##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934FOR 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.)
  (Address of principal executive offices)(Zip Code)
  (Registrants telephone number, including area code)
 
  þ o
  þ o o
 o þ




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##### 



PageForward-Looking Statements
    
    
    2Part I: Financial InformationItem 1: Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 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
    
    
    26Item 4: Controls and Procedures
    
    
    26Part II: Other InformationItem 1: Legal Proceedings
    
    
    27Item 1 (A): Risk Factors
    
    
    27Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 4: Submission of Matters to a Vote of Security Holders
    
    
    34Item 6: Exhibits
    
    
    34Signatures
    
    
    35Exhibit IndexEXHIBIT 12EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  1




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www.sec.gov
 www.sybase.com
  2




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
  
  June 30,2006
    
    
    December 31,(Dollars in thousands, except share and per share data)
    
    (Unaudited)
    
    
    2005Current assets:Cash and cash equivalents
    
    $
    462,807
    
    
    $
    398,741Short-term cash investments
    
    
    384,077
    
    
    
    342,247Total cash, cash equivalents and short-term cash investments
    
    
    846,884
    
    
    
    740,988Restricted cash
    
    
    2,900
    
    
    
    2,773Accounts receivable, net
    
    
    134,098
    
    
    
    167,790Deferred income taxes
    
    
    4,662
    
    
    
    5,523Prepaid expenses and other current assets
    
    
    19,668
    
    
    
    16,876Total current assets
    
    
    1,008,212
    
    
    
    933,950Long-term cash investments
    
    
    83,564
    
    
    
    118,948Restricted long-term cash investments
    
    
    2,600
    
    
    
    2,600Property, equipment and improvements, net
    
    
    54,852
    
    
    
    59,178Deferred income taxes
    
    
    32,414
    
    
    
    24,879Capitalized software, net
    
    
    68,007
    
    
    
    65,911Goodwill
    
    
    242,192
    
    
    
    238,864Other purchased intangibles, net
    
    
    82,485
    
    
    
    87,562Other assets
    
    
    40,124
    
    
    
    38,722Total assets
    
    $
    1,614,450
    
    
    $
    1,570,614Current liabilities:Accounts payable
    
    $
    11,057
    
    
    $
    10,353Accrued compensation and related expenses
    
    
    46,679
    
    
    
    51,983Accrued income taxes
    
    
    41,991
    
    
    
    31,398Other accrued liabilities
    
    
    62,412
    
    
    
    78,040Deferred revenue
    
    
    210,845
    
    
    
    188,929Total current liabilities
    
    
    372,984
    
    
    
    360,703Other liabilities
    
    
    41,492
    
    
    
    40,339Long-term deferred revenue
    
    
    4,364
    
    
    
    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
89,324,888 outstanding (2005-105,337,362 shares issued and 90,531,145 outstanding)
    
    
    105
    
    
    
    105Additional paid-in capital
    
    
    951,797
    
    
    
    953,771Accumulated earnings
    
    
    52,643
    
    
    
    16,195Accumulated other comprehensive income
    
    
    29,414
    
    
    
    19,231Cost of 16,012,474 shares of treasury stock (2005-14,806,217 shares)
    
    
    (303,428
    )
    
    
    (277,510
    )Unearned compensation
    
    
    
    
    
    
    (12,962
    )Total stockholders equity
    
    
    730,531
    
    
    
    698,830Total liabilities and stockholders equity
    
    $
    1,614,450
    
    
    $
    1,570,614
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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(Dollars in thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:License fees
    
    $
    83,141
    
    
    $
    67,915
    
    
    $
    150,029
    
    
    $
    130,623Services
    
    
    132,418
    
    
    
    136,493
    
    
    
    260,538
    
    
    
    265,696Total revenues
    
    
    215,559
    
    
    
    204,408
    
    
    
    410,567
    
    
    
    396,319Costs and expenses:Cost of license fees
    
    
    11,930
    
    
    
    11,721
    
    
    
    24,722
    
    
    
    25,979Cost of services
    
    
    38,338
    
    
    
    39,928
    
    
    
    76,690
    
    
    
    80,268Sales and marketing
    
    
    67,833
    
    
    
    65,360
    
    
    
    129,188
    
    
    
    124,938Product development and engineering
    
    
    37,543
    
    
    
    34,305
    
    
    
    74,540
    
    
    
    67,832General and administrative
    
    
    25,947
    
    
    
    23,077
    
    
    
    50,934
    
    
    
    45,310Amortization of other purchased intangibles
    
    
    1,552
    
    
    
    1,677
    
    
    
    3,098
    
    
    
    3,354Cost of restructure
    
    
    66
    
    
    
    289
    
    
    
    100
    
    
    
    281Total costs and expenses
    
    
    183,209
    
    
    
    176,357
    
    
    
    359,272
    
    
    
    347,962Operating income
    
    
    32,350
    
    
    
    28,051
    
    
    
    51,295
    
    
    
    48,357Interest income
    
    
    10,190
    
    
    
    6,666
    
    
    
    18,792
    
    
    
    11,661Interest expense and other, net
    
    
    (2,973
    )
    
    
    (3,035
    )
    
    
    (5,517
    )
    
    
    (4,922
    )Income before income taxes
    
    
    39,567
    
    
    
