SYBASE INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

[ ] 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: 0-19395

SYBASE, INC.
(Exact name of registrant as Specified in its Charter)

DELAWARE 94-2941005
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

5000 HACIENDA DRIVE, DUBLIN, CALIFORNIA 94568
(Address of principal executive offices and Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (925) 236-5000

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on March
22, 2002, as reported on the New York Stock Exchange, was approximately $17.23.
Shares of Common Stock held by each officer and director and by each person who
owns 10% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes. As of March
22, 2002, Registrant had 98,742,437 shares of Common Stock outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements that involve risk
and uncertainties that could cause the actual results of Sybase, Inc. and its
consolidated subsidiaries ("Sybase", the "Company," "we" or "us") to differ
materially from those expressed or implied by such forward-looking statements.
These risks include sales productivity, particularly in North America; possible
disruptive effects of organizational changes; shifts in customer or market
demand for our products and services; public perception of Sybase, our
technology vision and future prospects; rapid technological changes; competitive
factors; delays in scheduled product availability dates (which could result from
various occurrences including development or testing difficulties, software
errors, shortages in appropriately skilled software engineers and project
management problems); interoperability of our products with other software
products, risks inherent in completing the acquisition of other companies, the
ability to integrate acquired companies into our business, and other risks
detailed from time to time in our Securities and Exchange Commission filings.

Expectations, forecasts, and projections that may be contained in this
report are by nature forward-looking statements, and future results cannot be
guaranteed. The words "anticipate," "believe," "estimate," "expect," "intend,"
"will," and similar expressions in this document, as they relate to Sybase and
our management, may identify forward-looking statements. Such statements reflect
the current views of our management with respect to future events and are
subject to risks, uncertainties and assumptions. Forward-looking statements that
were true at the time made may ultimately prove to be incorrect or false, or may
vary materially from those described as anticipated, believed, estimated,
intended or expected. We do not intend to update these forward-looking
statements.

PART I

ITEM 1. BUSINESS

Sybase is the enterprise infrastructure company that bridges heterogeneous
technologies. We are one of the largest independent software companies in the
world with an industry-leading Enterprise Portal (EP), mobile and wireless
solutions, essential integration products, high performance database management
systems, and solutions in such vertical markets as financial services,
telecommunications, healthcare and the public sector. Sybase was founded and
incorporated in California on November 15, 1984, and was re-incorporated in
Delaware on July 1, 1991. Our business is organized into five principal
operating divisions, two of which are majority owned subsidiaries.

- Enterprise Solutions Division (ESD) products and solutions let
enterprises integrate, move and manage very large amounts of data and
applications across diverse computing environments. ESD also provides
technical support and professional services required by businesses to
develop and maintain operational systems, including e-Business
infrastructures.

- e-Business Division (eBD) integrates our core technology with emerging
solutions to offer advanced e-Business technology. It is comprised of
Sybase's flagship Enterprise Portal product, tools for personalization,
globalization, integration, high security, plus Sybase's historical
infrastructure expertise. eBD focuses on products from our former
Internet Applications Division (IAD) and certain products formerly within
ESD and New Era of Networks, Inc. (NEN), a wholly owned subsidiary which
we acquired in April 2001.

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- iAnywhere Solutions, Inc. (iAS) products and solutions extend enterprise
systems to remote and wireless devices to enable e-Business and
m-Business (mobile business) anywhere, anytime. iAS is a majority owned
subsidiary that continues the business of our former Mobile and Embedded
Computing (MEC) division.

- Business Intelligence Division (BID) products and solutions let
businesses consolidate and analyze large amounts of information from data
warehouses and data marts to facilitate better decision making and gain a
competitive edge in sales and marketing, customer satisfaction, trend and
risk analysis, and other mission-critical areas.

- Financial Fusion, Inc. (FFI) provides enterprise-class e-Finance
solutions to the world's leading financial institutions, fusing
applications and middleware on a single, integrated platform. FFI builds
complete financial destinations for banking, and straight-through
processing (STP) solutions for capital markets. All solutions run on the
Financial Fusion Server(TM), a 100% Java based, multi-tier architecture,
built to open standards. FFI is a majority owned subsidiary created to
carry on the business of Home Financial Network, Inc. (HFN), which we
acquired in January 2000, and to focus on certain products formerly
within our NEN subsidiary.

A summary of financial results for these divisions and subsidiaries is
found in Note Ten to the Consolidated Financial Statements, Part II, Item 8,
incorporated here by reference.

CUSTOMERS

Our customers are primarily Fortune 1000 companies in North America and
their equivalents in other geographic regions. Our primary markets include
financial services, insurance, telecommunications, healthcare, defense and
government agencies. No single customer accounted for more than 10% of total
revenues during 2001, 2000 or 1999. The following were among our customers
during 2001:

- One of the world's largest cable and wire manufacturers using Sybase's
ENTERPRISE PORTAL to provide personalized information, single sign on,
and specially tailored security to aggregate an e-commerce site, the
company's Intranet, various standalone customer tools, and subscriber
content.

- A leading home improvement retailer using ADAPTIVE SERVER(R) ENTERPRISE
to efficiently manage and share data, and reduce overall operating costs
throughout an aggressive store expansion plan.

- The UK's largest electricity supplier and second largest gas supplier
using INDUSTRY WAREHOUSE STUDIO(TM) as the infrastructure for a
sophisticated analytic data warehouse allowing implementation of targeted
marketing programs that generated thousands of new customers a week.

- A high-profile department within the U.S. military using SQL ANYWHERE(R)
STUDIO to create a powerful and easy-to-use inventory application running
on handheld devices -- saving $2,000 per mobile device and reducing
inspection man hours by 50%.

Our products are available on hardware platforms manufactured by Compaq,
Hewlett-Packard, IBM, Sun Microsystems and others. We also make products that
connect these platforms to other hardware platforms with large installed bases.
Our products are also available for a wide range of operating systems including
various UNIX environments, Windows, Windows NT, and Linux. A description of the
principal products of each subsidiary and division follows:

eBUSINESS DIVISION (eBD)

Sybase(R) Enterprise Portal (EP) is an extensible portal environment that
meets next-generation e-Business requirements, with powerful capabilities for
extending the enterprise to trading partners and expanding its reach to mobile
workers.

Sybase(R) EAServer is a highly scalable, robust application server for
e-portal and Internet business solutions. It provides best-of-class transaction
and security management and high availability, enabling customers to support
highly trafficked Web sites.

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New Era of Networks(R) e-Business Integration Servers is a suite of
high-powered, e-Business integration software designed to provide the brains and
muscle needed to help businesses make the transition from "bricks to clicks",
connecting core operational systems and Web-interfacing applications for
seamless, effective integration.

New Era of Networks(R) Process Server is an XML-based business process
design tool and execution server. It helps companies integrate new and existing
IT systems into a cohesive business process flow that speeds response times,
improves efficiency and reduces operational costs.

PowerDesigner(R) is the industry's first design tool with an
enterprise-class repository that simplifies UML object modeling and data
modeling, including Java and XML.

ENTERPRISE SOLUTIONS DIVISION (ESD)

Adaptive Server(R) Enterprise (ASE) is an information management system and
portal-ready database designed to support the demanding requirements of both
traditional and e-Business mission-critical applications. ASE delivers unique
features for increased developer productivity, continuous availability of
mission-critical applications and integration of disparate operational systems,
thus enabling the efficient and rapid delivery of e-Business applications for
the global economy.

