or
that have loyal installed customer bases. Because of Oracles acquisition of PeopleSoft, we
anticipate that a limited number of our customers that use PeopleSoft products will choose to run
these applications on Oracle products rather than on our products. Continued consolidation activity
could pose a significant competitive disadvantage to us. The significant purchasing and market power of larger companies may also subject us to increased
pricing pressures. Many of our competitors have greater financial, technical, sales and marketing
resources, and a larger installed customer base than us. In addition, our competitors advertising
and marketing efforts could overshadow our own and/or adversely influence customer perception of
our - 32 -




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products and services, and harm our business and prospects as a result. To remain competitive,
we must develop and promote new products and solutions, enhance existing products and retain
competitive pricing policies, all in a timely manner. Our failure to compete successfully with new
or existing competitors in these and other areas could have a material adverse impact on our
ability to generate new revenues or sustain existing revenue levels. The ability to rapidly develop and bring to market advanced products and services that are
successful is crucial to maintaining our competitive position. Widespread use of the Internet and fast-growing market demand for mobile and wireless solutions may
significantly alter the manner in which business is conducted in the future. In light of these
developments, our ability to timely meet the demand for new or enhanced products and services to
support wireless and mobile business operations at competitive prices could significantly impact
our ability to generate future revenues. We acquired AvantGo in 2003, as well as XcelleNet and
certain assets of Dejima in April 2004, to enhance our mobile, wireless and embedded solutions that
form the foundation of our Unwired Enterprise initiative. In 2004 we introduced more new and
enhanced products than in any previous year. If the market for unwired solutions does not continue
to develop as we anticipate, if our solutions and services do not successfully compete in the
relevant markets, or our new products are not widely adopted and successful, our competitive
position and our operating results could be adversely affected. If our existing customers cancel or fail to renew their technical support agreements, or if
customers do not license new or additional products on terms favorable to us, our technical support
revenues could be adversely affected. We currently derive a significant portion of our overall revenues from technical support services,
which are included in service revenues. The terms of our standard software license arrangements
provide for the payment of license fees and prepayment of first-year technical support fees.
Support is renewable annually at the option of the end user. We have recently been experiencing
increasing pricing pressure from customers when purchasing or renewing technical support agreements
and this pressure may result in our reducing support fees or in lost support fees if we refuse to
reduce our pricing, either of which could result in reduced revenue. If our existing customers
cancel or fail to renew their technical support agreements, or if we are unable to generate
additional support fees through the license of new products to existing or new customers, our
business and future operating results could be adversely affected. Unanticipated delays or accelerations in our sales cycles could result in significant fluctuations
in our quarterly operating results. The length of our sales cycles varies significantly from product to product. The sales cycle for
some of our products can take up to 18 months to complete. Any delay or unanticipated acceleration
in the closing of a large license or a number of smaller licenses could result in significant
fluctuations in our quarterly operating results. For example, in the second quarter of 2004, the
license revenue in IPG declined 15% from the prior year period, in part due to larger sales being
delayed and a lengthening sales cycle. The length of the sales cycle may vary depending on a number
of factors over which we may have little or no control, including the size and complexity of a
potential transaction, the level of competition that we encounter in our selling activities and our
potential customers internal budgeting process. Our sales cycle can be further extended for
product sales made through third party distributors. As a result of the lengthy sales cycle, we may
expend significant efforts over a long period of time in an attempt to obtain an order, but
ultimately not complete the sale, or the order ultimately received may be smaller than anticipated. We may encounter difficulties completing or integrating our acquisitions and strategic
relationships and may incur acquisition-related charges that could adversely affect our operating
results. We regularly explore possible acquisitions and other strategic ventures to expand and enhance our
business. Additionally, we have in the past and may in the future make strategic investments in
other companies. We have recently acquired a number of companies and formed certain strategic
relationships. - 33 -




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For example, we acquired AvantGo in 2003 and XcelleNet and certain assets of Dejima
in April 2004. We expect to continue to pursue acquisitions of complimentary or strategic business
product lines, assets and technologies. We may not achieve the desired benefits of our acquisitions and investments. For example, we may be
unable to successfully assimilate an acquired companys management team, employees or business
infrastructure. Also, dedication of additional resources to execute acquisitions and handle
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. In addition, we may not be able to maintain
customer, supplier or other favorable business relationships of ours, or of our acquired
operations, or be able to terminate or restructure unfavorable relationships. Under Statement of Financial Accounting Standard No. 142 we no longer amortize goodwill but
evaluate goodwill recorded in connection with acquisitions at least annually for impairment. As of
December 31, 2004, we had approximately $214 million of goodwill recorded on our balance sheet,
none of which was determined to be impaired as of that date. Goodwill impairments are based on the
value of our reporting units and reporting units that previously recognized impairment charges (as
was the case with FFI in 2002) are prone to additional impairment charges if future revenue and
expense forecasts or market conditions worsen after an impairment is recognized. If goodwill is
determined to be impaired in the future we will be required to take a non-cash charge to earnings
to write-off impaired goodwill, which could significantly impact our net income. With respect to our investments in other companies, we may not realize a return on our investments,
or the value of our investments may decline if the businesses in which we invest are not
successful. Future acquisitions may also result in dilutive issuances of equity securities, the
incurrence of debt, restructuring charges relating to the consolidation of operations and the
creation of other intangible assets that could result in amortization expense or impairment
charges, any of which could adversely affect our operating results. Restructuring activities and reorganizations in our sales model may not succeed in increasing
revenues and operating results. Since 2000, we have implemented several restructuring plans in an effort to align our expense
structure to our expected revenue. As a result of these restructuring activities, we have recorded
restructuring charges totaling approximately $116 million through December 31, 2004. Our ability to
significantly reduce our current cost structure in any material respects through future
restructurings may be difficult without fundamentally changing elements of our current business. If
we are unable to generate increased revenues or control our operating expenses going forward, our
results of operations will be adversely affected. Our sales model has evolved significantly during the past few years to keep pace with new and
developing markets and changing business environments. If we have overestimated demand for our
products and services in our target markets, or if we are unable to coordinate our sales efforts in
a focused and efficient way, our business and prospects could be materially and adversely affected.
For example, in January 2003, we reorganized our sales focus with the creation of the IPG, which
was designed to integrate and provide synergies among our different products lines and to focus on
increasing our market presence and revenue through indirect channels such as SIs, OEMs and VARs and
other resellers. In the process of this reorganization, we brought three of our former divisions,
ESD, eBD and BID, under a single umbrella, and reduced the number of our business divisions from
five to three. In early 2005 the IPG sales organization was restructured into two organizations,
North America and International. Other organizational changes in our sales or divisional model
could have a direct effect on our results of operations depending on whether and how quickly and
effectively our employees and management are able to adapt to and maximize the advantages these
changes are intended to create. We cannot assure that these or other organizational changes in our
sales or divisional model will result in any increase in revenues or profitability, and they could
adversely affect our business. - 34 -




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Our results of operations may depend on the compatibility of our products with other software
developed by third parties. Our future results may be affected if our products cannot interoperate and perform well with
software products of other companies. Certain leading applications currently are not, and may never
be, interoperable with our products. In addition, many of our principal products are designed for
use with products offered by competitors. In the future, vendors of non-Sybase products may become
less willing to provide us with access to their products, technical information, and marketing and
sales support, which could harm our business and prospects. We are subject to risks arising from our international operations. We derive a substantial portion of our revenues from our international operations, and we plan to
continue expanding our business in international markets in the future. In 2004, revenues outside
North America represented 42 percent of our total revenues. As a result of our international
operations, we are affected by economic, regulatory and political conditions in foreign countries,
including changes in IT spending generally, the imposition of government controls, changes or
limitations in trade protection laws, unfavorable changes in tax treaties or laws, natural
disasters, labor unrest, earnings expatriation restrictions, misappropriation of intellectual
property, acts of terrorism and continued unrest and war in the Middle East and other factors,
which could have a material impact on our international revenues and operations. Our revenues
outside North America could also fluctuate due to the relative immaturity of some markets, rapid
growth in other markets, and organizational changes we have made to accommodate these conditions. We face exposure to adverse movements in foreign currency exchange rates. We experience foreign exchange translation exposure on our net assets and transactions denominated
in currencies other than the U.S. dollar. In 2004, our net income and revenues benefited from the
decline in the value of the U.S. dollar against a number of foreign currencies, including the Euro
and the Japanese Yen. We do not utilize foreign currency hedging contracts to smooth the impact of
converting non-U.S. dollar denominated revenues into U.S. dollars for financial reporting. Because
we do not anticipate
entering into currency hedges for non-U.S. dollar revenues, our future results will fluctuate based
on the appreciation or depreciation of the U.S. dollar against major foreign currencies. As of December 31, 2004, we had identified net assets totaling $225.4 million associated with our
EMEA operations, and $73.9 million associated with our Asia Pacific and Latin America operations.
Accordingly, we may experience fluctuations in operating results as a result of translation gains
and losses associated with these asset and liability values. In order to reduce the effect of
foreign currency fluctuations on our and certain of our subsidiaries balance sheets, we utilize
foreign currency forward exchange contracts (forward contracts) to hedge certain foreign currency
transaction exposures. Specifically, we enter into forward contracts with a maturity of
approximately 30 days to hedge against the foreign exchange exposure created by certain balances
that are denominated in a currency other than the principal reporting currency of the entity
recording the transaction. The gains and losses on the forward contracts are intended to mitigate
the gains and losses on these outstanding foreign currency transactions and we do not enter into
forward contracts for trading purposes. However, our efforts to manage these risks may not be
successful. Failure to adequately manage our currency exchange rate exposure could adversely impact
our financial condition and results of operations. Growing market acceptance of open source software could cause a decline in our revenues and
operating margins. Growing market acceptance of open source software has presented both benefits and challenges to the
commercial software industry in recent years. Open source software is made widely available by
its authors and is licensed as is for a nominal fee or, in some cases, at no charge. For example,
Linux is a free Unix-type operating system, and the source code for Linux is freely available. We
have developed certain products to operate on the Linux platform, which has created additional
sources of revenues. - 35 -




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Additionally, we have incorporated other types of open source software into
our products, allowing us to enhance certain solutions without incurring substantial additional
research and development costs. Thus far, we have encountered no unanticipated material problems
arising from our use of open source software. However, as the use of open source software becomes
more widespread, certain open source technology could become competitive with our proprietary
technology, which could cause sales of our products to decline or force us to reduce the fees we
charge for our products, which could have a material adverse impact on our revenues and operating
margins. If we are unable to protect our intellectual property, or if we infringe or are alleged to infringe
a third partys intellectual property, our operating results may be adversely affected. We rely on a combination of copyright, patent, trademark and trade secret laws and contractual
restrictions on disclosure to protect our intellectual property rights. We cannot be certain that
the steps we have taken will prevent unauthorized use of our technology. Our inability to obtain
adequate copyright, patent or trade secret protection for our products in certain countries could
diminish the competitive advantages we derive from our proprietary technology and 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. We have in the past received claims by third parties asserting that our products violate their
patents or other proprietary rights. It is likely that such claims will be asserted in the future.
In addition, to the extent we acquire other intellectual property rights, 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, which we acquired in
April 2001, 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 our business and reputation. We do not
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. We currently license our software products to end users directly, or through a number of reseller
channels including OEMs, VARs and SIs. Under our standard software license agreements, we
contractually agree to indemnify our licensees against claims that our software infringe the
intellectual property rights of third parties. Some of our products, including our core enterprise
database product, incorporate intellectual property licensed from third parties or open source
software. We attempt to exclude open source software and other products for which no IP indemnity
is provided by the licensor from the scope of our indemnification obligations. However, if we fail
to successfully exclude such technology from our indemnification obligations, claims that such open
source or third party technology infringes the intellectual property rights of a third party could
materially and adversely affect our business and financial condition. Our key personnel are critical to our business, and we cannot assure that they will remain with us. Our success depends on the continued service of our executive officers and other key personnel. In
recent years, we have made additions and changes to our executive management team. For example, in
August 2004, Martin J. Healy, Vice President and Corporate Controller, retired and was replaced by
Jeffrey G. Ross, formerly Group Director of Tax and Accounting. Further changes involving
executives and managers resulting from acquisitions, mergers and other events could increase the
current rate of employee turnover, particularly in consulting, engineering and sales. We cannot be
certain that we will retain our officers and key employees. In particular, if we are unable to hire
and retain qualified technical, managerial, sales and other employees it could adversely affect our
product development and sales efforts, other aspects of our operations, and our financial results.
Competition for highly skilled personnel in the software industry is intense. Our financial and
stock price performance relative to the companies with whom we compete for employees, and the high
cost of living in the San Francisco Bay Area, where our headquarters is located, could also impact
the degree of future employee turnover. - 36 -




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Changes in accounting and legal standards could adversely affect our future operating results. During the past several years, various accounting guidance has been issued with respect to revenue
recognition rules in the software industry. However, much of this guidance addresses software
revenue recognition primarily from a conceptual level, and is silent as to specific implementation
requirements. As a consequence, we have been required to make
assumptions and judgments, in certain circumstances, regarding application of the rules to
transactions not addressed by the existing rules. We believe our current business arrangements and
contract terms have been properly reported under the current rules. However, if final
interpretations of, or changes to, these rules necessitate a change in our current revenue
recognition practices, our results of operations, financial condition and business could be
materially and adversely affected. In October 2004, the FASB concluded that Statement 123(R), Share-Based Payment Statement 123(R)
requiring companies to measure compensation cost for all share-based payments at fair value, will
be effective for most public companies for interim or annual periods beginning after June 15, 2005.
We currently 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. However, we will be required to measure and recognize the
cumulative effect, if any, from the adoption of Statement 123(R) beginning July 1, 2005. Statement
123(R) likely will affect the accounting for our current employee stock option and stock purchase
plans, and could have an adverse effect on our accounting for compensation expenses if we are
unable to modify our plans in an appropriate or timely manner. In addition to the changes discussed above, the U.S. Congress enacted the Sarbanes-Oxley Act of
2002, or the SOA, in July 2002, providing for or mandating the implementation of extensive
corporate governance reforms relating to public company financial reporting, internal controls,
corporate ethics, and oversight of the accounting profession, among other areas. These SEC-mandated
rules and procedures became effective starting in the latter half of 2002, and new rules are
expected to evolve and
become implemented over the next several years. We are also subject to additional rules and
regulations, including those enacted by the New York Stock Exchange where our common stock is
traded. Compliance with existing or new rules that influence significant adjustments to our
business practices and procedures could result in significant expense and may adversely affect our
results of operations. Failure to comply with these rules could result in delayed financial
statements and might adversely impact the price of our common stock. The unfavorable outcome of litigation and other claims against us could have a material adverse
impact on our financial condition and results of operations. We are subject to a variety of claims and lawsuits from time to time, some of which arise in the
ordinary course of our business. Adverse outcomes in some or all of such pending cases may result
in significant monetary damages or injunctive relief against us. While management currently
believes that resolution of these matters, individually or in the aggregate, will not have a
material adverse impact on our financial position or results of operations, the ultimate outcome of
litigation and other claims noted are subject to inherent uncertainties, and managements view of
these matters may change in the future. It is possible that our financial condition and results of
operations could be materially adversely affected in any period in which the effect of an
unfavorable final outcome becomes probable and reasonably estimable. Our operations and financial results could be severely harmed by certain natural disasters. Our headquarters and some of our major customers facilities are located near major earthquake
faults. We have not been able to maintain earthquake insurance coverage at reasonable costs.
Instead, we rely on self-insurance and preventative safety measures. We currently ship most of our
products from our Dublin, California facility near the site of our corporate headquarters. If a
major earthquake or other natural disaster occurs, disruption of operations at that facility could
directly harm our ability to record revenues for such quarter. This could, in turn, have an adverse
impact on operating results. - 37 -