    31,682
    
    
    
    64,570
    
    
    
    55,096Provision for income taxes
    
    
    13,234
    
    
    
    15,827
    
    
    
    20,985
    
    
    
    25,895Net income
    
    $
    26,333
    
    
    $
    15,855
    
    
    $
    43,585
    
    
    $
    29,201Basic net income per share
    
    $
    0.30
    
    
    $
    0.18
    
    
    $
    0.49
    
    
    $
    0.32Shares used in computing basic net income per share
    
    
    89,113
    
    
    
    88,905
    
    
    
    89,375
    
    
    
    90,787Diluted net income per share
    
    $
    0.29
    
    
    $
    0.17
    
    
    $
    0.48
    
    
    $
    0.31Shares used in computing diluted net income per share
    
    
    91,402
    
    
    
    91,323
    
    
    
    91,716
    
    
    
    93,231
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##### Table of Contents



Six Months EndedJune 30,(Dollars in thousands)
    
    2006
    
    
    2005Cash and cash equivalents, beginning of year
    
    $
    398,741
    
    
    $
    321,417Cash flows from operating activities:Net income
    
    
    43,585
    
    
    
    29,201Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    34,895
    
    
    
    38,097Loss on disposal of assets
    
    
    1,038
    
    
    
    254Deferred income taxes
    
    
    (7,682
    )
    
    
    (3,247
    )Stock-based compensation  restricted stock
    
    
    4,264
    
    
    
    3,397Stock-based compensation  all other
    
    
    6,724
    
    
    
    Amortization of note issuance costs
    
    
    984
    
    
    
    691Changes in assets and liabilities:Accounts receivable
    
    
    33,431
    
    
    
    51,031Other current assets
    
    
    (2,787
    )
    
    
    (5,206
    )Other assets  operating
    
    
    (2,457
    )
    
    
    1,057Accounts payable
    
    
    699
    
    
    
    (1,955
    )Accrued compensation and related expenses
    
    
    (5,317
    )
    
    
    (3,736
    )Accrued income taxes
    
    
    11,005
    
    
    
    25,549Other accrued liabilities
    
    
    (14,906
    )
    
    
    (9,810
    )Deferred revenues
    
    
    20,563
    
    
    
    (9,907
    )Other liabilities
    
    
    934
    
    
    
    1,376Net cash provided by operating activities
    
    
    124,973
    
    
    
    116,792Cash flows from investing activities:(Increase) Decrease in restricted cash
    
    
    (127
    )
    
    
    258Purchases of available-for-sale cash investments
    
    
    (346,539
    )
    
    
    (520,887
    )Maturities of available-for-sale cash investments
    
    
    179,160
    
    
    
    193,384Sales of available-for-sale cash investments
    
    
    160,571
    
    
    
    30,958Business combinations, net of cash acquired
    
    
    (3,794
    )
    
    
    (6,754
    )Purchases of property, equipment and improvements
    
    
    (7,847
    )
    
    
    (8,230
    )Proceeds from sale of property, equipment and improvements
    
    
    2
    
    
    
    9Capitalized software development costs
    
    
    (18,923
    )
    
    
    (18,108
    )Increase in other assets  investing
    
    
    (7
    )
    
    
    (15
    )Net cash used for investing activities
    
    
    (37,504
    )
    
    
    (329,385
    )Cash flows from financing activities:Proceeds from the issuance of convertible subordinated notes, net of issuance costs
    
    
    
    
    
    
    450,251Repayments of long-term obligations
    
    
    (29
    )
    
    
    (959
    )Payments on capital leases
    
    
    (159
    )
    
    
    (158
    )Net proceeds from the issuance of common stock and reissuance of treasury stock
    
    
    12,225
    
    
    
    18,442Purchases of treasury stock
    
    
    (45,280
    )
    
    
    (134,952
    )Net cash provided by (used for) financing activities
    
    
    (33,243
    )
    
    
    332,624Effect of exchange rate changes on cash
    
    
    9,840
    
    
    
    (24,012
    )Net increase in cash and cash equivalents
    
    
    64,066
    
    
    
    96,019Cash and cash equivalents, end of period
    
    
    462,807
    
    
    
    417,436Cash investments, end of period
    
    
    467,641
    
    
    
    488,286Total cash, cash equivalents and cash investments, end of period
    
    $
    930,448
    
    
    $
    905,722Supplemental disclosures:Interest paid
    
    $
    4,763
    
    
    $
    551Income taxes paid, net of refunds
    
    $
    15,780
    
    
    $
    2,512
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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)
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##### Table of Contents



Three
    
    
    SixMonths
    
    
    MonthsEnded
    
    
    EndedDollars in thousands, except per share data)
    
    June 30, 2006
    
    
    June 30, 2006Cost of services
    
    $
    549
    
    
    $
    1,122Sales and marketing
    
    
    1,249
    
    
    
    2,715Product development and engineering
    
    
    620
    
    
    
    1,202General and administrative
    
    
    837
    
    
    
    1,685Stock-based compensation expense included in total costs and expenses
    
    
    3,255
    
    
    
    6,724Tax benefit related to stock-based compensation expense
    
    
    (1,016
    )
    
