##### 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 SEPTEMBER 30, 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.
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 Delaware
    
    94-2951005(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
  
   
  
  þ o
  þ o o
 o þ




---



##### 



PageForward-Looking Statements
    
    
    2Part I: Financial Information
    
    
    3Item 1: Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3: Quantitative and Qualitative Disclosures of Market Risk
    
    
    27Item 4: Controls and Procedures
    
    
    28Part II: Other Information
    
    
    28Item 1: Legal Proceedings
    
    
    28Item 1 (A) : Risk Factors
    
    
    28Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 4: Submission of Matters to a Vote of Security Holders
    
    
    35Item 6: Exhibits
    
    
    35Signatures
    
    
    36Exhibit IndexEXHIBIT 10.1EXHIBIT 10.2EXHIBIT 12EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
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www.sec.gov
 www.sybase.com
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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
  
  September 30,2006
    
    
    December 31,(Dollars in thousands, except share and per share data)
    
    (Unaudited)
    
    
    2005Current assets:Cash and cash equivalents
    
    $
    590,617
    
    
    $
    398,741Short-term cash investments
    
    
    343,338
    
    
    
    342,247Total cash, cash equivalents and short-term cash investments
    
    
    933,955
    
    
    
    740,988Restricted cash
    
    
    5,566
    
    
    
    2,773Accounts receivable, net
    
    
    131,833
    
    
    
    167,790Deferred income taxes
    
    
    4,668
    
    
    
    5,523Prepaid expenses and other current assets
    
    
    18,936
    
    
    
    16,876Total current assets
    
    
    1,094,958
    
    
    
    933,950Long-term cash investments
    
    
    40,011
    
    
    
    118,948Restricted long-term cash investments
    
    
    
    
    
    
    2,600Property, equipment and improvements, net
    
    
    55,050
    
    
    
    59,178Deferred income taxes
    
    
    36,103
    
    
    
    24,879Capitalized software, net
    
    
    70,867
    
    
    
    65,911Goodwill
    
    
    242,318
    
    
    
    238,864Other purchased intangibles, net
    
    
    78,580
    
    
    
    87,562Other assets
    
    
    39,776
    
    
    
    38,722Total assets
    
    $
    1,657,663
    
    
    $
    1,570,614Current liabilities:Accounts payable
    
    $
    14,164
    
    
    $
    10,353Accrued compensation and related expenses
    
    
    50,793
    
    
    
    51,983Accrued income taxes
    
    
    51,584
    
    
    
    31,398Other accrued liabilities
    
    
    58,079
    
    
    
    78,040Deferred revenue
    
    
    186,848
    
    
    
    188,929Total current liabilities
    
    
    361,468
    
    
    
    360,703Other liabilities
    
    
    43,233
    
    
    
    40,339Long-term deferred revenue
    
    
    4,662
    
    
    
    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
90,735,045 outstanding (2005-105,337,362 shares issued and 90,531,145 outstanding)
    
    
    105
    
    
    
    105Additional paid-in capital
    
    
    956,491
    
    
    
    953,771Accumulated earnings
    
    
    68,075
    
    
    
    16,195Accumulated other comprehensive income
    
    
    31,874
    
    
    
    19,231Cost of 14,602,317 shares of treasury stock (2005-14,806,217 shares)
    
    
    (273,324
    )
    
    
    (277,510
    )Unearned compensation
    
    
    
    
    
    
    (12,962
    )Total stockholders equity
    
    
    783,221
    
    
    
    698,830Total liabilities and stockholders equity
    
    $
    1,657,663
    
    
    $
    1,570,614
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(Dollars in thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:License fees
    
    $
    76,338
    
    
    $
    69,739
    
    
    $
    226,367
    
    
    $
    200,362Services
    
    
    132,794
    
    
    
    129,588
    
    
    
    393,332
    
    
    
    395,284Total revenues
    
    
    209,132
    
    
    
    199,327
    
    
    
    619,699
    
    
    
    595,646Costs and expenses:Cost of license fees
    
    
    12,160
    
    
    
    10,993
    
    
    
    36,882
    
    
    
    36,973Cost of services
    
    
    37,681
    
    
    
    37,980
    
    
    
    114,371
    
    
    
    118,248Sales and marketing
    
    
    62,019
    
    
    
    59,655
    
    
    
    191,207
    
    
    
    184,593Product development and engineering
    
    
    37,327
    
    
    
    34,932
    
    
    
    111,867
    
    
    
    102,764General and administrative
    
    
    26,103
    
    
    
    23,873
    
    
    
    77,037
    
    
    
    69,183Amortization of other purchased intangibles
    
    
    1,573
    
    
    
    1,677
    
    
    
    4,671
    
    
    
    5,031Cost of restructure
    
    
    39
    
    
    
    21
    
    
    
    139
    
    
    
    302Total costs and expenses
    
    
    176,902
    
    
    
    169,131
    
    
    
    536,174
    
    
    
    517,094Operating income
    
    
    32,230
    
    
    
    30,196
    
    
    
    83,525
    
    
    
    78,552Interest income
    
    
    10,910
    
    
    
    6,838
    
    
    
    29,702
    
    
    