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Provisions of our corporate documents have anti-takeover effects that could prevent a change in
control. Provisions of our certificate of incorporation, bylaws, stockholder rights plan and Delaware law
could make it more difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. These provisions include authorizing the issuance of preferred stock without
stockholder approval, prohibiting cumulative voting in the election of directors, prohibiting the
stockholders from calling stockholders meetings and prohibiting stockholder actions by written
consent. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is presented under MD&A  Financial Risk Management, Part
II, Item 7. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS PageReport of Management on Internal Controls over Financial Reporting
    
    38Report of Independent Registered Public Accounting Firm on Internal Controls over
Financial Reporting
    
    39Report of Independent Registered Public Accounting Firm
    
    40Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    41Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002
    
    42Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2004,
2003 and 2002
    
    43Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002
    
    44Notes to Consolidated Financial Statements
    
    45
 Report of Management on Internal Controls over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under
the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2004 based on the framework in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on that evaluation, our management concluded that our internal control
over financial reporting was effective as of December 31, 2004. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. - 38 -




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Managements assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report which is included elsewhere herein. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL
REPORTING The Board of Directors and
Stockholders of Sybase, Inc. We have audited managements assessment, included in the accompanying Report of Management on
Internal Control Over Financial Reporting, that Sybase, Inc. maintained effective internal control
over financial reporting as of December 31, 2004, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Sybase, Inc.s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the companys internal control over financial
reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that Sybase, Inc. maintained effective internal control
over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based
on the COSO criteria. Also, in our opinion, Sybase, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004, based on the COSO
criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the 2004 consolidated financial statements of Sybase, Inc. and our report
dated March 14, 2005 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP San Jose, California
March 14, 2005 - 39 -




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and
Stockholders of Sybase, Inc. We have audited the accompanying consolidated balance sheets of Sybase, Inc. as of December 31,
2004 and 2003, and the related consolidated statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended December 31, 2004. Our audits also
included the financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Sybase, Inc. at December 31, 2004 and 2003, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material respects the
information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Sybase, Inc.s internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 14, 2005 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP San Jose , California
March 14, 2005 - 40 -




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Consolidated Balance Sheets December 31(Dollars in thousands, except share and per share data)
    
    2004
    
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    321,417
    
    
    $
    315,404Short-term cash investments
    
    
    158,217
    
    
    
    155,093Total cash, cash equivalents and short-term cash investments
    
    
    479,634
    
    
    
    470,497Restricted cash
    
    
    5,356
    
    
    
    4,747Accounts receivable, less allowance for doubtful accounts of $1,852
(2003 - $4,145)
    
    
    157,897
    
    
    
    140,332Deferred income taxes
    
    
    11,205
    
    
    
    12,739Prepaid expenses and other current assets
    
    
    14,790
    
    
    
    16,167Total current assets
    
    
    668,882
    
    
    
    644,482Long-term cash investments
    
    
    33,998
    
    
    
    103,296Restricted long-term cash investments
    
    
    2,600
    
    
    
    3,400Property, equipment and improvements, net
    
    
    64,371
    
    
    
    67,462Deferred income taxes
    
    
    39,440
    
    
    
    58,506Capitalized software, net
    
    
    61,771
    
    
    
    58,947Goodwill
    
    
    214,110
    
    
    
    140,875Other purchased intangibles, less accumulated amortization
of $86,442 (2003  $63,485)
    
    
    67,208
    
    
    
    38,715Other assets
    
    
    31,142
    
    
    
    35,673Total assets
    
    $
    1,183,522
    
    
    $
    1,151,356Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    11,962
    
    
    $
    15,425Accrued compensation and related expenses
    
    
    43,632
    
    
    
    39,134Accrued income taxes
    
    
    32,595
    
    
    
    33,677Other accrued liabilities
    
    
    81,715
    
    
    
    94,611Deferred revenue
    
    
    208,741
    
    
    
    200,612Total current liabilities
    
    
    378,645
    
    
    
    383,459Other liabilities
    
    
    33,121
    
    
    
    15,129Long-term deferred revenue
    
    
    10,170
    
    
    
    6,269Minority interest
    
    
    5,030
    
    
    
    5,030Commitments and contingent liabilitiesStockholders equity:Preferred stock, $0.001 par value, 8,000,000 shares authorized; none
issued or outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 200,000,000 shares authorized;
105,337,362 shares issued and 95,518,977 shares outstanding (2003 
105,337,362 shares issued and 98,525,464 shares outstanding)
    
    
    105
    
    
    
    105Additional paid-in capital
    
    
    940,806
    
    
    
    933,657Accumulated deficit
    
    
    (66,690
    )
    
    
    (126,385
    )Accumulated other comprehensive income/(loss)
    
    
    49,356
    
    
    
    26,849Cost of 9,818,385 shares of treasury stock (2003  6,811,898 shares)
    
    
    (159,617
    )
    
    
    (87,672
    )Unearned stock compensation
    
    
    (7,404
    )

    
    
    (5,085
    )Total stockholders equity
    
    
    756,556
    
    
    
    741,469Total liabilities and stockholders equity
    
    $
    1,183,522
    
    
    $
    1,151,356
 See accompanying notes. - 41 -




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Consolidated Statements of Operations For the years ended December 31(In thousands, except per share data)
    
    2004
    
    
    2003
    
    
    2002Revenues:License fees
    
    $
    275,872
    
    
    $
    274,817
    
    
    $
    325,916Services
    
    
    512,664
    
    
    
    503,245
    
    
    
    503,945Total revenues
    
    
    788,536
    
    
    
    778,062
    
    
    
    829,861Costs and expenses:Cost of license fees
    
    
    60,795
    
    
    
    60,711
    
    
    
    51,448Cost of services
    
    
    161,848
    
    
    
    162,666
    
    
    
    190,067Sales and marketing
    
    
    242,431
    
    
    
    239,045
    
    
    
    271,765Product development and engineering
    
    
    119,877
    
    
    
    116,889
    
    
    
    117,784General and administrative
    
    
    87,115
    
    
    
    82,111
    
    
    
    84,938Amortization of other purchased intangibles
    
    
    5,139
    
    
    
    2,000
    
    
    
    2,000Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    12,300Stock compensation expense
    
    
    4,599
    
    
    
    2,882
    
    
    
    1,937Reversal of AvantGo restructuring accrual
    
    
    (2,677
    )
    
    
    
    
    
    
    Cost of restructuring
    
    
    20,017
    
    
    
    7,429
    
    
    
    40,446Total costs and expenses
    
    
    699,144
    
    
    
    673,733
    
    
    
    772,685Operating income
    
    
    89,392
    
    
    
    104,329
    
    
    
    57,176Interest income
    
    
    10,908
    
    
    
    11,229
    
    
    
    11,674Interest expense and other income, net
    
    
    666
    
    
    
    2,537
    
    
    
    2,359Income before income taxes and cumulative
effect of an accounting change
    
    
    100,966
    
    
    
    118,095
    
    
    
    71,209Provision for income taxes
    
    
    33,016
    
    
    
    30,829
    
    
    
    33,428Income before cumulative effect of an
accounting change
    
    
    67,950
    
    
    
    87,266
    
    
    
    37,781Cumulative effect of an accounting change to
Adopt SFAS 142
    
    
    
    
    
    
    
    
    
    
    (132,450
    )Net income (loss)
    
    $
    67,950
    
    
    $
    87,266
    
    
    $
    (94,669
    )Income per share before cumulative effect
of an accounting change
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    0.39Cumulative effect of an accounting change
    
    
    
    
    
    
    
    
    
    
    (1.37
    )Basic net income (loss) per share
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    (0.98
    )Shares used in computing basic net income (loss)
per share
    
    
    95,550
    
    
    
    94,833
    
    
    
    96,844Income per share before cumulative effect
of an accounting change
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    0.38Cumulative effect of an accounting change
    
    
    
    
    
    
    
    
    
    
    (1.33
    )Diluted net income (loss) per share
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    (0.95
    )Shares used in computing diluted net income
(loss) per share
    
    
    98,001
    
    
    
    97,582
    
    
    
    99,584
 See accompanying notes. Stock compensation expense related to the following:Cost of services
    
    $
    160
    
    
    $
    30
    
    
    $
    Sales and marketing
    
    
    335
    
    
    
    112
    
    
    
    77Product development and engineering
    
    
    82
    
    
    
    78
    
    
    
    78General and administrative
    
    
    4,022
    
    
    
    2,662
    
    
    
    1,782$
    4,599
    
    
    $
    2,882
    
    
    $
    1,937
 - 42 -




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##### Table of Contents



Consolidated Statements of Stockholders Equity Three years ended December 31, 2004AccumulatedCommon stock
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    UnearnedOutstanding
    
    
    Par
    
    
    paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    Stock(Dollars and shares in thousands)
    
    Shares
    
    
    Value
    
    
    capital
    
    
    Deficit
    
    
    Income/(Loss)
    
    
    Stock
    
    
    Compensation
    
    
    TotalBalances at December 31, 2001
    
    
    98,725
    
    
    
    105
    
    
    
    925,709
    
    
    
    (68,723
    )
    
    
    (27,994
    )
    
    
    (107,175
    )
    
    
    (5,403
    )
    
    
    716,519Common stock issued and treasury
Stock reissued under stock option,
Stock purchase plans and other
    
    
    2,633
    
    
    
    
    
    
    
    
    
    
    
    (26,690
    )
    
    
    
    
    
    
    50,332
    
    
    
    
    
    
    
    23,642Treasury 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
    
    
    
    1,938Tax benefit of exercise of stock options
    
    
    
    
    
    
    
    
    
    
    3,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,450Subtotal
    
    
    94,660
    
    
    
    105
    
    
    
    929,064
    
    
    
    (95,267
    )
    
    
    (27,994
    )
    
    
    (146,816
    )
    
    
    (3,370
    )
    
    
    655,722Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94,669
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94,669
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,826
    
    
    
    
    
    
    
    
    
    
    
    18,826Unrealized gains/(losses) on
Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    495
    
    
    
    
    
    
    
    
    
    
    
    495Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75,348
    )Balances at December 31, 2002
    
    
    94,660
    
    
    
    105
    
    
    
    929,064
    
    
    
    (189,936
    )
    
    
    (8,673
    )
    
    
    (146,816
    )
    
    
    (3,370
    )
    
    
    580,374Common stock issued and treasury
Stock reissued under stock option,
Stock purchase plans and other
    
    
    5,148
    
    
    
    
    
    
    
    (3
    )
    
    
    (20,054
    )
    
    
    
    
    
    
    75,938
    
    
    
    
    
    
    
    55,881Treasury stock reissued under
Restricted stock option plan
    
    
    353
    
    
    
    
    
    
    
    5,012
    
    
    
    (5,915
    )
    
    
    
    
    
    
    5,949
    
    
    
    (5,012
    )
    
    
    34Treasury stock reissued for certain
Services
    
    
    721
    
    
    
    
    
    
    
    
    
    
    
    1,720
    
    
    
    
    
    
    
    8,676
    
    
    
    
    
    
    
    10,396Treasury stock repurchased due to
Forfeiture in restricted stock
Option plan
    
    
    (24
    )
    
    
    
    
    
    
    (416
    )
    
    
    534
    
    
    
    
    
    
    
    (536
    )
    
    
    415
    
    
    
    (3
    )Acquisition of treasury stock
    
    
    (2,333
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,883
    )
    
    
    
    
    
    
    (30,883
    )Amortization of unearned stock
Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,882
    
    
    
    2,882Subtotal
    
    
    98,525
    
    
    
    105
    
    
    
    933,657
    
    
    
    (213,651
    )
    
    
    (8,673
    )
    
    
    (87,672
    )
    
    
    (5,085
    )
    
    
    618,681Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,266Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,100
    
    
    
    
    
    
    
    
    
    
    
    36,100Unrealized gains/(losses) on
Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (578
    )
    
    
    
    
    
    
    
    
    
    
    (578
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,788Balances at December 31, 2003
    
    
    98,525
    
    
    $
    105
    
    
    $
    933,657
    
    
    $
    (126,385
    )
    
    $
    26,849
    
    
    $
    (87,672
    )
    
    $
    (5,085
    )
    
    $
    741,469Common stock issued and treasury
Stock reissued under stock option,
Stock purchase plans and other
    
    
    3,058
    
    
    
    
    
    
    
    601
    
    
    
    (4,284
    )
    
    
    
    
    
    
    39,243
    
    
    
    
    
    
    
    35,560Treasury stock reissued under
Restricted stock option plan
    
    
    355
    
    
    
    
    
    
    
    6,673
    
    
    
    (4,071
    )
    
    
    
    
    
    
    4,727
    
    
    
    (7,294
    )
    
    
    35Treasury stock repurchased due to
Forfeiture in restricted stock
Option plan
    
    
    (21
    )
    
    
    
    
    
    
    (125
    )
    
    
    100
    
    
    
    
    
    
    
    (353
    )
    
    
    376
    
    
    
    (2
    )Acquisition of treasury stock
    
    
    (6,398
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (115,562
    )
    
    
    
    
    
    
    (115,562
    )Amortization of unearned stock
Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,599
    
    
    
    4,599Subtotal
    
    
    95,519
    
    
    
    105
    
    
    
    940,806
    
    
    
    (134,640
    )
    
    
    26,849
    
    
    
    (159,617
    )
    
    
    (7,404
    )
    
    
    666,099Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,950Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,099
    
    
    
    
    
    
    
    
    
    
    
    23,099Unrealized gains/(losses) on
Marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (592
    )
    
    
    
    
    
    
    
    
    
    
    (592
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,457Balances at December 31, 2004
    
    
    95,519
    
    
    $
    105
    
    
    $
    940,806
    
    
    $
    (66,690
    )
    
    $
    49,356
    
    
    $
    (159,617
    )
    
    $
    (7,404
    )
    
    $
    756,556
 See accompanying notes. - 43 -




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##### Table of Contents



Consolidated Statements of Cash Flows For the years ended December 31(Dollars in thousands)
    
    2004
    
    
    2003
    
    
    2002Cash and cash equivalents, beginning of year
    
    $
    315,404
    
    
    $
    231,267
    
    
    $
    222,793Cash flows from operating activities:Net income (loss)
    
    
    67,950
    
    
    
    87,266
    
    
    
    (94,669
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    84,912
    
    
    
    84,885
    
    
    
    81,342Write-off of assets in restructuring
    
    
    6,908
    
    
    
    258
    
    
    
    992(Gain) Loss on disposal of assets
    
    
    2,680
    
    
    
    (435
    )
    
    
    (3,004
    )Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    144,750Reversal of purchase accounting accrual
    
    
    (2,677
    )
    
    
    
    
    
    
    Deferred income taxes
    
    
    504
    
    
    
    729
    
    
    
    (4,771
    )Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    3,451Amortization of deferred stock-based compensation
    
    
    4,599
    
    
    
    2,882
    
    
    
    1,937Changes in assets and liabilities:Accounts receivable
    
    
    (5,342
    )
    
    
    40,738
    
    
    
    16,234Other current assets
    
    
    2,070
    
    
    
    1,646
    

    
    
    6,648Other assets  operating
    
    
    4,623
    
    
    
    
    
    
    
    Accounts payable
    
    
    2,323
    
    
    
    (4,591
    )
    