    
    (2,120
    )Stock-based compensation expense included in net income
    
    $
    2,239
    
    
    $
    4,604Reduction of net income per share:Basic
    
    $
    0.03
    
    
    $
    0.05Diluted
    
    $
    0.02
    
    
    $
    0.05
   Determining Fair Value
 Valuation and Amortization Method.
 Expected Term
 Expected Volatility
 Risk-Free Interest Rate.
 Dividends.
 Forfeitures.
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2006
    
    2005
    
    2006
    
    2005Expected volatility
    
    
    28.38
    %
    
    
    28.23
    %
    
    
    28.38
    %
    
    
    37.72
    %Risk-free interest rates
    
    
    4.99
    %
    
    
    3.80
    %
    
    
    4.68
    %
    
    
    3.78
    %Expected term (years)
    
    
    3.91
    
    
    
    4.25
    
    
    
    3.91
    
    
    
    4.25Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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##### Table of Contents



Outstanding Options,Stock AppreciationRights and Restricted
    
    
    Weighted AverageStock
    
    
    Exercise Price(Number of Shares)
    
    
    Per ShareBalance at December 31, 2005
    
    
    14,762,614
    
    
    $
    15.59Granted
    
    
    1,728,997
    
    
    
    16.21Exercised
    
    
    (875,458
    )
    
    
    11.65Forfeited or expired
    
    
    (377,500
    )
    
    
    20.28Balance at June 30, 2006
    
    
    15,238,653
    
    
    $
    15.76
   Options, Restricted Stock, & Stock AppreciationRights Outstanding
    
    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
    
    
    2,943,598
    
    
    
    6.28
    
    
    $
    3.99
    
    
    $
    45,357,559
    
    
    
    1,284,235
    
    
    
    4.58
    
    
    $
    8.95
    
    
    $
    13,421,620$10.10 to $14.21
    
    
    2,718,078
    
    
    
    5.62
    
    
    $
    11.94
    
    
    
    20,284,883
    
    
    
    2,572,417
    
    
    
    5.52
    
    
    $
    11.84
    
    
    
    19,435,390$14.34 to $18.85
    
    
    2,727,677
    
    
    
    6.42
    
    
    $
    16.90
    
    
    
    6,808,637
    
    
    
    1,954,179
    
    
    
    5.95
    
    
    $
    16.64
    
    
    
    5,397,505$18.94 to $20.72
    
    
    2,611,977
    
    
    
    5.90
    
    
    $
    19.95
    
    
    
    8,589
    
    
    
    1,431,322
    
    
    
    5.30
    
    
    $
    19.99
    
    
    
    5,333$20.74 to $23.94
    
    
    3,202,372
    
    
    
    5.21
    
    
    $
    22.32
    
    
    
    
    
    
    
    1,840,682
    
    
    
    4.13
    
    
    $
    22.87
    
    
    $24.75 to $28.13
    
    
    1,034,951
    
    
    
    4.51
    
    
    $
    25.38
    
    
    
    
    
    
    
    1,034,951
    
    
    
    4.51
    
    
    $
    25.38
    
    
    $ 0.00 to $28.13
    
    
    15,238,653
    
    
    
    5.78
    
    
    $
    15.76
    
    
    $
    72,459,668
    
    
    
    10,117,786
    
    
    
    5.10
    
    
    $
    16.95
    
    
    $
    38,259,848
    Weighted AverageOutstanding Options
    
    
    Exercise PriceNumber of Shares
    
    
    Per ShareBalance at December 31, 2005
    
    
    7,175,320
    
    
    $
    3.38Forfeited or expired
    
    
    (1,979,210
    )
    
    
    3.24Balance at June 30, 2006
    
    
    5,196,110
    
    
    $
    3.43
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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
    
    
    693,000
    
    
    
    6.58
    
    
    $
    0.75
    
    
    
    591,910
    
    
    $
    0.75$0.78
    
    
    1,230,000
    
    
    
    7.15
    
    
    $
    0.78
    
    
    
    908,890
    
    
    $
    0.78$5.00
    
    
    3,273,110
    
    
    
    4.04
    
    
    $
    5.00
    
    
    
    3,266,078
    
    
    $
    5.00$0.75 to $5.00
    
    
    5,196,110
    
    
    
    5.11
    
    
    $
    3.43
    
    
    
    4,766,878
    
    
    $
    3.67
   Weighted AverageOutstanding Options
    
    
    Exercise Price(Number of Shares)
    
    
    Per ShareBalance at December 31, 2005
    
    
    11,516,699
    
    
    $
    2.51Forfeited or expired
    
    
    (1,084,757
    )
    
    
    2.51Balance at June 30, 2006
    
    
    10,431,942
    
    
    $
    2.51
    Comparable Disclosures
  9




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##### Table of Contents



Three
    
    
    SixMonths
    
    
    MonthsEnded
    
    
    Ended(Dollars in thousands, except per share data)
    
    June 30, 2005
    
    
    June 30, 2005As reported net income  stock-based employee compensation determined using the intrinsic
value method
    
    $
    15,855
    
    
    $
    29,201Add: Stock-based employee compensation cost, net of tax, included in net income as reported
    
    
    1,940
    
    
    
    3,397Less: Pro-forma stock-based employee compensation cost, net of tax, determined under the fair
value method
    
    
    (4,329
    )
    
