##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006
 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
    
    94-2951005(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
  
   
  
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
 o þ




---



##### 



PageForward-Looking Statements
    
    
    2Part I: Financial InformationItem 1: Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3: Quantitative and Qualitative Disclosures of Market Risk
    
    
    30Item 4: Controls and Procedures
    
    
    31Part II: Other Information
    
    
    31Item 1: Legal Proceedings
    
    
    31Item 1(A): Risk Factors
    
    
    31Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 6: Exhibits
    
    
    31Signatures
    
    
    32Exhibit Index
    
    
    33EXHIBIT 12.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  1




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##### Table of Contents



www.sec.gov
 www.sybase.com
  2




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
  
  March 31,2006
    
    
    December 31,(Dollars in thousands, except share and per share data)
    
    (Unaudited)
    
    
    2005Current assets:Cash and cash equivalents
    
    $
    505,903
    
    
    $
    398,741Short-term cash investments
    
    
    312,513
    
    
    
    342,247Total cash, cash equivalents and short-term cash investments
    
    
    818,416
    
    
    
    740,988Restricted cash
    
    
    2,707
    
    
    
    2,773Accounts receivable, net
    
    
    136,894
    
    
    
    167,790Deferred income taxes
    
    
    4,691
    
    
    
    5,523Prepaid expenses and other current assets
    
    
    23,149
    
    
    
    16,876Total current assets
    
    
    985,857
    
    
    
    933,950Long-term cash investments
    
    
    84,049
    
    
    
    118,948Restricted long-term cash investments
    
    
    2,600
    
    
    
    2,600Property, equipment and improvements, net
    
    
    58,178
    
    
    
    59,178Deferred income taxes
    
    
    27,040
    
    
    
    24,879Capitalized software, net
    
    
    66,211
    
    
    
    65,911Goodwill
    
    
    239,308
    
    
    
    238,864Other purchased intangibles, net
    
    
    83,589
    
    
    
    87,562Other assets
    
    
    39,818
    
    
    
    38,722Total assets
    
    $
    1,586,650
    
    
    $
    1,570,614Current liabilities:Accounts payable
    
    $
    10,357
    
    
    $
    10,353Accrued compensation and related expenses
    
    
    37,556
    
    
    
    51,983Accrued income taxes
    
    
    27,510
    
    
    
    31,398Other accrued liabilities
    
    
    69,452
    
    
    
    78,040Deferred revenue
    
    
    226,728
    
    
    
    188,929Total current liabilities
    
    
    371,603
    
    
    
    360,703Other liabilities
    
    
    40,871
    
    
    
    40,339Long-term deferred revenue
    
    
    4,947
    
    
    
    5,663Minority interest
    
    
    5,079
    
    
    
    5,079Convertible subordinated notes
    
    
    460,000
    
    
    
    460,000Commitments and contingent liabilitiesStockholders equity:Preferred stock, $0.001 par value, 8,000,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, 200,000,000 shares authorized; 105,337,362 shares issued and
89,818,922 outstanding (2005-105,337,362 shares issued and 90,531,145 outstanding)
    
    
    105
    
    
    
    105Additional paid-in capital
    
    
    946,235
    
    
    
    953,771Accumulated earnings
    
    
    29,952
    
    
    
    16,195Accumulated other comprehensive income
    
    
    20,840
    
    
    
    19,231Cost of 15,518,440 shares of treasury stock (2005-14,806,217 shares)
    
    
    (292,982
    )
    
    
    (277,510
    )Unearned compensation
    
    
    
    
    
    
    (12,962
    )Total stockholders equity
    
    
    704,150
    
    
    
    698,830Total liabilities and stockholders equity
    
    $
    1,586,650
    
    
    $
    1,570,614
  3




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Three Months EndedMarch 31,(Dollars in thousands, per share data)
    
    2006
    
    
    2005Revenues:License fees
    
    $
    66,888
    
    
    $
    62,708Services
    
    
    128,120
    
    
    
    129,203Total revenues
    
    
    195,008
    
    
    
    191,911Costs and expenses:Cost of license fees
    
    
    12,792
    
    
    
    14,258Cost of services
    
    
    38,352
    
    
    
    40,340Sales and marketing
    
    
    61,355
    
    
    
    59,578Product development and engineering
    
    
    36,997
    
    
    
    33,527General and administrative
    
    
    24,987
    
    
    
