##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from
  to
 Commission file number: 1-16493
 SYBASE, INC.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    94-2951005
(I.R.S. Employer
Identification No.)One Sybase Drive, Dublin, California
(Address of principal executive offices)
    
    94568
(Zip Code)
    Title of each class
    
    Name of each exchange on which registeredCommon Stock, $.001 par value per share
    
    New York Stock Exchange
     þ o
  o þ
  þ o
 Form
10-K.     þ
  þ o o
  o þ
   Class
    
    Outstanding at March 1, 2006Common Stock, $.001 par value per share
    
    89,738,493 shares
 DOCUMENTS INCORPORATED BY REFERENCE
 Document
    
    Parts Into Which IncorporatedAnnual Report to Stockholders for the Fiscal
Year Ended December 31, 2005 (Annual Report)
    
    Parts I, II, and IVProxy Statement for the Annual Meeting of
Shareholders to be held May 31, 2006 (Proxy
Statement)
    
    Part III




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
   www.sec.gov
 www.sybase.com
  - 2 -




---



TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1(A). RISK FACTORSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS 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 ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-KSIGNATURESEXHIBIT INDEXEXHIBIT 10.7EXHIBIT 10.8EXHIBIT 10.12EXHIBIT 10.26EXHIBIT 10.30EXHIBIT 12EXHIBIT 21EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32    Table of Contents  
 PART I
 
 ITEM 1. BUSINESS
    Infrastructure Platform Group (IPG)
  iAnywhere Solutions, Inc. (iAS)
  UNWIRED ENTERPRISE
  - 3 -




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##### Table of Contents



CUSTOMERS
  
    
    One of the top 5 U.S. cable companies that provides basic cable service, digital cable
and internet access to millions of customers in the US. This companys field technicians
record customer interactions on ruggedized vehicle-mounted laptops and rely on iAS Afaria
to manage these remote devices as well as automatically push updates. The company has
succeeded in its goal of dramatically reducing the cost of manually updating all field
devices. The iAS solution also increases the time a technician can be on the road
interacting with customers.
 
    
    A leader in mortgage finance, servicing, securitization information and analytics uses
Sybase IQ to process terabytes of data for predictive analytics and robust reporting
capabilities. With the addition of Sybase IQ, the systems speed has dramatically improved.
This companys banking, trading, and securities users can understand and manage their loan
portfolios using state-of-the art analytical tools that work with some of the largest and
most robust mortgage securities and servicing databases.
 
    
    A leading supply management and healthcare information technology company that relies on
distribution as a critical component of their business. The companys pharmaceutical
distribution business serves tens of thousands of customers through dozens of distribution
centers and thousands of drivers. The company wanted to replace its paper-based schedule
and delivery process with an automated one using mobile devices. The company now relies on
iAS M-Business Anywhere to allow drivers to record delivery, using bar code scanners to
track packages. Thanks to the application, and customer service and productivity have
improved.
 
    
    A west coast-based retail banking organization selected Sybase Avaki EII to provide a
transparent data service layer for all applications requesting data access to data from any
source in the enterprise. Encompassing over 40 branches and four bank brands, the solution
creates a data service layer to transparently provide consuming applications with seamless
data stores. The flexible Avaki EII solution vastly simplifies application access to data,
providing a platform for transforming and integrating both relational data and flat file
data. Avaki EII forms the foundation of the banks data architecture, streamlining data
access and integration, shortening project timelines, and reducing costs.
 
    
    The leading provider of wire-line telecommunication services in China needed to improve
the speed of its database storage and queries. For this, it chose Sybase ASE and Sybase IQ
technology to deliver more effective decision-making support by handling daily network
management and business analysis and to provide rich historical analysis. Performance is
no longer a bottleneck for the storage and analysis of large volumes of data. The new
Sybase network management system not only handles daily network management, but also
expedites analysis of significant amounts of historical data for forecasts and improved
decision-making capabilities.
  Infrastructure Platform Group (IPG)
 Sybase IQ
 Sybase Adaptive Server Enterprise
 - 4 -




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Sybase Replication Server
 Sybase Avaki EII
 Sybase Real-Time Data Services
 Sybase Mirror Activator
 Sybase Unwired Accelerator
 Sybase Unwired Orchestrator
 Sybase PowerDesigner
 Sybase WorkSpace
 Sybase PowerBuilder
 Sybase DataWindow.Net
 Sybase EA Server
 Financial Fusion Banking Solutions
 - 5 -




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##### Table of Contents



iAnywhere Solutions (iAS)
 SQL Anywhere
 Afaria
 OneBridge
 AvantGo.com
 Answers Anywhere
 M-Business Anywhere
 Pylon
 RemoteWare
 RFID Anywhere
 Sales Anywhere
 Standards-based SDKs
 - 6 -




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##### Table of Contents



XTNDConnect PC
 WORLDWIDE SERVICES
 Technical Support.
 Basic Support
 Extended Support
 Enterprise Support
   Consulting.
 Education.
 SALES AND DISTRIBUTION
 Licensing Model.
 Distribution Method.
 - 7 -




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International Business.
 INTELLECTUAL PROPERTY RIGHTS
  RESEARCH AND DEVELOPMENT
  COMPETITION
   Information Management Products.
 Design and Development Products.
 - 8 -




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Financial Fusion Products:
  Mobile
and Embedded Database Products
 Mobile
Middleware and Device Management Products
  EMPLOYEES
  
 ITEM 1(A). RISK FACTORS
   
 ITEM 2. PROPERTIES
      - 9 -




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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
STOCKHOLDER MATTERS AND
ISSUER               PURCHASES OF EQUITY SECURITIES
  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
    
    
    $
    13.93Fiscal 2005Quarter ended March 31, 2005
    
    $
    20.00
    
    
    $
    17.12Quarter ended June 30, 2005
    
    $
    20.40
    
    
    $
    18.03Quarter ended September 30, 2005
    
    $
    23.82
    
    
    $
    18.20Quarter ended December 31, 2005
    
    $
    23.46
    
    
    $
    21.60
   - 10 -




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##### Table of Contents



Issuer Purchases of Equity Securities
  Number of shares
    
    Avg. Price Paid Perpurchased
    
    SharePeriodOctober 2005
    
    
    715,100
    
    
    $
    22.20November 2005
    
    
    387,350
    
    
    $
    22.33December 2005
    
    
    0
    
    
    
    0Total for Fourth Quarter 2005
    
    
    1,102,450
    
    
    $
    22.24
  
 ITEM 6. SELECTED FINANCIAL DATA
  - 11 -




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##### Table of Contents



Consolidated Statements of Operations Data
 (In thousands, except per share data)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Revenues:License fees
    
    $
    291,695
    
    
    $
    275,872
    
    
    $
    274,817
    
    
    $
    325,916
    
    
    $
    389,038Services
    
    
    527,000
    
    
    
    512,664
    
    
    
    503,245
    
    
    
    503,945
    
    
    
    538,885Total revenues
    
    
    818,695
    
    
    
    788,536
    
    
    
    778,062
    
    
    
    829,861
    
    
    
    927,923Costs and expenses:Cost of license fees
    
    
    51,556
    
    
    
    60,795
    
    
    
    60,711
    
    
    
    51,448
    
    
    
    45,695Cost of services
    
    
    156,325
    
    
    
    162,016
    
    
    
    162,703
    
    
    
    190,067
    
    
    
    240,779Sales and marketing
    
    
    250,003
    
    
    
    242,778
    
    
    
    239,173
    
    
    
    271,850
    
    
    
    331,294Product development and engineering
    
    
    139,011
    
    
    
    119,959
    
    
    
    116,967
    
    
    
    117,862
    
    
    
    125,460General and administrative
    
    
    92,106
    
    
    
    91,117
    
    
    
    84,750
    
    
    
    86,712
    
    
    
    78,106Amortization of other purchased
intangibles
    
    
    6,639
    
    
    
    5,139
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000Amortization of goodwill (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,859Goodwill impairment (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,300
    
    
    
    In-process research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,500Reversal of AvantGo restructuring
accrual
    
    
    
    
    
    
    (2,677
    )
    
    
    
    
    
    
    
    
    
    
    Cost of restructuring
    
    
    1,115
    
    
    
    20,017
    
    
    
    7,429
    
    
    
    40,446
    
    
    
    48,751Total costs and expenses
    
    
    696,755
    
    
    
    699,144
    
    
    
    673,733
    
    
    
    772,685
    
    
    
    944,444Operating income (loss)
    
    
    121,940
    
    
    
    89,392
    
    
    
    104,329
    
    
    
    57,176
    
    
    
    (16,521
    )Interest income and expense, net
    
    
    14,824
    
    
    
    11,574
    
    
    
    13,766
    
    
    
    14,033
    
    
    
    17,529Minority interest
    
    
    (49
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Income before income taxes and
cumulative effect of an accounting change
    
    
    136,715
    
    
    
    100,966
    
    
    
    118,095
    
    
    
    71,209
    
    
    
    978Provision for income taxes
    
    
    51,132
    
    
    
    33,016
    
    
    
    30,829
    
    
    
    33,428
    
    
    
    26,500Income (Loss) before cumulative effect of
an accounting change
    
    
    85,583
    
    
    
    67,950
    
    
    
    87,266
    
    
    
    37,781
    
    
    
    (25,522
    )Cumulative effect of an accounting change
to adopt SFAS 142 (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (132,450
    )
    
    
    Net income (loss)
    
    $
    85,583
    
    
    $
    67,950
    
    
    $
    87,266
    
    
    $
    (94,669
    )
    
    $
    (25,522
    )Income (Loss) per share before cumulative
effect of an
accounting change
    
    $
    0.95
    
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    0.39
    
    
    $
    (0.27
    )Cumulative effect of an accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.37
    )
    
    
    Basic net income (loss) per share
    
    $
    0.95
    
    
    $
    0.71
    
    
    $
    0.92
    
    
    $
    (0.98
    )
    
    $
    (0.27
    )Shares used in computing basic net
income (loss) per share
    
    
    90,307
    
    
    
    95,550
    
    
    
    94,833
    
    
    
    96,844
    
    
    
    94,592Income (Loss) per share before cumulative
effect of an accounting change
    
    $
    0.92
    
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    0.38
    
    
    $
    (0.27
    )Cumulative effect of an accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.33
    )
    
    
    Diluted net income (loss) per share
    
    $
    0.92
    
    
    $
    0.69
    
    
    $
    0.89
    
    
    $
    (0.95
    )
    
    $
    (0.27
    )Shares used in computing diluted net
Income (loss) per share
    
    
    93,257
    
    
    
    98,001
    
    
    
    97,582
    
    
    
    99,584
    
    
    
    94,592
 
 (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. - 12 -




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##### Table of Contents



Consolidated Balance Sheet Data
  2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Cash, cash equivalents and cash
investments
    
    $
    859,936
    
    
    $
    513,632
    
    
    $
    573,793
    
    
    $
    387,180
    
    
    $
    343,160Working capital
    
    
    573,247
    
    
    