    18,500Interest expense and other, net
    
    
    (2,974
    )
    
    
    (2,957
    )
    
    
    (8,491
    )
    
    
    (7,880
    )Income before income taxes
    
    
    40,166
    
    
    
    34,077
    
    
    
    104,736
    
    
    
    89,172Provision for income taxes
    
    
    15,081
    
    
    
    6,090
    
    
    
    36,066
    
    
    
    31,984Net income
    
    $
    25,085
    
    
    $
    27,987
    
    
    $
    68,670
    
    
    $
    57,188Basic net income per share
    
    $
    0.28
    
    
    $
    0.31
    
    
    $
    0.77
    
    
    $
    0.63Shares used in computing basic net income per share
    
    
    89,056
    
    
    
    89,634
    
    
    
    89,269
    
    
    
    90,403Diluted net income per share
    
    $
    0.27
    
    
    $
    0.30
    
    
    $
    0.75
    
    
    $
    0.62Shares used in computing diluted net income per share
    
    
    91,498
    
    
    
    92,431
    
    
    
    91,636
    
    
    
    92,961
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Nine Months EndedSeptember 30,(Dollars in thousands)
    
    2006
    
    
    2005Cash and cash equivalents, beginning of year
    
    $
    398,741
    
    
    $
    321,417Cash flows from operating activities:Net income
    
    
    68,670
    
    
    
    57,188Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    52,258
    
    
    
    54,847Loss on disposal of assets
    
    
    829
    
    
    
    703Deferred income taxes
    
    
    (11,377
    )
    
    
    (4,603
    )Stock-based compensation  restricted stock
    
    
    5,833
    
    
    
    5,667Stock-based compensation  all other
    
    
    9,849
    
    
    
    Amortization of note issuance costs
    
    
    1,477
    
    
    
    1,180Changes in assets and liabilities:Accounts receivable
    
    
    38,481
    
    
    
    39,628Other current assets
    
    
    (2,055
    )
    
    
    (3,968
    )Other assets  operating
    
    
    (2,600
    )
    
    
    2,050Accounts payable
    
    
    3,806
    
    
    
    (2,215
    )Accrued compensation and related expenses
    
    
    (1,203
    )
    
    
    253Accrued income taxes
    
    
    20,219
    
    
    
    24,636Other accrued liabilities
    
    
    (19,043
    )
    
    
    (12,635
    )Deferred revenues
    
    
    (3,125
    )
    
    
    (32,917
    )Other liabilities
    
    
    1,863
    
    
    
    1,664Net cash provided by operating activities
    
    
    163,882
    
    
    
    131,478Cash flows from investing activities:(Increase) Decrease in restricted cash
    
    
    (193
    )
    
    
    284Purchases of available-for-sale cash investments
    
    
    (364,397
    )
    
    
    (704,001
    )Maturities of available-for-sale cash investments
    
    
    205,807
    
    
    
    307,524Sales of available-for-sale cash investments
    
    
    237,255
    
    
    
    81,381Business combinations, net of cash acquired
    
    
    (4,334
    )
    
    
    (6,928
    )Purchases of property, equipment and improvements
    
    
    (13,162
    )
    
    
    (12,007
    )Proceeds from sale of property, equipment and improvements
    
    
    4
    
    
    
    25Capitalized software development costs
    
    
    (29,171
    )
    
    
    (26,336
    )Increase in other assets  investing
    
    
    (7
    )
    
    
    (5
    )Net cash provided by (used for) investing activities
    
    
    31,802
    
    
    
    (360,063
    )Cash flows from financing activities:Proceeds from the issuance of convertible subordinated notes, net of issuance costs
    
    
    
    
    
    
    450,238Repayments of long-term obligations
    
    
    (45
    )
    
    
    (997
    )Payments on capital leases
    
    
    (243
    )
    
    
    (201
    )Net proceeds from the issuance of common stock and reissuance of treasury stock
    
    
    32,675
    
    
    
    40,326Purchases of treasury stock
    
    
    (45,280
    )
    
    
    (144,529
    )Net cash provided by (used for) financing activities
    
    
    (12,893
    )
    
    
    344,837Effect of exchange rate changes on cash
    
    
    9,085
    
    
    
    (25,206
    )Net increase in cash and cash equivalents
    
    
    191,876
    
    
    
    91,046Cash and cash equivalents, end of period
    
    
    590,617
    
    
    
    412,463Cash investments, end of period
    
    
    383,349
    
    
    
    506,386Total cash, cash equivalents and cash investments, end of period
    
    $
    973,966
    
    
    $
    918,849Supplemental disclosures:Interest paid
    
    $
    9,137
    
    
    $
    4,898Income taxes paid, net of refunds
    
    $
    22,445
    
    
    $
    10,458
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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,
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Impact of the Adoption of SFAS 123(R)
  Three Months Ended
    
    Nine Months EndedDollars in thousands, except per share data)
    
    September 30, 2006
    
    September 30, 2006Cost of services
    
    $
    510
    
    
    $
    1,632Sales and marketing
    
    
    886
    
    
    
    2,572Product development and engineering
    
    
    618
    
    
    
    1,820General and administrative
    
    
    1,111
    
    
    