    22,233Amortization of other purchased intangibles
    
    
    1,546
    
    
    
    1,677Cost (Reversal) of restructure
    
    
    34
    
    
    
    (8
    )Total costs and expenses
    
    
    176,063
    
    
    
    171,605Operating income
    
    
    18,945
    
    
    
    20,306Interest income
    
    
    8,602
    
    
    
    4,995Interest expense and other, net
    
    
    (2,544
    )
    
    
    (1,887
    )Income before income taxes
    
    
    25,003
    
    
    
    23,414Provision for income taxes
    
    
    7,751
    
    
    
    10,068Net income
    
    $
    17,252
    
    
    $
    13,346Basic net income per share
    
    $
    0.19
    
    
    $
    0.14Shares used in computing basic net income per share
    
    
    89,637
    
    
    
    92,669Diluted net income per share
    
    $
    0.19
    
    
    $
    0.14Shares used in computing diluted net income per share
    
    
    92,041
    
    
    
    95,134
  4




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##### Table of Contents



Three Months EndedMarch 31,(Dollars in thousands)
    
    2006
    
    
    2005Cash and cash equivalents, beginning of year
    
    $
    398,741
    
    
    $
    321,417Cash flows from operating activities:Net income
    
    
    17,252
    
    
    
    13,346Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    18,012
    
    
    
    20,539(Gain) Loss on disposal of assets
    
    
    (381
    )
    
    
    327Deferred income taxes
    
    
    (1,329
    )
    
    
    (2,083
    )Stock-based compensation  restricted stock
    
    
    1,956
    
    
    
    1,457Stock-based compensation  all other
    
    
    3,469
    
    
    
    Amortization of note issuance costs
    
    
    492
    
    
    
    202Changes in assets and liabilities:Accounts receivable
    
    
    31,048
    
    
    
    29,853Other current assets
    
    
    (6,273
    )
    
    
    (6,527
    )Other assets  operating
    
    
    (1,589
    )
    
    
    877Accounts payable
    
    
    4
    
    
    
    595Accrued compensation and related expenses
    
    
    (14,427
    )
    
    
    (11,486
    )Accrued income taxes
    
    
    (3,678
    )
    
    
    9,472Other accrued liabilities
    
    
    (8,851
    )
    
    
    (7,747
    )Deferred revenues
    
    
    37,083
    
    
    
    19,058Other liabilities
    
    
    582
    
    
    
    2,082Net cash provided by operating activities
    
    
    73,370
    
    
    
    69,965Cash flows from investing activities:(Increase) Decrease in restricted cash
    
    
    66
    
    
    
    (82
    )Purchases of available-for-sale cash investments
    
    
    (171,467
    )
    
    
    (404,594
    )Maturities of available-for-sale cash investments
    
    
    101,297
    
    
    
    99,297Sales of available-for-sale cash investments
    
    
    134,618
    
    
    
    451Business combinations, net of cash acquired
    
    
    (23
    )
    
    
    Purchases of property, equipment and improvements
    
    
    (4,622
    )
    
    
    (3,757
    )Proceeds from sale of fixed assets
    
    
    2
    
    
    
    10Capitalized software development costs
    
    
    (8,542
    )
    
    
    (9,588
    )Decrease in other assets  investing
    
    
    1
    
    
    
    1Net cash provided by (used for) investing activities
    
    
    51,330
    
    
    
    (318,262
    )Cash flows from financing activities:Proceeds from the issuance of convertible subordinated notes, net of issuance costs
    
    
    
    
    
    
    450,529Repayments of long-term obligations
    
    
    (14
    )
    
    
    Payments on capital lease
    
    
    (77
    )
    
    
    (79
    )Net proceeds from the issuance of common stock and reissuance of treasury stock
    
    
    5,699
    
    
    
    10,085Purchases of treasury stock
    
    
    (24,665
    )
    
    
    (129,942
    )Net cash provided by (used for) financing activities
    
    
    (19,057
    )
    
    
    330,593Effect of exchange rate changes on cash
    
    
    1,519
    
    
    
    (8,827
    )Net increase in cash and cash equivalents
    
    
    107,162
    
    
    
    73,469Cash and cash equivalents, end of period
    
    
    505,903
    
    
    
    394,886Cash investments, end of period
    
    
    396,562
    
    
    