    290,237
    
    
    
    261,023
    
    
    
    112,296
    
    
    
    111,822Total assets
    
    
    1,570,614
    
    
    
    1,183,522
    
    
    
    1,151,356
    
    
    
    992,749
    
    
    
    1,133,242Long-term obligations
    
    
    500,339
    
    
    
    33,121
    
    
    
    15,129
    
    
    
    10,641
    
    
    
    5,887Stockholders equity
    
    
    698,830
    
    
    
    756,556
    
    
    
    741,469
    
    
    
    580,374
    
    
    
    716,519
 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
 
    
    Our Business
      - 13 -




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
    
    Our Results
       
    
    Business Trends
   - 14 -




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##### Table of Contents



Critical Accounting Policies and Estimates
  
    
    Revenue Recognition
  - 15 -




---



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Residual Method Accounting
 Percentage of Completion Accounting
 Sublicense Revenues
 Service Revenues
 
    
    Impairment of Goodwill and Other Intangible Assets
  - 16 -




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##### Table of Contents




    
    Allowance for Doubtful Accounts
  
    
    Capitalized Software
  
    
    Restructuring
  - 17 -




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##### Table of Contents




    
    Income Taxes
   
    
    Stock-Based Compensation
 Accounting for Stock Issued to Employees. Accounting for Stock-Based
Compensation, Accounting for Stock-Based Compensation  Transition and
Disclosure,
   - 18 -




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##### Table of Contents



Share-Based Payment, (SFAS
123(R) New Accounting Pronouncements
 
    
    Contingencies and Liabilities
  Results of Operations
 Revenues
 2005
    
    
    Change
    
    
    2004
    
    
    Change
    
    
    2003License fees by segment:IPG
    
    $
    237.2
    
    
    
    3
    %
    
    $
    231.4
    
    
    
    (4
    %)
    
    $
    240.3iAS
    
    
    81.4
    
    
    
    15
    %
    
    
    70.7
    
    
    
    26
    %
    
    
    56.3Eliminations
    
    
    (26.9
    )
    
    
    3
    %
    
    
    (26.2
    )
    
    
    20
    %
    
    
    (21.8
    )Total license fees
    
    $
    291.7
    
    
    
    6
    %
    
    $
    275.9
    
    
    
    *
    
    
    $
    274.8Percentage of total revenues
    
    
    36
    %
    
    
    
    
    
    
    35
    %
    
    
    
    
    
    
    35
    %Services by segment:IPG
    
    $
    488.1
    
    
    
    (1
    %)
    
    $
    491.0
    
    
    
    *
    
    
    $
    493.1iAS
    
    
    65.9
    
    
    
    36
    %
    
    
    48.6
    
    
    
    35
    %
    
    
    35.9Eliminations
    
    
    (27.0
    )
    
    
    *
    
    
    
    (27.0
    )
    
    
    5
    %
    
    
    (25.7
    )Total services
    
    $
    527.0
    
    
    
    3
    %
    
    $
    512.6
    
    
    
    2
    %
    
    $
    503.3Percentage of total revenues
    
    
    64
    %
    
    
    
    
    
    
    65
    %
    
    
    
    
    
    
    65
    %Total revenues
    
    $
    818.7
    
    
    
    4
    %
    
    $
    788.5
    
    
    
    1
    %
    
    $
    778.1
 
 *
    
    Not meaningful - 19 -




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.
    - 20 -




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Geographical Revenues
 2005
    
    Change
    
    2004
    
    Change
    
    2003North America
    
    $
    464.9
    
    
    
    3
    %
    
    $
    453.5
    
    
    
    *
    
    
    $
    455.0Percentage of total revenues
    
    
    57
    %
    
    
    
    
    
    
    58
    %
    
    
    
    
    
    
    59
    %International:EMEA (Europe, Middle East and
Africa)
    
    $
    233.5
    
    
    
    6
    %
    
    $
    220.4
    
    
    
    4
    %
    
    $
    212.8Percentage of total revenues
    
    
    28
    %
    
    
    
    
    
    
    28
    %
    
    
    
    
    
    
    27
    %Intercontinental (Asia Pacific
and Latin America)
    
    $
    120.3
    
    
    
    5
    %
    
    $
    114.6
    
    
    
    4
    %
    
    $
    110.3Percentage of total revenues
    
    
    15
    %
    
    
    
    
    
    
    14
    %
    
    
    
    
    
    
    14
    %Total Outside North America
    
    $
    353.8
    
    
    
    6
    %
    
    $
    335.0
    
    
    
    4
    %
    
    $
    323.1Percentage of total revenues
    
    
    43
    %
    
    
    
    
    
    
    42
    %
    
    
    
    
    
    
    41
    %Total revenues
    
    $
    818.7
    
    
    
    4
    %
    
    $
    788.5
    
    
    
    1
    %
    
    $
    778.1
 
 *
    
    Not meaningful      - 21 -




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Cost and Expenses
 2005
    
    Change
    
    2004
    
    Change
    
    2003Cost of license fees
    
    $
    51.6
    
    
    
    (15
    %)
    
    $
    60.8
    
    
    
    *
    
    
    $
    60.7Percentage of license fee revenues
    
    
    18
    %
    
    
    
    
    
    
    22
    %
    
    
    
    
    
    
    22
    %Cost of services
    
    $
    156.3
    
    
    
    (4
    %)
    
    $
    162.0
    
    
    
    *
    
    
    $
    162.7Percentage of services revenues
    
    
    30
    %
    
    
    
    
    
    
    32
    %
    
    
    
    
    
    
    32
    %Sales and marketing
    
    $
    250.0
    
    
    
    3
    %
    
    $
    242.8
    
    
    
    2
    %
    
    $
    239.2Percentage of total revenues
    
    
    31
    %
    
    
    
    
    
    
    31
    %
    
    
    
    
    
    
    31
    %Product development and engineering
    
    $
    139.0
    
    
    
    16
    %
    
    $
    120.0
    
    
    
    3
    %
    
    $
    117.0Percentage of total revenues
    
    
    17
    %
    
    
    
    
    
    
    15
    %
    
    
    
    
    
    
    15
    %General and administrative
    
    $
    92.1
    
    
    
    1
    %
    
    $
    91.1
    
    
    
    7
    %
    
    $
    84.8Percentage of total revenues
    
    
    11
    %
    
    
    
    
    
    
    12
    %
    
    
    
    
    
    
    11
    %Amortization of other purchased intangibles
    
    $
    6.6
    
    
    
    29
    %
    
    $
    5.1
    
    
    
    155
    %
    
    $
    2.0Percentage of total revenues
    
    
    1
    %
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    *Reversal of AvantGo restructuring accrual.
    
    
    
    
    
    
    *
    
    
    $
    (2.7
    )
    
    
    *
    
    
    
    Percentage of total revenues
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    Cost of restructuring
    
    $
    1.1
    
    
    
    (95
    %)
    
    $
    20.0
    
    
    
    170
    %
    
    $
    7.4Percentage of total revenues
    
    
    *
    
    
    
    
    
    
    
    3
    %
    
    
    
    
    
    
    1
    %
 
 *
    
    Not meaningful Cost of license fees
    - 22 -




---



##### Table of Contents



Cost of services
  Sales and marketing
   Product development and engineering
     General and administrative
  - 23 -




---



##### Table of Contents



Stock compensation expense
  (Amounts in thousands)
    
    2005
    
    
    2004
    
    
    2003Costs of services
    
    
    380
    
    
    
    160
    
    
    
    30Sales and marketing
    
    
    302
    
    
    
    335
    
    
    
    112Product development and engineering
    
    
    38
    
    
    
    82
    
    
    
    78General and administrative
    
    
    6,586
    
    
    
    4,022
    
    
    
    2,6627,306
    
    
    
    4,599
    
    
    
    2,882
  Amortization of other purchased intangibles
  Reversal of AvantGo restructuring accrual
  Cost of restructuring
 2004, 2003, 2002 and 2001 Restructuring Activities.
  - 24 -




---



##### Table of Contents



Operating income
 2005
    
    
    Change
    
    
    2004
    
    
    Change
    
    
    2003Operating income by segment:IPG
    
    $
    101.9
    
    
    
    33
    %
    
    $
    76.5
    
    
    
    6
    %
    
    $
    71.9IAS
    
    
    21.6
    
    
    
    70
    %
    
    
    12.7
    
    
    
    (34
    %)
    
    
    19.2Unallocated (costs) savings
    
    
    (1.6
    )
    
    
    *
    
    
    
    0.2
    
    
    
    (98
    %)
    
    
    13.2Total operating income
    
    $
    121.9
    
    
    
    36
    %
    
    $
    89.4
    
    
    
    (14
    %)
    
    $
    104.3Percentage of total revenues
    
    
    15
    %
    
    
    
    
    
    
    11
    %
    
    
    
    
    
    
    13
    %
 
 *
    
    Not meaningful      Other income (expense), net
 2005
    
    
    Change
    
    
    2004
    
    
    Change
    
    
    2003Interest income
    
    $
    25.7
    
    
    
    136
    %
    
    $
    10.9
    
    
    
    (3
    %)
    
    $
    11.2Percentage of total revenues
    
    
    3
    %
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    1
    %Interest expense and other, net
    
    $
    (10.9
    )
    
    
    *
    
    
    $
    0.7
    
    
    
    (72
    %)
    
    $
    2.5Percentage of total revenues
    
    
    (1
    %)
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *Minority interest
    
    
    *
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    Percentage of total revenues
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 *
    
    Not meaningful - 25 -




---



##### Table of Contents



Provision for Income Taxes
 2005
    
    
    Change
    
    
    2004
    
    
    Change
    
    
    2003Provision for income taxes
    
    $
    51.1
    
    
    
    55
    %
    
    $
    33.0
    
    
    
    7
    %
    
    $
    30.8
    - 26 -




---



##### Table of Contents



Net income per share
 2005
    
    
    Change
    
    
    2004
    
    
    Change
    
    
    2003Net income
    
    $
    85.6
    
    
    
    26
    %
    
    $
    68.0
    
    
    
    (22
    %)
    
    $
    87.3Percentage of total revenues
    
    
    10
    %
    
    
    
    
    
    
    9
    %
    
    
    
    
    
    
    11
    %Basic:Net income per share
    
    $
    0.95
    
    
    
    34
    %
    
    $
    0.71
    
    
    
    (23
    %)
    
    $
    0.92Shares used in computing
basic net income per share
    
    
    90.3
    
    
    
    (6
    %)
    
    
    95.6
    
    
    
    1
    %
    
    
    94.8Diluted:Net income per share
    
    $
    0.92
    
    
    
    33
    %
    
    $
    0.69
    
    
    
    (22
    %)
    
    $
    0.89Shares used in computing
diluted net income per
share
    
    
    93.3
    
    
    
    (5
    %)
    