    3,825Stock-based compensation expense included in total costs and expenses
    
    
    3,125
    
    
    
    9,849Tax benefit related to stock-based compensation expense
    
    
    (945
    )
    
    
    (3,065
    )Stock-based compensation expense included in net income
    
    $
    2,180
    
    
    $
    6,784Reduction of net income per share:Basic
    
    $
    0.02
    
    
    $
    0.08Diluted
    
    $
    0.02
    
    
    $
    0.07
   Determining Fair Value
 Valuation and Amortization Method.
 Expected Term
 Expected Volatility
 Risk-Free Interest Rate.
 Dividends.
 Forfeitures.
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Expected volatility
    
    
    28.38
    %
    
    
    28.00
    %
    
    
    28.38
    %
    
    
    37.31
    %Risk-free interest rates
    
    
    4.86
    %
    
    
    4.01
    %
    
    
    4.74
    %
    
    
    3.79
    %Expected term (years)
    
    
    3.91
    
    
    
    4.25
    
    
    
    3.91
    
    
    
    4.25Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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Equity Compensation Plans
  Outstanding Options,Stock AppreciationRights and Restricted
    
    Weighted AverageStock
    
    Exercise Price(Number of Shares)
    
    Per ShareBalance at December 31, 2005
    
    
    14,762,614
    
    
    $
    15.59Granted
    
    
    2,574,912
    
    
    
    17.84Exercised
    
    
    (2,308,687
    )
    
    
    13.31Forfeited or expired
    
    
    (664,079
    )
    
    
    17.49Balance at September 30, 2006
    
    
    14,364,760
    
    
    $
    16.26
   Options, Restricted Stock, & Stock Appreciation RightsOutstanding
    
    Options & Stock Appreciation Rights ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    Weighted-
    
    
    
    
    
    
    
    
    
    Average
    
    Weighted-Remaining
    
    Average
    
    Aggregate
    
    
    
    
    
    Remaining
    
    Average
    
    AggregateRanges of
    
    
    
    
    
    Contractual
    
    Exercise
    
    Intrinsic
    
    
    
    
    
    Contractual
    
    Exercise
    
    IntrinsicExercisable Prices
    
    Shares
    
    Life
    
    Price
    
    Value
    
    Shares
    
    Life
    
    Price
    
    Value$    0.00 to $9.93
    
    
    2,713,640
    
    
    
    6.17
    
    
    $
    3.87
    
    
    $
    55,269,866
    
    
    
    1,146,501
    
    
    
    4.57
    
    
    $
    9.12
    
    
    $
    17,337,816$10.10 to $15.18
    
    
    2,652,138
    
    
    
    5.67
    
    
    $
    12.68
    
    
    
    30,651,536
    
    
    
    2,400,586
    
    
    
    5.51
    
    
    $
    12.50
    
    
    
    28,173,903$15.47 to $19.70
    
    
    2,916,593
    
    
    
    6.07
    
    
    $
    18.44
    
    
    
    16,901,861
    
    
    
    1,667,519
    
    
    
    5.66
    
    
    $
    17.81
    
    
    
    10,726,802$19.75 to $21.26
    
    
    2,502,436
    
    
    
    5.99
    
    
    $
    20.73
    
    
    
    8,772,795
    
    
    
    995,205
    
    
    
    4.75
    
    
    $
    20.11
    
    
    
    4,106,132$21.38 to $23.94
    
    
    2,546,102
    
    
    
    4.68
    
    
    $
    22.56
    
    
    
    4,278,529
    
    
    
    1,809,283
    
    
    
    3.99
    
    
    $
    22.86
    
    
    
    2,496,335$24.75 to $28.13
    
    
    1,033,851
    
    
    
    4.25
    
    
    $
    25.38
    
    
    
    
    
    
    
    1,033,851
    
    
    
    4.25
    
    
    $
    25.38
    
    
    
    $0.00 to $28.13
    
    
    14,364,760
    
    
    
    5.63
    
    
    $
    16.26
    
    
    $
    115,874,587
    
    
    
    9,052,945
    
    
    
    4.89
    
    
    $
    17.43
    
    
    $
    62,840,988
    Weighted AverageOutstanding Options
    
    Exercise PriceNumber of Shares
    
    Per ShareBalance at December 31, 2005
    
    
    7,175,320
    
    
    $
    3.38Forfeited or expired
    
    
    (2,110,559
    )
    
    
    3.17Balance at September 30, 2006
    
    
    5,064,761
    
    
    $
    3.47
 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
    
    
    660,604
    
    
    
    6.33
    
    
    $
    0.75
    
    
    
    609,920
    
    
    $
    0.75$0.78
    
    
    1,172,446
    
    
    
    6.89
    
    
    $
    0.78
    
    
    
    951,637
    
    
    $
    0.78$5.00
    
    
    3,231,711
    
    
    
    3.77
    
    
    $
    5.00
    
    
    
    3,231,711
    
    
    $
    5.00$0.75 to $5.00
    
    
    5,064,761
    
    
    
    4.83
    
    
    $
    3.47
    
    
    
    4,793,268
    
    
    $
    3.62
   Weighted AverageOutstanding Options
    
    Exercise Price(Number of Shares)
    