    
    32Accrued compensation and related expenses
    
    
    3,397
    
    
    
    1,495
    
    
    
    (7,472
    )Accrued income taxes
    
    
    791
    
    
    
    6,598
    
    
    
    4,555Other accrued liabilities
    
    
    (14,792
    )
    
    
    (29,598
    )
    
    
    1,359Deferred revenues
    
    
    8,887
    
    
    
    5,622
    
    
    
    7,940Other liabilities
    
    
    9,318
    
    
    
    4,650
    
    
    
    4,953Net cash provided by operating activities
    
    
    176,151
    
    
    
    202,145
    
    
    
    164,277Cash flows from investing activities:(Increase) Decrease in restricted cash
    
    
    191
    
    
    
    906
    
    
    
    (2,227
    )Purchases of available-for-sale cash investments
    
    
    (201,417
    )
    
    
    (325,725
    )
    
    
    (234,754
    )Maturities of available-for-sale cash investments
    
    
    149,923
    
    
    
    153,805
    
    
    
    43,857Sales of available-for-sale cash investments
    
    
    116,462
    
    
    
    69,064
    
    
    
    156,916Business combinations, net of cash acquired
    
    
    (81,255
    )
    
    
    (13,900
    )
    
    
    (2,106
    )Purchases of property, equipment and improvements
    
    
    (30,445
    )
    
    
    (35,325
    )
    
    
    (40,476
    )Proceeds from sale of fixed assets
    
    
    205
    
    
    
    159
    
    
    
    1,068Capitalized software development costs
    
    
    (36,484
    )
    
    
    (27,964
    )
    
    
    (32,729
    )Decrease in other assets  investing
    
    
    2
    
    
    
    288
    
    
    
    327Net cash used for investing activities
    
    
    (82,818
    )
    
    
    (178,692
    )
    
    
    (110,124
    )Cash flows from financing activities:Repayments of long-term obligations
    
    
    (22,173
    )
    
    
    
    
    
    
    Payments on capital lease
    
    
    (63
    )
    
    
    
    
    
    
    Minority Interest
    
    
    
    
    
    
    1
    
    
    
    Net proceeds from the issuance of common stock and
reissuance of treasury stock
    
    
    35,592
    
    
    
    55,914
    
    
    
    23,641Purchases of treasury stock
    
    
    (115,563
    )
    
    
    (30,883
    )
    
    
    (89,826
    )Net cash provided by (used for) financing activities
    
    
    (102,207
    )
    
    
    25,032
    
    
    
    (66,185
    )Effect of exchange rate changes on cash
    
    
    14,887
    
    
    
    35,652
    
    
    
    20,506Net increase (decrease) in cash and cash equivalents
    
    
    6,013
    
    
    
    84,137
    
    
    
    8,474Cash and cash equivalents, end of year
    
    
    321,417
    
    
    
    315,404
    
    
    
    231,267Cash investments, end of year
    
    
    192,215
    
    
    
    258,389
    
    
    
    155,913Total cash, cash equivalents and cash investments, end of year
    
    $
    513,632
    
    
    $
    573,793
    
    
    $
    387,180Supplemental disclosures:Interest paid
    
    $
    308
    
    
    $
    62
    
    
    $
    198Income taxes paid
    
    $
    33,335
    
    
    $
    26,685
    
    
    $
    31,693
 See accompanying notes. - 44 -




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##### Table of Contents



Notes to Consolidated Financial Statements Note One: Summary of Significant Accounting Policies The Company Sybase, Inc. (Sybase or the Company) enables the Unwired Enterprise for customers and partners by
delivering enterprise and mobile software solutions for information management, development and
integration. Sybase solutions integrate platforms, databases, and applications, and extend those
applications to mobile workers through mobile and Wi-Fi technologies. In 2004, the Companys business was organized into three business segments: Infrastructure Platform
Group (IPG), which principally focuses on enterprise class database servers, integration and
development products; iAnywhere Solutions, Inc. (iAS) which provides mobile database and mobile
enterprise solutions; and Financial Fusion, Inc. (FFI) which delivers integrated banking, payment
and trade messaging solutions to large financial institutions. 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. Certain prior year balances have been reclassified to conform to the current year
presentation. 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, stock-based compensation, 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. Additional allowances might be required if deteriorating economic
conditions or other factors affect Sybase customers ability to make timely payments. 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
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 $251.2
million and $214.7 million, at December 31, - 45 -




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##### Table of Contents



2004 and 2003, respectively, and related accumulated amortization was $189.4 million, and $155.8
million, respectively. Software amortization charges included in cost of license fees were $33.6
million, $31.1 million and $24.0 million for 2004, 2003 and 2002, 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. Costs related to internally developed software and software purchased for internal use, which are
required to be capitalized pursuant to Statement of Position (SOP) No. 98-1, Accounting for Costs
of Computer Software Developed or Obtained for Internal Use, are included in property, plant and
equipment. Such amounts are amortized over a three-year period which is the estimated economic
life, from the time they are placed in service. 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 not
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. Based on the
completed analysis, the Company recognized an impairment loss of $132.5 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, 2004,
December 31, 2003, and December 31, 2002. The 2004 and 2003 analysis did not indicate an
impairment for any of the Companys reporting units. Therefore, no impairment loss was recognized
for both years. Based on the 2002 analysis, Sybase recognized an impairment loss of $12.3 million
on the goodwill associated with the FFI division. The 2002 impairment loss primarily resulted from
a reduction in the Companys estimates of future cash flows to be generated by the FFI reporting
unit. 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. - 46 -




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Other purchased intangible assets, which have generally resulted from business combinations
accounted for as purchases (see Note Eleven below), are recorded at amortized cost. Amortization
is computed using the straight-line method over periods of 1.5 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 have not had a significant impact on the
Companys financial condition or operating results in 2004, 2003 or 2002. Revenue Recognition The Company derives revenues from two primary sources: the licensing of software, primarily under
perpetual software licenses, which are recorded as license fee revenue; and the provision of
services which primarily include technical support revenues, consulting, and education revenues 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 fee 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;
payment of the license fees are dependent upon the performance of the services; the arrangement
includes milestones or customer specific acceptance criteria; or the services include significant
modification or customization of the software 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 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. When the total cost estimate associated with a contract accounted for under the
percentage of completion method exceeds revenues, the Company accrues for the estimated loss based
on the amount its estimated cost of completing the contract exceeds the applicable revenues. Sublicense fees are recognized as reported to the Company by its licensees. License fee revenues
from sublicense transactions for certain application development and data access tools are
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
(e.g., fixed price arrangements) are recognized under the percentage-of-completion method described
above. - 47 -




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Business Combinations The Company has accounted for all its recent acquisitions using the purchase method of accounting.
In the case of material acquisitions, the Company based its purchase price allocation on analysis
performed by an independent third party. This independent third party also assists in the
determination of the useful life of intangible assets acquired in this manner. 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. The assets and liabilities of foreign subsidiaries are translated into
U.S. dollars using year-end 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.
Revenues and expenses are translated using the month-end exchange rates applicable to the month
preceding the month in which the transaction is recorded. 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, the UK pound, and the Euro. 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 on hedged balances. All foreign exchange contracts have a life of
approximately 30 days and are marked to market at the end of 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. Additional information regarding the
Companys deferred tax asset and associated valuation allowance is provided in Note Eight below. Contingent change of control provisions During the fourth quarter of 2003, FFI entered into a software license and support agreement with
an end user customer containing certain change of control provisions that will be triggered if the
Company or its customer undergoes a full or partial change of control within five years from the
contract date. For example, if an unrelated third party acquires all of the stock or assets of FFI
so that Sybase can no longer include any portion of, or any material interest in, the results of
FFI (or the acquiring entity) in its consolidated financial statements or its results of
operations, the acquiring party will be required to pay the end user customer $10.0 million.
Alternatively, if FFI undergoes a partial change of control resulting in Sybase or its affiliates
holding less than 50 percent of the voting control of FFI or the acquiring entity, then the
acquiring company (or Sybase, if it still includes the results of FFI in its consolidated financial
statements) will be required to pay up to $1.5 million to the end user customer. Although the $10.0
million remains fixed, the $1.5 million declined to $1.0 million at December 31, 2004, and will
decline to $0.5 million at December 31, 2005, before expiring completely at the end of year five.
As a result, at December 31, 2004, $1.0 million in license fees have been deferred and such amounts
will be recognized as revenue as the payment obligation decreases over the 5-year period. - 48 -




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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)
    
    2004
    
    
    2003
    
    
    2002As reported net income/(loss)  stock-based employee
compensation determined using the intrinsic value method
    
    $
    67,950
    
    
    $
    87,266
    
    
    $
    (94,669
    )Add: Stock-based employee compensation cost, net of tax,
included in net income as reported
    
    
    4,599
    
    
    
    2,882
    
    
    
    1,937Less: Pro-forma stock-based employee compensation cost,
net of tax, determined under the fair value method
    
    
    (24,772
    )
    
    
    (30,389
    )
    
    
    (35,626
    )Pro-forma net income/(loss)  stock-based employee
compensation determined under the fair value method
    
    $
    47,777
    
    
    $
    59,759
    
    
    $
    (128,358
    )Basic net income/(loss) per shareAs reported

    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    (0.98
    )Pro forma
    
    
    0.50
    
    
    
    0.63
    
    
    
    (1.33
    )Diluted net income/(loss) per shareAs reported
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    (0.95
    )Pro forma
    
    
    0.49
    
    
    
    0.61
    
    
    
    (1.28
    )
 The fair value of the stock-based 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. 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 and restricted stock using the treasury stock method. - 49 -




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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)
    
    2004
    
    
    2003
    
    
    2002Net income (loss)
    
    $
    67,950
    
    
    $
    87,266
    
    
    $
    (94,669
    )Shares used in computing basic net income
(loss) per share
    
    
    95,550
    
    
    
    94,833
    
    
    
    96,844Effect of dilutive securities  stock options
    
    
    2,451
    
    
    
    2,749
    
    
    
    2,740Shares used in computing diluted net income
(loss) per share
    
    
    98,001
    
    
    
    97,582
    
    
    
    99,584Basic net income (loss) per share
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    (0.98
    )Diluted net income (loss) per share
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    (0.95
    )
 The anti-dilutive weighted average shares that were excluded from the shares used in computing
diluted net income (loss) per share, were 6.9 million, 6.7 million and 10.0 million in 2004, 2003
and 2002, respectively. 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. Advertising The Companys advertising expenses for the years ended December 31, 2004, 2003 and 2002 were
approximately $8.0 million, $10.9 million and $16.0 million, respectively. The Company expenses
its advertising costs as they are incurred. Recent Accounting Pronouncements On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123
(revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement 123. However,
Statement 123(R) requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Disclosure in
financial footnotes of the pro forma impact of the fair value of share-based payments, as permitted
by APB 25, is not a permitted alternative under Statement 123(R). Statement 123(R) will be effective for Sybase in the quarter beginning July 1, 2005. Statement
123(R) permits public companies to adopt its requirements using either the modified prospective
method of the modified retrospective method. Under the modified prospective method, compensation
cost is recognized for all share-based payments granted after the effective date as well as for all
share-based payments granted prior to the effective date which remain unvested on the effective
date. Under the modified retrospective method, the provisions of the modified prospective method
would apply but the Company could also restate its earnings in certain previous periods based on
the stock compensation amounts included in its previous proforma disclosures. The Company plans to
adopt Statement 123R using the modified prospective method beginning July 1, 2005. The adoption of Statement 123(R)s fair value method will have a significant impact on the
Companys results of operations, although it will have no impact on the Companys overall financial
position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it
will depend on levels - 50 -




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of share-based payments granted in the future. However, had the Company adopted 123(R) in prior
periods, the impact of that standard would have approximated the impact of Statement 123 as
described in the disclosure of pro forma net income and earnings per share under Stock-Based
Compensation, above. Statement 123(R) also requires the benefit of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather than as an operating
cash flow as required under the current literature. This requirement will reduce net operating
cash flows and increase net financing cash flows in periods after adoption. The Company cannot
estimate what those amounts will be in the future (because they depend on, among other things, when
employees exercise stock options). The Company does not believe that the amount of operating cash
flows recognized in prior period for such excess tax deductions were material in 2004, 2003 or
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, 2004, 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. Declines in fair value
judged to be other than temporary are reflected in earnings. Securities are presumed to be
impaired if the fair value is less than the cost basis for six consecutive months, absent
compelling evidence to the contrary. Declines in fair value recorded as impairment losses in
earnings have not been material in any reporting period. Realized gains and losses are determined
on the specific identification method and are reflected in income. - 51 -




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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)
    
    
    ValueDecember 31, 2004:Cash and cash equivalents
    
    $
    321,417
    
    
    $
    
    
    
    $
    
    
    
    $
    321,417Short-term corporate notes and bonds
(maturities of one year or less)
    
    
    115,180
    
    
    
    72
    
    
    
    (29
    )
    
    
    115,223Short-term government obligations
(maturities of one year or less)
    
    
    43,033
    
    
    
    2
    
    
    
    (41
    )
    
    
    42,994Long-term corporate notes and bonds
(maturities over one year)
    
    
    28,949
    
    
    
    
    
    
    
    (127
    )
    
    
    28,822Long-term government obligations
(maturities over one year)
    
    
    5,212
    
    
    
    
    
    
    
    (36
    )
    
    
    5,176$
    513,791
    
    
    $
    74
    
    
    $
    (233
    )
    
    $
    513,632December 31, 2003:Cash and cash equivalents
    
    $
    315,404
    
    
    $
    
    
    
    $
    
    
    
    $
    315,404Short-term corporate notes and bonds
(maturities of one year or less)
    
    
    140,185
    
    
    
    149
    
    
    
    (8
    )
    
    
    140,326Short-term government obligations
(maturities of one year or less)
    
    
    14,667
    
    
    
    100
    
    
    
    
    
    
    
    14,767Long-term corporate notes and bonds
(maturities over one year)
    
    
    69,520
    
    
    
    452
    
    
    
    (37
    )
    
    
    69,935Long-term government obligations
(maturities over one year)
    
    
    33,274
    
    
    
    87
    
    
    
    
    
    
    
    33,361$
    573,050
    
    
    $
    788
    
    
    $
    (45
    )
    
    $
    573,793
 Restricted Cash At December 31, 2004, the Company had approximately $8 million in restricted cash (and long-term
cash investments) set aside for a guarantee against certain payroll and lease obligations in the
United Kingdom, California and Illinois. Foreign Currency Forward Exchange Contracts At December 31, 2004, the Company had outstanding forward contracts, all having maturities of
approximately 30 days, to exchange various foreign currencies for U.S. dollars and Euros in the
amounts of $8.1 million and $12.1 million, respectively, and to exchange U.S. dollars into various
foreign currencies in the amount of $23.7 million. At December 31, 2003, the Company had
outstanding forward exchange contracts, all having maturities of approximately 30 days, to exchange
various foreign currencies for U.S. dollars and Euros in the amounts of $1.6 million and $13.4
million, respectively, and to exchange U.S. dollars into various foreign currencies in the amounts
of $30.1 million. 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. Neither the cost nor
the fair value of these foreign currency forward contracts was material at December 31, 2004 or
2003. A major U.S. based multinational bank was counter party to all of these contracts during
both 2004 and 2003. - 52 -




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Note Three: Property, Equipment and Improvements Estimated useful(Dollars in thousands)
    
    2004
    
    
    2003
    
    
    livesComputer equipment and software
    
    $
    275,252
    
    
    $
    310,719
    
    
    3 yearsFurniture and fixtures
    
    
    59,845
    
    
    