    496,409Total cash, cash equivalents and cash investments, end of period
    
    $
    902,465
    
    
    $
    891,295Supplemental disclosures:Interest paid
    
    $
    5,544
    
    
    $
    335Income taxes paid, net of refunds
    
    $
    9,900
    
    
    $
    1,723
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Notes to Condensed Consolidated Financial Statements
 Basis of Presentation .
  Share-Based Payment,
 The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (the FSPs). Accounting for Certain Investments in Debt and Equity Securities
 Stock-Based Compensation .
 Accounting for Stock Issued to
Employees,
  Impact of the Adoption of SFAS 123(R)
  6




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##### Table of Contents



ThreeMonthsEndedDollars in thousands, except per share data)
    
    March 31, 2006Cost of services
    
    $
    680Sales and marketing
    
    
    996Product development and engineering
    
    
    593General and administrative
    
    
    3,156Stock-based compensation expense included in total costs and expenses
    
    
    5,425Tax benefit related to stock-based compensation expense
    
    
    1,320Stock-based compensation expense included in net income
    
    $
    4,105Reduction of net income per share:Basic
    
    $
    0.05Diluted
    
    $
    0.04
   Determining Fair Value
 Valuation and Amortization Method. Expected Term
 Expected Volatility Risk-Free Interest Rate.
 Dividends.
 Forfeitures.
 7




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Three Months Ended March 31,2006
    
    2005Expected volatility
    
    
    28.38
    %
    
    
    49.91
    %Risk-free interest rates
    
    
    4.48
    %
    
    
    3.75
    %Expected term (years)
    
    
    3.91
    
    
    
    4.25Expected dividend yield
    
    
    
    
    
    
    
  Outstanding Options,Stock AppreciationRights and Restricted
    
    Weighted AverageShares
    
    Exercise Price(Number of Shares)
    
    Per ShareBalance at December 31, 2005
    
    
    14,762,614
    
    
    $
    15.59Granted
    
    
    1,066,198
    
    
    
    15.61Exercised
    
    
    (509,177
    )
    
    
    11.21Forfeited or expired
    
    
    (229,039
    )
    
    
    20.55Balance at March 31, 2006
    
    
    15,090,596
    
    
    $
    15.65
  Options & Restricted Stock Outstanding
    
    Options ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    Weighted-
    
    
    
    
    
    
    
    
    
    Average
    
    Weighted-Remaining
    
    Average
    
    Aggregate
    
    
    
    
    
    Remaining
    
    Average
    
    AggregateRanges of
    
    
    
    
    
    Contractual
    
    Exercise
    
    Intrinsic
    
    
    
    
    
    Contractual
    
    Exercise
    
    IntrinsicExercisable Prices
    
    Shares
    
    Life
    
    Price
    
    Value
    
    Shares
    
    Life
    
    Price
    
    Value$0.00 to $9.93
    
    
    2,860,152
    
    
    
    6.46
    
    
    $
    4.22
    
    
    $
    48,330,959
    
    
    
    1,262,053
    
    
    
    4.73
    
    
    $
    8.89
    
    
    $
    15,439,556$10.10 to $14.10
    
    
    2,730,268
    
    
    
    5.69
    
    
    $
    11.65
    
    
    
    25,867,859
    
    
    
    2,615,204
    
    
    
    5.58
    
    
    $
    11.58
    
    
    
    24,960,007$14.19 to $18.85
    
    
    3,061,909
    
    
    
    6.71
    
    
    $
    16.72
    
    
    
    13,472,762
    
    
    
    2,058,134
    
    
    
    6.19
    
    
    $
    16.45
    
    
    
    9,607,224$18.94 to $20.72
    
    
    2,613,824
    
    
    
    6.13
    
    
    $
    19.93
    
    
    
    3,103,534
    
    
    
    1,344,433
    
    
    
    5.42
    
    
    $
    19.98
    
    
    
    1,527,959$20.77 to $23.94
    
    
    2,788,509
    
    
    
    5.16
    
    
    $
    22.49
    
    
    
    6,685
    
    
    
    1,861,192
    
    
    
    4.34
    
    
    $
    22.86
    
    
    
    2,385$24.75 to $28.13
    
    
    1,035,934
    
    
    
    4.75
    
    
    $
    25.38
    
    
    
    
    
    
    
    1,035,951
    
    
    
    4.75
    
    
    $
    25.38
    
    
    
    $0.00 to $28.13
    
    
    15,090,596
    
    
    