    Per ShareBalance at December 31, 2005
    
    
    11,516,699
    
    
    $
    2.51Forfeited or expired
    
    
    (1,174,804
    )
    
    
    2.51Balance at September 30, 2006
    
    
    10,341,895
    
    
    $
    2.51
     Comparable Disclosures
  9




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##### Table of Contents



Three Months Ended
    
    
    Nine Months Ended(Dollars in thousands, except per share data)
    
    September30, 2005
    
    
    September 30, 2005As reported net income  stock-based employee compensation determined using the
intrinsic value method
    
    $
    27,987
    
    
    $
    57,188Add: Stock-based employee compensation cost, net of tax, included in net income as reported
    
    
    2,270
    
    
    
    5,667Less: Pro-forma stock-based employee compensation cost, net of tax, determined under the
fair value method
    
    
    (3,820
    )
    
    
    (12,600
    )Pro-forma net income  stock-based employee compensation determined under the fair value
method
    
    $
    26,437
    
    
    $
    50,255Basic net income per shareAs reported
    
    $
    0.31
    
    
    $
    0.63Pro forma
    
    
    0.29
    
    
    
    0.56Diluted net income per shareAs reported
    
    $
    0.30
    
    
    $
    0.62Pro forma
    
    
    0.28
    
    
    
    0.54
 Net income per share .
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    25,085
    
    
    $
    27,987
    
    
    $
    68,670
    
    
    $
    57,188Basic net income per share
    
    $
    0.28
    
    
    $
    0.31
    
    
    $
    0.77
    
    
    $
    0.63Shares used in computing basic net income per share
    
    
    89,056
    
    
    
    89,634
    
    
    
    89,269
    
    
    
    90,403Diluted net income per share
    
    $
    0.27
    
    
    $
    0.30
    
    
    $
    0.75
    
    
    $
    0.62Shares used in computing basic net income per share
    
    
    89,056
    
    
    
    89,634
    
    
    
    89,269
    
    
    
    90,403Dilutive effect of stock options, restricted stock and stock appreciation rights
    
    
    2,442
    
    
    
    2,797
    
    
    
    2,367
    
    
    
    2,558Shares used in computing diluted net income per share
    
    
    91,498
    
    
    
    92,431
    
    
    
    91,636
    
    
    
    92,961
  Comprehensive Income
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    25,085
    
    
    $
    27,987
    
    
    $
    68,670
    
    
    $
    57,188Foreign currency translation gains/(losses)
    
    
    1,891
    
    
    
    (945
    )
    
    
    12,663
    
    
    
    (28,716
    )Unrealized gains/(losses) on marketable securities
    
    
    568
    
    
    
    59
    
    
    
    (20
    )
    
    
    (171
    )Comprehensive income
    
    $
    27,544
    
    
    $
    27,101
    
    
    $
    81,313
    
    
    $
    28,301
  10




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##### Table of Contents



Segment Information
    11




---



##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    53,205
    
    
    $
    86
    
    
    
    
    
    
    $
    53,291Mobile and Embedded
    
    
    8,256
    
    
    
    14,791
    
    
    
    
    
    
    
    23,047Subtotal license fees
    
    
    61,461
    
    
    
    14,877
    
    
    
    
    
    
    
    76,338Intersegment license revenues
    
    
    22
    
    
    
    6,880
    
    
    
    (6,902
    )
    
    
    Total license fees
    
    
    61,483
    
    
    
    21,757
    
    
    
    (6,902
    )
    
    
    76,338ServicesDirect service revenue
    
    
    120,808
    
    
    
    11,986
    
    
    
    
    
    
    
    132,794Intersegment service revenues
    
    
    109
    
    
    
    6,690
    
    
    
    (6,799
    )
    
    
    Total services
    
    
    120,917
    
    
    
    18,676
    
    
    
    (6,799
    )
    
    
    132,794Total revenues
    
    
    182,400
    
    
    
    40,433
    
    
    
    (13,701
    )
    
    
    209,132Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology, cost of restructure
and unallocated costs
    
    
    148,209
    
    
    
    32,934
    
    
    
    (13,701
    )
    
    
    167,442Operating income before amortization of other purchased
intangibles, purchased technology, cost of restructure and
unallocated costs
    
    
    34,191
    
    
    
    7,499
    
    
    
    
    
    
    
    41,690Amortization of other purchased intangibles
    
    
    527
    
    
    
    1,046
    
    
    
    
    
    
    
    1,573Amortization of purchased technology
    
    
    430
    
    
    
    1,965
    
    
    
    
    
    
    
    2,395Operating income before cost of restructure and unallocated costs
    
    
    33,234
    
    
    
    4,488
    
    
    
    
    
    
    
    37,722Cost of restructure  2006 Activity
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Operating income before unallocated costs
    
    
    33,189
    
    
    
    4,488
    
    
    
    
    
    
    
    37,677Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,447Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,230Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,936Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    40,166
  Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    50,000
    
    
    $
    21
    
    
    
    
    
    
    $
    50,021Mobile and Embedded
    
    
    9,869
    
    
    
    9,849
    
    
    
    
    