    
    98.0
    
    
    
    *
    
    
    
    97.6
 
 *
    
    Not meaningful   - 27 -




---



##### Table of Contents



Liquidity and capital resources
 2005
    
    
    Change
    
    
    2004
    
    
    Change
    
    
    2003Working capital
    
    $
    573.2
    
    
    
    98
    %
    
    $
    290.2
    
    
    
    11
    %
    
    $
    261.0Cash, cash equivalents and cash
Investments
    
    $
    859.9
    
    
    
    67
    %
    
    $
    513.6
    
    
    
    (10
    %)
    
    $
    573.8Net cash provided by operating activities
    
    $
    170.0
    
    
    
    (4
    %)
    
    $
    176.2
    
    
    
    (13
    %)
    
    $
    202.1Net cash used for investing activities
    
    $
    389.4
    
    
    
    370
    %
    
    $
    82.8
    
    
    
    (54
    %)
    
    $
    178.7Net cash provided by (used for)
financing activities
    
    $
    328.5
    
    
    
    *
    
    
    $
    (102.2
    )
    
    
    *
    
    
    $
    25.0
 
 *
    
    Not meaningful      - 28 -




---



##### Table of Contents



Contractual Obligations
  (Dollars in Millions)
    
    Payments Due by Period2006
    
    2007-2008
    
    2009-2010Contractual Obligations
    
    Total
    
    Commitments
    
    Commitments
    
    Commitments
    
    After 2010Operating leases
    
    $
    303.3
    
    
    $
    44.4
    
    
    $
    75.9
    
    
    $
    62.5
    
    
    $
    120.5Capital lease
    
    
    13.7
    
    
    
    1.0
    
    
    
    2.0
    
    
    
    2.0
    
    
    
    8.7Debt obligations:Sale-and-leaseback
    
    
    3.4
    
    
    
    0.4
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    1.2Note(s) payable
    
    
    2.6
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    1.6Convertible
subordinated notes
    
    
    496.3
    
    
    
    8.1
    
    
    
    16.1
    
    
    
    472.1Third party royalties
/software licenses &
maintenance
commitments
    
    
    7.2
    
    
    
    5.9
    
    
    
    1.3
    
    
    
    
    
    
    
    Total commitments
    
    $
    826.5
    
    
    $
    60.0
    
    
    $
    96.6
    
    
    $
    537.9
    
    
    $
    132
   - 29 -




---



##### Table of Contents



New Accounting Pronouncements
 SFAS 123(R), Share-Based Payment   Share-Based Payment, Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees, Statement of Cash Flows.
  1.
    
    A modified prospective method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS 123(R) for all share-based payments granted after
the effective date and (b) based on the requirements of SFAS 123 for
all awards granted to employees prior to the effective date that
remain unvested on the effective date.2.
    
    A modified retrospective method which includes the requirements of
the modified prospective method described above but also permits
restatement using amounts previously disclosed under the pro forma
provisions of SFAS 123 either for (a) all prior periods presented or
(b) prior interim periods of the year of adoption.
   - 30 -




---



##### Table of Contents



SFAS No. 154 Accounting Changes and Error Corrections
  Financial Risk Management
 Foreign Exchange Risk
 .
  - 31 -




---



##### Table of Contents



US $
    
    
    AverageForward Contracts - As of December 31, 2005
    
    Notional amount
    
    
    Contract rateContracts for the sale of US Dollars and purchase of:Canadian Dollars
    
    $
    9,337
    
    
    
    0.8566Euro
    
    $
    14,359
    
    
    
    1.1867Singapore Dollars
    
    $
    4,223
    
    
    
    0.6034Contracts for the purchase of US Dollars and sale of:Japanese Yen
    
    $
    3,072
    
    
    
    117.2000Swiss Franc
    
    $
    1,672
    
    
    
    1.3154Contracts for the purchase of Euros and sale of:Swedish Krona
    
    $
    1,540
    
    
    
    9.4580Swiss Franc
    
    $
    2,504
    
    
    
    1.5610UK Pound
    
    $
    10,002
    
    
    
    0.6869Norwegian Krone
    
    $
    1,351
    
    
    
    7.9758Total
    
    $
    48,060
  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
 Interest Rate Risk
  Default Risk
  - 32 -




---



##### Table of Contents



Future Operating Results
  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.
    Economic conditions in the U.S. and worldwide could adversely affect our revenues.
  - 33 -




---



##### Table of Contents



If we fail to maintain or expand our relationships with strategic partners and indirect
distribution channels our license revenues could decline.
   Industry consolidation and other competitive pressures could affect prices or demand for our
products and services, and our business may be adversely affected.
   The ability to rapidly develop and bring to market advanced products and services that are
successful is crucial to maintaining our competitive position.
  - 34 -




---



##### Table of Contents



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.
  Unanticipated delays or accelerations in our sales cycles could result in significant fluctuations
in our quarterly operating results.
  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.
   - 35 -




---



##### Table of Contents



Restructuring activities and reorganizations in our sales model or business units may not succeed
in increasing revenues and operating results.
   Our results of operations may depend on the compatibility of our products with other software
developed by third parties.
  - 36 -




---



##### Table of Contents



We are subject to risks arising from our international operations.
   We face exposure to adverse movements in foreign currency exchange rates.
   Growing market acceptance of open source software could cause a decline in our revenues and
operating margins.
  - 37 -




---



##### Table of Contents



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.
    Our key personnel are critical to our business, and we cannot assure that they will remain with us.
  Changes in accounting and legal standards could adversely affect our future operating results.
  - 38 -




---



##### Table of Contents



The unfavorable outcome of litigation and other claims against us could have a material adverse
impact on our financial condition and results of operations.
  Our operations and financial results could be severely harmed by certain natural disasters.
  - 39 -




---



##### Table of Contents



Provisions of our corporate documents have anti-takeover effects that could prevent a change in
control.
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageReport of Management on Internal Controls over Financial Reporting
    
    
    40Report of Independent Registered Public Accounting Firm on Internal Controls over
Financial Reporting
    
    
    41Report of Independent Registered Public Accounting Firm
    
    
    42Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    43Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003
    
    
    44Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2005,
2004 and 2003
    
    
    45Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003
    
    
    46Notes to Consolidated Financial Statements
    
    
    47
 Report of Management on Internal Controls over Financial Reporting
    - 40 -




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
         
 - 41 -




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       
 - 42 -




---



##### Table of Contents



Consolidated Balance Sheets
 (Dollars in thousands, except share and per share data)
    
    December 312005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    398,741
    
    
    $
    321,417Short-term cash investments
    
    
    342,247
    
    
    
    158,217Total cash, cash equivalents and short-term cash investments
    
    
    740,988
    
    
    
    479,634Restricted cash
    
    
    2,773
    
    
    
    5,356Accounts receivable, less allowance for doubtful accounts of $2,651
(2004  $1,852)
    
    
    167,790
    
    
    
    157,897Deferred income taxes
    
    
    5,523
    
    
    
    11,205Prepaid expenses and other current assets
    
    
    16,876
    
    
    
    14,790Total current assets
    
    
    933,950
    
    
    
    668,882Long-term cash investments
    
    
    118,948
    
    
    
    33,998Restricted long-term cash investments
    
    
    2,600
    
    
    
    2,600Property, equipment and improvements, net
    
    
    59,178
    
    
    
    64,371Deferred income taxes
    
    
    24,879
    
    
    
    39,440Capitalized software, net
    
    
    65,911
    
    
    
    61,771Goodwill
    
    
    238,864
    
    
    
    214,110Other purchased intangibles, less accumulated amortization
of $104,915 (2004  $86,442)
    
    
    87,562
    
    
    
    67,208Other assets
    
    
    38,722
    
    
    
    31,142Total assets
    
    $
    1,570,614
    
    
    $
    1,183,522Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    10,353
    
    
    $
    11,962Accrued compensation and related expenses
    
    
    51,983
    
    
    
    43,632Accrued income taxes
    
    
    31,398
    
    
    
    32,595Other accrued liabilities
    
    
    78,040
    
    
    
    81,715Deferred revenue
    
    
    188,929
    
    
    
    208,741Total current liabilities
    
    
    360,703
    
    
    
    378,645Other liabilities
    
    
    40,339
    
    
    
    33,121Long-term deferred revenue
    
    
    5,663
    
    
    
    10,170Minority interest
    
    
    5,079
    
    
    
    5,030Convertible subordinated notes
    
    
    460,000
    
    
    
    Commitments 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 90,531,145 shares outstanding (2004 
105,337,362 shares issued and 95,518,977 shares outstanding)
    
    
    105
    
    
    
    105Additional paid-in capital
    
    
    953,771
    
    
    
    940,806Accumulated earnings (deficit)
    
    
    16,195
    
    
    
    (66,690
    )Accumulated other comprehensive income
    
    
    19,231
    
    
    
    49,356Cost of 14,806,217 shares of treasury stock (2004  9,818,385 shares)
    
    
    (277,510
    )
    
    
    (159,617
    )Unearned stock compensation
    
    
    (12,962
    )
    
    
    (7,404
    )Total stockholders equity
    
    
    698,830
    
    
    
    756,556Total liabilities and stockholders equity
    
    $
    1,570,614
    
    
    $
    1,183,522
 See accompanying notes.
 - 43 -




---



##### Table of Contents



Consolidated Statements of Operations
 (In thousands, except per share data)
    
    For the years ended December 312005
    
    
    2004
    
    
    2003Revenues:License fees
    
    $
    291,695
    
    
    $
    275,872
    
    
    $
    274,817Services
    
    
    527,000
    
    
    
    512,664
    
    
    
    503,245Total revenues
    
    
    818,695
    
    
    
    788,536
    
    
    
    778,062Costs and expenses:Cost of license fees
    
    
    51,556
    
    
    
    60,795
    
    
    
    60,711Cost of services
    
    
    156,325
    
    
    
    162,016
    
    
    
    162,703Sales and marketing
    
    
    250,003
    
    
    
    242,778
    
    
    
    239,173Product development and engineering
    
    
    139,011
    
    
    
    119,959
    
    
    
    116,967General and administrative
    
    
    92,106
    
    
    
    91,117
    
    
    
    84,750Amortization of other purchased intangibles
    
    
    6,639
    
    
    
    5,139
    
    
    
    2,000Reversal of AvantGo restructuring accrual
    
    
    
    
    
    
    (2,677
    )
    
    
    Cost of restructuring
    
    
    1,115
    
    
    
    20,017
    
    
    
    7,429Total costs and expenses
    
    
    696,755
    
    
    
    699,144
    
    
    
    673,733Operating income
    
    
    121,940
    
    
    
    89,392
    
    
    
    104,329Interest income
    
    
    25,707
    
    
    
    10,908
    
    
    
    11,229Interest expense and other income, net
    
    
    (10,883
    )
    
    
    666
    
    
    
    2,537Minority interest
    
    
    (49
    )
    
    
    
    
    