Replication Server(R) and Replication Agent(TM) allow remote sites to share
data from a primary data site, and to automatically receive updated data from
the primary site. Replication Server uses "store-and-forward asynchronous
replication" that monitors and copies changes made at the primary data site,
then automatically forwards those changes to all replicated sites. Sybase
replication technology offers an innovative practical architecture for building
cost-effective, high-performance, robust distributed systems, and supplies a
flexible approach to information delivery that can rapidly adapt to changing
business needs.

PowerBuilder(R) is a high productivity application development tool
targeted for the client/server and Web application markets.

EnterpriseConnect(TM), DirectConnect(TM) and Open Server(TM) are among
Sybase's core data access and integration products. These products allow users
to use a single language to access varied types of data and applications (e.g.,
real-time data feeds, stored data) from multiple sources as if they were
contained in a single database.

Enterprise Event Broker enables custom applications to transmit information
to other applications within the enterprise. Event Broker completely automates
the capture and delivery of business events while giving customers the
flexibility to define the mapping between events to better meet the needs of
their enterprise requirements.

iANYWHERE SOLUTIONS (iAS)

SQL Anywhere(R) Studio with MobiLink and UltraLite(TM) is the
industry-leading mobile database for use on workgroup servers, laptops and
handheld devices, and supports applications used by single or multiple users.
The UltraLite deployment option minimizes memory and system requirements for
applications found in devices such as smart phones and intelligent appliances.
SQL Anywhere Studio technology allows scalable bidirectional synchronization of
e-Business information between enterprise systems and remote devices. This means
that mobile users can send and receive critical data ensuring that up-to-date
information is always available at their fingertips and at the head office.

iAnywhere(TM) Wireless Server is a scalable and reliable wireless
application server that provides data synchronization, messaging, content and
session management to extend e-Business to wireless devices. It is also a
gateway for secure wireless connectivity between IT and communications networks
(such as cellular networks and packet radio networks). By providing "always
available" access to corporate information even when a network connection is
unavailable, the iAnywhere Wireless Server enables organizations to transform
their business for the wireless revolution.

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BUSINESS INTELLIGENCE DIVISION (BID)

Adaptive Server(R) IQ Multiplex (IQ-M) presents a new generation of
capabilities for e-Business intelligence and Web enabled data warehousing,
allowing data access, query performance and data loading 10 to 100 times faster
than traditional relational databases. Multiplexing capabilities allow this
product to maintain high performance levels even with dramatic increases in the
number of users and volume of data. IQ-M can compress even terabytes of data
without the need for continuous, laborious tuning and maintenance.

Industry Warehouse Studio(TM) (IWS) offers strategic, end-to-end business
intelligence infrastructure, which encompasses data acquisition, data modeling,
metadata management, data analysis, data storage and analytic applications. IWS
offers prepackaged solutions that can be customized for a variety of industries
such as retail banking, capital markets, insurance, healthcare and
telecommunications. These solutions provide the basic framework that enables an
organization to analyze customer behavior and its impact on the business.

FINANCIAL FUSION, INC. (FFI)

Financial Fusion(R) Consumer e-Finance Suite combines various components to
create an integrated financial destination to accommodate consumer banking,
wireless application support, bill presentment, payment, and transfer, content
and account aggregation, one-to-one marketing and customer care.

Financial Fusion(R) Business e-Finance Suite -- Micro Edition enables a
full range of business banking and bill payment capabilities from a single point
of access on a financial institution 's website. Micro Editon allows business
customers to access account information, pay bills and access tax advice,
business news and communicate with their financial institution.

Financial Fusion Server(TM), UniversalOFX Edition allows financial
institutions to leverage OFX protocol connectivity to access 401(k) accounts,
income tax information, retail and commercial banking, and electronic trading
and reporting within a robust, scalable architecture. Financial Fusion Server,
UniversalOFX Edition connects millions of customers to their accounts by
utilizing advanced Java technology and flexible message broker-based
infrastructure.

Fusion Powered STP solutions support the business buyer and the technology
buyer, and provide robust, high availability/load balancing financial protocol
exchange solutions and messaging solutions with out-of-the-box protocol support
for FIX, FIXML, FpML, EMX, SWIFT, OMGEO, RIDT and GSTP to facilitate
straight-through processing (STP).

SWIFT for EAI is a robust solution and flexible SWIFT adapter that provides
fast, real-time message transfer, reduced need for operator intervention, and
dramatic improvement in connectivity. The set of format libraries supports ISO
15022, SWIFT 2001 standards (SWIFTGoldReady), NEN's e-Biz Integrator(TM) and
IBM's MQSeries Integrator.

WORLDWIDE SERVICES

Technical Support. Our Customer Service and Support organization offers
technical support for our entire family of products. We currently maintain
regional support centers in North America, Europe, and Asia Pacific that can
provide 24 X 7 technical services (i.e., 24 hours a day, seven days a week) in
all time zones around the world. Our end users and partners have access to
technical information sources and newsgroups on our support Web site, including
a problem-solving library and certain software fixes that can be downloaded. End
users generally can choose technical support programs that best suit their
business needs. All of the following support programs are priced on a
per-product basis and include updates and new version releases during the
support period:

- Basic Support is generally geared toward smaller local enterprises, and
includes business-day support for up to two customer support contacts.

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- Extended Support is the minimum support level recommended for Sybase
database products, and includes 24 X 7 coverage for up to four customer
support contacts.

- Enterprise Support offers personalized high availability support for
companies with mission-critical projects. Services includes 24 X 7
coverage and other specialized options.

- Developer Support programs apply to designated workplace level products,
and are geared toward developers. Under these programs, updates and new
version releases are not included and must be purchased separately.

Each of our major divisions and subsidiaries also offers a variety of support
services to its partners, including value added resellers (VARs), systems
integrators (SIs), original equipment manufacturers (OEMs) and independent
software developers.

Consulting. The Sybase Professional Services (SPS) organization offers
customers comprehensive consulting, training and integration services designed
to optimize their business solutions using both Sybase and non-Sybase products.
Service offerings include assistance with data and system migration, custom
application design and development, implementation, performance improvement,
knowledge transfer and system administration. SPS also provides extensive SQL
and Sybase product training.

Education. We provide a broad education curriculum allowing customers and
partners to increase their proficiency in our products. Basic and advanced
courses are offered at Sybase education centers throughout North America, South
America, Europe and Asia Pacific (including Australia and New Zealand).
Specially tailored customer classes and self-paced training are also available.
A number of our distributors and authorized education providers also provide
training in our products.

SALES AND DISTRIBUTION

Licensing Model. Consistent with software industry practice, we do not
sell or transfer title to our software products to our customers. Instead,
customers generally purchase non-exclusive, nontransferable perpetual licenses
in exchange for a fee that varies depending on the mix of products and services,
the number and type of users, the number of servers, and the type of operating
system. License fees range from several hundred dollars for single user desktop
products to several million dollars for solutions that can support hundreds or
thousands of users. We also license many of our products for use in connection
with customer applications on the Internet. Our products and services are
offered in a wide variety of configurations depending on each customer's needs
and hardware environment.

Distribution Method. All Sybase products and services generally are sold
through direct sales organizations and indirect sales channels. "Indirect
channels" include VARs, SIs, OEMs, international distributors and other
resellers.