    5.96
    
    
    $
    15.65
    
    
    $
    90,781,799
    
    
    
    10,176,967
    
    
    
    5.27
    
    
    $
    16.81
    
    
    $
    51,537,131
    Weighted AverageOutstanding Options
    
    Exercise PriceNumber of Shares
    
    Per ShareBalance at December 31, 2005
    
    
    7,175,320
    
    
    $
    3.38Forfeited or expired
    
    
    (300,828
    )
    
    
    1.13Balance at March 31, 2006
    
    
    6,874,492
    
    
    $
    3.48
 8




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##### Table of Contents



Options outstanding
    
    Options exercisableWeighted-Average
    
    Weighted-
    
    
    
    
    
    Weighted-Remaining
    
    Average
    
    
    
    
    
    AverageRanges of
    
    
    
    
    
    Contractual
    
    Exercise
    
    
    
    
    
    ExerciseExercisable Prices
    
    Shares
    
    Life
    
    Price
    
    Shares
    
    Price$0.75
    
    
    915,749
    
    
    
    6.84
    
    
    $
    0.75
    
    
    
    771,352
    
    
    $
    0.75$0.78
    
    
    1,555,028
    
    
    
    7.41
    
    
    $
    0.78
    
    
    
    1,157,031
    
    
    $
    0.78$5.00
    
    
    4,403,715
    
    
    
    4.57
    
    
    $
    5.00
    
    
    
    4,378,681
    
    
    $
    5.00$0.75 to $5.00
    
    
    6,874,492
    
    
    
    5.51
    
    
    $
    3.48
    
    
    
    6,307,064
    
    
    $
    3.71
   Weighted AverageOutstanding Options
    
    Exercise Price(Number of Shares)
    
    Per ShareBalance at December 31, 2005
    
    
    11,516,699
    
    
    $
    2.51Forfeited or expired
    
    
    (949,178
    )
    
    
    2.51Balance at March 31, 2006
    
    
    10,567,521
    
    
    $
    2.51
    Comparable Disclosures
  9




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ThreeMonthsEnded(Dollars in thousands, except per share data)
    
    3/31/05As reported net income  stock-based employee compensation determined using the intrinsic value method
    
    $
    13,346Add: Stock-based employee compensation cost, net of tax, included in net income as reported
    
    
    1,457Less: Pro-forma stock-based employee compensation cost, net of tax, determined under the fair value method
    
    
    (4,451
    )Pro-forma net income  stock-based employee compensation determined under the fair value method
    
    $
    10,352Basic net income per shareAs reported
    
    $
    0.14Pro forma
    
    
    0.11Diluted net income per shareAs reported
    
    $
    0.14Pro forma
    
    
    0.11
 Net income per share .
 Three Months Ended March 31,(In thousands, except per share data)
    
    2006
    
    
    2005Net income
    
    $
    17,252
    
    
    $
    13,346Basic net income per share
    
    $
    0.19
    
    
    $
    0.14Shares used in computing basic net income per share
    
    
    89,637
    
    
    
    92,669Diluted net income per share
    
    $
    0.19
    
    
    $
    0.14Shares used in computing basic net income per share
    
    
    89,637
    
    
    
    92,669Dilutive effect of stock options
    
    
    2,404
    
    
    
    2,465Shares used in computing diluted net income per share
    
    
    92,041
    
    
    
    95,134
  Comprehensive Income
 Three Months Ended March 31,(In thousands)
    
    2006
    
    
    2005Net income
    
    $
    17,252
    
    
    $
    13,346Foreign currency translation gains/(losses)
    
    
    1,982
    
    
    
    (10,973
    )Unrealized losses on marketable securities
    
    
    (373
    )
    
    
    (250
    )Comprehensive income
    
    $
    18,861
    
    
    $
    2,123
  10




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##### Table of Contents



Segment Information
    11




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##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    44,175
    
    
    $
    39
    
    
    
    
    
    
    $
    44,214Mobile and Embedded
    
    
    5,253
    
    
    
    17,421
    
    
    
    
    
    
    
    22,674Subtotal license fees
    
    
    49,428
    
    
    
    17,460
    
    
    
    
    
    
    
    66,888Intersegment license revenues
    
    
    22
    
    
    
    4,348
    
    
    
    (4,370
    )
    
    
    Total license fees
    
    
    49,450
    
    
    
    21,808
    
    
    