    
    (8,780
    )Pro-forma net income  stock-based employee compensation determined under the fair value method
    
    $
    13,466
    
    
    $
    23,818Basic net income per shareAs reported
    
    $
    0.18
    
    
    $
    0.32Pro forma
    
    
    0.15
    
    
    
    0.26Diluted net income per shareAs reported
    
    $
    0.17
    
    
    $
    0.31Pro forma
    
    
    0.15
    
    
    
    0.25
 Net income per share .
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    26,333
    
    
    $
    15,855
    
    
    $
    43,585
    
    
    $
    29,201Basic net income per share
    
    $
    0.30
    
    
    $
    0.18
    
    
    $
    0.49
    
    
    $
    0.32Shares used in computing basic net income per share
    
    
    89,113
    
    
    
    88,905
    
    
    
    89,375
    
    
    
    90,787Diluted net income per share
    
    $
    0.29
    
    
    $
    0.17
    
    
    $
    0.48
    
    
    $
    0.31Shares used in computing basic net income per share
    
    
    89,113
    
    
    
    88,905
    
    
    
    89,375
    
    
    
    90,787Dilutive effect of stock options, restricted stock and stock appreciation rights
    
    
    2,289
    
    
    
    2,418
    
    
    
    2,341
    
    
    
    2,444Shares used in computing diluted net income per share
    
    
    91,402
    
    
    
    91,323
    
    
    
    91,716
    
    
    
    93,231
  Comprehensive Income
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    26,333
    
    
    $
    15,855
    
    
    $
    43,585
    
    
    $
    29,201Foreign currency translation gains/(losses)
    
    
    8,790
    
    
    
    (16,798
    )
    
    
    10,772
    
    
    
    (27,771
    )Unrealized gains/(losses) on marketable securities
    
    
    (215
    )
    
    
    20
    
    
    
    (588
    )
    
    
    (230
    )Comprehensive income (loss)
    
    $
    34,908
    
    
    $
    (923
    )
    
    $
    53,769
    
    
    $
    1,200
  10




---



##### Table of Contents



Segment Information
    11




---



##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    59,105
    
    
    $
    26
    
    
    
    
    
    
    $
    59,131Mobile and Embedded
    
    
    7,605
    
    
    
    16,405
    
    
    
    
    
    
    
    24,010Subtotal license fees
    
    
    66,710
    
    
    
    16,431
    
    
    
    
    
    
    
    83,141Intersegment license revenues
    
    
    22
    
    
    
    6,338
    
    
    
    (6,360
    )
    
    
    Total license fees
    
    
    66,732
    
    
    
    22,769
    
    
    
    (6,360
    )
    
    
    83,141ServicesDirect service revenue
    
    
    121,183
    
    
    
    11,235
    
    
    
    
    
    
    
    132,418Intersegment service revenues
    
    
    52
    
    
    
    6,055
    
    
    
    (6,107
    )
    
    
    Total services
    
    
    121,235
    
    
    
    17,290
    
    
    
    (6,107
    )
    
    
    132,418Total revenues
    
    
    187,967
    
    
    
    40,059
    
    
    
    (12,467
    )
    
    
    215,559Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology, cost of restructure
and unallocated costs
    
    
    151,248
    
    
    
    34,445
    
    
    
    (12,467
    )
    
    
    173,226Operating income before amortization of other purchased
intangibles, purchased technology, cost of restructure and
unallocated costs
    
    
    36,719
    
    
    
    5,614
    
    
    
    
    
    
    
    42,333Amortization of other purchased intangibles
    
    
    506
    
    
    
    1,046
    
    
    
    
    
    
    
    1,552Amortization of purchased technology
    
    
    339
    
    
    
    1,964
    
    
    
    
    
    
    
    2,303Operating income before cost of restructure and unallocated costs
    
    
    35,874
    
    
    
    2,604
    
    
    
    
    
    
    
    38,478Cost of restructure  2006 Activity
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Operating income before unallocated costs
    
    
    35,808
    
    
    
    2,604
    
    
    
    
    
    
    
    38,412Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,062Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,350Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,217Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    39,567
  Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    47,955
    
    
    $
    36
    
    
    
    
    
    
    $
    47,991Mobile and Embedded
    
    
    7,158
    
    
    
    12,766
    
    
    
    
    
    
    
    19,924Subtotal license fees
    
    
    55,113
    
    
    
    12,802
    
    
    
    
    
    
    
    67,915Intersegment license revenues
    
    
    21
    
    
    
    5,957
    
    
    
    (5,978
    )
    
    
    Total license fees
    
    
    55,134
    
    
    
    18,759
    
    
    
    (5,978
    )
    
    
    67,915ServicesDirect service revenue
    
    
    126,993
    
    
    
    9,500
    
    
    
    
    
    
    
    136,493Intersegment service revenues
    
    
    
    
    
    
    6,789
    
    
    
    (6,789
    )
    
    
    Total services
    
    
    126,993
    
    
    
    16,289
    
    
    
    (6,789
    )
    
    
    136,493Total revenues
    
    
    182,127
    
    
    
    35,048
    
    
    
    (12,767
    )
    
    
    204,408Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology, cost of restructure
and unallocated costs
    
    
    156,187
    
    
    
    28,098
    
    
    
    (12,767
    )
    