    
    Income before income taxes
    
    
    136,715
    
    
    
    100,966
    
    
    
    118,095Provision for income taxes
    
    
    51,132
    
    
    
    33,016
    
    
    
    30,829Net income
    
    $
    85,583
    
    
    $
    67,950
    
    
    $
    87,266Basic net income per share
    
    $
    0.95
    
    
    $
    0.71
    
    
    $
    0.92Shares used in computing basic net income per share
    
    
    90,307
    
    
    
    95,550
    
    
    
    94,833Diluted net income per share
    
    $
    0.92
    
    
    $
    0.69
    
    
    $
    0.89Shares used in computing diluted net income per share
    
    
    93,257
    
    
    
    98,001
    
    
    
    97,582
 See accompanying notes.
 - 44 -




---



##### Table of Contents



Consolidated Statements of Stockholders Equity
 (Dollars and shares in thousands)
    
    Three years ended December 31, 2005AccumulatedCommon stock
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    UnearnedOutstanding
    
    
    Par
    
    
    paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockShares
    
    
    Value
    
    
    capital
    
    
    Earnings/
    
    
    Income/(Loss)
    
    
    Stock
    
    
    Compensation
    
    
    Total(Deficit)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
    )
    
    $
    756,556Common stock issued and treasury Stock
reissued under stock option, Stock
purchase plans and other
    
    
    3,764
    
    
    
    
    
    
    
    101
    
    
    
    (2,913
    )
    
    
    
    
    
    
    51,375
    
    
    
    
    
    
    
    48,563Treasury stock repurchased due to
Forfeiture in restricted stock Option
plan
    
    
    (15
    )
    
    
    
    
    
    
    (267
    )
    
    
    215
    
    
    
    
    
    
    
    (216
    )
    
    
    267
    
    
    
    (1
    )Acquisition of treasury stock
    
    
    (8,737
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (169,052
    )
    
    
    
    
    
    
    (169,052
    )Restricted stock
    
    
    
    
    
    
    
    
    
    
    13,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,131
    )
    
    
    Amortization of unearned stock
Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,306
    
    
    
    7,306Subtotal
    
    
    90,531
    
    
    
    105
    
    
    
    953,771
    
    
    
    (69,388
    )
    
    
    49,356
    
    
    
    (277,510
    )
    
    
    (12,962
    )
    
    
    643,372Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,583
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,583Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,840
    )
    
    
    
    
    
    
    
    
    
    
    (29,840
    )Unrealized gains/(losses) on Marketable
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (285
    )
    
    
    
    
    
    
    
    
    
    
    (285
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,458Balances at December 31, 2005
    
    
    90,531
    
    
    $
    105
    
    
    $
    953,771
    
    
    $
    16,195
    
    
    $
    19,231
    
    
    $
    (277,510
    )
    
    $
    (12,962
    )
    
    $
    698,830
 See accompanying notes.
 - 45 -




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##### Table of Contents



Consolidated Statements of Cash Flows
 (Dollars in thousands)
    
    For the years ended December 312005
    
    
    2004
    
    
    2003Cash and cash equivalents, beginning of year
    
    $
    321,417
    
    
    $
    315,404
    
    
    $
    231,267Cash flows from operating activities:Net income
    
    
    85,583
    
    
    
    67,950
    
    
    
    87,266Adjustments to reconcile net income to net cash Provided by
operating activities:Depreciation and amortization
    
    
    73,600
    
    
    
    84,912
    
    
    
    84,885Write-off of assets in restructuring
    
    
    
    
    
    
    6,908
    
    
    
    258Minority interest in income of subsidiaries
    
    
    49
    
    
    
    
    
    
    
    (Gain) Loss on disposal of assets
    
    
    528
    
    
    
    2,680
    
    
    
    (435
    )Reversal of purchase accounting accrual
    
    
    
    
    
    
    (2,677
    )
    
    
    Deferred income taxes
    
    
    8,928
    
    
    
    504
    
    
    
    729Amortization of deferred stock-based compensation
    
    
    7,306
    
    
    
    4,599
    
    
    
    2,882Amortization of note issuance costs
    
    
    1,671
    
    
    
    
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (1,914
    )
    
    
    (5,342
    )
    
    
    40,738Other current assets
    
    
    (1,298
    )
    
    
    2,070
    
    
    
    1,646Other assets  operating
    
    
    651
    
    
    
    4,623
    
    
    
    Accounts payable
    
    
    (2,410
    )
    
    
    2,323
    
    
    
    (4,591
    )Accrued compensation and related expenses
    
    
    7,072
    
    
    
    3,397
    
    
    
    1,495Accrued income taxes
    
    
    24,724
    
    
    
    791
    
    
    
    6,598Other accrued liabilities
    
    
    (10,570
    )
    
    
    (14,792
    )
    
    
    (29,598
    )Deferred revenues
    
    
    (26,436
    )
    
    
    8,887
    
    
    
    5,622Other liabilities
    
    
    2,508
    
    
    
    9,318
    
    
    
    4,650Net cash provided by operating activities
    
    
    169,992
    
    
    
    176,151
    
    
    
    202,145Cash flows from investing activities:Decrease in restricted cash
    
    
    2,583
    
    
    
    191
    
    
    
    906Purchases of available-for-sale cash investments
    
    
    (837,237
    )
    
    
    (201,417
    )
    
    
    (325,725
    )Maturities of available-for-sale cash investments
    
    
    439,737
    
    
    
    149,923
    
    
    
    153,805Sales of available-for-sale cash investments
    
    
    127,648
    
    
    
    116,462
    
    
    
    69,064Business combinations, net of cash acquired
    
    
    (71,890
    )
    
    
    (81,255
    )
    
    
    (13,900
    )Purchases of property, equipment and improvements
    
    
    (16,366
    )
    
    
    (30,445
    )
    
    
    (35,325
    )Proceeds from sale of fixed assets
    
    
    25
    
    
    
    205
    
    
    
    159Capitalized software development costs
    
    
    (33,906
    )
    
    
    (36,484
    )
    
    
    (27,964
    )Decrease in other assets  investing
    
    
    2
    
    
    
    2
    
    
    
    288Net cash used for investing activities
    
    
    (389,404
    )
    
    
    (82,818
    )
    
    
    (178,692
    )Cash flows from financing activities:Proceeds from the issuance of convertible subordinated
notes, net of issuance costs
    
    
    450,234
    
    
    
    
    
    
    
    Repayments of long-term obligations
    
    
    (1,012
    )
    
    
    (22,173
    )
    
    
    Payments on capital lease
    
    
    (274
    )
    
    
    (63
    )
    
    
    Net proceeds from the issuance of common stock and
reissuance of treasury stock
    
    
    48,564
    
    
    
    35,592
    
    
    
    55,915Purchases of treasury stock
    
    
    (169,053
    )
    
    
    (115,563
    )
    
    
    (30,883
    )Net cash provided by (used for) financing activities
    
    
    328,459
    
    
    
    (102,207
    )
    
    
    25,032Effect of exchange rate changes on cash
    
    
    (31,723
    )
    
    
    14,887
    
    
    
    35,652Net increase in cash and cash equivalents
    
    
    77,324
    
    
    
    6,013
    
    
    
    84,137Cash and cash equivalents, end of year
    
    
    398,741
    
    
    
    321,417
    
    
    
    315,404Cash investments, end of year
    
    
    461,195
    
    
    
    192,215
    
    
    
    258,389Total cash, cash equivalents and cash investments, end of year
    
    $
    859,936
    
    
    $
    513,632
    
    
    $
    573,793Supplemental disclosures:Interest paid
    
    $
    5,265
    
    
    $
    308
    
    
    $
    62Income taxes paid, net of refunds
    
    $
    15,997
    
    
    $
    26,471
    
    
    $
    24,152
 See accompanying notes.
 - 46 -




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note One: Summary of Significant Accounting Policies
 The Company
   Principles of Consolidation
  Use of Estimates
  Accounts Receivable and Allowance for Doubtful Accounts
  Capitalized Software
  - 47 -




---



##### Table of Contents



Property, Equipment and Improvements
   Goodwill and Other Purchased Intangible Assets
   Impairment of Long-Lived Assets
  Revenue Recognition
   - 48 -




---



##### Table of Contents



Business Combinations
  Foreign Currencies
   - 49 -




---



##### Table of Contents



Income Taxes
  Contingent change of control provisions
  Stock-Based Compensation
 Accounting for Stock Issued to
Employees,
 Accounting for Stock-Based Compensation, Accounting for Stock-Based Compensation  Transition and
Disclosure.
 Share-Based Payment, Recent Accounting Pronouncements
 - 50 -




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##### Table of Contents



Stock option plans
    
    Purchase plans2005
    2004
    2003
    
    
    2005
    2004
    2003Expected volatility
    
    
    36.93
    %
    
    
    54.45
    %
    
    
    64.54
    %
    
    
    *
    
    
    
    55.42
    %
    
    
    64.41
    %Risk-free interest rates
    
    
    3.81
    %
    
    
    3.08
    %
    
    
    2.56
    %
    
    
    *
    
    
    
    1.39
    %
    
    
    1.29
    %Expected lives (years)
    
    
    4.24
    
    
    
    4.25
    
    
    
    4.25
    
    
    
    *
    
    
    
    .50
    
    
    
    .50Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    
 
 *
    
    Due to changes in the discount on ESPP purchases, the ESPP is no longer a compensatory plan under
SFAS 123(R). Therefore, no Black-Scholes calculations were necessary for 2005.   - 51 -




---



##### Table of Contents



(Dollars in thousands, except per share data)
    
    2005
    
    
    2004
    
    
    2003As reported net income  stock-based
employee compensation determined using the
intrinsic value method
    
    $
    85,583
    
    
    $
    67,950
    
    
    $
    87,266Add: Stock-based employee compensation cost,
net of tax, Included in net income as
reported
    
    
    7,306
    
    
    
    4,599
    
    
    
    2,882Less: Pro-forma stock-based employee
compensation cost, net of tax, determined
under the fair value method
    
    
    (18,148
    )
    
    
    (24,772
    )
    
    
    (30,389
    )Pro-forma
net income  stock-based employee Compensation determined under the fair value
method
    
    $
    74,041
    
    
    $
    47,777
    
    
    $
    59,759Basic net income per shareAs reported
    
    $
    0.95
    
    
    $
    0.71
    
    
    $
    0.92Pro forma
    
    
    0.82
    
    
    
    0.50
    
    
    
    0.63Diluted net income per shareAs reported
    
    $
    0.92
    
    
    $
    0.69
    
    
    $
    0.89Pro forma
    
    
    0.79
    
    
    
    0.49
    
    
    
    0.61
  Net Income Per Share
  - 52 -




---



##### Table of Contents



(In thousands, except per share data)
    
    2005
    
    2004
    
    2003Net income
    
    $
    85,583
    
    
    $
    67,950
    
    
    $
    87,266Shares used in computing basic net income
per share
    
    
    90,307
    
    
    
    95,550
    
    
    
    94,833Effect of dilutive securities  stock options
    
    
    2,950
    
    
    
    2,451
    
    
    
    2,749Shares used in computing diluted net income
per share
    
    
    93,257
    
    
    
    98,001
    
    
    
    97,582Basic net income per share
    
    $
    0.95
    
    
    $
    0.71
    
    
    $
    0.92Diluted net income per share
    
    $
    0.92
    
    
    $
    0.69
    
    
    $
    0.89
  Comprehensive Income
  Advertising
  Recent
Accounting Pronouncements
 SFAS 123(R), Share-Based Payment  Share-Based Payment, Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees, Statement of Cash Flows.
  1.
    