International Business. In 2001, forty-two percent (42%) of the Company's
total revenues were from international operations, with European operations
accounting for 27% of total revenues, and intercontinental operations
(principally Asia Pacific (including Japan) and South America) accounting for
15% of total revenues. Most of our international sales are made by foreign
subsidiaries. However, certain sales are made in international markets from the
United States. We also license our products through distributors in those
regions. A summary of our geographical revenues is set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) -- Geographical Revenues", Part II, Item 7, and Note Ten to the
Consolidated Financial Statements, Part II, Item 8, incorporated here by
reference. For a discussion of the risks associated with our foreign operations,
see "MD&A -- Future Operating Results -- International Operations," Part II,
Item 7, incorporated here by reference.

INTELLECTUAL PROPERTY RIGHTS

We rely on a combination of trade secret, copyright, patent and trademark
laws, as well as contractual terms, to protect our intellectual property rights.
As of March 22, 2002, we had 57 issued patents that expire in approximately 17
years from the date they are issued. These patents cover various aspects of our
technology.

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We believe that our patents and other intellectual property rights have value,
but no single patent is essential to Sybase as a whole. Additionally, any of our
proprietary rights could be challenged, invalidated or circumvented, or may not
provide significant competitive advantage. For a discussion of additional risks
associated with our intellectual property, see "MD&A -- Future Operating
Results -- Intellectual Property," Part II, Item 7, incorporated here by
reference.

RESEARCH AND DEVELOPMENT

Since inception, we have made substantial investments in research and
product development. We believe that timely development of new products and
enhancements to our existing products is essential to maintaining a strong
position in our market. During 2001, we invested $125.4 million, or 14% of our
total revenue in research and development. We intend to continue to invest
heavily in these areas. However, future operations could be affected if we fail
to timely enhance existing products or introduce new products to meet customer
demands. For a further discussion of the risks associated with product
development, see "MD&A -- Future Operating Results -- Product Development," Part
II, Item 7, incorporated here by reference. As is common in the software
industry, our backlog is typically small and is not material to an understanding
of our business.

COMPETITION

The market for our products and services is fast-paced, extremely
competitive, and is marked by dynamic customer demands, short product life
cycles, and the rapid emergence of the Internet marketplace. For a discussion of
the risks associated with competition, see "MD&A -- Future Operating
Results -- Competition," Part II, Item 7, incorporated here by reference.

EMPLOYEES

As of March 22, 2002, Sybase and its subsidiaries had 4,639 employees.

Information regarding our executive officers is included in "Executive
Officers of the Registrant," at the end of Part I of this Report.

ITEM 2. PROPERTIES

In January 2002, Sybase moved its is headquarters from Emeryville,
California to Dublin, California where we lease administrative and product
development facilities consisting of approximately 406,000 square feet. During
2001, we leased approximately 446,000 square feet in Emeryville. The leases for
our Dublin facilities are due to expire in 2017 and have two five-year renewal
options under the lease, generally at the fair market value. For a further
discussion regarding the Dublin lease, see Note Six to the Consolidated
Financial Statements, Part II, Item 8, incorporated here by reference.

We continue to maintain an engineering center in Milpitas, California,
where we lease approximately 10,350 square feet of office space through 2003. We
also maintain engineering centers in Boulder, Colorado; Paris, France; Waterloo,
Canada; Beijing, China; and Singapore. The North American engineering centers
focus on product development, and the Singapore and Beijing facilities focus
primarily on product localization and development relating to our Asian markets.

As of December 31, 2001, our field operations, professional service
organizations and subsidiaries occupied leased facilities in approximately 88
locations throughout North America, South America, Europe and Asia (including
Australia and New Zealand), aggregating approximately 1.42 million square feet.
In 1999, we sold a building in Concord, Massachusetts consisting of
approximately 44,600 square feet. During that year, we also completed a
sale/leaseback transaction and executed a five-year lease extension on two other
buildings in Concord. The leases for all three buildings expire in June 2006. In
1999, we sold a building consisting of approximately 10,500 square feet located
in Maidenhead, England. We continue to lease additional premises in various
locations.

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ITEM 3. LEGAL PROCEEDINGS

The information required by this item is incorporated by reference to Note
Twelve to the Consolidated Financial Statements, Part II, Item 8.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a stockholder vote in the quarter ended
December 31, 2001.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company as of March 22, 2002 are:

JOHN S. CHEN
Chairman, Chief
Executive
Officer and President
Age 46 Mr. Chen has served Sybase in his present capacity since
November 1998. From February through November 1998, he
served as co-Chief Executive Officer. Mr Chen joined
Sybase in August 1997 as Chief Operating Officer and
served in that capacity until February 1998. From March
1995 to July 1997, Mr. Chen was President of the Open
Enterprise Computing Division of Siemens Nixdorf, a
computer and electronics company, and Chief Executive
Officer and Chairman of Siemens Pyramid, a subsidiary of
Siemens Nixdorf.

MARTY BEARD
Vice President
Corporate Development
Age 39 Mr. Beard has served in his present capacity since
August 2000. Before joining Sybase, Mr. Beard was Vice
President of Oracle Online, a division of Oracle
Corporation, a database software company, from June 1999
through July 2000. Prior to that he served as Senior
Director, Mid-Market Business Solutions for Oracle
beginning in July 1997. From June 1993 through June
1997, Mr. Beard was Staff Director, Corporate Strategy
and Development for Pacific Telesis Group, a
telecommunications company.

DANIEL R. CARL
Vice President and
General Counsel
Age 49 Mr. Carl has served in his present capacity since April
1999. Immediately prior to that, he served as Director
of European Legal Affairs beginning in January 1997. Mr.
Carl has been a Vice President of Sybase since May 1996,
and served as Associate General Counsel from 1992 to
April 1999.

PAMELA J. GEORGE
Sr. Vice President
Corporate Marketing
Age 56 Ms. George has served in her present capacity since
August 2001, and immediately prior to that served as
Vice President, Corporate Marketing beginning in April
1999. Prior to that, she was Vice President of Corporate
Communications at Maxager Technology, a software
company, starting in December 1997.

MARTIN J. HEALY
Vice President and
Corporate Controller
Age 39 Mr. Healy has served in his present capacity since
January 1999. Between January 1997 and January 1999, he
served as Vice President, Intercontinental Operations.
Mr. Healy was Director of Finance, Asia (excluding
Japan) from January 1994 to December 1997, and prior to
that held various positions within the Company's finance
organization. Before Joining Sybase in 1989, Mr. Healy
was Financial Reporting Manager at WordStar
International.

BILLY HO
Sr. Vice President & GM
e-Business Division
Age 45 Mr. Ho has served in his present capacity since October
2001. Prior to that, he held the position of Senior Vice
President of Product Development and Marketing,
e-Business Division from July 2001 to October 2001.
Before that, he held the position of Vice President of
Product Development, Enterprise Solutions Division, from
October 1998 to July 2001. Mr. Ho joined Sybase in 1997
as Director of Engineering.

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ERIC L. MILES
Sr. Vice President & GM
Business Intelligence
Division
Age 55 Mr. Miles has served in his present capacity since
December 1998. Between December 1997, when he joined
Sybase, and December 1998, he was Senior Vice President,
Product Operations. From November 1995 until he joined
Sybase, Mr. Miles served as Vice President, Product
Development at Informix Corporation, a database software
company.