    (4,370
    )
    
    
    66,888ServicesDirect service revenue
    
    
    116,837
    
    
    
    11,283
    
    
    
    
    
    
    
    128,120Intersegment service revenues
    
    
    49
    
    
    
    6,137
    
    
    
    (6,186
    )
    
    
    Total services
    
    
    116,886
    
    
    
    17,420
    
    
    
    (6,186
    )
    
    
    128,120Total revenues
    
    
    166,336
    
    
    
    39,228
    
    
    
    (10,556
    )
    
    
    195,008Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology, cost of restructure
and unallocated costs
    
    
    143,712
    
    
    
    34,135
    
    
    
    (10,556
    )
    
    
    167,291Operating income before amortization of other purchased
intangibles, purchased technology, cost of restructure and
unallocated costs
    
    
    22,624
    
    
    
    5,093
    
    
    
    
    
    
    
    27,717Amortization of other purchased intangibles
    
    
    500
    
    
    
    1,046
    
    
    
    
    
    
    
    1,546Amortization of purchased technology
    
    
    483
    
    
    
    1,964
    
    
    
    
    
    
    
    2,447Operating income before cost of restructure and unallocated costs
    
    
    21,641
    
    
    
    2,083
    
    
    
    
    
    
    
    23,724Cost of restructure  2006 Activity
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Operating income before unallocated costs
    
    
    21,607
    
    
    
    2,083
    
    
    
    
    
    
    
    23,690Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,745Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,945Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,058Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,003
  Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    47,155
    
    
    $
    11
    
    
    
    
    
    
    $
    47,166Mobile and Embedded
    
    
    5,422
    
    
    
    10,120
    
    
    
    
    
    
    
    15,542Subtotal license fees
    
    
    52,577
    
    
    
    10,131
    
    
    
    
    
    
    
    62,708Intersegment license revenues
    
    
    21
    
    
    
    4,510
    
    
    
    (4,531
    )
    
    
    Total license fees
    
    
    52,598
    
    
    
    14,641
    
    
    
    (4,531
    )
    
    
    62,708ServicesDirect service revenue
    
    
    120,264
    
    
    
    8,939
    
    
    
    
    
    
    
    129,203Intersegment service revenues
    
    
    5
    
    
    
    6,499
    
    
    
    (6,504
    )
    
    
    Total services
    
    
    120,269
    
    
    
    15,438
    
    
    
    (6,504
    )
    
    
    129,203Total revenues
    
    
    172,867
    
    
    
    30,079
    
    
    
    (11,035
    )
    
    
    191,911Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology cost of restructure and
unallocated cost savings
    
    
    148,862
    
    
    
    27,457
    
    
    
    (11,035
    )
    
    
    165,284Operating income before amortization of other purchased intangibles,
purchased technology, cost of restructure and unallocated cost savings
    
    
    24,005
    
    
    
    2,622
    
    
    
    
    
    
    
    26,627Amortization of other purchased intangibles
    
    
    500
    
    
    
    1,177
    
    
    
    
    
    
    
    1,677Amortization of purchased technology
    
    
    3,731
    
    
    
    979
    
    
    
    
    
    
    
    4,710Operating income before cost of restructure and unallocated cost savings
    
    
    19,774
    
    
    
    466
    
    
    
    
    
    
    
    20,240Cost of restructure  2005 Activity
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )Operating income before unallocated cost savings
    
    
    19,782
    
    
    
    466
    
    
    
    
    
    
    
    20,248Unallocated cost savings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,306Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,108Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    23,414
 12




---



##### Table of Contents



Accounting for Goodwill .
  Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    TotalBalance at January 1, 2006
    
    $
    116,184
    
    
    $
    122,680
    
    
    $
    238,864Addition in goodwill recorded on Extended Systems acquisition
    
    
    
    
    
    
    315
    
    
    
    315Foreign currency translation adjustments
    
    
    129
    
    
    
    
    
    
    
    129Balance at March 31, 2006
    
    $
    116,313
    
    
    $
    122,995
    
    
    $
    239,308
  Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Net
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Carrying Amount
    
    
    Amount
    
    
    Amortization
    
    
    Amount(In thousands)
    
    3/31/06
    
    
    3/31/06
    
    
    3/31/06
    
    
    12/31/05
    
    
    12/31/05
    
    
    12/31/05Purchased technology
    
    $
    135,007
    
    
    $
    (87,692
    )
    