    82,315
    
    
    5 yearsLeasehold improvements
    

    
    63,171
    
    
    
    55,402
    
    
    Shorter of 5 years or lease term398,268
    
    
    
    448,436Less accumulated depreciation
    
    
    (333,897
    )
    
    
    (380,974
    )Net property, equipment and improvements
    
    $
    64,371
    
    
    $
    67,462
 Depreciation expense amounted to $28.4 million, $34.9 million and $37.9 million in 2004, 2003
and 2002, 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. (In thousands)
    
    IPG
    
    
    FFI
    
    
    iAS
    
    
    Consolidated TotalBalance at January 1, 2003
    
    $
    107,456
    
    
    $
    29,281
    
    
    $
    89
    
    
    $
    136,826Goodwill recorded on AvantGo acquisition
    
    
    
    
    
    
    
    
    
    
    16,606
    
    
    
    16,606Reduction for utilization of
acquired tax assets
    
    
    (4,914
    )
    
    
    
    
    
    
    (8,361
    )
    
    
    (13,275
    )Foreign currency translation
Adjustments
    
    
    718
    
    
    
    
    
    
    
    
    
    
    
    718Balance at December 31,
2003
    
    $
    103,260
    
    
    $
    29,281
    
    
    $
    8,334
    
    
    $
    140,875Goodwill recorded on XcelleNet acquisition
    
    
    
    
    
    
    
    
    
    
    74,051
    
    
    
    74,051Goodwill recorded on Dejima acquisition
    
    
    
    
    
    
    
    
    
    
    837
    
    
    
    837Return to provision adjustment to
utilization of acquired tax assets
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    19Reduction for utilization of
acquired tax assets
    
    
    (2,114
    )
    
    
    
    
    
    
    
    
    
    
    (2,114
    )Foreign currency translation
Adjustments
    
    
    442
    
    
    
    
    
    
    
    
    
    
    
    442Balance at December 31,
2004
    
    $
    101,588
    
    
    $
    29,281
    
    
    $
    83,241
    
    
    $
    214,110
 - 53 -




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The following table reflects intangible assets subject to amortization (except the AvantGo and
XcelleNet trade names) as of December 31, 2004 and December 31, 2003: Gross Carrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)
    
    12/31/04
    
    
    12/31/04
    
    
    12/31/04
    
    
    12/31/03
    
    
    12/31/03
    
    
    12/31/03Purchased technology
    
    $
    103,850
    
    
    $
    (73,414
    )
    
    $
    30,436
    
    
    $
    79,100
    
    
    $
    (55,596
    )
    
    $
    23,504AvantGo tradenames
    
    
    3,100
    
    
    
    
    
    
    
    3,100
    
    
    
    3,100
    
    
    
    
    
    
    
    3,100XcelleNet tradenames
    
    
    4,000
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    Covenant not to compete
    
    
    2,800
    
    
    
    (1,244
    )
    
    
    1,556
    
    
    
    
    
    
    
    
    
    
    
    Customer lists
    
    
    39,900
    
    
    
    (11,784
    )
    
    
    28,116
    
    
    
    20,000
    
    
    
    (7,889
    )
    
    
    12,111Totals
    
    $
    153,650
    
    
    $
    (86,442
    )
    
    $
    67,208
    
    
    $
    102,200
    
    
    $
    (63,485
    )
    
    $
    38,715
 Purchased technology is amortized over a period of 4 to 7 years; covenant not to compete is
amortized over a period of 18 months; customer lists are amortized over a period of 7 to 10 years.
The tradenames are assigned an indefinite life and are not amortized but instead tested for
impairment in the same manner as goodwill. Estimated amortization expense for other purchased intangibles in each of the next five years
ending December 31, is as follows (dollars in thousands): 2005
    
    
    16,6582006
    
    
    8,9242007
    
    
    8,7572008
    
    
    8,7572009
    
    
    8,424
 Note Five: Other Assets Other assets consist of the following (in thousands): 2004
    
    
    2003Deposits
    
    $
    25,015
    
    
    $
    23,663Other
    
    
    6,127
    
    
    
    12,010$
    31,142
    
    
    $
    35,673
 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). Note Six: Lease Obligations and Other Liabilities and Commitments Operating Leases 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 - 54 -




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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. Future minimum lease payments under non-cancelable operating leases having initial terms in excess
of one year as of December 31, 2004 (including those provided for in the Companys restructuring
accrual) are as follows (dollars in thousands): 2005
    
    $
    45,1052006
    
    
    42,4892007
    
    
    39,0502008
    
    
    34,8552009
    
    
    34,502Thereafter
    
    
    150,193Total minimum lease payments*
    
    $
    346,194
    The following schedule shows the composition of total rental expenses for all operating leases: Year ending December 31,2004
    
    
    2003
    
    
    2002Minimum rentals
    
    $
    46,463
    
    
    $
    51,064
    
    
    $
    50,369Less: sublease rentals
    
    
    3,797
    
    
    
    3,570
    
    
    
    5,708$
    42,666
    
    
    $
    47,494
    
    
    $
    44,661
 - 55 -




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##### Table of Contents



Capital Lease Obligations In May of 2003, the Company entered into a 15-year capital lease for a new facility in Waterloo,
Canada. The lease requires monthly payments of approximately $88,089, which includes both principal
and interest, commencing October 2004 through October 2019. Gross assets of $9.1 million and
accumulated depreciation of $0.2 million have been recorded in relation to this capital lease as of
December 31, 2004. This capital lease asset is captured on the Companys balance sheet within
property, equipment and improvements, net. The corresponding liability is captured within other
liabilities. Future minimum lease payments under capital lease obligations at December 31, 2004 are as follows
(dollars in thousands): 2005
    
    $
    1,0572006
    
    
    1,0572007
    
    
    1,0572008
    
    
    1,0572009
    
    
    1,057Thereafter
    
    
    10,349Sub-total
    
    
    15,634Less amount representing interest
    
    
    6,886Total minimum lease payments
    
    $
    8,748
 Other Liabilities and Commitments At December 31, 2004,
the Company had outstanding letters of credit in the amount of
$5 million. These lines of credit have never been accessed, and related to lease obligations entered into
or acquired by the Company. 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, 2004, the Company issued rights to purchase an aggregate of
346,000 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. Rights totaling 342,000 shares were timely exercised,
and the restricted shares were issued. During the year ended December 31, 2003, the Company issued
rights to purchase an aggregate of 358,000 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. Rights totaling
353,500 shares were timely exercised, and the restricted shares were issued. 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. The restricted shares are subject to repurchase by the Company over a period of
six months to four years from the date of grant (Repurchase Period), depending on the terms of the
particular grant. - 56 -




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##### Table of Contents



The Company has amortized the difference between the 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 may repurchase shares in the event a restricted shareholders recipients employment is terminated any time
before the relevant Repurchase Period has expired. At December 31, 2004, 337,000 restricted shares
issued in 2004, 326,500 restricted shares issued in 2003, and 150,000 restricted shares issued in
2001, were still outstanding and subject to repurchase during the Repurchase Period. In 2004, an aggregate of 12,700 shares of Common Stock were granted as restricted stock under the
2003 Stock Plan to certain senior executives and employees. The restricted shares are subject to
be returned to the Company over a period of three years from date of grant. The Companys return
right is triggered in the event a restricted shareholders recipients employment is terminated any
time during the three-year period. The Company has amortized the fair market value of the
underlying shares on the date the restricted shares were granted pro rata over the term of the
applicable return right period. Stock Repurchase Program Beginning in 1998, the Companys Board of Directors authorized the repurchase of Sybase outstanding
Common Stock from time to time, subject to price and other conditions (Stock Repurchase Program).
Through December 31, 2004, aggregate amounts authorized under the Stock Repurchase Program totaled
$600.0 million. During 2004, the Company repurchased 6.4 million shares at a cost of $115.6
million. In 2003, the Company repurchased 2.3 million shares at a cost of $30.9 million, and in
2002 the Company repurchased 6.7 million shares at a cost of $89.8 million. Issuance of Company Stock for Certain Services During the quarter ended September 30, 2003, the Company issued approximately 0.7 million shares of
its common stock to an unrelated party in connection with an agreement under which the Company will
be provided with certain specified marketing services over a period of 42 months. The Company
recorded a pre-paid asset of approximately $10.4 million upon the issuance of these shares based on
the fair value of such shares on the date of grant. The expense associated with the marketing
services provided to the Company under this agreement will be recognized as they are received. As
of December 31, 2004, the balance of this pre-paid was $6.8 million. 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, 2004
upon the exercise of options granted to qualified employees and consultants of the Company. 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, 2004, there were 1,533,104 unexercised options outstanding under the 1988 Stock Plan. Pursuant to the Companys 1996 Stock Plan (1996 Stock Plan), at December 31, 2004, an aggregate of
15,191,716 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. 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 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 2004 all shares available for grant pursuant to the
1996 Stock Plan were transferred to the 2003 Stock Plan. Pursuant to the 1999 Nonstatutory Stock Plan (1999 Stock Plan), at December 31, 2004, an aggregate
of 6,723,005 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. 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 - 57 -




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##### Table of Contents



the extent vested. Vesting occurs at various rates and over various time periods. In 2004 all
shares available for grant pursuant to the 1999 Stock Plan were transferred to the 2003 Stock Plan. Pursuant to the 2003 Stock Plan (2003 Stock Plan) at December 31, 2004, an aggregate of 4,312,279
shares of Common Stock have been reserved upon the exercise of options granted to qualified
employees and consultants of the Company. The Board of Directors, directly or through committees,
administers the Plan and establishes the terms of option grants. The exercise price of all stock
options granted under the 2003 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, 2004. 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, 2004. Options expire ten
years from the date of grant and vest ratably over four years from the grant date. On May 27, 2004, the Companys stockholders approved the transfer of all shares available for grant
pursuant to the 1996 Stock Plan and the 1999 Stock Plan to the 2003 Stock Plan along with all
remaining shares represented by grants that are cancelled or forfeited without exercise under these
plans and the 1992 Director Plan and the 2001 Director Option Plan. 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 averageOutstanding options
    
    
    exercise pricenumber of shares
    
    
    per shareBalance at December 31, 2001
    
    
    21,760,445
    
    
    $
    14.32Granted
    
    
    2,950,161
    
    
    
    11.26Exercised
    
    
    (1,604,503
    )
    
    
    9.01Forfeited
    
    
    (1,779,379
    )
    
    
    17.09Balance at December 31, 2002
    
    
    21,326,724
    
    
    $
    14.09Granted
    
    
    3,021,750
    
    
    
    12.94Exercised
    
    
    (4,402,181
    )
    
    
    10.69Forfeited
    
    
    (1,925,615
    )
    
    
    17.16Balance at December 31, 2003
    
    
    18,020,678
    
    
    $
    14.40Granted
    
    
    2,967,294
    
    
    
    16.48Exercised
    
    
    (2,511,797
    )
    
    
    10.39Forfeited
    
    
    (1,547,958
    )
    
    
    16.63Balance at December 31, 2004
    
    
    16,928,217
    
    
    $
    15.15
 At December 31, 2004, options to purchase 11,973,033 shares were exercisable at prices ranging from
$0.00 to $148.27. Shares available for grant totaled 3,918,116 at December 31, 2004. The above
totals include the restricted shares issued under the 1996 and 2003 Stock Plans. 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. - 58 -




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##### Table of Contents



The following table summarizes information about the Companys fixed stock options and restricted stock subject to repurchase outstanding at
December 31, 2004: Options outstandingWeighted-
    
    
    
    
    
    Options exercisableAverage
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRanges of
    
    
    
    
    
    Contractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseExercisable prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$0.00 to $9.93
    
    
    3,171,194
    
    
    
    6.30
    
    
    $
    6.49
    
    
    
    1,835,774
    
    
    $
    8.48$10.10 to $10.81
    
    
    3,026,418
    
    
    
    5.88
    
    
    $
    10.37
    
    
    
    3,026,385
    
    
    $
    10.37$11.05 to $15.52
    
    
    3,500,659
    
    
    
    7.79
    
    
    $
    14.56
    
    
    
    1,880,155
    
    
    $
    14.73$15.55 to $19.75
    
    
    3,236,690
    
    
    
    7.15
    
    
    $
    18.61
    
    
    
    1,829,916
    
    
    $
    18.62$20.12 to $23.94
    
    
    2,861,426
    
    
    
    6.27
    
    
    $
    22.17
    
    
    
    2,306,451
    
    
    $
    22.48$24.75 to $148.27
    
    
    1,131,830
    
    
    
    5.60
    
    
    $
    26.41
    
    
    
    1,094,352
    
    
    $
    26.23$0.00 to $148.27
    
    
    16,928,217
    
    
    
    6.64
    
    
    $
    15.15
    
    
    
    11,973,033
    
    
    $
    15.81
 FFI Stock Option Plans In February of 2000, the Company established the 2000 FFI Stock Option Plan (2000 FFI Plan). At
December 31, 2004, an aggregate of 7,088,870 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. 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 ten years from the
grant date. 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. As of December 31, 2004, there were 3,202,208
unexercised options outstanding under the 2000 Plan. In March 2001, FFI established the 2001 FFI Stock Option Plan (2001 FFI Plan). At December 31,
2004, an aggregate of 6,175,360 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. All options issued during 2004 were
granted at or above the estimated fair market value of a share of FFI
common stock at the date of grant. Options expire ten
years from the grant date. Vesting occurs at the rate of at least 20 percent per year over 5 years
from the date options are granted. - 59 -




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##### Table of Contents



Price data and activity for the FFI 2000 and 2001 Plans are summarized as follows: Weighted averageOutstanding options
    
    
    Exercise pricenumber of shares
    
    
    Per shareBalance at December 31, 2001
    
    
    8,324,483
    
    
    $
    5.00Granted
    
    
    841,900
    
    
    
    5.00Forfeited
    
    
    (3,387,344
    )
    
    
    5.00Balance at December 31, 2002
    
    
    5,779,039
    
    
    $
    5.00Granted
    
    
    3,581,000
    
    
    
    0.83Forfeited
    
    
    (627,983
    )
    
    
    4.67Balance at December 31, 2003
    
    
    8,732,056
    
    
    $
    3.32Granted
    
    
    125,500
    
    
    
    0.78Forfeited
    
    
    (1,067,100
    )
    
    
    2.47Balance at December 31, 2004
    
    
    7,790,456
    
    
    $
    3.39
 The following table summarizes information about the FFI fixed stock options outstanding at
December 31, 2004: Options outstandingWeighted-
    
    
    
    
    
    Options exercisableAverage
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRanges of
    
    
    
    
    
    Contractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseExercisable prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$0.75
    
    
    1,118,500
    
    
    
    8.09
    
    
    $
    0.75
    
    
    
    531,749
    
    
    $
    0.75$0.78
    
    
    1,837,562
    
    
    
    8.65
    
    
    $
    0.78
    
    
    
    664,082
    
    
    $
    0.78$5.00
    
    
    4,834,394
    
    
    
    5.81
    
    
    $
    5.00
    
    
    
    4,481,089
    
    
    $
    5.00$0.75 to $5.00
    
    
    7,790,456
    
    
    
    6.81
    
    
    $
    3.39
    
    
    
    5,676,920
    
    
    $
    4.11
 iAS Stock Option Plan In March 2001, iAS established the 2001 iAS Stock Option Plan (iAS Plan) and reserved for issuance
an aggregate of 15,250,000 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. Because 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 2004 were granted at or above the estimated fair market
value of a share of iAS common stock 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. Vesting occurs at the
rate of at least 20 percent per year over 5 years from the date options are granted. - 60 -