RICHARD J. MOORE
Sr. Vice President & GM
v-Business Group
Age 49 Mr. Moore has served in his present capacity since July
2001. Before joining Sybase, he served as co-CEO of
Cygent, Inc., a San Francisco based telecommunications
company, from November 2000 to March 2001, and was
Cygent's Senior Vice President of Worldwide Sales from
December 1999 to October 2001. From December 1998 to
December 1999, Mr. Moore served as Executive Vice
President of Worldwide Sales for DataCore Software
Corp., a storage area networking company.

RAJ NATHAN
Sr. Vice President & GM
Enterprise Solutions
Division
Age 48 Dr. Nathan has served in his present capacity since
December 2000. Joining Sybase in November 1997, he
served as Senior Vice President, Corporate Program
Office and later as Senior Vice President and General
Manager of the Internet Applications Division until
December 2000. From May through November 1997, he served
as President and Chief Executive Officer of Siemens
Pyramid, and held a number of executive positions with
Siemens Pyramid prior to that.

TERRY STEPIEN
President
iAnywhere Solutions,
Inc.
Age 43 Mr. Stepien has served in his present capacity since May
2000. Prior to that he had served as Senior Vice
President and General Manager of Sybase's Mobile and
Embedded Computing Division (MEC) since March 1999. From
September 1998 to March 1999, he was Vice President and
General Manager of MEC. From September 1996 to September
1998, he served as Vice President, Marketing for
Database Products. Mr. Stepien was Vice President,
Marketing for Workplace Database Products from February
1995 to September 1996.

PIETER VAN DER VORST
Sr. Vice President and
Chief Financial Officer
Age 47 Mr. Van der Vorst was promoted to his current position
in March 2002. Prior to that, he held the title of Vice
President and Chief Financial Officer starting in
January 1999. Between November 1997 and January 1999, he
served as Corporate Controller, and prior to that, he
served as Vice President, Tax and Corporate Accounting
beginning in April 1997. Mr. Van der Vorst has held
various other positions since joining Sybase in 1991.

NITA C. WHITE-IVY
Vice President Worldwide
Human Resources
Age 55 Ms. White-Ivy has served in her present capacity since
March 1998. Prior to that, she was a human resources
consultant to Sybase beginning in January 1998. Before
joining Sybase, she was with Siemens Pyramid, a computer
and electronics company, serving as Vice President of
Worldwide Human Resources from February 1994 to October
1997.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

Sybase, Inc. Common Stock, par value $.001, began trading on the New York
Stock Exchange on May 22, 2001, under the symbol "SY." Prior to that, our stock
traded on the NASDAQ National Market System under the symbol "SYBS." Following
is the range of low and high closing prices for our stock as reported on the New
York Stock Exchange and NASDAQ for the quarters indicated.

We have never paid cash dividends on our capital stock, and we do not
anticipate doing so in the foreseeable future. The closing sale price of our
stock on the New York Stock Exchange on March 22, 2002, was $17.23. The number
of stockholders of record on that date was 1,663.

In April 2001, we acquired all of the issued and outstanding common stock
of NEN in exchange for approximately 14,289,957 shares of our Common Stock. For
further discussion of this acquisition, see Note Eleven to the Consolidated
Financial Statements, Part II, Item 8, incorporated here by reference.

On January 20, 2000, we issued 7,817,471 shares of our Common Stock to the
former shareholders of HFN in exchange for all of the outstanding common stock
of HFN. The resale of our Common Stock issued in connection with this merger
transaction was registered under the Act. For further discussion of this
acquisition, see Note Eleven to the Consolidated Financial Statements, Part II,
Item 8, incorporated here by reference.

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ITEM 6. SELECTED FINANCIAL DATA

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

We reported net loss of ($25.5) million for 2001, compared to net income of
$72.1 million for 2000. Our decrease in profitability primarily resulted from a
$34.4 million (4%) decrease in revenues; an increase of $33.6 million in
amortization and in-process research and development primarily from our 2001
acquisition of New Era of Networks (NEN); and a $49.5 million increase in
restructuring costs offset by a $9.0 million decrease in the provision for
income taxes. The affect of these changes was partially offset by a decrease in
certain operating expenses as a result of a company-wide restructuring program
initiated in April 2001 in connection with our acquisition of NEN and after
announcement that our first quarter and 2001 revenues would be below
expectations (2001 Plan). The 2001 Plan, which was aimed at eliminating certain
personnel, assets and facilities, aligning resources and streamlining Company
costs, resulted in the elimination of approximately $115 million from our
ongoing yearly cost structure. See Note Thirteen to the Consolidated Financial
Statements, Part II, Item 8, incorporated here by reference.

Despite the decline in profitability in 2001, our financial position
remains strong. As of December 31, 2001, we had $343.2 million in cash, cash
equivalents and cash investments, and stockholders' equity of $716.5 million.
Days sales outstanding in accounts receivable was 71 days for the quarter ended
December 31, 2001.

We are organized into five separate business segments, two of which are
majority owned subsidiaries, each focused on one of five key market segments --
Enterprise Solutions Division (ESD), e-Business Division (eBD), Business
Intelligence Division (BID), iAnywhere Solutions, Inc. (iAS), formerly our
Mobile and Embedded Computing division and Financial Fusion, Inc. (FFI). For a
discussion of each of these segments, see "Business," Part I, Item I, and Note
Ten to the Consolidated Financial Statements, Part II, Item 8, incorporated here
by reference. We periodically evaluate our estimates including those relating to
the allowance for doubtful accounts, capitalized software, investments,
intangible assets, income taxes, restructuring, litigation and other
contingencies. We base our estimates on historical experience and various other
assumptions that we believed to be reasonable based on the specific
circumstances, the results of which form the basis for making judgments about
the carrying value of certain assets and liabilities that are not readily
apparent from other sources. Actual results could differ from these estimates.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our financial statements in conformity with U.S. generally
accepted accounting principles. These accounting principals require management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements. Our management is also required to make certain
judgments that affect the reported amounts of revenues and expenses during the
reporting period. We periodically evaluate our estimates including those
relating to revenue recognition, the allowance for doubtful accounts,
capitalized software, investments, intangible assets, income taxes,
restructuring, litigation and other contingencies. We base our estimates on
historical experience and various other assumptions that we believe to be
reasonable based on the specific circumstances, the results of which form the
basis for making judgments about the carrying value of certain assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from these estimates.

We believe the following critical accounting policies impact the most
significant judgments and estimates used in the preparation of our consolidated
financial statements:

- Revenue Recognition

Revenue recognition rules for software companies are very complex. We
follow very specific and detailed guidance in measuring revenue. Certain
judgments, however, affect the application of our revenue policy.

11

We recognize revenue in accordance with Statement of Position (SOP) 97-2,
"Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9, and
in certain instances in accordance with SOP 81-1, "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts."

We license software under non-cancelable license agreements. License fees
revenues are recognized when a non-cancelable license agreement is in
force, the product has been shipped, the license fee is fixed or
determinable, and collection is reasonably assured. If the fee is not
fixed or determinable, revenue is recognized as payments become due from
the customer. In software arrangements that include rights to multiple
software products and/or services, we allocate the total arrangement fee
among each of the deliverables using the "residual" method, under which
revenue allocated to undelivered elements is based on vendor-specific
objective evidence of fair value of such undelivered elements, and the
residual revenue is allocated to delivered elements.