    
    
    19,718Subtotal license fees
    
    
    59,869
    
    
    
    9,870
    
    
    
    
    
    
    
    69,739Intersegment license revenues
    
    
    21
    
    
    
    8,225
    
    
    
    (8,246
    )
    
    
    Total license fees
    
    
    59,890
    
    
    
    18,095
    
    
    
    (8,246
    )
    
    
    69,739ServicesDirect service revenue
    
    
    120,625
    
    
    
    8,963
    
    
    
    
    
    
    
    129,588Intersegment service revenues
    
    
    7
    
    
    
    6,981
    
    
    
    (6,988
    )
    
    
    Total services
    
    
    120,632
    
    
    
    15,944
    
    
    
    (6,988
    )
    
    
    129,588Total revenues
    
    
    180,522
    
    
    
    34,039
    
    
    
    (15,234
    )
    
    
    199,327Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology, cost of restructure
and unallocated costs
    
    
    153,844
    
    
    
    26,846
    
    
    
    (15,234
    )
    
    
    165,456Operating income before amortization of other purchased
intangibles, purchased technology, cost of restructure and
unallocated costs
    
    
    26,678
    
    
    
    7,193
    
    
    
    
    
    
    
    33,871Amortization of other purchased intangibles
    
    
    500
    
    
    
    1,177
    
    
    
    
    
    
    
    1,677Amortization of purchased technology
    
    
    1,067
    
    
    
    979
    
    
    
    
    
    
    
    2,046Operating income before cost of restructure and unallocated costs
    
    
    25,111
    
    
    
    5,037
    
    
    
    
    
    
    
    30,148Cost of restructure  2005 Activity
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21Operating income before unallocated costs
    
    
    25,090
    
    
    
    5,037
    
    
    
    
    
    
    
    30,127Unallocated cost savings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69
    )Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,196Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,881Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    34,077
 12




---



##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    156,486
    
    
    $
    151
    
    
    
    
    
    
    $
    156,637Mobile and Embedded
    
    
    21,115
    
    
    
    48,615
    
    
    
    
    
    
    
    69,730Subtotal license fees
    
    
    177,601
    
    
    
    48,766
    
    
    
    
    
    
    
    226,367Intersegment license revenues
    
    
    64
    
    
    
    17,567
    
    
    
    (17,631
    )
    
    
    Total license fees
    
    
    177,665
    
    
    
    66,333
    
    
    
    (17,631
    )
    
    
    226,367ServicesDirect service revenue
    
    
    358,827
    
    
    
    34,505
    
    
    
    
    
    
    
    393,332Intersegment service revenues
    
    
    211
    
    
    
    18,882
    
    
    
    (19,093
    )
    
    
    Total services
    
    
    359,038
    
    
    
    53,387
    
    
    
    (19,093
    )
    
    
    393,332Total revenues
    
    
    536,703
    
    
    
    119,720
    
    
    
    (36,724
    )
    
    
    619,699Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology, cost of restructure and
unallocated costs
    
    
    443,169
    
    
    
    101,514
    
    
    
    (36,724
    )
    
    
    507,959Operating income before amortization of other purchased intangibles,
purchased technology, cost of restructure and unallocated costs
    
    
    93,534
    
    
    
    18,206
    
    
    
    
    
    
    
    111,740Amortization of other purchased intangibles
    
    
    1,533
    
    
    
    3,138
    
    
    
    
    
    
    
    4,671Amortization of purchased technology
    
    
    1,252
    
    
    
    5,893
    
    
    
    
    
    
    
    7,145Operating income before cost of restructure and unallocated cost savings
    
    
    90,749
    
    
    
    9,175
    
    
    
    
    
    
    
    99,924Cost of restructure  2006 Activity
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    145Operating income before unallocated costs
    
    
    90,604
    
    
    
    9,175
    
    
    
    
    
    
    
    99,779Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,254Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,525Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,211Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    104,736
  Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    145,109
    
    
    $
    69
    
    
    
    
    
    
    $
    145,178Mobile and Embedded
    
    
    22,448
    
    
    
    32,736
    
    
    
    
    
    
    
    55,184Subtotal license fees
    
    
    167,557
    
    
    
    32,805
    
    
    
    
    
    
    
    200,362Intersegment license revenues
    
    
    64
    
    
    
    18,691
    
    
    
    (18,755
    )
    
    
    Total license fees
    
    
    167,621
    
    
    
    51,496
    
    
    
    (18,755
    )
    
    
    200,362ServicesDirect service revenue
    
    
    367,882
    
    
    
    27,402
    
    
    
    
    
    
    
    395,284Intersegment service revenues
    
    
    13
    
    
    
    20,269
    
    
    
    (20,282
    )
    
    
    Total services
    
    
    367,895
    
    
    
    47,671
    
    
    
    (20,282
    )
    
    
    395,284Total revenues
    
    
    535,516
    
    
    
    99,167
    
    
    
    (39,037
    )
    
    
    595,646Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology, cost of restructure
and unallocated costs
    
    
    458,893
    
    
    
    82,403
    
    
    
    (39,037
    )
    
    
    502,259Operating income before amortization of other purchased
intangibles, purchased technology, cost of restructure and
unallocated costs
    