    
    171,518Operating income before amortization of other purchased
intangibles, purchased technology, cost of restructure and
unallocated costs
    
    
    25,940
    
    
    
    6,950
    
    
    
    
    
    
    
    32,890Amortization of other purchased intangibles
    
    
    500
    
    
    
    1,177
    
    
    
    
    
    
    
    1,677Amortization of purchased technology
    
    
    1,362
    
    
    
    979
    
    
    
    
    
    
    
    2,341Operating income before cost of restructure and unallocated costs
    
    
    24,078
    
    
    
    4,794
    
    
    
    
    
    
    
    28,872Cost of restructure  2005 Activity
    
    
    289
    
    
    
    
    
    
    
    
    
    
    
    289Operating income before unallocated costs
    
    
    23,789
    
    
    
    4,794
    
    
    
    
    
    
    
    28,583Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,051Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,631Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    31,682
 12




---



##### Table of Contents



Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    103,280
    
    
    $
    66
    
    
    
    
    
    
    $
    103,346Mobile and Embedded
    
    
    12,858
    
    
    
    33,825
    
    
    
    
    
    
    
    46,683Subtotal license fees
    
    
    116,138
    
    
    
    33,891
    
    
    
    
    
    
    
    150,029Intersegment license revenues
    
    
    43
    
    
    
    10,686
    
    
    
    (10,729
    )
    
    
    Total license fees
    
    
    116,181
    
    
    
    44,577
    
    
    
    (10,729
    )
    
    
    150,029ServicesDirect service revenue
    
    
    238,020
    
    
    
    22,518
    
    
    
    
    
    
    
    260,538Intersegment service revenues
    
    
    102
    
    
    
    12,192
    
    
    
    (12,294
    )
    
    
    Total services
    
    
    238,122
    
    
    
    34,710
    
    
    
    (12,294
    )
    
    
    260,538Total revenues
    
    
    354,303
    
    
    
    79,287
    
    
    
    (23,023
    )
    
    
    410,567Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology, cost of restructure and
unallocated costs
    
    
    294,960
    
    
    
    68,580
    
    
    
    (23,023
    )
    
    
    340,517Operating income before amortization of other purchased intangibles,
purchased technology, cost of restructure and unallocated costs
    
    
    59,343
    
    
    
    10,707
    
    
    
    
    
    
    
    70,050Amortization of other purchased intangibles
    
    
    1,006
    
    
    
    2,092
    
    
    
    
    
    
    
    3,098Amortization of purchased technology
    
    
    822
    
    
    
    3,928
    
    
    
    
    
    
    
    4,750Operating income before cost of restructure and unallocated cost savings
    
    
    57,515
    
    
    
    4,687
    
    
    
    
    
    
    
    62,202Cost of restructure  2006 Activity
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Operating income before unallocated costs
    
    
    57,415
    
    
    
    4,687
    
    
    
    
    
    
    
    62,102Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,807Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,295Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,275Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    64,570
  Consolidated(In thousands)
    
    IPG
    
    
    iAS
    
    
    Elimination
    
    
    TotalRevenues:License feesInfrastructure
    
    $
    95,109
    
    
    $
    48
    
    
    
    
    
    
    $
    95,157Mobile and Embedded
    
    
    12,580
    
    
    
    22,886
    
    
    
    
    
    
    
    35,466Subtotal license fees
    
    
    107,689
    
    
    
    22,934
    
    
    
    
    
    
    
    130,623Intersegment license revenues
    
    
    43
    
    
    
    10,466
    
    
    
    (10,509
    )
    
    
    Total license fees
    
    
    107,732
    
    
    
    33,400
    
    
    
    (10,509
    )
    
    
    130,623ServicesDirect service revenue
    
    
    247,256
    
    
    
    18,440
    
    
    
    
    
    
    
    265,696Intersegment service revenues
    
    
    6
    
    
    
    13,288
    
    
    
    (13,294
    )
    
    
    Total services
    
    
    247,262
    
    
    
    31,728
    
    
    
    (13,294
    )
    
    
    265,696Total revenues
    
    
    354,994
    
    
    
    65,128
    
    
    
    (23,803
    )
    
    
    396,319Total allocated costs and expenses before amortization of other
purchased intangibles, purchased technology, cost of restructure
and unallocated costs
    
    
    305,049
    
    
    
    55,556
    
    
    
    (23,803
    )
    
    
    336,802Operating income before amortization of other purchased
intangibles, purchased technology, cost of restructure and
unallocated costs
    
    
    49,945
    
    
    
    9,572
    
    
    
    
    
    
    
    59,517Amortization of other purchased intangibles
    
    
    1,000
    
    
    
    2,354
    
    
    
    
    
    
    
    3,354Amortization of purchased technology
    
    
    5,093
    
    
    
    1,958
    
    
    
    
    
    
    
    7,051Operating income before cost of restructure and unallocated costs
    
    
    43,852
    
    
    
    5,260
    
    
    
    
    
    
    
    49,112Cost of restructure  2005 Activity
    
    
    281
    
    
    
    
    
    
    
    
    
    
    
    281Operating income before unallocated costs
    
    
    43,571
    
    
    
    5,260
    
    
    
    
    
    
    
    48,831Unallocated costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    474Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,357Interest income, interest expense and other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,739Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    55,096
 13