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Price data and activity for the iAS Plan are summarized as follows: Weighted averageOutstanding options
    
    
    exercise pricenumber of shares
    
    
    per shareBalance at December 31, 2001
    
    
    8,308,875
    
    
    $
    2.51Granted
    
    
    1,432,149
    
    
    
    2.51Forfeited
    
    
    (214,866
    )
    
    
    2.51Balance at December 31, 2002
    
    
    9,526,158
    
    
    $
    2.51Granted
    
    
    1,306,000
    
    
    
    2.51Forfeited
    
    
    (201,572
    )
    
    
    2.51Balance at December 31, 2003
    
    
    10,630,586
    
    
    $
    2.51Granted
    
    
    1,175,650
    
    
    
    2.51Forfeited
    
    
    (353,882
    )
    
    
    2.51Balance at December 31, 2004
    
    
    11,452,354
    
    
    $
    2.51
 At December 31, 2004 there were 8,058,992 shares exercisable under the iAS Plan all at an exercise
price of $2.51 per share. The weighted average remaining contractual life of the options
outstanding at December 31, 2004 was 7.14 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, 2004, an aggregate of 11,800,000 shares of Common Stock had been reserved under
the ESPP, of which 165,739 shares remained available for issuance. Employees purchased 734,491
shares in 2004, 740,312 shares in 2003, and 807,295 shares in 2002. Pro Forma Disclosures of the Effect of Stock Based Compensation Plans The Company applies the intrinsic value 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 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 plans2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Expected volatility
    
    
    54.45
    %
    
    
    64.54
    %
    
    
    67.65
    %
    
    
    55.42
    %
    
    
    64.41
    %
    
    
    67.65
    %Risk-free interest rates
    
    
    3.08
    %
    
    
    2.56
    %
    
    
    3.46
    %
    
    
    1.39
    %
    
    
    1.29
    %
    
    
    1.82
    %Expected lives (years)
    
    
    4.25
    
    
    
    4.25
    
    
    
    4.25
    
    
    
    .50
    
    
    
    .50
    
    
    
    .50Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 - 61 -




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The weighted average grant date fair value of options (excluding FFI and iAS options) granted in
2004, 2003 and 2002 was $10.10, $8.40, and $6.18 per share, respectively. The weighted average
grant date fair value of the FFI options granted in 2004, 2003 and 2002 was $0.36, $0.43, and $2.75
per share, respectively. The weighted-average grant-date fair value of the iAS options granted in
2004, 2003 and 2002 was $1.16, $1.31, and $1.38 per share, respectively. 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): 2004
    
    
    2003
    
    
    2002United States
    
    $
    (8,590
    )
    
    $
    11,778
    
    
    $
    (8,958
    )Foreign
    
    
    109,556
    
    
    
    106,317
    
    
    
    80,167Total
    
    $
    100,966
    
    
    $
    118,095
    
    
    $
    71,209
 The provisions (credits) for income taxes consist of the following (dollars in thousands): 2004
    
    
    2003
    
    
    2002FederalCurrent
    
    $
    3,445
    
    
    $
    6,760
    
    
    $
    29,464Deferred
    
    
    (1,869
    )
    
    
    3,964
    
    
    
    (20,237
    )1,576
    
    
    
    2,796
    
    
    
    9,227StateCurrent
    
    
    475
    
    
    
    212
    
    
    
    1,406Deferred
    
    
    1,603
    
    
    
    2,401
    
    
    
    7402,078
    
    
    
    2,613
    
    
    
    2,146ForeignCurrent
    
    
    28,391
    
    
    
    25,645
    
    
    
    23,748Deferred
    
    
    971
    
    
    
    225
    
    
    
    (1,693
    )29,362
    
    
    
    25,420
    
    
    
    22,055Total
    
    $
    33,016
    
    
    $
    30,829
    
    
    $
    33,428
 - 62 -




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##### Table of Contents



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): 2004
    
    
    2003
    
    
    2002Tax (credit) at U.S. statutory rate
    
    $
    35,338
    
    
    $
    41,333
    
    
    $
    24,923State tax, net of federal benefit
    
    
    2,078
    
    
    
    2,613
    
    
    
    2,146Difference between estimated amounts recorded and actual
liabilities resulting from the filing of prior years tax return
    
    
    (2,820
    )
    
    
    (1,636
    )
    
    
    (2,151
    )Effect of foreign operations
    
    
    (971
    )
    
    
    1,645
    
    
    
    2,066Benefit of Japanese operating losses
    
    
    (3,751
    )
    
    
    (4,507
    )
    
    
    (2,571
    )Amortization/impairment of intangible assets
    
    
    788
    
    
    
    928
    
    
    
    5,339Research and development tax credits
    
    
    
    
    
    
    (500
    )
    
    
    (500
    )Utilization of foreign tax credit carryforwards
    
    
    
    
    
    
    (6,592
    )
    
    
    (1,153
    )Release of deferred tax liability associated with certain
    
    
    
    
    
    
    (3,990
    )
    
    
    foreign earningsRelease of tax reserves following the completion of
    
    
    (3,519
    )
    
    
    (2,313
    )
    
    
    certain audits and expiration of statute of limitationsReserve for tax contingencies
    
    
    3,680
    
    
    
    1.449
    
    
    
    1,998Other
    
    
    2,193
    
    
    
    2,399
    
    
    
    3,331Total
    
    $
    33,016
    
    
    $
    30,829
    
    
    $
    33,428
 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): 2004
    
    
    2003Depreciation
    
    $
    10,227
    
    
    $
    7,793Deferred revenue
    
    
    2,306
    
    
    
    5,974Accrued expenses
    
    
    22,710
    
    
    
    21,560Allowance for doubtful accounts
    
    
    543
    
    
    
    1,819Capitalized R&D expenses
    
    
    23,432
    
    
    
    31,761Purchased software
    
    
    167
    
    
    
    625Net operating loss carryovers and tax credits
carryforwards
    
    
    96,444
    
    
    
    70,447Intangible assets
    
    
    2,307
    
    
    
    5,182Capital loss carryforward
    
    
    14,074
    
    
    
    14,204Other assets
    
    
    2,050
    
    
    
    817Gross deferred tax asset
    
    
    174,260
    
    
    
    160,182Unremitted foreign earnings
    
    
    (5,859
    )
    
    
    (8,468
    )Acquired Intangibles
    
    
    (20,382
    )
    
    
    (7,109
    )Other liabilities
    
    
    (1,056
    )
    
    
    (1,659
    )Gross deferred tax liability
    
    
    (27,297
    )
    
    
    (17,236
    )Total before valuation allowance
    
    
    146,963
    
    
    
    142,946Valuation allowance
    
    
    (96,318
    )
    
    
    (71,701
    )Net deferred tax assets
    
    $
    50,645
    
    
    $
    71,245Recorded as:Current deferred tax assets
    
    $
    11,205
    
    
    $
    12,739Noncurrent deferred tax assets
    
    
    39,440
    
    
    
    58,506$
    50,645
    
    
    $
    71,245
 - 63 -




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The valuation allowance increased by $24.6 million in 2004. The valuation allowance was $71.7
million in 2003 (a $23.2 million increase from 2002) and $48.5 million in 2002 (a $5.9 million
decrease from 2001). This valuation allowance primarily relates to the deferred tax assets for
acquired net operating losses, net operating loss carryforwards, capital loss carryforwards, tax
assets associated with stock option activity, and foreign tax credits. The movement was primarily
related to the following items (dollars in millions): Valuation allowance primarily associated with deferred tax asset acquired
during the year on XcelleNet net operating losses
    
    $
    5.0Valuation allowance attributable to 2004 net operating loss carryforward,
including amounts attributable to stock option activity any benefit of which
will be credited to shareholders equity
    
    
    16.4Valuation allowance associated with 2004 research and development tax credits
    
    
    0.5Utilization of capital loss carryforward subject to a valuation allowance
    
    
    (0.1
    )Valuation allowance associated with foreign tax credit carryforwards
    
    
    2.8$
    24.6
 Approximately $72.6 million of the valuation allowance relates to deferred tax assets associated
with net operating losses and capital losses acquired in, or attributable to, the NEN, AvantGo and
XcelleNet acquisitions. If the associated deferred tax assets are realized, the benefit from their
realization will reduce goodwill carried on the Companys books associated with these acquisitions
rather than future income tax expense. The valuation allowance also includes approximately $17.1
million associated with stock option activity for which any recognized tax benefits will be
credited directly to shareholders equity. As of December 31, 2004, the Company had research and development tax credits of $17.7 million,
which expire in years from 2010 through 2024, foreign tax credits of $5.8 million expiring in years
from 2010 through 2014, and an asset of $63.5 million associated with certain net operating losses
which expire in the years from 2007 through 2024. 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. Specifically, realization
of these assets is dependent on the Companys ability to generate approximately $163.6 million of
future taxable income, largely in the U.S. Based on the plans and estimates the Company is using
to manage the underlying business it believes that sufficient income will be earned in the future
to realize these assets. The amount of the deferred tax assets considered realizable is subject to
adjustment in future periods if estimates of future taxable income are reduced. Any such
adjustments to the deferred tax assets would be charged to income in the period such adjustment was
made. No provision has been made for income taxes and foreign withholding taxes on approximately $160
million of undistributed earnings from non-US operations as of December 31, 2004 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 $28.1 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 has examined the Companys income tax returns for all years through
2000. The Company believes that it has provided adequate accruals for all anticipated tax audit
adjustments in the U.S., state and foreign tax jurisdictions based on its estimate of whether, and
the extent to which, additional taxes and interest may be due. If events occur which indicate that
payment of these amounts are unnecessary, the reversal of these liabilities would result in tax
benefits being recognized in the period when the Company determines the liabilities are no longer
necessary. If the Companys estimate of tax liabilities proves to be less than the ultimate
assessment, a further charge to expense would result. - 64 -




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The Company has not yet completed its analysis of the impact of the repatriation provisions under
the American Jobs Creation Act 2004 on its plans for repatriation. As such, management is not in a
position to decide whether, and to what extent, the Company might repatriate foreign earnings that
have not been remitted to the U.S. under the Act. The Company expects to be in a position to
finalize its assessment by the end of the second quarter of 2005. Note Nine: Retirement Plan 401(k) Defined Contribution 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 2004, 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 $3,000. In 2004, 2003 and 2002, 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 2004, 2003 or 2002. Note Ten: Segment and Geographical Information During 2004, the Company was organized into three separate business segments each of which focused
on one of three key market segments: IPG, which principally focuses on enterprise class database
servers, integration and development products; iAS, which provides mobile database and mobile
enterprise solutions; and FFI, which delivers integrated banking, payment and trade messaging
solutions to large financial institutions. Sybases chief operating decision maker, is the President and Chief Executive Officer (CEO). While
the CEO is apprised of a variety of financial metrics and information, the Sybase business is
principally managed on a segment basis, with the CEO evaluating performance based upon segment
operating profit or loss that includes an allocation of common expenses, but excludes certain
unallocated expenses. The CEO does not view segment results below operating profit (loss) before
unallocated costs, and therefore unallocated expenses, interest income, interest expense and other,
net, the provision for income taxes, and the cumulative effect of an accounting change are not
broken out by segment. Sybase does not account for, or report to the CEO, assets or capital
expenditures by segment. Segment revenues include transactions between the segments which in the most common instance
relates to the sale of iAS and FFI products and services by the IPG segment. In the case of such a
transaction, the segment recording the sale also records an intercompany expense on the
transaction, with a corresponding intercompany revenue amount recorded by the segment whose product
was sold. The net amount retained by the segment that recorded the sale is intended to reflect the
costs incurred by such transferring segment. The total transfers between the segments are captured
in Eliminations. Certain 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 including reversals of restructuring expenses associated
with restructuring activities undertaken prior to 2003. In accordance with SFAS 146, Accounting
for Costs Associated with Exit or Disposal Activities, the Company has allocated the costs
associated with 2004 and 2003 restructuring activities to each reportable segment. Additionally,
the Company has allocated restructuring expenses incurred in accordance with SFAS 112, Employers
Accounting for Post employment Benefits, to each reportable segment . Prior to 2003, the
Company did not track its restructuring activities by segment and it is impracticable to now do so
with respect to these prior activities. Accordingly, restructuring related expenses and reversals
associated with restructuring activities undertaken before 2003 are not included in segment level
operating results, but instead included in the total for unallocated cost savings. - 65 -




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A summary of the segment financial information reported to the CEO for the year ended December 31,
2004 is presented below (in thousands): (In thousands)
    
    IPG
    
    
    iAS
    
    
    FFI
    
    
    Elimination
    
    
    Consolidated TotalRevenues:License fees
Infrastructure
    
    $
    192,588
    
    
    $
    87
    
    
    $
    
    
    
    
    
    
    
    $
    192,675Mobile and Embedded
    
    
    31,152
    
    
    
    44,536
    
    
    
    
    
    
    
    
    
    
    
    75,688E-Finance
    
    
    1,405
    
    
    
    
    
    
    
    6,104
    
    
    
    
    
    
    
    7,509Subtotal license fees
    
    
    225,145
    
    
    
    44,623
    
    
    
    6,104
    
    
    
    
    
    
    
    275,872Intersegment license fees revenues
    
    
    117
    
    
    
    26,063
    
    
    
    1,190
    
    
    
    (27,370
    )
    
    
    Total license fees
    
    
    225,262
    
    
    
    70,686
    
    
    
    7,294
    
    
    
    (27,370
    )
    
    
    275,872Services
    
    
    475,502
    
    
    
    21,631
    
    
    
    15,531
    
    
    
    
    
    
    
    512,664Intersegment service revenues
    
    
    11
    
    
    
    27,007
    
    
    
    4,709
    
    
    
    (31,727
    )
    
    
    Total services
    
    
    475,513
    
    
    
    48,638
    
    
    
    20,240
    
    
    
    (31,727
    )
    
    
    512,664Total revenues
    
    
    700,775
    
    
    
    119,324
    
    
    
    27,534
    
    
    
    (59,097
    )
    
    
    788,536Total allocated costs and expenses before
cost of restructure and amortization of
customer lists, covenant not to compete,
and purchased technology
    
    
    586,606
    
    
    
    100,428
    
    
    
    29,302
    
    
    
    (59,097
    )
    
    
    657,239Operating income (loss) before cost of
restructure and amortization of customer
lists, covenant not to compete, and
purchased technology
    
    
    114,169
    
    
    
    18,896
    
    
    
    (1,768
    )
    
    
    
    
    
    
    131,297Amortization of other purchased intangibles
    
    
    
    
    
    
    3,139
    
    
    
    2,000
    
    
    
    
    
    
    
    5,139Amortization of purchased technology
    
    
    11,680
    
    
    
    2,894
    
    
    
    3,244
    
    
    
    
    
    
    
    17,818Operating income (loss) before unallocated
costs and cost of restructure
    
    
    102,489
    
    
    
    12,863
    
    
    
    (7,012
    )
    
    
    
    
    
    
    108,340Cost of restructure  2004 Activity
    
    
    18,976
    
    
    
    140
    
    
    
    40
    
    
    
    
    
    
    
    19,156Operating income (loss) before unallocated
costs
    
    
    83,513
    
    
    
    12,723
    
    
    
    (7,052
    )
    
    
    
    
    
    
    89,184Unallocated cost savings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (208
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,392Interest income, interest expense and
other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,574Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    100,966
 - 66 -




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A summary of the segment financial information reported to the CEO for the year ended December
31, 2003 is presented below (in thousands): (In thousands)
    