    
    76,623
    
    
    
    16,764
    
    
    
    
    
    
    
    93,387Amortization of other purchased intangibles
    
    
    1,500
    
    
    
    3,531
    
    
    
    
    
    
    
    5,031Amortization of purchased technology
    
    
    6,160
    
    
    
    2,937
    
    
    
    
    
    
    
    9,097Operating income before cost of restructure and unallocated costs
    
    
    68,963
    
    
    
    10,296
    
    
    
    
    
    
    
    79,259Cost of restructure  2005 Activity
    
    
    302
    
    
    
    
    
    
    
    
    
    
    
    302Operating income before unallocated costs
    
    
    68,661
    
    
    
    10,296
    
    
    
    
    
    
    
    78,957Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,552Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,620Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    89,172
 13




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##### 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
    
    
    
    
    
    
    525
    
    
    
    525Addition in goodwill recorded on Solonde acquisition
    
    
    2,057
    
    
    
    
    
    
    
    2,057Foreign currency translation adjustments & other
    
    
    872
    
    
    
    
    
    
    
    872Balance at September 30, 2006
    
    $
    119,113
    
    
    $
    123,205
    
    
    $
    242,318
  September 30, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Net
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(In thousands)
    
    Amount
    
    
    Amortization
    
    
    Carrying Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountPurchased technology
    
    $
    137,369
    
    
    $
    (92,258
    )
    
    $
    45,111
    
    
    $
    134,838
    
    
    $
    (85,096
    )
    
    $
    49,742AvantGo tradenames
    
    
    3,100
    
    
    
    
    
    
    
    3,100
    
    
    
    3,100
    
    
    
    
    
    
    
    3,100XcelleNet tradenames
    
    
    4,000
    
    
    
    
    
    
    
    4,000
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Covenant not to compete
    
    
    319
    
    
    
    (32
    )
    
    
    287
    
    
    
    
    
    
    
    
    
    
    
    Customer lists
    
    
    47,589
    
    
    
    (21,507
    )
    
    
    26,082
    
    
    
    47,589
    
    
    
    (16,869
    )
    
    
    30,720Totals
    
    $
    192,377
    
    
    $
    (113,797
    )
    
    $
    78,580
    
    
    $
    189,527
    
    
    $
    (101,965
    )
    
    $
    87,562
  2006
    
    $
    15,7552007
    
    
    15,7432008
    
    
    15,6692009
    
    
    15,2762010
    
    
    12,842
  Litigation .
 14




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##### Table of Contents



. Stock Repurchase Plan .
  Restructuring
    (Dollars in millions)
    
    Lease Cancellations / Commitments and Other2004
    
    2003
    
    2002
    
    2001Accrued liabilities at December 31, 2005
    
    $
    5.1
    
    
    $
    0.3
    
    
    $
    10.7
    
    
    $
    3.6Amounts accrued
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Amounts paid
    
    
    (1.5
    )
    
    
    (0.1
    )
    
    
    (2.5
    )
    
    
    (1.2
    )Accrued liabilities at September 30, 2006
    
    $
    3.7
    
    
    $
    0.2
    
    
    $
    8.2
    
    
    $
    2.4
   (Dollars in millions)Accrued liabilities at December 31, 2005
    
    $
    2.1Amounts paid
    
    
    (0.9
    )Accrued liabilities at September 30, 2006
    
    $
    1.2
 15




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##### Table of Contents



Convertible Subordinated Notes
      Business Combinations.
 Recent Accounting Pronouncements
 Subsequent Event
 16




---



##### Table of Contents



ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
 
    
    Our Business
    
    
    Pending Acquisition
  
    
    Our Results
  ®
 17




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##### Table of Contents




    
    Business Trends
      18




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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,
 Share-Based Payment,
   19




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##### Table of Contents



New Accounting Pronouncements
  20




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##### Table of Contents



Results of Operations
 Revenues
(Dollars in millions)
 Three Months ended September 30,
    
    
    Nine Months ended September 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeLicense fees by segment:IPG
    
    $
    61.5
    
    
    $
    59.9
    
    
    
    3
    %
    
    $
    177.7
    
    
    $
    167.6
    
    
    
    6
    %IAS
    
    
    21.7
    
    
    
    18.1
    
    
    
    20
    %
    
    
    66.3
    
    
    
    51.5
    
    
    
    29
    %Eliminations
    
    
    (6.9
    )
    
    
    (8.3
    )
    
    
    (17
    %)
    
    
    (17.6
    )
    
    
    (18.8
    )
    
    
    (6
    %)Total license fees
    
    $
    76.3
    
    
    $
    69.7
    
    
    
    9
    %
    
    $
    226.4
    
    
    $
    200.3
    
    
    
    13
    %Percentage of total revenues
    
    
    36
    %
    
    
    35
    %
    
    
    
    
    
    
    37
    %
    
    
    34
    %Services by segment:IPG
    
    $
    120.9
    
    
    $
    120.6
    
    
    
    *
    
    
    $
    359.0
    
    
    $
    367.9
    
    
    
    (2
    %)IAS
    
    
    18.7
    
    
    
    15.9
    
    
    