---



##### 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
    
    
    
    
    
    
    542
    
    
    
    542Addition in goodwill recorded on Solonde acquisition
    
    
    2,055
    
    
    
    
    
    
    
    2,055Foreign currency translation adjustments & other
    
    
    731
    
    
    
    
    
    
    
    731Balance at June 30, 2006
    
    $
    118,970
    
    
    $
    123,222
    
    
    $
    242,192
  June 30, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Net
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(In thousands)
    
    Amount
    
    
    Amortization
    
    
    Carrying Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountPurchased technology
    
    $
    137,327
    
    
    $
    (89,884
    )
    
    $
    47,443
    
    
    $
    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
    
    
    
    (5
    )
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    Customer lists
    
    
    47,589
    
    
    
    (19,961
    )
    
    
    27,628
    
    
    
    47,589
    
    
    
    (16,869
    )
    
    
    30,720Totals
    
    $
    192,335
    
    
    $
    (109,850
    )
    
    $
    82,485
    
    
    $
    189,527
    
    
    $
    (101,965
    )
    
    $
    87,562
  2006
    
    $
    15,7332007
    
    
    15,7542008
    
    
    15,6802009
    
    
    15,2872010
    
    
    12,852
  Litigation .
  14




---



##### 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
    
    
    (1.2
    )
    
    
    (0.1
    )
    
    
    (1.6
    )
    
    
    (1.0
    )Accrued liabilities at June 30, 2006
    
    $
    4.0
    
    
    $
    0.2
    
    
    $
    9.1
    
    
    $
    2.6
    Accrued liabilities at December 31, 2005
    
    $
    2.1Amounts paid
    
    
    (0.6
    )Accrued liabilities at June 30, 2006
    
    $
    1.5
 Convertible Subordinated Notes
 15




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##### Table of Contents



Business Combinations.
 Recent Accounting Pronouncements
 16




---



##### Table of Contents



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




---



##### Table of Contents




    
    Business Trends
      Critical Accounting Policies and Estimates
  18




---



##### Table of Contents



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,
   New Accounting Pronouncements
  19




---



##### Table of Contents



Results of Operations
 Revenues
(Dollars in millions)
 Three Months ended June 30,
    
    
    Six Months ended June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeLicense fees by segment:IPG
    
    $
    66.7
    
    
    $
    55.1
    
    
    
    21
    %
    
    $
    116.2
    
    
    $
    107.7
    
    
    
    8
    %IAS
    
    
    22.8
    
    
    
    18.8
    
    
    
    21
    %
    
    
    44.5
    
    
    
    33.4
    
    
    
    33
    %Eliminations
    
    
    (6.4
    )
    
    
    (6.0
    )
    
    
    7
    %
    
    
    (10.7
    )
    
    
    (10.5
    )
    
    
    2
    %Total license fees
    
    $
    83.1
    
    
    $
    67.9
    
    
    
    22
    %
    
    $
    150.0
    
    
    $
    130.6
    
    
    
    15
    %Percentage of total revenues
    
    
    39
    %
    
    
    33
    %
    
    
    
    
    
    
    37
    %
    
    
    33
    %Services by segment:IPG
    
    $
    121.3
    
    
    $
    127.0
    
    
    
    (4
    %)
    
    $
    238.2
    
    
    $
    247.3
    
    
    
    (4
    %)IAS
    
    
    17.3
    
    
    
    16.3
    
    
    
    6
    %
    
    
    34.7
    
    
    
    31.7
    
    
    
    9
    %Eliminations
    
    
    (6.1
    )
    
    
    (6.8
    )
    
    
    (10
    %)
    
    
    (12.3
    )
    
    
    (13.3
    )
    
    
    (8
    %)Total Services
    
    $
    132.5
    
    
    $
    136.5
    
    
    
    (3
    %)
    
    $
    260.6
    
    
    $
    265.7
    
    
    
    (2
    %)Percentage of total revenues
    
    
    61
    %
    
    
    67
    %
    
    
    
    
    
    
    63
    %
    
    
    67
    %Total revenues
    
    $
    215.6
    
    
    $
    204.4
    
    
    
    5
    %
    
    $
    410.6
    
    
    $
    396.3
    
    
    
    4
    %
  ® ®
     20




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##### Table of Contents



Geographical Revenues
(Dollars in millions)
 Three Months ended June 30,
    
    Six Months ended June 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeNorth American
    
    $
    118.4
    
    
    $
    115.8
    
    
    
    2
    %
    
    $
    231.6
    
    
    $
    225.8
    
    
    
    3
    %Percentage of total revenues
    
    
    55
    %
    
    
    57
    %
    
    
    
    
    
    
    56
    %
    
    
    57
    %Total Outside North America
    
    $
    97.2
    
    
    $
    88.6
    
    
    
    10
    %
    
    $
    179.0
    
    
    $
    170.5
    
    
    
    5
    %Percentage of total revenues
    
    
    45
    %
    
    
    43
    %
    
    
    
    
    
    
    44
    %
    
    
    43
    %International: EMEA (Europe, Middle East and Africa)
    
    $
    66.7
    
    
    $
    59.0
    
    
    
    13
    %
    
    $
    121.9
    
    
    $
    113.5
    
    
    
    7
    %Percentage of total revenues
    
    
    31
    %
    
    
    29
    %
    
    
    