    $
    47,315
    
    
    $
    134,988
    
    
    $
    (85,246
    )
    
    $
    49,742AvantGo tradenames
    
    
    3,100
    
    
    
    
    
    
    
    3,100
    
    
    
    3,100
    
    
    
    
    
    
    
    3,100XcelleNet tradenames
    
    
    4,000
    
    
    
    
    
    
    
    4,000
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Customer lists
    
    
    47,589
    
    
    
    (18,415
    )
    
    
    29,174
    
    
    
    47,589
    
    
    
    (16,869
    )
    
    
    30,720Totals
    
    $
    189,696
    
    
    $
    (106,107
    )
    
    $
    83,589
    
    
    $
    189,677
    
    
    $
    (102,115
    )
    
    $
    87,562
  2006
    
    $
    15,5052007
    
    
    15,3332008
    
    
    15,2592009
    
    
    14,9252010
    
    
    12,538
  Litigation
  13




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##### Table of Contents



. Stock Repurchase Plan .
  Restructuring
    LeaseCancellations and(Dollars in millions)
    
    CommitmentsAccrued liabilities at December 31, 2005
    
    $
    5.1Amounts paid
    
    
    0.5Accrued liabilities at March 31, 2006
    
    $
    4.6
   LeaseCancellationsand(Dollars in millions)
    
    CommitmentsAccrued liabilities at December 31, 2005
    
    $
    0.3Amounts paid
    
    
    Accrued liabilities at March 31, 2006
    
    $
    0.3
   LeaseCancellations and(Dollars in millions)
    
    Commitments
    
    
    Other
    
    
    TOTALAccrued liabilities at December 31, 2005
    
    $
    10.5
    
    
    $
    0.2
    
    
    $
    10.7Amounts paid
    
    
    0.8
    
    
    
    
    
    
    
    0.8Accrued liabilities at March 31, 2006
    
    $
    9.7
    
    
    $
    0.2
    
    
    $
    9.9
 14




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##### Table of Contents



LeaseCancellationsand(Dollars in millions)
    
    CommitmentsAccrued liabilities at December 31, 2005
    
    $
    3.6Amounts paid
    
    
    0.6Accrued liabilities at March 31, 2006
    
    $
    3.0
   LeaseCancellationsand(Dollars in millions)
    
    CommitmentsAccrued liabilities at December 31, 2005
    
    $
    2.1Amounts paid
    
    
    0.3Accrued liabilities at March 31, 2006
    
    $
    1.8
 Convertible Subordinated Notes
     Subsequent Events.
 15




---



##### Table of Contents



ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
 
    
    Our Business
   
    
    Our Results
      
    
    Business Trends
  16




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##### Table of Contents



Critical Accounting Policies and Estimates
  Stock-Based Compensation
 Accounting for Stock Issued to Employees, Accounting for Stock-Based Compensation. Accounting for Stock-Based
Compensation  Transition and Disclosure,
 17




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##### Table of Contents



Share-Based Payment,
   18




---



##### Table of Contents



Results of Operations
 Revenues  (Dollars in millions)
 Three
    
    ThreeMonths
    
    MonthsEnded
    
    Ended
    
    Percent3/31/06
    
    3/31/05
    
    ChangeLicense fees by segment:IPG
    
    $
    49.5
    
    
    $
    52.6
    
    
    
    (6
    %)IAS
    
    
    21.8
    
    
    
    14.6
    
    
    
    49
    %Eliminations
    
    
    (4.4
    )
    
    
    (4.5
    )
    
    
    (2
    %)Total license fees
    
    $
    66.9
    
    
    $
    62.7
    
    
    
    7
    %Percentage of total revenues
    
    
    34
    %
    
    
    33
    %Services by segment:IPG
    
    $
    116.9
    
    
    $
    120.3
    
    
    
    (3
    %)IAS
    
    
    17.4
    
    
    
    15.4
    
    
    
    13
    %Eliminations
    
    
    (6.2
    )
    
    
    (6.5
    )
    
    
    (5
    %)Total Services
    
    $
    128.1
    
    
    $
    129.2
    
    
    
    (1
    %)Percentage of total revenues
    
    
    66
    %
    
    
    67
    %Total revenues
    
    $
    195.0
    
    
    $
    191.9
    
    
    