    18
    %
    
    
    53.4
    
    
    
    47.7
    
    
    
    12
    %Eliminations
    
    
    (6.8
    )
    
    
    (6.9
    )
    
    
    (1
    %)
    
    
    (19.1
    )
    
    
    (20.3
    )
    
    
    (6
    %)Total Services
    
    $
    132.8
    
    
    $
    129.6
    
    
    
    2
    %
    
    $
    393.3
    
    
    $
    395.3
    
    
    
    (1
    %)Percentage of total revenues
    
    
    64
    %
    
    
    65
    %
    
    
    
    
    
    
    63
    %
    
    
    66
    %Total revenues
    
    $
    209.1
    
    
    $
    199.3
    
    
    
    5
    %
    
    $
    619.7
    
    
    $
    595.6
    
    
    
    4
    %
 
 *
    
    Not meaningful ®
    21




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##### Table of Contents



Geographical Revenues
(Dollars in millions)
 Three Months ended September 30,
    
    Nine Months ended September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeNorth American
    
    $
    115.1
    
    
    $
    113.4
    
    
    
    1
    %
    
    $
    346.7
    
    
    $
    339.2
    
    
    
    2
    %Percentage of total revenues
    
    
    55
    %
    
    
    57
    %
    
    
    
    
    
    
    56
    %
    
    
    57
    %Total Outside North America
    
    $
    94.0
    
    
    $
    85.9
    
    
    
    9
    %
    
    $
    273.0
    
    
    $
    256.4
    
    
    
    6
    %Percentage of total revenues
    
    
    45
    %
    
    
    43
    %
    
    
    
    
    
    
    44
    %
    
    
    43
    %International: EMEA (Europe, Middle East and Africa)
    
    $
    62.6
    
    
    $
    53.7
    
    
    
    17
    %
    
    $
    184.5
    
    
    $
    167.3
    
    
    
    10
    %Percentage of total revenues
    
    
    30
    %
    
    
    27
    %
    
    
    
    
    
    
    30
    %
    
    
    28
    %Intercontinental: (Asia Pacific and Latin America)
    
    $
    31.4
    
    
    $
    32.2
    
    
    
    (2
    %)
    
    $
    88.5
    
    
    $
    89.1
    
    
    
    (1
    %)Percentage of total revenues
    
    
    15
    %
    
    
    16
    %
    
    
    
    
    
    
    14
    %
    
    
    15
    %Total revenues
    
    $
    209.1
    
    
    $
    199.3
    
    
    
    5
    %
    
    $
    619.7
    
    
    $
    595.6
    
    
    
    4
    %
        22




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##### Table of Contents



Costs and Expenses
(Dollars in millions)
 Three Months ended September 30,
    
    Nine Months ended September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeCost of license fees
    
    $
    12.2
    
    
    $
    11.0
    
    
    
    11
    %
    
    $
    36.9
    
    
    $
    37.0
    
    
    
    *Percentage of license fees revenues
    
    
    16
    %
    
    
    16
    %
    
    
    
    
    
    
    16
    %
    
    
    18
    %Cost of services
    
    $
    37.7
    
    
    $
    38.0
    
    
    
    (1
    %)
    
    $
    114.4
    
    
    $
    118.2
    
    
    
    (3
    %)Percentage of services revenues
    
    
    28
    %
    
    
    29
    %
    
    
    
    
    
    
    29
    %
    
    
    30
    %Sales and marketing
    
    $
    62.0
    
    
    $
    59.7
    
    
    
    4
    %
    
    $
    191.2
    
    
    $
    184.6
    
    
    
    4
    %Percentage of total revenues
    
    
    30
    %
    
    
    30
    %
    
    
    
    
    
    
    31
    %
    
    
    31
    %Product development and engineering
    
    $
    37.3
    
    
    $
    34.9
    
    
    
    7
    %
    
    $
    111.9
    
    
    $
    102.8
    
    
    
    9
    %Percentage of total revenues
    
    
    18
    %
    
    
    18
    %
    
    
    
    
    
    
    18
    %
    
    
    17
    %General and administrative
    
    $
    26.1
    
    
    $
    23.9
    
    
    
    9
    %
    
    $
    77.0
    
    
    $
    69.2
    
    
    
    11
    %Percentage of total revenues
    
    
    12
    %
    
    
    12
    %
    
    
    
    
    
    
    12
    %
    
    
    12
    %Amortization of other purchased intangibles
    
    $
    1.6
    
    
    $
    1.7
    
    
    
    (6
    %)
    
    $
    4.7
    
    
    $
    5.0
    
    
    
    (6
    %)Percentage of total revenues
    
    
    1
    %
    
    
    1
    %
    
    
    
    
    
    
    1
    %
    
    
    1
    %Cost of restructure
    
    $
    0.0
    
    
    $
    0.0
    
    
    
    *
    
    
    $
    0.1
    
    
    $
    0.3
    
    
    
    (67
    %)Percentage of total revenues
    
    
    *
    
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    *
 
 *
    
    Not meaningful Cost of License Fees. .
 Cost of Services.
 Sales and Marketing.
 Product Development and Engineering.
 23




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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 Months ended September 30,
    