    
    
    
    30
    %
    
    
    29
    %Intercontinental: (Asia Pacific and Latin America)
    
    $
    30.5
    
    
    $
    29.6
    
    
    
    3
    %
    
    $
    57.1
    
    
    $
    57.0
    
    
    
    *Percentage of total revenues
    
    
    14
    %
    
    
    14
    %
    
    
    
    
    
    
    14
    %
    
    
    14
    %Total revenues
    
    $
    215.6
    
    
    $
    204.4
    
    
    
    5
    %
    
    $
    410.6
    
    
    $
    396.3
    
    
    
    4
    %
 
 *
    
    Not meaningful       21




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##### Table of Contents



Costs and Expenses
(Dollars in millions)
 Three Months ended June 30,
    
    Six Months ended June 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeCost of license fees
    
    $
    11.9
    
    
    $
    11.7
    
    
    
    2
    %
    
    $
    24.7
    
    
    $
    26.0
    
    
    
    (5
    %)Percentage of license fees revenues
    
    
    14
    %
    
    
    17
    %
    
    
    
    
    
    
    16
    %
    
    
    20
    %Cost of services
    
    $
    38.3
    
    
    $
    39.9
    
    
    
    (4
    %)
    
    $
    76.7
    
    
    $
    80.3
    
    
    
    (4
    %)Percentage of services revenues
    
    
    29
    %
    
    
    29
    %
    
    
    
    
    
    
    29
    %
    
    
    30
    %Sales and marketing
    
    $
    67.8
    
    
    $
    65.4
    
    
    
    4
    %
    
    $
    129.2
    
    
    $
    124.9
    
    
    
    3
    %Percentage of total revenues
    
    
    31
    %
    
    
    32
    %
    
    
    
    
    
    
    31
    %
    
    
    32
    %Product development and engineering
    
    $
    37.5
    
    
    $
    34.3
    
    
    
    9
    %
    
    $
    74.5
    
    
    $
    67.8
    
    
    
    10
    %Percentage of total revenues
    
    
    17
    %
    
    
    17
    %
    
    
    
    
    
    
    18
    %
    
    
    17
    %General and administrative
    
    $
    25.9
    
    
    $
    23.1
    
    
    
    12
    %
    
    $
    50.9
    
    
    $
    45.3
    
    
    
    12
    %Percentage of total revenues
    
    
    12
    %
    
    
    11
    %
    
    
    
    
    
    
    12
    %
    
    
    11
    %Amortization of other purchased intangibles
    
    $
    1.6
    
    
    $
    1.7
    
    
    
    (6
    %)
    
    $
    3.1
    
    
    $
    3.4
    
    
    
    (9
    %)Percentage of total revenues
    
    
    1
    %
    
    
    1
    %
    
    
    
    
    
    
    1
    %
    
    
    1
    %Cost of restructure
    
    $
    0.1
    
    
    $
    0.3
    
    
    
    (67
    %)
    
    $
    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.
 22




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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 June 30,
    
    
    Six Months ended June 30,Percent
    
    
    
    
    
    
    
    
    
    
    Percent2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeOperating income by segment:IPG
    
    $
    35.8
    
    
    $
    23.8
    
    
    
    50
    %
    
    $
    57.4
    
    
    $
    43.6
    
    
    
    32
    %IAS
    
    
    2.6
    
    
    
    4.8
    
    
    
    (46
    %)
    
    
    4.7
    
    
    
    5.3
    
    
    
    (11
    %)Unallocated costs
    
    
    (6.0
    )
    
    
    (0.5
    )
    
    
    1100
    %
    
    
    (10.8
    )
    
    
    (0.5
    )
    
    
    2060
    %Total operating income:
    
    $
    32.4
    
    
    $
    28.1
    
    
    
    15
    %
    
    $
    51.3
    
    
    $
    48.4
    
    
    
    6
    %Percentage of total revenues
    
    
    15
    %
    
    
    14
    %
    
    
    
    
    
    
    12
    %
    
    
    12
    %
   23




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##### Table of Contents



Other Income (Expense), Net
(Dollars in millions)
 Three Months ended June 30,
    
    Six Months ended June 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeInterest income
    
    $
    10.2
    
    
    $
    6.7
    
    
    
    52
    %
    
    $
    18.8
    
    
    $
    11.7
    
    
    
    61
    %Percentage of total revenues
    
    
    5
    %
    
    
    3
    %
    
    
    
    
    
    
    5
    %
    
    
    3
    %Interest expense and other, net
    
    $
    (3.0
    )
    
    $
    (3.0
    )
    
    
    *
    
    
    $
    (5.5
    )
    
    $
    (4.9
    )
    
    
    12
    %Percentage of total revenues
    
    
    (1
    %)
    
    
    (1
    %)
    
    
    
    
    
    
    (1
    %)
    
    
    (1
    %)
 
 *
    
    Not meaningful   Provision for Income Taxes
(Dollars in millions)
 Three Months ended June 30,
    
    Six Months ended June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeProvision for income taxes
    
    $
    13.2
    
    
    $
    15.8
    
    
    
    (16
    %)
    
    $
    21.0
    
    
    
    
    
    
    $
    25.9
    
    
    