Fees from licenses sold together with consulting services are generally
recognized upon shipment, provided the above criteria are met, payment of
the license fees are not dependent upon the performance of the services,
and the consulting services are not essential to the functionality of the
licensed software. If the services are essential to the functionality of
the software, or payment of license fees is dependent on performance of
services, both the software license and consulting fees are recognized
under the "percentage of completion" method of contract accounting. Under
this method, management is required to estimate the number of hours needed
to complete a particular project, and revenues and profits are recognized
as the contract progresses to completion.

We recognize sublicense fees as reported to us by our licensees. License
fees revenue for certain application development and data access tools are
recognized upon direct shipment to the end user or direct shipment to the
reseller for the end user. If collection is not reasonably assured,
revenue is recognized only when the fee is collected.

Maintenance and support revenues are recognized ratably over the term of
the related agreements, which in most cases is one year. Revenues from
consulting services under time and materials contracts and for training
are recognized as services are performed. Revenues from other contract
services are generally recognized under the "percentage of completion"
method of contract accounting described above. In order to apply the
percentage of completion of method, management is required to estimate the
number of hours needed to complete a particular project. As a result,
recognized revenues and profits are subject to revisions as the contract
progresses to completion.

- Impairment of Goodwill and Intangible Assets

Goodwill and intangible assets, which have generally resulted from our
business combinations accounted for as purchases, are recorded at
amortized cost. We periodically review the carrying amounts of these
intangible assets for indications of impairment based on the operational
performance of the acquired businesses and market conditions. If
indications of impairment are present, we assess the value of the
intangible assets using estimates of future undiscounted cash flows.
During the fourth quarter of 2001, various restructuring activities as
well as the overall economic conditions signaled an indication of
impairment. We then analyzed the value of our various intangibles by
comparing the carrying value of these assets to the undiscounted cash
flows estimated to be generated by these assets. Based on this analysis
there was no impairment during 2001. Future events could cause us to
conclude that impairment indicators exist and that intangible assets
associated with acquired businesses are impaired. Beginning in 2002, the
method for assessing potential impairments of intangibles will change
based on new accounting rules issued by the Financial Accounting Standards
Board (FASB), and related implementation guidance. We estimate that these
new rules will result in an impairment loss of approximately $150 million
in the first quarter of 2002. This loss will be recognized as a cumulative
effect of an accounting change.

12

- Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts to reflect the expected
non-collection of accounts receivable based on past collection history and
specific risks identified in our portfolio of receivables. If the
financial condition of our customers deteriorates resulting in an
impairment of their ability to make payments, or if payments from
customers are significantly delayed, additional allowances might be
required.

- Capitalized Software

We capitalize certain software development costs after establishment of a
product's technological feasibility. Such costs are then amortized over
the estimated life of the related product. Periodically, we compare a
product's unamortized capitalized cost to the product's net realizable
value. To the extent unamortized capitalized cost exceeds net realizable
value based on the product's estimated future gross revenues, reduced by
the estimated future costs of completing and disposing of the product, the
excess is written off. This analysis requires us to estimate future gross
revenues associated with certain products, and the future costs of
completing and disposing of certain products. If these estimates change,
write-offs of capitalized software costs could result.

- Income Taxes

We use the asset and liability approach to account for income taxes. This
methodology recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax base of assets and liabilities. We then
record a valuation allowance to reduce deferred tax assets to an amount
that likely will be realized. We consider future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need
for the valuation allowance. If we determined during any period that we
could realize a larger net deferred tax asset than the recorded amount, we
would adjust the deferred tax asset to increase income for the period.
Conversely, if we determine that we would be unable to realize a portion
of our recorded deferred tax asset, we would adjust the deferred tax asset
to record a charge to income for the period.

- Restructuring

During 2001, we recorded significant accruals in connection with our
restructuring program. These accruals included estimated costs to settle
certain lease obligations, and were generally based on the analysis of
independent real estate consultants. While we do not anticipate
significant changes to these estimates, the actual costs may differ from
the estimates. If we are unable to negotiate affordable termination fees
or if rental rates continue to decrease in the markets where the
properties are located, or it takes us longer then expected to find
suitable sublease tenants, the actual costs could exceed our estimates.

- Contingencies and Litigation

We are subject to various proceedings, lawsuits and claims relating to
product, technology, labor, shareholder and other matters. We are required
to assess the likelihood of any adverse outcomes and the potential range
of probable losses in these matters. The amount of loss accrual, if any,
is determined after careful analysis of each matter, and is subject to
adjustment if warranted by new developments or revised strategies.

13

RESULTS OF OPERATIONS

REVENUES

Total revenues for 2001 decreased 4 percent from total revenues in 2000
(which had increased 10 percent over 1999). The decrease in 2001 from 2000 was
primarily due to a decline in license fees revenues as a result of a weaker
economy, and partially offset by an increase in our technical support services
revenues resulting from an overall increase in our installed base. This increase
was partially attributable to our 2001 acquisition of NEN and its customer base.
The increase in 2000 from 1999 was due to growth in both our license revenue and
technical support revenue.

License fees revenues in 2001 decreased 17 percent over 2000 license fees
revenues (which had increased 11 percent over 1999). The decrease in 2001 was
largely due to decreased sales of our enterprise database and enterprise
application products. This resulted from a weakened economy in which customers
delayed or canceled many infrastructure investments requiring significant
dollars and resources. Existing Sybase products and products acquired through
the acquisition of NEN were equally affected by this phenomenon. From a segment
standpoint, enterprise database revenues were primarily captured by ESD, while
enterprise application revenues were primarily captured by eBD. The increase in
license fees revenues in 2000 was primarily due to increased sales of our ESD
enterprise database, eBD enterprise application products, and iAS mobile
database products.

Services revenues (derived from technical support, education and
professional services) grew 9 percent in 2001 over 2000 (which had increased 9
percent over 1999). The increase in 2001 was primarily due to a 19 percent
increase in technical support revenues. Partially offsetting this increase was a
5 percent decrease in education and professional services revenues for 2001
compared to 2000. The decrease was partially due to the economic factors
discussed above, and partly due to our 2001 Plan, which reduced professional
services headcount to de-emphasize building future capacity, and to focus
instead on current profitable engagements.

The increase in services revenues during 2000 was attributable to a 10
percent increase in revenues from technical support and an 8 percent increase in
professional services revenues. The increase in technical support revenues was
primarily due to an increase in our installed base, and the increase in
professional services which primarily resulted from our 2000 acquisition of HFN
(now FFI).

For a discussion of our services, see "Business -- Worldwide Services,"
Part I, Item 1, incorporated here by reference. As a percentage of total
revenues, our services revenues increased to 58 percent in 2001 from 51 percent
in 2000 and 52 percent in 1999.

14

GEOGRAPHICAL REVENUES

North America revenues (United States, Canada and Mexico) decreased 8
percent in 2001 from 2000 (which had increased 10 percent over 1999), primarily
due to a 26 percent decline in license fees revenues and a 13 percent decline in
professional services revenue. The decrease was partially offset by a 21 percent
increase in technical support revenues. The decrease in North America revenues
was largely the result of the economic factors discussed under "Revenues" above.
The increase in North America revenues in 2000 was due primarily to an increase
in license fees revenues from our enterprise database, enterprise application
and mobile database products, and an overall increase in our professional
services revenues (see discussion above).