    2
    %
 ®
  .
   19




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##### Table of Contents



Geographical Revenues  (Dollars in millions)
 Three
    
    ThreeMonths
    
    MonthsEnded
    
    Ended
    
    Percent3/31/06
    
    3/31/05
    
    ChangeNorth American
    
    $
    113.2
    
    
    $
    110.0
    
    
    
    3
    %Percentage of total revenues
    
    
    58
    %
    
    
    57
    %International: EMEA (Europe, Middle East and Africa)
    
    $
    55.2
    
    
    $
    54.5
    
    
    
    1
    %Percentage of total revenues
    
    
    28
    %
    
    
    29
    %Intercontinental (Asia Pacific and Latin America)
    
    $
    26.6
    
    
    $
    27.4
    
    
    
    (3
    %)Percentage of total revenues
    
    
    14
    %
    
    
    14
    %Total Outside North America
    
    $
    81.8
    
    
    $
    81.9
    
    
    
    *Percentage of total revenues
    
    
    42
    %
    
    
    43
    %Total revenues
    
    $
    195.0
    
    
    $
    191.9
    
    
    
    2
    %
 
 *
    
    Not meaningful       20




---



##### Table of Contents



Costs and Expenses  (Dollars in millions)
 Three
    
    ThreeMonths
    
    MonthsEnded
    
    Ended
    
    Percent3/31/06
    
    3/31/05
    
    ChangeCost of license fees
    
    $
    12.8
    
    
    $
    14.3
    
    
    
    (10
    %)Percentage of license fees revenues
    
    
    19
    %
    
    
    23
    %Cost of services
    
    $
    38.4
    
    
    $
    40.3
    
    
    
    (5
    %)Percentage of services revenues
    
    
    30
    %
    
    
    31
    %Sales and marketing
    
    $
    61.4
    
    
    $
    59.6
    
    
    
    3
    %Percentage of total revenues
    
    
    31
    %
    
    
    31
    %Product development and engineering
    
    $
    37.0
    
    
    $
    33.5
    
    
    
    10
    %Percentage of total revenues
    
    
    19
    %
    
    
    17
    %General and administrative
    
    $
    25.0
    
    
    $
    22.2
    
    
    
    13
    %Percentage of total revenues
    
    
    13
    %
    
    
    12
    %Amortization of other purchased intangibles
    
    $
    1.5
    
    
    $
    1.7
    
    
    
    (12
    %)Percentage of total revenues
    
    
    1
    %
    
    
    1
    %Cost (Reversal) of restructure
    
    $
    *
    
    
    $
    *
    
    
    
    *Percentage of total revenues
    
    
    *
    
    
    
    *
 
 *
    
    Not meaningful Cost of License Fees. .
 Cost of Services.
 Sales and Marketing.
 Product Development and Engineering.
 21




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##### Table of Contents



General and Administrative.
 Amortization of Other Purchased Intangibles.
 Cost (Reversal) of Restructuring.
 Restructuring Activities.
  Operating Income  (Dollars in millions)
 Three
    
    ThreeMonths
    
    MonthsEnded
    
    Ended
    
    Percent3/31/06
    
    3/31/05
    
    ChangeOperating income by segment:IPG
    
    $
    21.6
    
    
    $
    19.7
    
    
    
    9
    %IAS
    
    
    2.1
    
    
    
    0.5
    
    
    
    320
    %Unallocated cost
    
    
    (4.8
    )
    
    
    0.1
    
    
    
    *Total operating income:
    
    $
    18.9
    
    
    $
    20.3
    
    
    
    (7
    %)Percentage of total revenues
    
    
    10
    %
    
    
    11
    %
 
 *
    
    Not meaningful   22




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##### Table of Contents



Other Income (Expense), Net  (Dollars in millions)
 Three
    
    ThreeMonths
    
    MonthsEnded
    
    Ended
    
    Percent3/31/06
    
    3/31/05
    
    ChangeInterest income
    
    $
    8.6
    
    
    $
    5.0
    
    
    
    72
    %Percentage of total revenues
    
    
    4
    %
    
    
    3
    %Interest expense and other, net
    
    $
    (2.5
    )
    
    $
    (1.9
    )
    
    
    32
    %Percentage of total revenues
    
    
    (1
    %)
    
    
    (1
    %)
   Provision for Income Taxes  (Dollars in millions)
 Three
    
    ThreeMonths
    
    MonthsEnded
    
    Ended
    
    Percent3/31/06
    
    3/31/05
    
    ChangeProvision for income taxes
    
    $
    7.8
    
    
    $
    10.1
    
    
    