    (19
    %)
   24




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##### Table of Contents



Net Income Per Share
(Dollars and shares in millions, except per share data)
 Three Months ended June 30,
    
    Six Months ended June 30,Percent
    
    
    
    
    
    
    
    
    
    Percent2006
    
    2005
    
    Change
    
    2006
    
    2005
    
    ChangeNet income
    
    $
    26.3
    
    
    $
    15.9
    
    
    
    65
    %
    
    $
    43.6
    
    
    $
    29.2
    
    
    
    49
    %Percentage of total revenues
    
    
    12
    %
    
    
    8
    %
    
    
    
    
    
    
    11
    %
    
    
    7
    %Basic net income per share
    
    $
    0.30
    
    
    $
    0.18
    
    
    
    67
    %
    
    $
    0.49
    
    
    $
    0.32
    
    
    
    53
    %Diluted net income per share
    
    $
    0.29
    
    
    $
    0.17
    
    
    
    71
    %
    
    $
    0.48
    
    
    $
    0.31
    
    
    
    55
    %Shares used in computing basic net income per share
    
    
    89.1
    
    
    
    88.9
    
    
    
    *
    
    
    
    89.4
    
    
    
    90.8
    
    
    
    (2
    %)Shares used in computing diluted net income per share
    
    
    91.4
    
    
    
    91.3
    
    
    
    *
    
    
    
    91.7
    
    
    
    93.2
    
    
    
    (2
    %)
 
 *
    
    Not meaningful    Liquidity and Capital Resources
(Dollars in millions)
 Six Months EndedJune 30,Percent2006
    
    2005
    
    ChangeWorking capital
    
    $
    635.2
    
    
    $
    643.6
    
    
    
    (1
    %)Cash, cash equivalents and cash investments
    
    $
    930.4
    
    
    $
    905.7
    
    
    
    3
    %Net cash provided by operating activities
    
    $
    125.0
    
    
    $
    116.8
    
    
    
    7
    %Net cash used for investing activities
    
    $
    37.5
    
    
    $
    329.4
    
    
    
    (89
    %)Net cash provided by (used for) financing activities
    
    $
    (33.2
    )
    
    $
    332.6
    
    
    
    *
 
 *
    
    Not meaningful     25




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##### Table of Contents



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
       
 ITEM 4: CONTROLS AND PROCEDURES
   26




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##### Table of Contents



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.
    Economic conditions in the U.S. and worldwide could adversely affect our revenues.
  27




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##### Table of Contents



If we fail to maintain or expand our relationships with strategic partners and indirect
distribution channels our license revenues could decline.
   Industry consolidation and other competitive pressures could affect prices or demand for our
products and services, and our business may be adversely affected.
   The ability to rapidly develop and bring to market advanced products and services that are
successful is crucial to maintaining our competitive position.
  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.
  28




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##### Table of Contents



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.
     Restructuring activities and reorganizations in our sales model or business units may not succeed
in increasing revenues and operating results.
   29




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##### Table of Contents



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.
   Growing market acceptance of open source software could cause a decline in our revenues and
operating margins.
  30




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##### Table of Contents



If we are unable to protect our intellectual property, or if we infringe or are alleged to infringe
a third partys intellectual property, our operating results may be adversely affected.
    Our key personnel are critical to our business, and we cannot assure that they will remain with us.
  Changes in accounting and legal standards could adversely affect our future operating results.
   31




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##### Table of Contents



The unfavorable outcome of litigation and other claims against us could have a material adverse
impact on our financial condition and results of operations.
  Our operations and financial results could be severely harmed by certain natural disasters.
  Provisions of our corporate documents have anti-takeover effects that could prevent a change in
control.
  32




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##### Table of Contents



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 ($)April 1 30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1  31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1  30
    
    
    958,700
    
    
    $
    21.50
    
    
    
    958,700
    
    
    $
    264,330,000Total
    
    
    958,700
    
    
    $
    21.50
    
    
    
    958,700
    
    
    $
    264,330,000
 33




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##### Table of Contents



ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    Election of three Class II directors, each to serve a three-year term
expiring at the 2009 Annual Meeting of Stockholders or until a
successor is duly elected and qualified. Richard C. Alberding, Jack E.
Sum and Linda K. Yates were the only nominees, and each was elected
(80,353,570 votes were cast for the election of Mr. Alberding and
1,123,304 were withheld; 80,753,272 votes were cast for the election
of Mr. Sum and 723,602 were withheld; and 80,732,772 votes were cast
for the election of Ms. Yates and 744,102 were withheld). There were
no abstentions or broker non-votes. In addition to these directors,
our boards other incumbent directors (John Chen, Alan B. Salisbury,
Cecilia Claudio, L. William Krause and Robert P. Wayman) had terms
that continued after the 2006 Annual Meeting.2.
    
    Ratification of the appointment of Ernst & Young LLP as independent
auditors for the year ending December 31, 2006 (80,855,960 for;
529,824 against; 91,090: abstentions and no broker non-votes).3.
    
    Stockholder proposal to reorganize the Board of Directors into a
single class (55,649,267 for; 16,283,297 against; 190,345 abstentions
and no broker non-votes).
 
 ITEM 6: EXHIBITS
   34




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##### Table of Contents



SIGNATURES
  August 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)
 35




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##### 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