Total international revenues increased 4 percent in 2001 over 2000 (which
had increased 10 percent over 1999), primarily due to a 17 percent increase in
technical support revenues which more than offset a 4 percent decrease in
license fees revenues. European revenues increased 2 percent in 2001 (which had
increased 7 percent in 2000) primarily due to an 18 percent increase in
technical services revenues which more than offset a 10 percent decrease in
license fees revenues primarily attributable to decreased revenues from our
enterprise database and mobile database products. The decrease in European
license fees revenues was largely the result of the economic factors discussed
under "Revenues," above.

Intercontinental revenues (principally Asia Pacific and South America)
increased 9 percent in 2001 due to a 6 percent increase in license fees
revenues, primarily associated with our enterprise application and mobile
database products, and a combined increase of 13 percent in services revenues.
In 2000, Intercontinental revenues increased 16 percent due to an 18 percent
increase in license fees revenues primarily from enterprise database, enterprise
application and mobile database products. A 14 percent increase in
Intercontinental services revenues was attributable to an increase in technical
support revenues. In general, the economic conditions within the
Intercontinental region have been significantly less robust than those in Europe
and North America due to the severe recessionary conditions faced by many of the
countries in the region which began in 1999. Our business in the region has seen
steady growth since 1999 across virtually all product offerings and services.

In Europe and the Intercontinental region, most revenues and expenses are
denominated in local currencies. The effect of foreign currency exchange rate
changes on revenues was not material in 2001, 2000, or 1999.

Although we take into account changes in exchange rates over time in our
pricing strategy, our business and results of operations could be materially and
adversely affected by fluctuations in foreign currency exchange rates. Changes
in foreign currency exchange rates, the strength of local economies, and the
general volatility of software markets may result in a higher or lower
proportion of international revenues as a percentage of total revenues in the
future. For additional risks associated with currency fluctuation, see
"Financial Risk Management -- Foreign Exchange Risk" and "Future Operating
Results -- Euro Currency," below.

15

COST AND EXPENSES

- ---------------

* Not meaningful

Cost of License Fees

Cost of license fees consists primarily of product costs (media and
documentation), amortization of capitalized software development costs and
purchased technology, and third party royalty costs. The cost of license fees
expense increased 1 percent in 2001 over 2000. In 2000, these costs decreased 2
percent from 1999. The 2001 increase was primarily due to the amortization of
purchased technology acquired in the NEN transaction, partially offset by
decreases in amortization of capitalized software costs and third party
royalties. The 2000 decrease in cost of license fees was primarily due to
decreased third party royalties which were partially offset by increases in
amortization of capitalized software costs and the amortization of purchased
technology acquired in the HFN transaction. Cost of license fees were 12 percent
of license fees revenues in 2001, 10 percent in 2000, and 11 percent in 1999.

Amortization of capitalized software costs was $17.8 million in 2001, $22.4
million in 2000, and $20.0 million in 1999. In 2001, the decrease in
amortization of capitalized software costs was primarily due to certain eBD and
ESD products that became fully amortized at the end of 2000. In 2000, the
increase in amortization of capitalized software costs was primarily related to
Adaptive Server Enterprise 12.0, PowerBuilder 7.0, Jaguar CTS(R) 3.0 and 3.5,
and Sybase Enterprise Portal 1.0. Amortization of purchased technology acquired
was $12.1 million in 2001, $4.4 million in 2000 and $1.6 million in 1999.

Cost of Services

Cost of services consists primarily of the cost to provide technical
support, consulting and education services and, to a lesser degree,
services-related product costs (media and documentation). These costs decreased
3 percent in 2001 compared to 2000, and increased 13 percent in 2000 compared to
1999. These costs decreased as a percentage of services revenues to 44 percent
in 2001, compared to 50 percent in 2000, and were 48 percent of services
revenues in 1999. The decrease, in absolute dollars and as a percentage of
services revenues in 2001 over 2000, was primarily due to a reduction in
consulting personnel in the 2001 Plan. This decrease was partially offset by an
increase in the costs associated with third party consultants, and
16

consultants acquired in the NEN transaction. The increase in cost of services in
absolute dollars and as a percentage of services revenues in 2000 over 1999 was
primarily due to an increase in the number of consulting personnel located in
North America (partially attributable to the acquisition of HFN), and market
driven increases in the labor costs associated with consulting personnel.

Sales and Marketing

Sales and marketing expense decreased 4 percent during 2001 compared to
2000 (which had increased 11 percent over 1999). Sales and marketing expenses
remained consistent at 36 percent of total revenues in 2001, 2000, and 1999.
However, the decrease in absolute dollars from 2000 to 2001 was primarily due to
a decrease in sales commissions (due to lower license fees revenues and
reductions in sales and marketing personnel in the 2001 Plan), and a decrease in
certain allocated common costs. Partially offsetting these decreases were sales
and marketing expenses associated with NEN. The increase in sales and marketing
expenses in absolute dollars in 2000 compared to 1999 was primarily due to sales
expenses associated with increased revenues including the addition of HFN, and
certain marketing programs undertaken during the year. The increase in sales and
marketing expense was partially offset by a decrease in allocated common costs.
We allocate various common costs including certain legal expenses, accounting,
human resources, external consulting, employee benefits, and facilities costs to
sales and marketing, product development and engineering, and general and
administrative expenses. The common costs in 2001 were lower than those in 2000
primarily due to a cut back in discretionary spending in response to weaker
economic conditions, and the 2001 Plan. The common costs in 1999 were higher
than those in 2000 due to certain litigation costs during 1999, the costs
associated with internal Y2K compliance, and the streamlining of certain
back-office functions during 2000.

Product Development and Engineering

Product development and engineering expenses (net of capitalized software
development costs) decreased 1 percent in 2001 from 2000 (which had decreased 7
percent from 1999). These expenses increased as a percentage of total revenues
to 14 percent in 2001 compared to 13 percent in 2000, and were 16 percent of
total revenues in 1999. The decrease in absolute dollars in 2001 as compared to
2000 was primarily due to an increase in capitalized software development costs,
a decrease in certain research and development expenses due to a greater
percentage of R&D personnel employed in lower cost facilities, and a decrease in
allocated common costs, partially offset by costs attributable to NEN's product
development and engineering efforts. The decrease in absolute dollars in 2000 as
compared to 1999 was primarily due to a decrease in personnel expenses and
allocated common costs.

We capitalize product development and engineering costs during the period
between achievement of technological feasibility and general availability of the
product. Capitalized amounts totaled approximately $35.8 million in 2001, $20.2
million in 2000, and $18.7 million in 1999. The significant increase in amounts
capitalized in 2001 compared to 2000 was primarily attributable to capitalized
costs associated with the development of products acquired in the NEN
transaction, and other products captured within eBD.

In 2001, capitalized software costs included costs incurred for the
development of the Enterprise Portal 3.0, Adaptive Server Enterprise 12.5 and
14.0, Adaptive Server IQ 12.4.3, PowerBuilder 8.0, DirectConnect 12.5 and 14.0,
MainframeConnect(TM) 12.5 and 14.0, Replication Server 12.5, certain NEN
adapters, and SQL Anywhere 8.0. In 2000, capitalized software costs included
costs incurred for the development of the Sybase Enterprise Portal 1.0, Sybase
Enterprise Portal 2.0, Adaptive Server Enterprise 12.5, Adaptive Server IQ
12.4.2 and 12.5, DirectConnect 12.0 and 12.5, Enterprise Application Server, and
MainframeConnect 12.0 and 12.5. In 1999, capitalized software costs included
costs incurred for the development of Adaptive Server Enterprise 12.0,
Enterprise Event Broker, Sybase Financial Server 1.0, Enterprise Application
Studio(TM) 3.5, PowerJ(R) 3.0, Replication Server 12.0, and PowerDesigner 7.0.