    (23
    %)
   Net Income Per Share  (Dollars and shares in millions, except per share data)
 Three
    
    ThreeMonths
    
    MonthsEnded
    
    Ended
    
    Percent3/31/06
    
    3/31/05
    
    ChangeNet income
    
    $
    17.3
    
    
    $
    13.3
    
    
    
    30
    %Percentage of total revenues
    
    
    9
    %
    
    
    7
    %Basic net income per share
    
    $
    0.19
    
    
    $
    0.14
    
    
    
    36
    %Diluted net income per share
    
    $
    0.19
    
    
    $
    0.14
    
    
    
    36
    %Shares used in computing basic net income per share
    
    
    89.6
    
    
    
    92.7
    
    
    
    (3
    %)Shares used in computing diluted net income per share
    
    
    92.0
    
    
    
    95.1
    
    
    
    (3
    %)
   23




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##### Table of Contents



Liquidity and Capital Resources  (Dollars in millions)
 Three
    
    
    ThreeMonths
    
    
    MonthsEnded
    
    
    Ended
    
    
    Percent3/31/06
    
    
    3/31/05
    
    
    ChangeWorking capital
    
    $
    614.3
    
    
    $
    604.6
    
    
    
    2
    %Cash, cash equivalents and cash investments
    
    $
    902.5
    
    
    $
    891.3
    
    
    
    1
    %Net cash provided by operating activities
    
    $
    73.4
    
    
    $
    70.0
    
    
    
    5
    %Net cash provided by (used for) investing activities
    
    $
    51.3
    
    
    $
    (318.3
    )
    
    
    *Net cash provided by (used for) financing activities
    
    $
    (19.1
    )
    
    $
    330.6
    
    
    
    *
 
 *
    
    Not meaningful         24




---



##### 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.
  If we fail to maintain or expand our relationships with strategic partners and indirect
distribution channels our license revenues could decline.
   25




---



##### Table of Contents



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.
  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.
  26




---



##### 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.
  27




---



##### 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.
  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.
   28




---



##### Table of Contents



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.
    The unfavorable outcome of litigation and other claims against us could have a material adverse
impact on our financial condition and results of operations.
  29




---



##### Table of Contents



Our operations and financial results could be severely harmed by certain natural disasters.
  Provisions of our corporate documents have anti-takeover effects that could prevent a change in
control.
  
 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
       30




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##### Table of Contents



ITEM 4: CONTROLS AND PROCEDURES
     
 PART II: OTHER INFORMATION
 
 ITEM 1: LEGAL PROCEEDINGS
  ITEM 1(A): RISK FACTORS
  
 ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   ISSUER PURCHASES OF EQUITY SECURITIES
 (d) Maximum(c) Total
    
    Number (orNumber of
    
    ApproximateShares (or
    
    Dollar Value)Units)
    
    of Shares (or(a) Total
    
    
    
    
    
    Purchased as
    
    Units) that MayNumber of
    
    (b) Average
    
    Part of Publicly
    
    Yet BeShares (or
    
    Price Paid per
    
    Announced
    
    PurchasedPeriod
    
    Units)
    
    Share (or Unit)
    
    Plans or
    
    Under the Plans(2006)
    
    Purchased (#)
    
    ($)
    
    Programs (#)
    
    or Programs ($)January 1 - 31
    
    
    46,000
    
    
    $
    21.60
    
    
    
    46,000
    
    
    $
    58,616,000February 1  28
    
    
    1,095,900
    
    
    
    21.60
    
    
    
    1,095,900
    
    
    
    34,945,000March 1  31
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,141,900
    
    
    $
    21.60
    
    
    
    1,141,900
    
    
    $
    34,945,000
 
 ITEM 6: EXHIBITS
   31




---



##### Table of Contents



SIGNATURES
  May 9, 2006
    SYBASE, INC.By                        /s/ PIETER VAN DER VORSTPieter Van der VorstSenior Vice President and Chief Financial Officer
     (Principal Financial Officer)By /s/ JEFFREY G. ROSSJeffrey G. RossVice President and Corporate Controller
     (Principal Accounting Officer) 32




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description12
    
    Computation of Ratio of Earnings to Fixed Charges31.1
    
    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 200231.2
    
    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 200232
    
    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
 
 33