    Nine Months ended September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeOperating income by segment:IPG
    
    $
    33.2
    
    
    $
    25.1
    
    
    
    32
    %
    
    $
    90.6
    
    
    $
    68.7
    
    
    
    32
    %IAS
    
    
    4.5
    
    
    
    5.0
    
    
    
    (10
    %)
    
    
    9.2
    
    
    
    10.3
    
    
    
    (11
    %)Unallocated costs
    
    
    (5.5
    )
    
    
    0.1
    
    
    
    *
    
    
    
    (16.3
    )
    
    
    (0.4
    )
    
    
    3975
    %Total operating income:
    
    $
    32.2
    
    
    $
    30.2
    
    
    
    7
    %
    
    $
    83.5
    
    
    $
    78.6
    
    
    
    6
    %Percentage of total revenues
    
    
    15
    %
    
    
    15
    %
    
    
    
    
    
    
    13
    %
    
    
    13
    %
 
 *
    
    Not meaningful  24




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##### Table of Contents



Other Income (Expense), Net  (Dollars in millions)
 Three Months ended September 30,
    
    Nine Months ended September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeInterest income
    
    $
    10.9
    
    
    $
    6.8
    
    
    
    60
    %
    
    $
    29.7
    
    
    $
    18.5
    
    
    
    61
    %Percentage of total revenues
    
    
    5
    %
    
    
    3
    %
    
    
    
    
    
    
    5
    %
    
    
    3
    %Interest expense and other, net
    
    $
    (3.0
    )
    
    $
    (3.0
    )
    
    
    *
    
    
    $
    (8.5
    )
    
    $
    (7.9
    )
    
    
    8
    %Percentage of total revenues
    
    
    (1
    %)
    
    
    (1
    %)
    
    
    
    
    
    
    (1
    %)
    
    
    (1
    %)
 
 *
    
    Not meaningful   Provision for Income Taxes  (Dollars in millions)
 Three Months ended September 30,
    
    Nine Months ended September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeProvision for income taxes
    
    $
    15.1
    
    
    $
    6.1
    
    
    
    148
    %
    
    $
    36.1
    
    
    $
    32.0
    
    
    
    13
    %
   25




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##### Table of Contents



Net Income Per Share  (Dollars and shares in millions, except per share data)
 Three Months ended September 30,
    
    Nine Months ended September 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeNet income
    
    $
    25.1
    
    
    $
    28.0
    
    
    
    (10
    %)
    
    $
    68.7
    
    
    $
    57.2
    
    
    
    20
    %Percentage of total revenues
    
    
    12
    %
    
    
    14
    %
    
    
    
    
    
    
    11
    %
    
    
    10
    %Basic net income per share
    
    $
    0.28
    
    
    $
    0.31
    
    
    
    (10
    %)
    
    $
    0.77
    
    
    $
    0.63
    
    
    
    22
    %Diluted net income per share
    
    $
    0.27
    
    
    $
    0.30
    
    
    
    (10
    %)
    
    $
    0.75
    
    
    $
    0.62
    
    
    
    21
    %Shares used in computing basic net income per share
    
    
    89.1
    
    
    
    89.6
    
    
    
    (1
    %)
    
    
    89.3
    
    
    
    90.4
    
    
    
    (1
    %)Shares used in computing diluted net income per share
    
    
    91.5
    
    
    
    92.4
    
    
    
    (1
    %)
    
    
    91.6
    
    
    
    93.0
    
    
    
    (2
    %)
     Liquidity and Capital Resources  (Dollars in millions)
 Nine Months EndedSeptember 30,Percent2006
    
    2005
    
    ChangeWorking capital
    
    $
    733.5
    
    
    $
    578.3
    
    
    
    27
    %Cash, cash equivalents and cash investments
    
    $
    974.0
    
    
    $
    918.8
    
    
    
    6
    %Net cash provided by operating activities
    
    $
    163.9
    
    
    $
    131.5
    
    
    
    25
    %Net cash provided by (used for) investing activities
    
    $
    31.8
    
    
    $
    (360.1
    )
    
    
    *Net cash provided by (used for) financing activities
    
    $
    (12.9
    )
    
    $
    344.8
    
    
    
    *
 
 *
    
    Not meaningful   26




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##### Table of Contents



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
       27




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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
 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.
    28




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##### Table of Contents



We may encounter difficulties or integrating our Mobile 365 acquisition, other acquisitions or
strategic relationships and may incur acquisition-related charges that could adversely affect our
operating results.
       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.
  29




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##### 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.
  30




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##### 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.
  We are subject to risks arising from our international operations.
   We face exposure to adverse movements in foreign currency exchange rates.
  31




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##### Table of Contents



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.
    Our key personnel are critical to our business, and we cannot assure that they will remain with us.
  32




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##### Table of Contents



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.
  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.
  33




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##### Table of Contents



ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   34




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##### Table of Contents



ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 6: EXHIBITS
   35




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##### Table of Contents



SIGNATURES
  November 8, 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)
 36




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Employee Stock Purchase Plan  United States, as amended on October 25, 200610.2
    
    Employee Stock Purchase Plan  International, as amended on October 25, 200612
    
    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