    A modified prospective method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS 123(R) for all share-based payments granted after
the effective date and (b) based on the requirements of SFAS 123 for
all awards granted to employees prior to the effective date that
remain unvested on the effective date.2.
    
    A modified retrospective method which includes the requirements of
the modified prospective method described above but also permits
restatement using amounts previously disclosed under the pro forma
provisions of SFAS 123 either for (a) all prior periods presented or
(b) prior interim periods of the year of adoption.
  - 53 -




---



##### Table of Contents



SFAS
No. 154 Accounting Changes and Error
Corrections
 Note Two: Financial Instruments
 Cash, Cash Equivalents and Cash Investments
   - 54 -




---



##### Table of Contents



(Dollars in thousands)
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair MarketCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueDecember 31, 2005:Cash and cash equivalents
    
    $
    398,736
    
    
    $
    5
    
    
    $
    
    
    
    $
    398,741Short-term corporate
notes and bonds
(maturities of one year
or less)
    
    
    174,274
    
    
    
    218
    
    
    
    (81
    )
    
    
    174,411Short-term government
obligations (maturities
of one year or less)
    
    
    167,753
    
    
    
    128
    
    
    
    (45
    )
    
    
    167,836Long-term corporate
notes and bonds
(maturities over one
year)
    
    
    83,460
    
    
    
    
    
    
    
    (642
    )
    
    
    82,818Long-term government
obligations (maturities
over one year)
    
    
    36,327
    
    
    
    
    
    
    
    (197
    )
    
    
    36,130$
    860,550
    
    
    $
    351
    
    
    $
    (965
    )
    
    $
    859,936
 December 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
    )
    
    $
    513,632
 Restricted Cash
  Foreign Currency Forward Exchange Contracts
  - 55 -




---



##### Table of Contents



Note Three: Property, Equipment and Improvements
 Estimated useful(Dollars in thousands)
    
    2005
    
    
    2004
    
    livesComputer equipment and software
    
    $
    274,712
    
    
    $275,252
    
    3 yearsFurniture and fixtures
    
    
    58,260
    
    
    59,845
    
    5 yearsLeasehold improvements and real property
    
    
    69,976
    
    
    63,171
    
    Improvements over shorter of 5 years or lease term; property over 7 to 40 years402,948
    
    
    398,268Less accumulated depreciation
    
    
    (343,770
    )
    
    (333,897
    )Net property, equipment and improvements
    
    $
    59,178
    
    
    $  64,371
  Note Four: Goodwill and Other Purchased Intangibles
  (In thousands)
    
    IPG
    
    
    iAS
    
    
    Consolidated TotalBalance at January 1, 2004
    
    $
    132,541
    
    
    $
    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
    
    $
    130,869
    
    
    $
    83,241
    
    
    $
    214,110Reduction in goodwill recorded on XcelleNet acquisition
    
    
    
    
    
    
    (410
    )
    
    
    (410
    )Reduction in liabilities in purchase accounting
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Goodwill recorded on ISDD acquisition
    
    
    2,031
    
    
    
    
    
    
    
    2,031Goodwill recorded on Avaki acquisition
    
    
    2
    
    
    
    
    
    
    
    2Goodwill recorded on Extended Systems acquisition
    
    
    
    
    
    
    44,898
    
    
    
    44,898Reduction for utilization of acquired tax assets
    
    
    (15,825
    )
    
    
    (5,049
    )
    
    
    (20,874
    )Foreign currency translation
Adjustments
    
    
    (882
    )
    
    
    
    
    
    
    (882
    )Balance at December 31, 2005
    
    $
    116,184
    
    
    $
    122,680
    
    
    $
    238,864
 - 56 -




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##### Table of Contents



Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Net Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)
    
    12/31/05
    
    
    12/31/05
    
    
    12/31/05
    
    
    12/31/04
    
    
    12/31/04
    
    
    12/31/04Purchased technology
    
    $
    134,988
    
    
    $
    (85,246
    )
    
    $
    49,742
    
    
    $
    103,850
    
    
    $
    (73,414
    )
    
    $
    30,436AvantGo tradenames
    
    
    3,100
    
    
    
    
    
    
    
    3,100
    
    
    
    3,100
    
    
    
    
    
    
    
    3,100XcelleNet tradenames
    
    
    4,000
    
    
    
    
    
    
    
    4,000
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Covenant not to compete
    
    
    2,800
    
    
    
    (2,800
    )
    
    
    
    
    
    
    2,800
    
    
    
    (1,244
    )
    
    
    1,556Customer lists
    
    
    47,589
    
    
    
    (16,869
    )
    
    
    30,720
    
    
    
    39,900
    
    
    
    (11,784
    )
    
    
    28,116Totals
    
    $
    192,477
    
    
    $
    (104,915
    )
    
    $
    87,562
    
    
    $
    153,650
    
    
    $
    (86,442
    )
    
    $
    67,208
   2006
    
    
    15,5162007
    
    
    15,3332008
    
    
    15,2592009
    
    
    14,9252010
    
    
    12,538
 Note Five: Other Assets
  2005
    
    
    2004Deposits
    
    $
    28,476
    
    
    $
    25,015Other
    
    
    10,246
    
    
    
    6,127$
    38,722
    
    
    $
    31,142
  Note Six: Lease Obligations, Other Liabilities and Commitments
 Capital Lease
  - 57 -




---



##### Table of Contents



2006
    
    $
    1,0012007
    
    
    9962008
    
    
    9932009
    
    
    9932010
    
    
    993Thereafter
    
    
    8,724Sub-total
    
    
    13,700Less amount representing interest
    
    
    5,758Total minimum lease payments
    
    $
    7,942
 Sale-and-Leaseback
   Leasehold Improvements Note
  Operating leases and Commitments
  - 58 -




---



##### Table of Contents



2006
    
    $
    44,3672007
    
    
    40,1642008
    
    
    35,7352009
    
    
    34,2022010
    
    
    28,307Thereafter
    
    
    120,513Total minimum lease payments*
    
    $
    303,288
 
 *
    
    Minimum payments have not been reduced by minimum sublease rentals of $10.1 million due in the
future under non-cancelable subleases.  Year ending December 31,2005
    
    
    2004
    
    
    2003Rent expense
    
    $
    45,990
    
    
    $
    46,463
    
    
    $
    51,064Less: sublease rentals
    
    
    4,339
    
    
    
    3,797
    
    
    
    3,570$
    41,651
    
    
    $
    42,666
    
    
    $
    47,494
 Letters of Credit
  Note Seven: Stockholders Equity
  Restricted Option and Stock Grants
 Restricted Option Grants
  - 59 -




---



##### Table of Contents



Restricted Stock Grants
   Stock Repurchase Program
   Issuance of Company Stock for Certain Services
  - 60 -




---



##### Table of Contents



Employee Stock Purchase Plans
   Stock Option Plans
      Outstanding options
    
    
    Weighted averageand restricted shares
    
    
    exercise pricenumber of shares
    
    
    per shareBalance 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
    
    
    $
    15.15Granted
    
    
    2,329,981
    
    
    
    14.45Exercised
    
    
    (3,640,478
    )
    
    
    12.15Forfeited
    
    
    (855,106
    )
    
    
    18.95Balance at December 31, 2005
    
    
    14,762,614
    
    
    $
    15.59
 - 61 -




---



##### Table of Contents



Options & restricted stock outstanding
    
    
    Options exercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseRanges of Exercisable prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$0.00 to $9.93
    
    
    2,715,920
    
    
    
    6.61
    
    
    $
    4.65
    
    
    
    1,261,688
    
    
    $
    8.81$10.10 to $14.10
    
    
    2,933,537
    
    
    
    5.80
    
    
    $
    11.59
    
    
    
    2,744,702
    
    
    $
    11.47$14.19 to $18.85
    
    
    3,250,372
    
    
    
    6.96
    
    
    $
    16.72
    
    
    
    2,018,211
    
    
    $
    16.42$18.94 to $20.72
    
    
    2,727,105
    
    
    
    6.37
    
    
    $
    19.93
    
    
    
    1,281,544
    
    
    $
    19.98$20.77 to $25.06
    
    
    2,920,245
    
    
    
    4.88
    
    
    $
    23.45
    
    
    
    2,737,727
    
    
    $
    23.54$26.63 to $148.27
    
    
    215,435
    
    
    
    3.88
    
    
    $
    29.16
    
    
    
    213,400
    
    
    $
    28.02$0.00 to $148.27
    
    
    14,762,614
    
    
    
    6.10
    
    
    $
    15.59
    
    
    
    10,257,272
    
    
    $
    16.74
 FFI Stock Option Plans
   - 62 -




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##### Table of Contents



Weighted averageOutstanding options
    
    
    Exercise pricenumber of shares
    
    
    Per shareBalance 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
    
    
    200,500
    
    
    
    0.78Forfeited
    
    
    (1,067,100
    )
    
    
    2.47Balance at December 31, 2004
    
    
    7,865,456
    
    
    $
    3.37Forfeited
    
    
    (112,950
    )
    
    
    3.33Balance at December 31, 2005
    
    
    7,752,506
    
    
    $
    3.37
  Options outstanding
    
    
    Options exercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRanges of
    
    
    
    
    
    Contractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseExercisable prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$ 0.75
    
    
    1,093,000
    
    
    
    7.09
    
    
    $
    0.75
    
    
    
    792,774
    
    
    $
    0.75$ 0.78
    
    
    1,893,500
    
    
    
    7.67
    
    
    $
    0.78
    
    
    
    1,147,373
    
    
    $
    0.78$ 5.00
    
    
    4,766,006
    
    
    
    4.81
    
    
    $
    5.00
    
    
    
    4,694,400
    
    
    $
    5.00$ 0.75 to $ 5.00
    
    
    7,752,506
    
    
    
    5.83
    
    
    $
    3.37
    
    
    
    6,634,547
    
    
    $
    3.76
 iAS Stock Option Plan
  - 63 -




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##### Table of Contents



Weighted averageOutstanding options
    
    
    exercise pricenumber of shares
    
    
    per shareBalance 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
    
    
    1,250,650
    
    
    
    2.51Forfeited
    
    
    (353,882
    )
    