    IPG
    
    
    iAS
    
    
    FFI
    
    
    Elimination
    
    
    Consolidated TotalRevenues:License fees
Infrastructure
    
    $
    210,049
    
    
    $
    763
    
    
    $
    
    
    
    
    
    
    
    $
    210,812Mobile and Embedded
    
    
    26,049
    
    
    
    33,807
    
    
    
    
    
    
    
    
    
    
    
    59,856E-Finance
    
    
    1,527
    
    
    
    
    
    
    
    2,622
    
    
    
    
    
    
    
    4,149Subtotal license fees
    
    
    237,625
    
    
    
    34,570
    
    
    
    2,622
    
    
    
    
    
    
    
    274,817Intersegment license fees revenues
    
    
    86
    
    
    
    21,778
    
    
    
    1,271
    
    
    
    (23,135
    )
    
    
    Total license fees
    
    
    237,711
    
    
    
    56,348
    
    
    
    3,893
    
    
    
    (23,135
    )
    
    
    274,817Services
    
    
    481,004
    
    
    
    10,212
    
    
    
    12,029
    
    
    
    
    
    
    
    503,245Intersegment service revenues
    
    
    11
    
    
    
    25,691
    
    
    
    4,711
    
    
    
    (30,413
    )
    
    
    Total services
    
    
    481,015
    
    
    
    35,903
    
    
    
    16,740
    
    
    
    (30,413
    )
    
    
    503,245Total revenues
    
    
    718,726
    
    
    
    92,251
    
    
    
    20,633
    
    
    
    (53,548
    )
    
    
    778,062Total allocated costs and expenses before
cost of restructure and amortization of
customer lists and purchased technology
    
    
    616,447
    
    
    
    72,362
    
    
    
    24,892
    
    
    
    (53,548
    )
    
    
    660,153Operating income (loss) before cost of
restructure and amortization of customer
lists and purchased technology
    
    
    102,279
    
    
    
    19,889
    
    
    
    (4,259
    )
    
    
    
    
    
    
    117,909Amortization of other purchased intangibles
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    2,000Amortization of purchased technology
    
    
    11,679
    
    
    
    333
    
    
    
    3,245
    
    
    
    
    
    
    
    15,257Operating income (loss) before unallocated
costs and cost of restructure
    
    
    90,600
    
    
    
    19,556
    
    
    
    (9,504
    )
    
    
    
    
    
    
    100,652Cost of restructure  2003 Activity
    
    
    9,199
    
    
    
    341
    
    
    
    13
    
    
    
    
    
    
    
    9,553Operating income (loss) before unallocated
costs
    
    
    81,401
    
    
    
    19,215
    
    
    
    (9,517
    )
    
    
    
    
    
    
    91,099Unallocated cost savings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,230
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,329Interest income, interest expense and
other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,766Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    118,095
 - 67 -




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A summary of the segment financial information reported to the CEO for the year ended December
31, 2002 is presented below: (In thousands)
    
    IPG
    
    
    iAS
    
    
    FFI
    
    
    Elimination
    
    

Consolidated TotalRevenues:License fees
Infrastructure
    
    $
    255,358
    
    
    $
    (10
    )
    
    $
    98
    
    
    
    
    
    
    $
    255,446Mobile and Embedded
    
    
    32,281
    
    
    
    30,375
    
    
    
    
    
    
    
    
    
    
    
    62,656E-Finance
    
    
    2,680
    
    
    
    
    
    
    
    5,134
    
    
    
    
    
    
    
    7,814Subtotal license fees
    
    
    290,319
    
    
    
    30,365
    
    
    
    5,232
    
    
    
    
    
    
    
    325,916Intersegment license fees revenues
    
    
    168
    
    
    
    26,884
    
    
    
    2,239
    
    
    
    (29,291
    )
    
    
    Total license fees
    
    
    290,487
    
    
    
    57,249
    
    
    
    7,471
    
    
    
    (29,291
    )
    
    
    325,916Services
    
    
    485,396
    
    
    
    2,844
    
    
    
    15,705
    
    
    
    
    
    
    
    503,945Intersegment service revenues
    
    
    88
    
    
    
    18,971
    
    
    
    3,551
    
    
    
    (22,610
    )
    
    
    Total services
    
    
    485,484
    
    
    
    21,815
    
    
    
    19,256
    
    
    
    (22,610
    )
    
    
    503,945Total revenues
    
    
    775,971
    
    
    
    79,064
    
    
    
    26,727
    
    
    
    (51,901
    )
    
    
    829,861Total allocated costs and expenses before
amortization of customer lists and
purchased technology and goodwill
impairment
    
    
    677,560
    
    
    
    56,952
    
    
    
    28,010
    
    
    
    (51,901
    )
    
    
    710,621Operating income (loss) before
amortization of customer lists and
purchased technology and goodwill
impairment
    
    
    98,411
    
    
    
    22,112
    
    
    
    (1,283
    )
    
    
    
    
    
    
    119,240Amortization of other purchased intangibles
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    2,000Amortization of purchased technology
    
    
    11,679
    
    
    
    
    
    
    
    3,245
    
    
    
    
    
    
    
    14,924Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    12,300
    
    
    
    
    
    
    
    12,300Operating income (loss) before unallocated
costs
    
    
    86,732
    
    
    
    22,112
    
    
    
    (18,828
    )
    
    
    
    
    
    
    90,016Unallocated cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,840Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,176Interest income, interest expense and
other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,033Income before income taxes and cumulative
effect of an accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    71,209
    - 68 -




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The Company operates in one industry (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. The following table presents a summary of operating information and certain year-end
balance sheet information by geographic region (in thousands): 2004
    
    
    2003
    
    
    2002Revenues:Unaffiliated customers:United States
    
    $
    426,626
    
    
    $
    425,834
    
    
    $
    465,601Europe
    
    
    220,441
    
    
    
    212,774
    
    
    
    213,543Other
    
    
    141,469
    
    
    
    139,454
    
    
    
    150,717Total
    
    $
    788,536
    
    
    $
    778,062
    
    
    $
    829,861Long-lived assets, net:United States
    
    $
    490,343
    
    
    $
    483,014
    
    
    $
    461,300Europe
    
    
    10,082
    
    
    
    12,483
    
    
    
    14,633Other
    
    
    14,215
    
    
    
    11,377
    
    
    
    12,197Total
    
    $
    514,640
    
    
    $
    506,874
    
    
    $
    488,130
 Note Eleven: Business Combinations On April 30, 2004, Sybase acquired all the outstanding capital stock of XcelleNet, Inc. (XcelleNet)
a privately held provider of frontline device management software, for approximately $92.6 million
in cash, including $0.6 million in merger-related transaction expenses. As a result of the
acquisition, Sybase expects to strengthen its position in the mobile middleware market and bring
important enhancements to its Unwired Enterprise offerings. The results of XcelleNet are included
in the Companys iAS reporting segment from May 1, 2004 onward. The excess of the purchase price
over the fair value of the net tangible assets acquired is approximately $123.5 million. Of the estimated $123.5 million excess, $22.8 million was allocated to developed technology, $19.9
million was allocated to customer lists, $4.0 million was allocated to the XcelleNet family of
trade names, $2.8 million was allocated to covenant not to compete, and $74.0 million was allocated
to goodwill. The developed technology and customer lists were assigned useful lives of seven
years, the covenant not to compete was assigned a useful life of 18 months, and an indefinite life
was assigned to the trade names. The allocation was based on a valuation prepared by an independent
third-party appraiser. This independent appraiser also assisted the Company in determining the
appropriate useful life with the intangible assets acquired. Included in the goodwill is
approximately $19.7 million which has an offsetting amount allocated to long-term deferred tax
liability for the tax effect of the trade names and the amortization of the developed technology,
customer lists, and covenant not to compete, which is not deductible for tax purposes. - 69 -




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Based on an independent valuation prepared using estimates and assumptions provided by the Company,
the total purchase price of approximately $92.6 million was allocated as follows: (In millions)Cash and cash equivalents
    
    $
    13.3Accounts receivable, net
    
    
    5.8Other current assets
    
    
    0.8Property, equipment and improvements
    
    
    0.6Deferred income taxes
    
    
    (19.7
    )Developed technology
    
    
    22.8Customer lists
    
    
    19.9Trade name
    
    
    4.0Covenant not to compete
    
    
    2.8Goodwill
    
    
    74.0Other assets
    
    
    0.1Accounts payable
    
    
    (0.7
    )Accrued compensation and related expenses
    
    
    (1.1
    )Accrued income taxes
    
    
    (0.1
    )Deferred revenue
    
    
    (3.0
    )Other current accrued liabilities
    
    
    (3.5
    )Accrued restructuring
    
    
    (0.8
    )Other long-term liabilities
    
    
    (22.6
    )$
    92.6
 The following unaudited pro forma financial information presents the combined results of operations
of Sybase and XcelleNet as if the acquisition of XcelleNet had occurred as of the beginning of 2004
and 2003, respectively. The pro forma financial information gives effect to certain adjustments,
including the amortization of purchased intangibles and the elimination of XcelleNets amortization
of purchased intangibles. The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the two companies constituted a single entity
during such periods. Twelve
    
    
    TwelveMonths
    
    
    MonthsEnded
    
    
    Ended(In thousands, except per share data)
    

    12/31/04
    
    

    12/31/03Revenue
    
    $
    799,992
    
    
    $
    816,407Net income
    
    $
    62,782
    
    
    $
    81,987Basic net income per share
    
    $
    0.66
    
    
    $
    0.86Diluted net income per share
    
    $
    0.64
    
    
    $
    0.84
 On April 30, 2004, the Company also acquired the intellectual property assets and certain tangible
assets of Dejima, Inc. (Dejima), a private software company providing mobile access using natural
language interface technology, for approximately $2.0 million in cash. This purchase price exceeds
the fair value of the net tangible assets acquired by $2.8 million. Of this excess, $2.0 million
was allocated to developed technology with a useful life of seven years, and $0.8 million was
assigned to goodwill. The Company has integrated the Dejima technology into its iAS subsidiary. Note Twelve: Litigation A former employee, who was terminated as part of a position elimination in February 2003, filed a
civil action in the Superior Court for the State of California, Alameda County, alleging
discrimination on the basis of gender, national origin, and race. The former employee also alleged
retaliation for discussing her - 70 -




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working conditions with senior managers. The parties were not able to settle the matter and trial
commenced on August 27, 2004. Sybases motion for non-suit on the retaliation claim was granted and
that claim was dismissed. On October 5, 2004, the jury found in favor of the plaintiff on the
remaining claims and awarded her $1,845,000 in damages. Plaintiff is also entitled to recover her
attorneys fees, but the amount of such fees has not yet been submitted to the Court. Sybase filed
a motion to set aside the jury verdict or, in the alternative, for a new trial. The motion also
asked the judge to set aside the punitive damage part of the award in the amount of $500,000. On
December 7, 2004, the judge issued a decision denying the motion to set the verdict aside and order
a new trial, but he did grant that part of the motion asking to set aside the $500,000 punitive
damage award, reducing the damage amount to $1,345,000. Plaintiffs counsel has filed a motion for
$40,000 in costs which Sybase will oppose. Plaintiff has not yet filed its motion for attorney
fees, but is expected to do so shortly. Sybase filed a notice of appeal of the $1,345,000 jury
verdict and will appeal any attorney fees awarded in the case as not being supported by the jury
verdict being appealed by the Company. On August 20, 1999, Medaphis Corporation (now PerSe Technologies) initiated a civil action against
Sybase in the District Court for Harris County, Texas for negligent misrepresentation and common
law fraud. The claims are based on misrepresentations allegedly made by Sybase in 1996 and 1997
with regard to its ability to provide a product with certain replication functionality. In its
Second Amended Petition (filed in June 2003), Medaphis estimates its damages to be $16,761,470. In
addition, the Second Amended Petition seeks punitive damages in an unspecified amount. Sybases
motion for summary judgment in the matter was granted, dismising the case in its entirety, on
November 13, 2003. PerSe appealed that judgment. The parties are awaiting a decision from the
appellate court. Sybase is a party to various other legal disputes and proceedings arising in the ordinary course of
business. In the opinion of management, resolution of these matters, including the above mentioned
legal matters, is not expected to have a material adverse effect on our consolidated financial
position or results of operations as the Company believes it has adequately accrued for these
matters at December 31, 2004.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. Note Thirteen: Restructuring Costs 2004 Restructuring Actions In the third quarter of 2004, after two straight quarters of failing to meet revenue and earnings
expectations, the Company embarked on a restructuring plan (2004 Plan) aimed at reducing its annual
expenses (primarily employee related) by approximately $15 million. Of this amount, approximately
$13 million in annual savings is expected to result from headcount reductions and approximately $2
million in annual savings is expected to result from facility consolidation and the avoidance of
software maintenance costs. These 2004 Plan activities include the termination of approximately 140
employees worldwide, the closure or consolidation of 5 facilities worldwide and the write-off of
certain enterprise software purchased from a third party. It is anticipated that the total costs,
once the restructuring activities prescribed under the 2004 Plan are fully completed, will be $20.9
million. During 2004, the Company recorded restructuring charges of approximately $18.6 million as
follows: Cash/
    
    
    Segment
    
    
    Consolidated(Dollars in millions)
    
    Non-Cash
    
    
    IPG
    
    
    iAS
    
    
    TotalEmployee termination costs
    
    Cash
    
    $
    4.4
    
    
    $
    0.1
    
    
    $
    4.5Write off of computer software
    
    Non-cash
    
    
    6.5
    
    
    
    
    
    
    
    6.5Lease cancellations and commitments
    
    Cash
    
    
    7.6
    
    
    
    
    
    
    
    7.6$
    18.5
    
    
    $
    0.1
    
    
    $
    18.6
 - 71 -




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Termination payments to employees and other related costs During 2004, the Company recorded restructuring charges of $4.5 million for severance payments,
termination benefits and related expenses incurred in connection with the termination of
approximately 140 employees worldwide. Severance payments and termination benefits were accrued and
charged to restructuring costs in the period that the amounts were determined and communicated to
the affected employees. Write-off of assets During 2004, the Company recorded restructuring charges of approximately $6.5 million related to
the costs previously incurred and capitalized for certain enterprise software acquired from a third
party. In conjunction with the Companys restructuring activities during the year, management
decided to halt its plans to complete the implementation of this software. This decision was made
after ongoing reorganizations within the Companys sales organization caused management to reassess
the needs of this organization going forward. Management ultimately determined the software would
no longer effectively fulfill its intended purposes and that the softwares high cost of
implementation and ownership could no longer be supported by the Companys strategy for development
of the sales organization. As a result, the plan to implement the software was terminated. Lease cancellations and commitments As a result of the termination of employees referred to above, and in connection with further
streamlining the Companys infrastructure, a number of Sybase facilities were identified for
closure or consolidation as part of the 2004 Plan. During 2004, the Company recorded restructuring
charges of $7.6 million relating to properties located in Massachusetts, Michigan, Georgia, Spain
and the United Kingdom. The Company expects to record additional accretion expenses of
approximately $2.3 million related to these facilities in future periods. The following table summarizes activity related to the 2004 Plan. AccruedAmounts
    
    
    liabilitiesTotal
    
    
    Paid or
    
    
    at(Dollars in millions)
    
    Charges
    
    
    written off
    
    
    12/31/04Termination payments to employees
and other related costs
    
    $
    4.5
    
    
    $
    4.2
    
    
    $
    0.3Write off of computer software
    
    
    6.5
    
    
    