17

We believe that product development and engineering expenditures are
essential to technology and product leadership and expect product development
and engineering expenditures to continue to be significant, both in absolute
dollars and as a percentage of total revenues.

General and Administrative

General and administrative expenses increased 14 percent in 2001 compared
to 2000 (which decreased 2 percent from 1999). General and administrative
expenses represented 8 percent of total revenues in 2001 compared to 7 percent
2000, and 8 percent in 1999. The increase in absolute dollars and as a
percentage of total revenues in 2001 compared to 2000 was primarily due to the
added costs associated with the acquisition of NEN. The decrease in absolute
dollars and as a percentage of total revenues in 2000 compared to 1999 was
primarily due to a decrease in allocated common costs which were partially
offset by the added costs associated with the acquisition of HFN.

Amortization of Goodwill and Other Purchased Intangibles

Amortization of goodwill and other purchased intangibles increased 71
percent during 2001 compared to 2000 (which increased 135 percent over 1999).
These costs were 6 percent of total revenues in 2001 compared to 3 percent in
2000, and 2 percent in 1999. The increase in absolute dollars and as a
percentage of total revenues in 2001 compared to 2000 was primarily due to the
amortization of goodwill and other acquired intangibles arising from the NEN
acquisition. The increase in absolute dollars and as a percentage of total
revenues in 2000 compared to 1999 was attributable to amortization of goodwill
and the established customer list associated with the HFN acquisition.

We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of SFAS 142 is expected to result in an increase in
pre-tax net income of approximately $61 million in 2002, $59 million in 2003,
and $59 million in 2004.

In-process research and development

NEN

In connection with our acquisition of NEN, we allocated $18.5 million of
the $339.3 million purchase price to in-process research and development. These
amounts were written off during the quarter ended June 30, 2001. In analyzing
this acquisition, the decision was made to acquire technology, including
in-process technology, rather than to develop it internally. This decision was
based on factors such as the amount of internal expertise, time and cost it
would take to bring the technology to market.

NEN technologies enable e-Business and operational applications to share
critical information. NEN's software solutions support integration of Internet
and core business packaged applications, application server platforms, industry
standard protocols, and proprietary systems. As of February 20, 2001 (the
acquisition date) NEN was undergoing development efforts to release the next
version of e-Biz Integrator, Process Server(TM), adapters, and emerging products
(such as Open Business Interchange(SM)). These development efforts were all
proprietary, internal projects. At the acquisition date, the in-process research
and development projects had not yet reached technological feasibility, and had
no alternative future uses.

In assessing the qualification of NEN's various ongoing research and
development projects, each project was examined to determine whether
technological feasibility had been established as of the acquisition date. Our
assessment was based on extensive interviews and a detailed analysis of research
and development plans. If the project required additional planning, designing,
coding or testing activities to determine whether the associated product could
be produced to meet its design specifications, we determined that technological
feasibility had not been reached with respect to this project.

Due to the complexity and specialized features of the acquired research and
development, the technologies under development could only be economically used
for their specific and intended purposes in the e-Business integration industry.
The features and functions of the products were being developed for

18

specific purposes, and if NEN failed in its efforts, no alternative economic
value would result from these efforts. Accordingly, the value allocated to
projects that had not reached technology feasibility was immediately expensed at
the acquisition date.

We estimated the fair value of in-process research and development using an
income approach. This involved estimating the fair value of the in-process
research and development using risk-adjusted discount rates. The selection of
the discount rate was based on a weighted average cost of capital, adjusted to
reflect risks associated with the useful life of each technology, profitability
levels of each technology, the uncertainty of technology advances known at the
time, and each technologies' degree of completion. Projected future net cash
flow attributable to NEN's in-process research and development, assuming
successful development, were discounted to net present value using a discount
rate of 25 percent. We believe that the estimated in-process research and
development amount so determined represents fair value and does not exceed the
amount another third party would pay for the projects.

Revenue estimates in this context were based on relevant market size and
growth factors, expected industry trends, individual product sales cycles and
the estimated life of each product's underlying technology. This analysis
included the revenues projected to result from the expected evolution of the
technology over time.

Operating expenses used in our analysis included selling, general and
administrative and research and development. These expenses were based on an
overall analysis of the business enterprise. Total research and development was
divided into the costs to complete the in-process research and development
projects and costs for developed products that had already been introduced to
the market. The allocation was based on an analysis of resources relating to the
development of research and development.

Costs to complete in-process projects were estimated by management. These
costs were allocated based on an analysis of completion efforts and expected
completion dates. Costs to complete were further allocated between in-process
and future revenues based on an analysis of the evolution of the respective
technologies.

NEN expected to achieve a target margin of approximately 37 percent from
its in-process products. Profitability was expected to be significantly lower in
the first years of the products' lifecycle compared to the later years due to
higher level of sales and marketing expense in the earlier years as a percentage
of revenue. The financial forecasts included only results that were expected to
be generated by NEN on a standalone basis, and did not take into consideration
synergies resulting from our acquisition.

To properly analyze the research and development efforts that had been
accomplished as of the acquisition date, and to exclude the completion of
development efforts underway, it was necessary to adjust the overall forecasts
associated with the research and development projects to reflect only those
accomplishments completed as of the acquisition date. The relative contribution
made by the completed research and development efforts was assessed based on a
variety of factors including absolute development time, costs incurred to date,
management estimates, a detailed analysis of each of the primary tasks completed
compared to the tasks required to complete the efforts, and the associated
risks. NEN's in-process research and development projects were estimated to be
between 30 percent and 55 percent complete as of the acquisition date.

Development of the majority of the in-process technologies began in early
2000 and was substantially completed in the fall of 2001. At the acquisition
date, approximately 278 engineers were engaged in the development of NEN's
in-process technologies. Completion of these projects is expected to require
significant efforts involving continued software development as well as the
testing and re-qualification efforts required to turn the technologies into a
set of bug-free, commercial-ready products. These remaining tasks involved
substantial risk due to the complex nature of the activities involved. Actual
results of our research and development efforts to date have been consistent in
all material respects with our assumptions at the time of the acquisition.

19

HFN

In connection with the acquisition of HFN in the quarter ended March 31,
2000, we allocated $8.0 million of the $167.6 million purchase price to
in-process research and development. As part of the process of analyzing this
acquisition, the decision was made to buy technology that had not yet been
commercialized rather than to develop the technology internally. This decision
was based on factors such as the amount of time and costs it would take to bring
the technology to market.

HFN had been involved in the development of technologies that enable
financial institutions to deliver their services to customers via the Internet.
On the date we acquired HFN (January 20, 2000), HFN was conducting development
and qualification activities related to a suite of products encompassing bill
presentment, small business functions, alternate service delivery methods and
related underlying software technology. At that time, the in-process research
and development projects had not yet reached technological feasibility and had
no alternative future uses. Accordingly, the value allocated to these projects
was immediately expensed at the date of acquisition.