    
    2.51Balance at December 31, 2004
    
    
    11,527,354
    
    
    $
    2.51Granted
    
    
    46,750
    
    
    
    2.51Forfeited
    
    
    (57,405
    )
    
    
    2.51Balance at December 31, 2005
    
    
    11,516,699
    
    
    $
    2.51
  Note Eight: Income Taxes
   2005
    
    
    2004
    
    
    2003United States
    
    $
    24,755
    
    
    $
    (8,590
    )
    
    $
    11,788Foreign
    
    
    111,960
    
    
    
    109,556
    
    
    
    106,317Total
    
    $
    136,715
    
    
    $
    100,966
    
    
    $
    118,095
  2005
    
    
    2004
    
    
    2003FederalCurrent
    
    $
    16,595
    
    
    $
    3,445
    
    
    $
    6,760Deferred
    
    
    7,199
    
    
    
    (1,869
    )
    
    
    (3,964
    )23,794
    
    
    
    1,576
    
    
    
    2,796StateCurrent
    
    $
    2,413
    
    
    
    475
    
    
    
    212Deferred
    
    
    2,002
    
    
    
    1,603
    
    
    
    2,4014,415
    
    
    
    2,078
    
    
    
    2,613ForeignCurrent
    
    $
    21,952
    
    
    
    28,391
    
    
    
    25,645Deferred
    
    
    971
    
    
    
    971
    
    
    
    (225
    )22,923
    
    
    
    29,362
    
    
    
    25,420Total
    
    $
    51,132
    
    
    $
    33,016
    
    
    $
    30,829
 - 64 -




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##### Table of Contents



2005
    
    
    2004
    
    
    2003Tax (credit) at U.S. statutory rate
    
    $
    47,850
    
    
    $
    35,338
    
    
    $
    41,333State tax, net of federal benefit
    
    
    4,415
    
    
    
    2,078
    
    
    
    2,613Difference between estimated amounts recorded and actual
liabilities resulting from the filing of prior years tax
return
    
    
    (2,646
    )
    
    
    (2,820
    )
    
    
    (1,636
    )Effect of foreign operations
    
    
    410
    
    
    
    (971
    )
    
    
    1,645Benefit of Japanese operating losses
    
    
    (275
    )
    
    
    (3,751
    )
    
    
    (4,507
    )Amortization/impairment of intangible assets
    
    
    1,054
    
    
    
    788
    
    
    
    928Research and development tax credits
    
    
    
    
    
    
    
    
    
    
    (500
    )Utilization of foreign tax credit carryforwards
    
    
    
    
    
    
    
    
    
    
    (6,592
    )Non-deductible executive compensation
    
    
    2,570
    
    
    
 1,610

    
    
 2,882Release of deferred tax liability associated with certain
foreign earnings
    
    
    (1,174
    )
    
    
    
    
    
    
    (3,990
    )Release of tax reserves following the completion of
certain audits and expiration of statute of limitations
    
    
    (4,978
    )
    
    
    (3,519
    )
    
    
    (2,313
    )Reserve for tax contingencies
    
    
    2,922
    
    
    
    3,680
    
    
    
    1,449Other
    
    
    984
    
    
    
    583
    
    
    
    (483
    )Total
    
    $
    51,132
    
    
    $
    33,016
    
    
    $
    30,829
  2005
    
    
    2004Depreciation
    
    $
    9,682
    
    
    $
    10,227Deferred revenue
    
    
    2,366
    
    
    
    2,306Accrued expenses
    
    
    19,449
    
    
    
    22,710Allowance for doubtful accounts
    
    
    1,056
    
    
    
    543Capitalized R&D expenses
    
    
    16,809
    
    
    
    23,432Net operating loss carryovers and tax credits
Carryforwards
    
    
    127,022
    
    
    
    96,444Intangible assets
    
    
    225
    
    
    
    2,307Capital loss carryforward
    
    
    14,885
    
    
    
    14,074Other assets
    
    
    6,994
    
    
    
    2,217Gross deferred tax asset
    
    
    198,488
    
    
    
    174,260Unremitted foreign earnings
    
    
    (4,059
    )
    
    
    (5,859
    )Acquired Intangibles
    
    
    (29,395
    )
    
    
    (20,382
    )Other liabilities
    
    
    (1,896
    )
    
    
    (1,056
    )Gross deferred tax liability
    
    
    (35,350
    )
    
    
    (27,297
    )Total before valuation allowance
    
    
    163,138
    
    
    
    146,963Valuation allowance
    
    
    (132,736
    )
    
    
    (96,318
    )Net deferred tax assets
    
    $
    30,402
    
    
    $
    50,645Recorded as:Current deferred tax assets
    
    $
    5,523
    
    
    $
    11,205Noncurrent deferred tax assets
    
    
    24,879
    
    
    
    39,440$
    30,402
    
    
    $
    50,645
 - 65 -




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##### Table of Contents



Valuation allowance primarily associated with deferred tax asset acquired
during the year on Extended Systems
    
    $
    20.8Valuation allowance attributable to 2005 stock option activity any benefit of
which will be credited to shareholders equity when realized
    
    
    8.8Valuation allowance associated with certain research and development tax
Credits
    
    
    15.7Generation of additional capital loss carryforward
    
    
    1.0Valuation Allowance associated with foreign tax credit carryforwards
    
    
    5.3Utilization of NOLs generated in 2004 subject to full valuation allowance
    
    
    (15.2
    )$
    36.4
     - 66 -




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##### Table of Contents



Note Nine: Retirement Plan
 401(k) Defined Contribution Retirement Plan
  Note Ten: Segment and Geographical Information
    - 67 -




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##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    201,107
    
    
    $
    48
    
    
    $
    
    
    
    $
    201,155Mobile and Embedded
    
    
    32,171
    
    
    
    54,501
    
    
    
    
    
    
    
    86,672Financial Fusion products
    
    
    3,868
    
    
    
    
    
    
    
    
    
    
    
    3,868Subtotal license fees
    
    
    237,146
    
    
    
    54,549
    
    
    
    
    
    
    
    291,695Intersegment license revenues
    
    
    86
    
    
    
    26,854
    
    
    
    (26,940
    )
    
    
    Total license fees
    
    
    237,232
    
    
    
    81,403
    
    
    
    (26,940
    )
    
    
    291,695ServicesDirect service revenue
    
    
    462,575
    
    
    
    38,981
    
    
    
    
    
    
    
    501,556Financial Fusion services
    
    
    25,444
    
    
    
    
    
    
    
    
    
    
    
    25,444Intersegment service revenues
    
    
    59
    
    
    
    26,907
    
    
    
    (26,966
    )
    
    
    Total services
    
    
    488,078
    
    
    
    65,888
    
    
    
    (26,966
    )
    
    
    527,000Total revenues
    
    
    725,310
    
    
    
    147,291
    
    
    
    (53,906
    )
    
    
    818,695Total allocated costs and expenses before
amortization of other purchased intangibles and
purchased technology and cost of restructure
    
    
    613,912
    
    
    
    116,402
    
    
    
    (53,906
    )
    
    
    676,408Operating income before amortization of other
purchased intangibles and purchased technology
and cost of restructure
    
    
    111,398
    
    
    
    30,889
    
    
    
    
    
    
    
    142,287Amortization of other purchased intangibles
    
    
    2,000
    
    
    
    4,639
    
    
    
    
    
    
    
    6,639Amortization of purchased technology
    
    
    7,224
    
    
    
    4,626
    
    
    
    
    
    
    
    11,850Operating income before cost of restructure and
unallocated costs (2)
    
    
    102,174
    
    
    
    21,624
    
    
    
    
    
    
    
    123,798Cost of restructure  2005 Activity
    
    
    284
    
    
    
    
    
    
    
    
    
    
    
    284Operating income before unallocated costs
    
    
    101,890
    
    
    
    21,624
    
    
    
    
    
    
    
    123,514Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,574Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,940Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,824Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    136,715
 - 68 -




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##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    192,588
    
    
    $
    87
    
    
    $
    
    
    
    $
    192,675Mobile and Embedded
    
    
    31,152
    
    
    
    44,536
    
    
    
    
    
    
    
    75,688Financial Fusion products
    
    
    7,509
    
    
    
    
    
    
    
    
    
    
    
    7,509Subtotal license fees
    
    
    231,249
    
    
    
    44,623
    
    
    
    
    
    
    
    275,872Intersegment license revenues
    
    
    117
    
    
    
    26,063
    
    
    
    (26,180
    )
    
    
    Total license fees
    
    
    231,366
    
    
    
    70,686
    
    
    
    (26,180
    )
    
    
    275,872ServicesDirect service revenue
    
    
    469,616
    
    
    
    21,631
    
    
    
    
    
    
    
    491,247Financial Fusion services
    
    
    21,417
    
    
    
    
    
    
    
    
    
    
    
    21,417Intersegment service revenues
    
    
    11
    
    
    
    27,007
    
    
    
    (27,018
    )
    
    
    Total services
    
    
    491,044
    
    
    
    48,638
    
    
    
    (27,018
    )
    
    
    512,664Total revenues
    
    
    722,410
    
    
    
    119,324
    
    
    
    (53,198
    )
    
    
    788,536Total allocated costs and expenses before
amortization of other purchased intangibles and
purchased technology and cost of restructure
    
    
    610,009
    
    
    
    100,428
    
    
    
    (53,198
    )
    
    
    657,239Operating income before amortization of other
purchased intangibles and purchased technology
and cost of restructure
    
    
    112,401
    
    
    
    18,896
    
    
    
    
    
    
    
    131,297Amortization of other purchased intangibles
    
    
    2,000
    
    
    
    3,139
    
    
    
    
    
    
    
    5,139Amortization of purchased technology
    
    
    14,924
    
    
    
    2,894
    
    
    
    
    
    
    
    17,818Operating income before cost of restructure and
unallocated savings
    
    
    95,477
    
    
    
    12,863
    
    
    
    
    
    
    
    108,340Cost of restructure  2004 Activity
    
    
    19,016
    
    
    
    140
    
    
    
    
    
    
    
    19,156Operating income before unallocated savings
    
    
    76,461
    
    
    
    12,723
    
    
    
    
    
    
    
    89,184Unallocated savings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (208
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,392Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,574Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    100,966
 - 69 -




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##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    210,049
    
    
    $
    763
    
    
    $
    
    
    
    $
    210,812Mobile and Embedded
    
    
    26,049
    
    
    
    33,807
    
    
    
    
    
    
    
    59,856Financial Fusion products
    
    
    4,149
    
    
    
    
    
    
    
    
    
    
    
    4,149Subtotal license fees
    
    
    240,247
    
    
    
    34,570
    
    
    
    
    
    
    
    274,817Intersegment license revenues
    
    
    86
    
    
    
    21,778
    
    
    
    (21,864
    )
    
    
    Total license fees
    
    
    240,333
    
    
    
    56,348
    
    
    
    (21,864
    )
    