    6.5
    
    
    
    Lease cancellations and commitments
    
    
    7.6
    
    
    
    0.4
    
    
    
    7.2$
    18.6
    
    
    $
    11.1
    
    
    $
    7.5
 The remaining restructuring accrual primarily relates to certain lease costs the Company is
contractually required to pay on certain closed facilities, net of estimated associated sublease
amounts. Sybases payments (net of sublease income) toward the accruals relating to lease
cancellations and commitments are dependent upon market conditions and the Companys ability to
negotiate acceptable lease buy-outs or to locate suitable subtenants. These payments will be made
over the remaining lease terms, ending at various dates through October 2012, or over a shorter
period as the Company may negotiate with its lessors. - 72 -




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2003 Restructuring Activities During the first quarter of 2003, the Company embarked on a Restructuring Plan (2003 Plan) aimed at
reducing its annual payroll and facilities related expenses by approximately $16.0 million. These
activities included the planned termination of approximately 240 employees worldwide and the
planned closure or consolidation of approximately 9 facilities worldwide. The Company recorded
restructuring charges of $9.6 million during 2003 to reflect these activities. The following table summarizes the activity associated with the balance of the accrued
restructuring charges related to the 2003 restructuring plan through December 31, 2004: Accrued
    
    
    
    
    

    
    
    
    
    
    Accruedliabilities
    
    
    
    
    
    
    
    
    
    
    liabilitiesat
    
    
    Amounts
    
    
    Amounts
    
    
    at(Dollars in millions)
    
    12/31/03
    
    
    paid
    
    
    Accrued
    
    
    12/31/04Termination payments to employees
and other related costs
    
    $
    0.6
    
    
    $
    0.7
    
    
    $
    0.1
    
    
    $
    0.0Lease cancellations and commitments
    
    
    0.7
    
    
    
    0.9
    
    
    
    0.4
    
    
    
    0.2$
    1.3
    
    
    $
    1.6
    
    
    $
    0.5
    
    
    $
    0.2
 The remaining restructuring accrual primarily relates to certain lease costs the Company is
contractually required to pay on certain closed facilities, net of estimated associated sublease
amounts. Sybases payments (net of sublease income) toward the accruals relating to lease
cancellations and commitments are dependent upon market conditions and the Companys ability to
negotiate acceptable lease buy-outs or to locate suitable subtenants. These payments will be made
over the remaining lease terms, ending at various dates through January 2008, or over a shorter
period as the Company may negotiate with its lessors. During 2004, the Company recorded restructuring charges of $0.5 million, primarily related to the
write-off of certain leasehold improvements associated with facilities included in the 2003 Plan,
which was vacated in the second quarter of 2004. The remaining charge related to severance paid in
connection with a foreign employee who was terminated under the 2003 Plan. 2002 Restructuring Activities During the third and fourth quarters of 2002 the Company instituted a Restructuring Plan (2002
Plan) aimed at reducing its annual payroll and facilities-related expenses by approximately $24.0
million. The Company recorded restructuring charges of $36.5 million during 2002 to reflect these
activities. 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. During 2004, the Company recorded additional restructuring
charges of $3.2 million related to revisions to expected sublease income associated with a property
located in Colorado. Due to the length of some of the lease terms and the uncertainty of the real
estate market, the Company expects to make periodic adjustments to the accrual balance to reflect
changes in its estimates, and to reflect actual events as they occur. - 73 -




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The following table summarizes the activity associated with the balance of the accrued
restructuring charges related to the 2002 restructuring plan through December 31, 2004: Accrued
    
    
    
    
    
    
    
    
    
    
    Accruedliabilities
    
    
    
    
    
    
    
    
    
    
    liabilitiesat
    
    
    Amounts
    
    
    Amounts
    
    
    at(Dollars in millions)
    
    12/31/03
    
    
    paid
    
    
    Accrued
    
    
    12/31/04Lease cancellations and commitments
    
    
    14.3
    
    
    
    4.0
    
    
    
    2.4
    
    
    
    12.7Other
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2$
    14.5
    
    
    $
    4.0
    
    
    $
    2.4
    
    
    $
    12.9
 The remaining restructuring accrual primarily relates to certain lease costs the Company is
contractually required to pay on certain closed facilities, net of estimated associated sublease
amounts. Sybases payments toward the accruals relating to lease cancellations and commitments are
dependent upon market conditions and the Companys ability to negotiate acceptable lease buy-outs
or to locate suitable subtenants. These payments will be made over the remaining lease terms,
ending at various dates through May 2010, or over a shorter period as the Company may negotiate
with its lessors. During 2004, the Company recorded a net increase of $2.4 million to the restructuring reserve by a
corresponding charge to operating expense. The net increase included additional charges of $3.2
million related to revisions to expected sublease income associated with a property located in
Colorado, and reversals of $0.8 million primarily related to space taken out of restructuring in
the UK as a result of consolidation associated with the XcelleNet acquisition, and reserves
released upon the conclusion of lease negotiations associated with the Companys Paris, France
facility. 2001 Restructuring Activities The following table summarizes the activity associated with the balance of the accrued
restructuring charges associated with certain 2001 restructuring activities through December 31,
2004: Accrued
    
    
    
    
    
    
    
    
    
    
    Accruedliabilities
    
    
    
    
    
    
    
    
    
    
    liabilitiesat
    
    
    Amounts
    
    
    Amounts
    
    
    at(Dollars in millions)
    
    12/31/03
    
    
    paid
    
    
    Accrued
    
    
    12/31/04Lease cancellations and
Commitments
    
    $
    12.8
    
    
    $
    4.0
    
    
    $
    1.5
    
    
    $
    7.3
 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. The payments of these accruals are dependent upon market conditions and the Companys
ability to negotiate acceptable lease buy-outs or locate suitable subtenants. These payments will
be paid over the remaining lease terms, ending at various dates through May 2011, or over a shorter
period as the Company may negotiate with its lessors. During 2004 an excess of $1.5 million was reversed by a corresponding credit to restructuring
expense. The credit to lease cancellations and commitments accrual related to revisions to expected
sublease income associated with properties located in Colorado and Massachusetts. AvantGo Restructuring Reserves In connection with the 2003 acquisition of AvantGo, the Company assumed certain liabilities
associated with AvantGos 2001 and 2002 restructuring programs, primarily related to excess space
at AvantGos Hayward, California and Chicago, Illinois facilities. At the time of acquisition, the
Company also accrued additional amounts for lease obligations, net of the expected sublease
revenue, associated with
AvantGos remaining facilities in Hayward which would be vacated upon the expected move of all - 74 -




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##### Table of Contents



personnel to Sybases facilities in Dublin, California. During the quarter ended September 30,
2004, Sybase was able to sublease the Hayward facilities on terms more favorable than those
anticipated when the applicable accruals were recorded. As a result, the Company revised its
estimates and reversed accrued restructuring liabilities related to these facilities. The
following table summarizes the activity associated with the balance of the accrued restructuring
charges related to AvantGos restructuring actions: Accrued
    
    
    
    
    
    
    
    
    
    
    Accruedliabilities
    
    
    
    
    
    
    
    
    
    
    liabilitiesat
    
    
    Amounts
    
    
    Amounts
    
    
    at(Dollars in millions)
    
    12/31/03
    
    
    paid
    
    
    Accrued
    
    
    12/31/04Lease cancellations and
Commitments
    
    $
    9.3
    
    
    $
    3.2
    
    
    $
    2.7
    
    
    $
    3.4
 During 2004, we recorded net reversals of $2.7 million in restructuring accruals by a corresponding
credit to operating expense. The net reversal included additional charges of $0.2 million related
to the Chicago, Illinois facility and reversals of $2.9 million related to the Hayward, California
facilities, where we were able to locate a suitable subtenant. Note Fourteen: Guarantees Under its standard software license agreement (SWLA), the Company agrees to indemnify, defend and
hold harmless its licensees from and against certain losses, damages and costs arising from claims
alleging the licensees use of Company software infringes the intellectual property rights of a
third party. Historically, the Company has not been required to pay material amounts in connection
with claims asserted under these provisions and, accordingly, the Company has not recorded a
liability relating to such provisions. Under the SWLA, the Company also represents and warrants to
licensees that its software products operate substantially in accordance with published
specifications. Under its standard consulting and development agreement, the Company warrants that
the services it performs will be undertaken by qualified personnel in a professional manner
conforming to generally accepted industry standards and practices. Historically, only minimal
costs have been incurred relating to the satisfaction of product warranty claims and, as such, no
accruals for warranty claims have been made. Other guarantees include promises to indemnify,
defend and hold harmless each of the Companys executive officers, non-employee directors and
certain key employees from and against losses, damages and costs incurred by each such individual
in administrative, legal or investigative proceedings arising from alleged wrongdoing by the
individual while acting in good faith within the scope of his or her job duties on behalf of the
Company. Historically minimal costs have been incurred relating to such indemnifications and, as
such, no accruals for these guarantees have been made. Note Fifteen: Subsequent Events On February 22, 2005, the Company issued through a private offering to qualified institutional
buyers in the U.S., $460 million of convertible subordinated notes (Notes) pursuant to exemptions
from registration afforded by the Securities Act of 1933, as amended. These notes have an interest
rate of 1.75 percent. The Company used $125 million of the offering proceeds to repurchase
approximately 6.7 million shares of its common stock. The issuance generated net proceeds of
approximately $325 million after deducting the stock repurchase and offering fees and expenses. The notes are subordinated to all of the Companys future senior indebtedness. The notes mature on
February 22, 2025 unless earlier redeemed by the Company at its option, or converted or put to the
Company at the option of the holders. Interest is payable semi-annually in arrears on February 22
and August 22 of each year, commencing on August 22, 2005. The Company may redeem all or a portion
of the notes at par on and after March 1, 2010. The holders may require that the Company
repurchase notes on February 22, 2010, February 22, 2015 and February 22, 2020. The Company will
initially
record these Notes as long-term debt with an effective life of 5 years. The offering fees and
expenses of approximately $10 million will be amortized over a five-year period into interest
expense. - 75 -




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##### Table of Contents



Holders may convert the notes into the right to receive the conversion value (i) when the Companys
stock price exceeds 130% of the $25.22 per share initial conversion price, (ii) in certain change
in control transactions, and (iii) when the trading price of the notes does not exceed a minimum
price level. For each $1,000 principal amount of notes, the conversion value represents the amount
equal to 39.6511 shares multiplied by the per share price of the Companys common stock at the time
of conversion. If the conversion value exceeds $1,000 per $1,000 in principal of notes, the
Company will pay $1,000 in cash and may pay the amount exceeding $1,000 in cash, stock or a
combination of cash and stock, at the Companys election. - 76 -




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Quarterly Financial Information (Unaudited) Three months ended (in thousands,
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    Totalexcept per share and stock price data)
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004Revenues:License fees
    
    $
    57,905
    
    
    $
    60,427
    
    
    $
    70,380
    
    
    $
    87,160
    
    
    $
    275,872Services
    
    
    125,254

    
    
    
    127,603
    
    
    
    128,338
    
    
    
    131,469
    
    
    
    512,664Total revenues:
    
    
    183,159
    
    
    
    188,030
    
    
    
    198,718
    
    
    
    218,629
    
    
    
    788,536Costs and expenses:Cost of license fees
    
    
    13,580
    
    
    
    15,558
    
    
    
    15,566
    
    
    
    16,091
    
    
    
    60,795Cost of services
    
    
    41,584
    
    
    
    41,455
    
    
    
    39,741
    
    
    
    39,068
    
    
    
    161,848Sales and marketing
    
    
    58,172
    
    
    
    62,066
    
    
    
    59,171
    
    
    
    63,022
    
    
    
    242,431Product development and engineering
    
    
    30,648
    
    
    
    29,121
    
    
    
    29,095
    
    
    
    31,013
    
    
    
    119,877General and administrative
    
    
    19,773
    
    
    
    21,300
    
    
    
    23,526
    
    
    
    22,516
    
    
    
    87,115Amortization of other purchased
Intangibles
    
    
    500
    
    
    
    1,285
    
    
    
    1,677
    
    
    
    1,677
    
    
    
    5,139Stock compensation expense
    
    
    1,302
    
    
    
    1,544
    
    
    
    626
    
    
    
    1,127
    
    
    
    4,599Reversal of purchase accounting accrual
    
    
    
    
    
    
    
    
    
    
    (2,677
    )
    
    
    
    
    
    
    (2,677
    )Cost (reversal) of restructure
    
    
    125
    
    
    
    (253
    )
    
    
    10,479
    
    
    
    9,666
    
    
    
    20,017Total costs and expenses
    
    
    165,684
    
    
    
    172,076
    
    
    
    177,204
    
    
    
    184,180
    
    
    
    699,144Operating income
    
    
    17,475
    
    
    
    15,954
    
    
    
    21,514
    
    
    
    34,449
    
    
    
    89,392Interest income, expense, and other, net
    
    
    3,589
    
    
    
    2,387
    
    
    
    2,518
    
    
    
    3,080
    
    
    
    11,574Income before income taxes
    
    
    21,064
    
    
    
    18,341
    
    
    
    24,032
    
    
    
    37,529
    
    
    
    100,966Provision for income taxes
    
    
    7,879
    
    
    
    5,519
    
    
    
    6,201
    
    
    
    13,417
    
    
    
    33,016Net income
    
    $
    13,185
    
    
    $
    12,822
    
    
    $
    17,831
    
    
    $
    24,112
    
    
    $
    67,950Basic net income per share
    
    $
    0.14
    
    
    $
    0.13
    
    
    $
    0.19
    
    
    $
    0.26
    
    
    $
    0.71Diluted net income per share
    
    $
    0.13
    
    
    $
    0.13
    
    
    $
    0.19
    
    
    $
    0.25
    
    
    $
    0.69
 Three months ended (in thousands,
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    Totalexcept per share and stock price data)
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003Revenues:License fees
    
    $
    60,875
    
    
    $
    63,897
    
    
    $
    68,481
    
    
    $
    81,564
    
    
    $
    274,817Services
    
    
    120,672
    
    
    
    128,135
    
    
    
    125,349
    
    
    
    129,089
    
    
    
    503,245Total revenues:
    
    
    181,547
    
    
    
    192,032
    
    
    
    193,830
    
    
    
    210,653
    
    
    
    778,062Costs and expenses:Cost of license fees
    
    
    13,928
    
    
    
    14,589
    
    
    
    15,537
    
    
    
    16,657
    
    
    
    60,711Cost of services
    
    
    39,232
    
    
    
    40,643
    
    
    
    40,652
    
    
    
    42,139
    
    
    
    162,666Sales and marketing
    
    
    58,496
    
    
    
    59,666
    
    
    
    59,270
    
    
    
    61,613
    
    
    
    239,045Product development and engineering
    
    
    29,918
    
    
    
    29,348
    
    
    
    29,045
    
    
    
    28,578
    
    
    
    116,889General and administrative
    
    
    22,100
    
    
    
    20,471
    
    
    
    20,280
    
    
    
    19,260
    
    
    
    82,111Amortization of other purchased
Intangibles
    
    
    500
    
    
    
    500
    
    
    
    500
    
    
    
    500
    
    
    
    2,000Stock compensation expense
    
    
    661
    
    
    
    727
    
    
    
    695
    
    
    
    799
    
    
    
    2,882Cost (reversal) of restructure
    
    
    (209
    )
    
    
    7,957
    
    
    
    1,270
    
    
    
    (1,589
    )
    
    
    7,429Total costs and expenses
    
    
    164,626
    
    
    
    173,901
    
    
    