    
    274,817ServicesDirect service revenue
    
    
    475,115
    
    
    
    10,212
    
    
    
    
    
    
    
    485,327Financial Fusion services
    
    
    17,918
    
    
    
    
    
    
    
    
    
    
    
    17,918Intersegment service revenues
    
    
    
    
    
    
    25,691
    
    
    
    (25,691
    )
    
    
    Total services
    
    
    493,033
    
    
    
    35,903
    
    
    
    (25,691
    )
    
    
    503,245Total revenues
    
    
    733,366
    
    
    
    92,251
    
    
    
    (47,555
    )
    
    
    778,062Total allocated costs and expenses before
amortization of other purchased intangibles and
purchased technology and cost of restructure
    
    
    635,346
    
    
    
    72,362
    
    
    
    (47,555
    )
    
    
    660,153Operating income before amortization of other
purchased intangibles and purchased technology and
cost of restructure
    
    
    98,020
    
    
    
    19,889
    
    
    
    
    
    
    
    117,909Amortization of other purchased intangibles
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Amortization of purchased technology
    
    
    14,924
    
    
    
    333
    
    
    
    
    
    
    
    15,257Operating income before cost of restructure and
unallocated
    
    
    81,096
    
    
    
    19,556
    
    
    
    
    
    
    
    100,652Cost of restructure  2003 Activity
    
    
    9,212
    
    
    
    341
    
    
    
    
    
    
    
    9,553Operating income before unallocated costs
    
    
    71,884
    
    
    
    19,215
    
    
    
    
    
    
    
    91,099Unallocated savings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,230
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,329Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,766Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    118,095
 - 70 -




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##### Table of Contents



2005
    
    
    2004
    
    
    2003Revenues:Unaffiliated customers:United States
    
    $
    441,809
    
    
    $
    426,626
    
    
    $
    425,834Europe
    
    
    233,524
    
    
    
    220,441
    
    
    
    212,774Other
    
    
    143,362
    
    
    
    141,469
    
    
    
    139,454Total
    
    $
    818,695
    
    
    $
    788,536
    
    
    $
    778,062Long-lived assets, net:United States
    
    $
    571,976
    
    
    $
    435,003
    
    
    $
    423,508Europe
    
    
    13,572
    
    
    
    10,082
    
    
    
    12,483Other
    
    
    26,237
    
    
    
    30,115
    
    
    
    12,377Total
    
    $
    611,785
    
    
    $
    475,200
    
    
    $
    448,368
 Note Eleven: Business Combinations
   - 71 -




---



##### Table of Contents



(In millions)Cash and cash equivalents
    
    $
    10.3Accounts receivable, net
    
    
    9.3Other current assets
    
    
    0.8Property, equipment and improvements
    
    
    4.1Deferred income taxes
    
    
    (9.4
    )Developed technology
    
    
    23.6Customer lists
    
    
    7.7Goodwill
    
    
    44.9Other assets
    
    
    0.1Other current accrued liabilities
    
    
    (15.9
    )Other long-term liabilities
    
    
    (4.8
    )$
    70.7
  Twelve
    
    
    TwelveMonths
    
    
    MonthsEnded
    
    
    Ended(In thousands, except per share data)
    
    12/31/05
    
    
    12/31/04Revenue
    
    $
    853,102
    
    
    $
    822,447Net income
    
    $
    75,645
    
    
    $
    61,930Basic net income per share
    
    $
    0.84
    
    
    $
    0.65Diluted net income per share
    
    $
    0.81
    
    
    $
    0.63
   - 72 -




---



##### Table of Contents



Note Twelve: Litigation
    Note Thirteen: Restructuring Costs
 2004 Restructuring Actions
  - 73 -




---



##### Table of Contents



Accrued
    
    
    
    
    
    
    
    
    
    
    Accruedliabilities
    
    
    
    
    
    
    
    
    
    
    liabilitiesat
    
    
    Amounts
    
    
    
    
    
    
    at(Dollars in millions)
    
    12/31/04
    
    
    paid
    
    
    Amounts Accrued
    
    
    12/31/05Termination payments to employees
and other related costs
    
    $
    0.3
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    Lease cancellations and commitments
    
    
    7.2
    
    
    
    2.2
    
    
    
    0.1
    
    
    
    5.1$
    7.5
    
    
    $
    2.5
    
    
    $
    0.1
    
    
    $
    5.1
   2003 Restructuring Activities
   Accrued
    
    
    
    
    
    
    
    
    
    
    Accruedliabilities
    
    
    
    
    
    
    
    
    
    
    liabilitiesat
    
    
    Amounts
    
    
    Amounts
    
    
    at(Dollars in millions)
    
    12/31/04
    
    
    paid
    
    
    Accrued
    
    
    12/31/05Lease cancellations and commitments
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.3
   - 74 -




---



##### Table of Contents



2002 Restructuring Activities
   AccruedAccrued
    
    
    
    
    
    
    
    
    
    
    liabilitiesliabilities
    
    
    Amounts
    
    
    Amounts
    
    
    at(Dollars in millions)
    
    at 12/31/04
    
    
    paid
    
    
    Accrued
    
    
    12/31/05Lease cancellations and commitments
    
    
    12.7
    
    
    
    2.7
    
    
    
    0.5
    
    
    
    10.5Other
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2$
    12.9
    
    
    $
    2.7
    
    
    $
    0.5
    
    
    $
    10.7
  2001 Restructuring Activities
  AccruedAccrued
    
    
    
    
    
    
    
    
    
    
    liabilitiesliabilities
    
    
    Amounts
    
    
    
    
    
    
    at(Dollars in millions)
    
    at 12/31/04
    
    
    paid
    
    
    Amounts accrued
    
    
    12/31/05Lease cancellations and Commitments
    
    $
    7.3
    
    
    $
    4.0
    
    
    $
    0.3
    
    
    $
    3.6
   AvantGo Restructuring Reserves
  - 75 -




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##### Table of Contents



Accrued
    
    
    
    
    
    
    Accruedliabilities
    
    
    
    
    
    
    liabilitiesat
    
    
    Amounts
    
    
    at(Dollars in millions)
    
    12/31/04
    
    
    paid
    
    
    12/31/05Lease cancellations and Commitments
    
    $
    3.4
    
    
    $
    1.3
    
    
    $
    2.1
 Note Fourteen: Guarantees
  Note Fifteen: Convertible Subordinated Notes
   - 76 -




---



##### Table of Contents



- 77 -




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##### Table of Contents



Quarterly Financial Information (Unaudited)
 Three months ended (in thousands,
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31
    
    
    Totalexcept per share and stock price data)
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005Revenues:License fees
    
    $
    62,708
    
    
    $
    67,915
    
    
    $
    69,739
    
    
    $
    91,333
    
    
    $
    291,695Services
    
    
    129,203
    
    
    
    136,493
    
    
    
    129,588
    
    
    
    131,716
    
    
    
    527,000Total revenues:
    
    
    191,911
    
    
    
    204,408
    
    
    
    199,327
    
    
    
    223,049
    
    
    
    818,695Costs and expenses:Cost of license fees
    
    
    14,258
    
    
    
    11,721
    
    
    
    10,993
    
    
    
    14,584
    
    
    
    51,556Cost of services
    
    
    40,340
    
    
    
    39,928
    
    
    
    37,980
    
    
    
    38,077
    
    
    
    156,325Sales and marketing
    
    
    59,578
    
    
    
    65,360
    
    
    
    59,655
    
    
    
    65,410
    
    
    
    250,003Product development and engineering
    
    
    33,527
    
    
    
    34,305
    
    
    
    34,932
    
    
    
    36,247
    
    
    
    139,011General and administrative
    
    
    22,233
    
    
    
    23,077
    
    
    
    23,873
    
    
    
    22,923
    
    
    
    92,106Amortization of other purchased
Intangibles
    
    
    1,677
    
    
    
    1,677
    
    
    
    1,677
    
    
    
    1,608
    
    
    
    6,639Cost (reversal) of restructure
    
    
    (8
    )
    
    
    289
    
    
    
    21
    
    
    
    813
    
    
    
    1,115Total costs and expenses
    
    
    171,605
    
    
    
    176,357
    
    
    
    169,131
    
    
    
    179,662
    
    
    
    696,755Operating income
    
    
    20,306
    
    
    
    28,051
    
    
    
    30,196
    
    
    
    43,387
    
    
    
    121,940Interest income, expense, and other, net
    
    
    3,108
    
    
    
    3,631
    
    
    
    3,881
    
    
    
    4,204
    
    
    
    14,824Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    (49
    )Income before income taxes
    
    
    23,414
    
    
    
    31,682
    
    
    
    34,077
    
    
    
    47,542
    
    
    
    136,715Provision for income taxes
    
    
    10,068
    
    
    
    15,827
    
    
    
    6,090
    
    
    
    19,147
    
    
    
    51,132Net income
    
    $
    13,346
    
    
    $
    15,855
    
    
    $
    27,987
    
    
    $
    28,395
    
    
    $
    85,583Basic net income per share
    
    $
    0.14
    
    
    $
    0.18
    
    
    $
    0.31
    
    
    $
    0.32
    
    
    $
    0.95Diluted net income per share
    
    $
    0.14
    
    
    $
    0.17
    
    
    $
    0.30
    
    
    $
    0.31
    
    
    $
    0.92
 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
    
    
    41,629
    
    
    
    41,517
    
    
    
    39,757
    
    
    
    39,113
    
    
    
    162,016Sales and marketing
    
    
    58,240
    
    
    
    62,194
    
    
    
    59,254
    
    
    
    63,090
    
    
    
    242,778Product development and engineering
    
    
    30,667
    
    
    
    29,141
    
    
    
    29,114
    
    
    
    31,037
    
    
    
    119,959General and administrative
    
    
    20,943
    
    
    
    22,634
    
    
    
    24,034
    
    
    
    23,506
    
    
    
    91,117Amortization of other purchased
Intangibles
    
    
    500
    
    
    
    1,285
    
    
    
    1,677
    
    
    
    1,677
    
    
    
    5,139Reversal 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
 - 78 -




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Report of Management on Internal Controls over Financial Reporting
  Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
 Current Executive Officers
  - 79 -




---



##### Table of Contents



Identification of Directors
  Compliance with Section 16(a) of the Exchange Act
  Audit Committee Financial Expert
  Standing Audit Committee
  Corporate Governance Guidelines
 www.sybase.com
 Certifications
  Code of Ethics
 www.sybase.com.
 
 
 ITEM 11. EXECUTIVE COMPENSATION
  - 80 -




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
   
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
  Financial Statements
 Financial Statement Schedules
 Exhibits
 Exhibits
 Schedules
 PageII Valuation and Qualifying Accounts
    
    
    82
  - 81 -




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##### Table of Contents



TranslationBeginning
    
    
    Charged to
    
    
    
    
    
    
    Adjustments and
    
    
    Ending(Dollars in thousands)
    
    Balance
    
    
    Operations (A)
    
    
    Write-offs (B)
    
    
    Other
    
    
    BalanceYear ended December 31, 2005:Allowance for doubtful accounts
    
    $
    1,852
    
    
    $
    2,263
    
    
    $
    (1,480
    )
    
    $
    16
    
    
    $
    2,651Year ended December 31, 2004:Allowance for doubtful accounts
    
    $
    4,145
    
    
    $
    (595
    )
    
    $
    (2,022
    )
    
    $
    324
    
    
    $
    1,852Year ended December 31, 2003:Allowance for doubtful accounts
    
    $
    5,507
    
    
    $
    3,331
    
    
    $
    (5,841
    )
    
    $
    1,148
    
    
    $
    4,145
 
 A
    
    Sales returns and credit memos allowancesB
    
    Uncollectible accounts written off and recoveries  - 82 -




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##### Table of Contents



SIGNATURES
  SYBASE, INC.By:
    
    /S/ JOHN S. CHENMarch 15, 2006
    
    John S. ChenChairman of the Board, ChiefExecutive Officer and President
 POWER OF ATTORNEY
  Signature
    
    Title
    
    Date/S/ JOHN S. CHEN
    
    Chairman of the Board, Chief Executive Officer
    
    March 15, 2006(John S. Chen)
    
    (Principal Executive
Officer), President and Director/S/ PIETER A. VAN DER VORST
    
    Senior Vice President and Chief
Financial Officer
    
    March 15, 2006(Pieter A. Van der Vorst)
    
    (Principal
Financial Officer)/S/ JEFFREY G. ROSS
    
    Vice President and Corporate Controller
    
    March 15, 2006(Jeffrey G. Ross)
    
    (Principal Accounting
Officer)/S/ RICHARD C. ALBERDING
    
    Director
    
    March 15, 2006(Richard C. Alberding)/S/ CECILIA CLAUDIO
    
    Director
    
    March 15, 2006(Cecilia Claudio)/S/ L. WILLIAM KRAUSE
    
    Director
    
    March 15, 2006(L. William Krause)/S/ ALAN B. SALISBURY
    
    Director
    
    March 15, 2006(Alan B. Salisbury)/S/ JACK E. SUM
    
    Director
    
    March 15, 2006(Jack E. Sum)/S/ ROBERT P. WAYMAN
    
    Director
    
    March 15, 2006(Robert P. Wayman)/S/ LINDA K. YATES
    
    Director
    
    March 15, 2006(Linda K. Yates)
 - 83 -




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description2.1 (1)
    
    Agreement and Plan of Reorganization dated as of November
29, 1999, among the Company, On-Line Financial Services, Inc., and Home
Financial Network, Inc.2.2 (2)
    
    Agreement and Plan of Merger dated as of February 20,
2001, among the Company, New Era of Networks, Inc., and Neel Acquisition Corp.2.3 (3)
    
    Agreement and Plan of Merger dated as of December 19,
2002, by and among the Company, Seurat Acquisition Corporation and AvantGo,
Inc.2.4 (12)
    
    Agreement and Plan of Merger dated as of July
28, 2005, by and among the Company, Ernst Acquisition Corporation and Extended
Systems Incorporated.3.1 (4)
    
    Restated Certificate of Incorporation of the Company, as
amended.3.2 (5)
    
    Bylaws of the Company, amended and restated as of February 4, 2004.4.1 (6)
    
    Preferred Share Rights Agreement dated as of July 31, 2002
between the Company and American Stock Transfer and Trust Co.4.2 (7)
    
    Amendment No. 1 dated as of February 14, 2005 to the
Preferred Share Rights Agreement dated as of July 31, 2002 between the Company
and American Stock Transfer and Trust Co.4.3 (8)
    
    Indenture dated as of February 22, 2005 between the
Company and U.S. Bank National Association, as Trustee (including form of
1.75% Convertible Subordinated Notes due 2025).4.4 (8)
    
    Registration Rights Agreement dated as of February 22,
2005 between the Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Lehman Brothers Inc.10.1 (9)*
    
    New Era of Networks, Inc. Amended and Restated 1995 Stock
Option Plan.10.2 (9)*
    
    New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan.10.3 (9)*
    
    Convoy Corporation 1997 Stock Option Plan.10.4 (9)*
    
    Microscript, Inc. 1997 Stock Option Plan.10.5 (10)*
    
    1988 Stock Option Plan and Forms of Incentive Stock
Option Agreements and Nonstatutory Stock Option Agreements, as amended.10.6 (11)*
    
    1991 Employee Stock Purchase Plan and 1991 Foreign
Subsidiary Employee Stock Purchase Plan, as amended.10.7*
    
    Sybase, Inc. 401(k) Plan, as amended.10.8*
    
    Amendment No. 1 to the Sybase, Inc. 401(k) Plan dated
December 22, 2005.10.9 (14)*
    
    Sybase, Inc. 1992 Director Stock Option Plan, as amended.10.10 (9)*
    
    Sybase, Inc. 2001 Director Stock Option Plan.10.11 (5)*
    
    Executive Deferred Compensation Plan, as amended December 5, 2003.10.12*
    
    Amendment No. 1 to the Executive Deferred Compensation Plan, dated November
3, 2005.10.13 (9)*
    
    Sybase, Inc. 1996 Stock Plan, as amended.
 - 84 -




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##### Table of Contents



Exhibit No.
    
    Description10.14
(21)*
    
    Form of Indemnification Agreement10.15 (14)*
    
    Form of Amended and Restated Change of Control
Agreement (standard version).10.16 (14)*
    
    Form of Amended and Restated Change of Control
Agreement (enhanced version).10. 17(20) *
    
    Amended and Restated 1991 Employee Stock Purchase
Plan, as amended February 2, 2005 and Amended and Restated 1991 Foreign
Subsidiary Employee Stock Purchase Plan, as amended February 2, 2005.10.18 (14)*
    
    Amended and Restated Employment Agreement between the
Company and John S. Chen dated as of June 11, 2001.10.19 (13)*
    
    Addendum to John Chen Amended and Restated Employment
Agreement dated August 20, 2002.10.20 (18)*
    
    Amended and Restated Sybase, Inc. 1999 Nonstatutory
Stock Plan.10.21 (16)*
    
    Home Financial Network, Inc. 1995 Stock Plan, and form
of Stock Option Agreement.10.22 (17)
    
    Corporate Headquarters Lease, dated January 28, 2000,
between the Company and WDS-Dublin, LLC, as amended on November 29, 2000, and
December 13, 2001.10.23 (14)
    
    Amendment to Corporate Headquarters
Lease, dated December 13, 2001, between the Company and WDS-Dublin, LLC.10.24 (17)
    
    Trust Agreement dated May 1, 2000 between Fidelity
Management Trust Company and the Company for administration of 401(k) Plan.10.25 (5)
    
    First Amendment to May 1, 2000 Trust Agreement between
Fidelity Management Trust Company and the Company for administration of the
Sybase 401(k) plan, dated as of April 1, 2002.10.26
    
    Second Amendment to May 1, 2000 Trust Agreement between
Fidelity Management Trust Company and the Company for administration of the
Sybase 401(k) plan, dated as of February 11, 2005.10.27 (5)
    
    November 17, 2003 Letter Agreement between Fidelity
Management Trust Company and the Company for administration of the Sybase
401(k) plan.10.28 (17)
    
    Trust Agreement dated May 1, 2000 between Fidelity
Management Trust Company and the Company for administration of the Sybase
Executive Deferred Compensation Plan.10.29 (5)
    
    First Amendment to Trust Agreement between Fidelity
Management Trust Company and the Company for administration of Sybase
Executive Deferred Compensation Plan.10.30
    
    Second Amendment to May 1, 2000 Trust Agreement between
Fidelity Management Trust Company and the Company for administration of Sybase
Executive Deferred Compensation Plan, dated as of February 11, 2005.10.31 (5)
    
    November 17, 2003 Letter Agreement between Fidelity
Management Trust Company and Sybase, Inc. for administration of the Sybase
Executive Deferred Compensation Plan.
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##### Table of Contents



Exhibit No.
    
    Description10.32 (17)*
    
    Financial Fusion, Inc. 2000 Stock Option Plan.10.33 (14)*
    
    Financial Fusion, Inc. 2001 Stock Option Plan.10.34 (14)*
    
    iAnywhere Solutions, Inc. Stock Option Plan.10.35 (14)*
    
    Form of Notice of Grant and Restricted Stock Purchase Agreement.10.36 (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, 2003.10.39 (5)*
    
    Summary Plan Description for Sabbatical Leave Plan of
Sybase, Inc., as Amended and Restated as of May 1, 2003.10.40 (20)*
    
    Amended and Restated Sybase, Inc. 2003 Stock Plan.10.41 (19)*
    
    Letter dated January 31, 2006 to John Chen regarding
2006 compensation.10.42 (19)*
    
    Letter dated January 31, 2006 to Marty Beard regarding
2006 compensation.10.43 (19)*
    
    Letter dated January 31, 2006 to Raj Nathan regarding
2006 compensation.10.44 (19)*
    
    Letter dated January 31, 2006 to Pieter Van Der Vorst
regarding 2006 compensation.10.45 (19)*
    
    Letter dated January 31, 2006 to Thomas Volk regarding
2006 compensation.10.46 (21)
    
    Purchase Agreement, dated February 15, 2005 between the
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lehman
Brothers Inc.12
    
    Computation of Ratio of Earnings to Fixed Charges21
    
    Subsidiaries of the Company23.1
    
    Consent of Independent Registered Public Accounting Firm24 (22)
    
    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. - 86 -




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##### Table of Contents



(4)
    
    Incorporated by reference to Amendment No. 1 to the Companys Registration Statement on Form
S-4 filed March 9, 1994 (file no. 33-75462), as amended by the Amended and Restated
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating
Preferred Stock of Sybase, Inc., attached as Exhibit 3.3 to Form 8-A filed on August 5, 2002.(5)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2003.(6)
    
    Incorporated by reference to Exhibit 4.1 to the Companys Report on Form 8-K filed on
August 5, 2002.(7)
    
    Incorporated by reference to Exhibit 4.2 to the Companys Report on Form 8-K filed on
February 17, 2005.(8)
    
    Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K
filed on February 22, 2005.(9)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed June 19,
2001.(10)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 1997.(11)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 (file no.
333-83271) filed July 20, 1999.(12)
    
    Incorporated by reference to the Exhibits filed with the Schedule 13D the Company filed
August 8, 2005.(13)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2002.(14)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2001.(15)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed August
20, 1999.(16)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed on
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 Statement on
Form S-8 filed on August 25, 2004.(19)
    
    Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on February 3, 2006.(20)
    
    Incorporated by reference to the Exhibits filed with the Companys Registration Statement on
Form S-8 filed on July 29, 2005.(21)
    
    Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2004.(22)
    
    Incorporated by reference to the signature page of this Report on Form 10-K. - 87 -