    167,249
    
    
    
    167,957
    
    
    
    673,733Operating income
    
    
    16,921
    
    
    
    18,131
    
    
    
    26,581
    
    
    
    42,696
    
    
    
    104,329Interest income, expense, and other, net
    
    
    2,443
    
    
    
    3,524
    
    
    
    6,270
    
    
    
    1,529
    
    
    
    13,766Income before income taxes
    
    
    19,364
    
    
    
    21,655
    
    
    
    32,851
    
    
    
    44,225
    
    
    
    118,095Provision for income taxes
    
    
    6,390
    
    
    
    7,096
    
    
    
    10,841
    
    
    
    6,502
    
    
    
    30,829Net income
    
    $
    12,974
    
    
    $
    14,559
    
    
    $
    22,010
    
    
    $
    37,723
    
    
    $
    87,266Basic net income per share
    
    $
    0.14
    
    
    $
    0.16
    
    
    $
    0.23
    
    
    $
    0.39
    
    
    $
    0.92Diluted net income per share
    
    $
    0.13
    
    
    $
    0.15
    
    
    $
    0.23
    
    
    $
    0.38
    
    
    $
    0.89
 - 77 -




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 
 ITEM 9A. CONTROLS AND PROCEDURES Report of Management on Internal Controls over Financial Reporting See Finanical Statements and Supplementary Data  Report of Management on Internal Controls over
Financial Reporting. Part II, Item 8. Evaluation of Disclosure Controls and Procedures An evaluation was performed under the supervision and with the participation of our management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the design and operation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on
that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were
effective as of December 31, 2004. Changes in Internal Control over Finanical Reporting 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. ITEM 9B. OTHER INFORMATION Not applicable. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT Current Executive Officers Our executive officers are identified in our definitive Proxy Statement for the Annual Meeting of
Stockholders to be held May 26, 2005 (Proxy Statement), to be filed with the SEC within 120 days
after our fiscal year ended December 21, 2004. Identification of Directors Our directors are identified under the section entitled Election of Directors in our definitive
Proxy Statement for the Annual Meeting of Stockholders to be held May 26, 2005 (Proxy Statement),
to be filed with the SEC within 120 days after our fiscal year ended December 31, 2004. Compliance with Section 16(a) of the Exchange Act The information required under Item 405 of Regulation S-K is incorporated here by reference to
Section 16(a) Beneficial Ownership Reporting Compliance in the Proxy Statement. Audit Committee Financial Expert Our Board of Directors has determined that Audit Committee members Robert P. Wayman and Jack E. Sum
are both audit committee financial experts as defined in Item 401(h) of Regulation S-K, and are
independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act. - 78 -




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Standing Audit Committee The information required under Item 401(i) of Regulation S-K and Item 7(d)(1) of Schedule 14A of
the Exchange Act pertaining to the standing Audit Committee of the Board of Directors is
incorporated by reference to Election of Directors in the Proxy Statement. Corporate Governance Guidelines We have adopted Corporate Governance Guidelines that are available on our website at
www.sybase.com under Investor Relations.Stockholders may request a free copy of the guidelines by
contacting Investor Relations at the same address set forth under Code of Ethics, below. Certifications Pursuant to NYSE Rule 303A.12(a), in 2004 the Company submitted a CEO certification to the NYSE
regarding compliance with NYSE Corporate Governance Listing Standards. No qualifications were
included in this report. Exhibits 31.1 and 31.2 to this Form 10-K contain certifications of the
Companys CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32 to this
Form 10-K contains certifications of the Companys CEO and CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. Code of Ethics Our code of ethics, entitled Statement of Values and Business Ethics, applies to all of our
employees, directors and officers (including the chief executive officer, chief financial officer
and principal accounting officer), and is available by clicking on the Code of Ethics link at the
bottom of any page at our website atwww.sybase.com Stockholders may request a free copy of the
Statement of Values and Business Ethics from: Sybase, Inc.
Attention: Investor Relations
One Sybase Drive
Dublin, CA 94568 
 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. Information required under Item 201(d) of Regulation S-K regarding our equity compensation plans
(both stockholder and non-stockholder approved plans) is incorporated by reference to Executive
Compensation  Equity Compensation Plan Information 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. - 79 -




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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item is incorporated by reference to Ratification of Appointment
of Independent Auditors in the Proxy Statement. 
 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. 2. Financial Statement Schedules. The following financial statement schedules of
Sybase, Inc. for the years ended December 31, 2003, 2002, and 2001 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. See the response under Item 15(c) below. All management contracts and
compensatory plans filed as exhibits are indicated as such in Item 15(c). (b) Exhibits. The exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index to this Report on Form 10-K. (c)
    
    Schedules.
    
    Form 10-K
 PageII Valuation and Qualifying Accounts
    
    
    81
 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. -80-




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SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTSSYBASE, INC.TranslationBeginning
    
    Charged to
    
    
    
    
    Adjustments and(Dollars in thousands)
    
    Balance
    
    Operations (A)
    
    Write-offs (B)
    Other


    
    Ending BalanceYear ended December 31, 2004:Allowance for doubtful accounts
    
    $
    4,145
    
    
    $
    (595
    )
    
    $
    (2,022
    )
    
    
    $
    324
    
    
    $
    1,852Year ended December 31, 2003:Allowance for doubtful accounts
    
    $
    5,507
    
    
    $
    3,331
    
    
    $
    (5,841
    )
    
    
    $
    1,148
    
    
    $
    4,145Year ended December 31, 2002:Allowance for doubtful accounts
    
    $
    14,462
    
    
    $
    (4,323
    )
    
    $
    (5,250
    )
    
    
    $
    618
    
    
    $
    5,507
    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. - 81 -




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, 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.March 15, 2005
    By:
    /S/JOHN S. CHENJohn S. ChenChairman 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 Daniel Cohen, 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 as of 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 15, 2005/S/ PIETER A. VAN DER VORST

(Pieter A. Van der Vorst)
    
    Senior Vice President and
Chief Financial Officer (Principal
Financial Officer)
    
    March 15, 2005/S/ JEFFREY G. ROSS

(Jeffrey G. Ross)
    
    Vice President and Corporate
Controller (Principal Accounting
Officer)
    
    March 15, 2005/S/ RICHARD C. ALBERDING

(Richard C. Alberding)
    
    Director
    
    March 15, 2005/S/ CECILIA CLAUDIO

(Cecilia Claudio)
    
    Director
    
    March 15, 2005/S/ L. WILLIAM KRAUSE

(L. William Krause)
    
    Director
    
    March 15, 2005/S/ ALAN B. SALISBURY

(Alan B. Salisbury)
    
    Director
    
    March 15, 2005/S/ JACK E. SUM

(Jack E. Sum)
    
    Director
    
    March 15, 2005/S/ ROBERT P. WAYMAN

(Robert P. Wayman)
    
    Director
    
    March 15, 2005/S/ LINDA K. YATES

(Linda K. Yates)
    
    Director
    
    March 15, 2005
 - 82 -




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EXHIBIT INDEX Exhibit No.
    
    Description2.1 (1)
    
    Agreement and Plan of Reorganization dated as of November
29, 1999, among the Company, On-Line Financial Services, Inc., and Home
Financial Network, Inc.2.2 (2)
    
    Agreement and Plan of Merger dated as of February 20,
2001, among the Company, New Era of Networks, Inc., and Neel Acquisition Corp.2.3(3)
    
    Agreement and Plan of Merger dated as of December 19,
2002, by and among the Company, Seurat Acquisition Corporation and AvantGo,
Inc.3.1(4)
    
    Restated Certificate of Incorporation of the Company, as
amended.3.2 (5)
    
    Bylaws of the Company, amended and restated as of February 4, 2004.4.1 (6)
    
    Preferred Share Rights Agreement dated as of July 31, 2002
between the Company and American Stock Transfer and Trust Co.4.2 (7)
    
    Amendment No. 1 dated as of February 14, 2005 to the
Preferred Share Rights Agreement dated as of July 31, 2002 between the Company
and American Stock Transfer and Trust Co.4.3 (8)
    
    Indenture dated as of February 22, 2005 between the
Company and U.S. Bank National Association, as Trustee (including form of
1.75% Convertible Subordinated Notes due 2025).4.4 (8)
    
    Registration Rights Agreement dated as of February 22,
2005 between the Company and Merrill Lynch, Pierce, Fenner & Smith
and Lehman Brothers Inc.10.1 (9)*
    
    New Era of Networks, Inc. Amended and Restated 1995 Stock
Option Plan.10.2 (9)*
    
    New Era of Networks, Inc. Amended and Restated 1997
Option Plan.10.3 (9)*
    
    New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan.10.4 (9)*
    
    Century Analysis Inc. 1996 Equity Incentive Plan.10.5 (9)*
    
    Convoy Corporation 1997 Stock Option Plan.10.6 (9)*
    
    Microscript, Inc. 1997 Stock Option Plan.10.7 (10)*
    
    1988 Stock Option Plan and Forms of Incentive Stock
Option Agreements and Nonstatutory Stock Option Agreements, as amended.10.8 (11)*
    
    1991 Employee Stock Purchase Plan and 1991 Foreign
Subsidiary Employee Stock Purchase Plan, as amended.10.9 (12)*
    
    Sybase, Inc. 401(k) Plan, as amended.10.10 (13)*
    
    Amendment No. 1 to the Sybase, Inc. 401(k) Plan dated
December 20, 2002.10.11 (14)*
    
    Sybase, Inc. 1992 Director Stock Option Plan, as amended.10.12 (9)*
    
    Sybase, Inc. 2001 Director Stock Option Plan.10.13 (5)*
    
    Executive Deferred Compensation Plan, as amended December 5, 2003.10.14 (9)*
    
    Sybase, Inc. 1996 Stock Plan, as amended.
 - 83 -




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##### Table of Contents



Exhibit No.
    
    Description10.15 *
    
    Form of Indemnification Agreement10.16 (14)*
    
    Form of Amended and Restated Change of Control
Agreement (standard version).10.17 (14)*
    
    Form of Amended and Restated Change of Control
Agreement (enhanced version).10.18 (14)*
    
    Offer Letter to Richard J. Moore dated June 8, 2001.10.19 (14)*
    
    Amended and Restated Employment Agreement between the
Company and John S. Chen dated as of June 11, 2001.10.20 (13)*
    
    Addendum to John Chen Amended and Restated Employment
dated August 20, 2002.10.21 (18)*
    
    Amended and Restated Sybase, Inc. 1999 Nonstatutory
Stock Plan.10.22 (16)*
    
    Home Financial Network, Inc. 1995 Stock Plan, and form
of Stock Option Agreement.10.23 (17)
    
    Corporate Headquarters Lease, dated January 28, 2000,
the Company and WDS-Dublin, LLC, as amended on November 29, 2000, and
December 13, 2001.10.24 (14)
    
    Amendment to Corporate Headquarters Lease, dated December
13, 2001, between the Company and WDS-Dublin, LLC.10.25 (17)
    
    Trust Agreement dated May 1, 2000 between Fidelity
Management Trust Company and the Company for administration of 401(k) Plan.10.26 (5)
    
    First Amendment to May 1, 2000 Trust Agreement between
Fidelity Management Trust Company and the Company for administration of the
Sybase 401(k) plan, dated as of April 1, 2002.10.27 (5)
    
    November 17, 2003 Letter Agreement between Fidelity
Management Trust Company and the Company for administration of the Sybase
401(k) plan.10.28 (17)
    
    Trust Agreement dated May 1, 2000 between Fidelity
Management Trust Company and the Company for administration of the Sybase
Executive Deferred Compensation Plan.10.29 (5)
    
    First Amendment to Trust Agreement between Fidelity
Management Trust Company and the Company for administration of Sybase
Deferred Compensation Plan.10.30 (5)
    
    17, 2003 Letter Agreement between Fidelity
Management Trust Company and Sybase, Inc. for administration of the Sybase
Executive Deferred Compensation Plan.10.31 (17)*
    
    Financial Fusion, Inc. 2000 Stock Option Plan.10.32 (14)*
    
    Financial Fusion, Inc. 2001 Stock Option Plan.10.33 (14)*
    
    iAnywhere Solutions, Inc. Stock Option Plan.10.34 (14)*
    
    Form of Notice of Grant and Restricted Stock Purchase Agreement.10.35 (13)*
    
    Offer Letter to Michael Bealmear dated May 1, 2002.10.36 (13)*
    
    Offer Letter of Thomas Volk dated September 5, 2002.10.37 (5)*
    
    Retention Letter of Steven M. Capelli dated as of January 2, 2001.10.38 (5)*
    
    Executive Financial Planning and Services Program for
Section 16 Officers, effective as of February 5, 2003.
 - 84 -




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##### Table of Contents



Exhibit No.
    
    Description10.39 (5)*
    
    Summary Plan Description for Sabbatical Leave Plan of
Sybase, Inc., as Amended and Restated as of May 1, 2003.10.40 (18)*
    
    Amended and Restated Sybase, Inc. 2003 Stock Plan.10.41 (19)*
    
    Letter dated February 21, 2005 to John Chen regarding
2005 compensation.10.42 (19)*
    
    Letter dated February 18, 2005 to Steve Capelli
regarding 2005 compensation.10.43 (19)*
    
    Letter dated February 18, 2005 to Raj Nathan regarding
2005 compensation.10.44 (19)*
    
    Letter dated February 18, 2005 to Pieter Van Der Vorst
regarding 2005 compensation.10.45 (19)*
    
    Letter dated February 18, 2005 to Thomas Volk regarding
2005 compensation.10.46
    
    Purchase Agreement, dated February 15, 2005 between the
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lehman
Brothers Inc.21
    
    Subsidiaries of the Company23.1
    
    Consent of Independent Registered Public Accounting Firm24 (20)
    
    Powers of Attorney31.1
    
    Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rule 13a-14 or 15d-14, as adopted pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rule 13a-14 or 15d-14, as adopted pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002.32
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
   *
    
    Indicates Management Contract or Compensatory Plan.(1)
    
    Incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form S-3
filed on January 31, 2000.(2)
    
    Incorporated by reference to Exhibit 2(a) to the Companys Registration Statement on Form S-4
filed March 15, 2001.(3)
    
    Incorporated by reference to Exhibit 1 to the Companys Schedule 13D filed with the
Securities and Exchange Commission on December 30, 2002.(4)
    
    Incorporated by reference to Amendment No. 1 to the Companys Registration Statement on Form
S-4 filed March 9, 1994 (file no. 33-75462), as amended by the Amended and Restated
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating
Preferred Stock of Sybase, Inc., attached as Exhibit 3.3 to Form 8-A filed on August 5, 2002.(5)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2003.(6)
    
    Incorporated by reference to Exhibit 4.1 to the Companys Report on Form 8-K filed on
August 5, 2002.(7)
    
    Incorporated by reference to Exhibit 4.2 to the Companys Report on Form 8-K filed on
February 17, 2005.(8)
    
    Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K
filed on February 22, 2005. - 85 -




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##### Table of Contents



(9)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed June 19,
2001.(10)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 1997.(11)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 (file no.
333-83271) filed July 20, 1999.(12)
    
    Incorporated by reference to the Exhibits filed with the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2001.(13)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2002.(14)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2001.(15)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed August
20, 1999.(16)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed on
January 20, 2000.(17)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2000.(18)
    
    Incorporated by reference to the Exhibits filed with the Companys Registration on Form S-8
filed on August 25, 2004.(19)
    
    Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on February 24, 2005.(20)
    
    Incorporated by reference to the signature page of this Report on Form 10-K. - 86 -