We estimated the fair value of in-process research and development using an
income approach. This involved estimating the fair value of the in-process
research and development by determining the present value of the estimated
after-tax cash flows expected to be generated by the purchased in-process
research and development, using risk adjusted discount rates. The selection of
the discount rate was based on a weighted average cost of capital, adjusted to
reflect risks associated with the useful life of each technology, profitability
levels of each technology, the uncertainty of technology advances known at the
time, and each technologies' degree of completion. Projected future net cash
flows attributable to HFN's in-process research and development, assuming
successful development, were discounted to net present value using a discount
rate of 20 percent. We believe that the estimated in-process research and
development amount so determined represents fair value and does not exceed the
amount another third party would pay for the projects.

Revenue estimates were based on relevant market size and growth factors,
expected industry trends, individual product sales cycles and the estimated life
of each product's underlying technology. The analysis of the in-process
technology was determined by incorporating the revenue related to the expected
evolution of the technology over time. Once developed, the estimated lifecycle
of the product suite was estimated to be approximately 5 to 7 years. As a whole,
HFN was expected to exhibit compound annual growth of approximately 38 percent
in the period from 2000 through 2007.

It was projected that the suite of products resulting from the in-process
research and development efforts would begin generating revenue in 2000 and
positive cash flow in 2001. Operating expenses included selling, general and
administrative expenses, and research and development expenses. Total research
and development was divided into: (i) the costs to complete the in-process
research and development projects and (ii) costs for developed products that had
already been introduced to the market, including product maintenance. Costs to
complete in-process projects were estimated by management. These costs were
allocated based on an analysis of expected project completion dates.

The resultant target margin that HFN expected to achieve from the
in-process products was approximately 37 percent. Profitability was expected to
be significantly lower in the first several years of the product suite's
lifecycle compared to the latter years due to a higher level of sales and
marketing expenses as a percentage of revenue in the earlier years. The
financial forecasts only included results we expected HFN to generate on a
standalone basis, and did not take into consideration synergies resulting from
our acquisition.

To properly analyze the research and development efforts that had been
accomplished to date and exclude the effort to be completed on the development
efforts underway, it was necessary to adjust the overall forecasts associated
with the research and development projects to reflect only the accomplishments
made as of the date of the acquisition towards the ultimate completion of the
in-process R&D projects. The relative contribution made on the research and
development efforts was assessed based on a variety of factors including
absolute development time (costs) incurred to date, management estimates, and a
detailed analysis of each of the primary tasks completed compared to the tasks
required to complete the efforts and the associated risks. Overall, HFN's
in-process research and development projects were estimated to be approximately
75 percent

20

complete. HFN estimated that the projects would be completed in March 2000,
after which time it expected to begin generating economic benefits from the
completed projects. As of the valuation date, approximately 86 man months
totaling $650,000 had been expended on the in-process research and development
projects. In total, costs to complete HFN's in-process research and development
were expected to be approximately $150,000 and require 23 man months of work.
Completion of these projects was expected to require significant efforts
involving continued software development as well as the testing and
re-qualification efforts required to turn a "new-to-the-world" software suite
into a set of bug-free, commercial-ready products. These remaining tasks
involved substantial risk due to the complex nature of the activities involved.
Historically, many of HFN's in-process research and development projects have
required rework and additional expenditures in comparable stages of development.

The research and development efforts described above are substantially
complete and actual results of our research and development efforts to date have
been consistent, in all material respects, with our assumptions at the time of
the HFN acquisition.

Stock Compensation Expense

Stock compensation expense reflects non-cash compensation expense
associated with restricted stock granted to certain individuals in the three
months ended June 30, 2001, and the amortization of the value assigned to
certain unvested stock options assumed in the acquisition of NEN.

Cost (Reversal) of Restructuring

The Company's 2001 Plan included restructuring charges of $25.2 million
during the quarter ended June 30, 2001, restructuring charges of $10.3 million
during the quarter ended September 30, 2001, and restructuring charges of $13.3
million during the quarter ended December 31, 2001. The goal of the 2001 Plan
was to align our cost structure with anticipated revenues. We terminated a total
of 880 employees, closed or consolidated more than 30 facilities worldwide,
wrote down certain assets no longer needed for future business operations, and
incurred various other exit activity expenses directly related to the 2001 Plan.

The amounts included in the 2001 Plan were as follows:

TERMINATION PAYMENTS TO EMPLOYEES AND OTHER RELATED COSTS

During the second quarter of 2001, the Company incurred a restructuring
charge of $10.1 million for severance payments and other termination benefits
provided to approximately 400 employees. During the third quarter of 2001, the
Company incurred a restructuring charge of approximately $5.1 million for
severance payments and other termination benefits provided to approximately 280
employees. During the fourth quarter of 2001, the Company incurred a
restructuring charge of approximately $5.7 million for severance payments and
other termination benefits provided to approximately 200 employees. Severance
payments and termination benefits were accrued and charged to restructuring
costs in the period that amounts were determined and communicated to the
affected employees.

During the fourth quarter, the Company evaluated the costs associated with
providing medical coverage and other benefits to certain employees terminated in
the second and third quarters. As a result of the

21

Company's experience through the end of the fourth quarter, the amount of the
severance accrual relating to medical coverage and other benefits was reduced by
approximately $1.0 million. In addition, there was a reversal in the fourth
quarter to the severance accrual for approximately $0.7 million associated with
a number of individuals who were either not terminated after they were asked to
stay to fill positions voluntarily vacated by employees not included in the
restructuring plan, or were foreign employees paid less then the amount
originally provided after a legal proceeding to determine the severance amount
as required under local law. The above reversal was recorded by a corresponding
credit to restructuring expense.

LEASE CANCELLATIONS AND COMMITMENTS

During the second quarter of 2001, Sybase incurred restructuring charges of
$13.5 million for facilities consolidated or closed in Boulder, Colorado;
Emeryville, California; Hartford, Connecticut; Englewood, Colorado; Milpitas,
California; New York, New York; Southfield, Michigan; Watertown, Massachusetts;
Westport, Connecticut; and Orem, Utah. The Company also incurred restructuring
charges of $0.7 million for facilities consolidated or closed in Canada, the
United Kingdom, Belgium, Spain and Sweden. During the third quarter of 2001,
Sybase incurred restructuring charges of $4.1 million for facilities
consolidated or closed in Boston, Massachusetts, and in the United Kingdom.
During the fourth quarter of 2001, the Company incurred restructuring charges of
$4.4 million for facilities consolidated or closed in California, Colorado,
Florida, Virginia, Mexico, Argentina, Puerto Rico, Japan, France and
Switzerland. In addition, based on the analysis of independent real estate
consultants, and reflecting changes in the economic conditions since the
original accruals were established, the Company recorded additional
restructuring charges of $4.0 million during the fourth quarter to provide for
the current estimated cost to consolidate or close facilities in California,
Colorado, Georgia, Michigan, Utah, Massachusetts, New York and the UK.

The offices included above were primarily used for the sale of Sybase
software products, professional services and customer support, and in certain
instances research and development. These restructuring charges reflect the
remaining contractual obligations under the facility leases and certain costs
associated with the expected sublease of the facilities, net of anticipated
sublease income from the date of abandonment to the end of the lease term.
Certain facilities described above continued in use during the completion of the
restructuring. The Company continued to record monthly rent expense on these
facilities as an operating expense until the facilities were abandoned.

During the fourth quarter of 2001, approximately $0.6 million was reversed
by a corresponding credit to restructuring expense, a second quarter accrual
established to terminate a lease on a building which was later destroyed during
the terrorist attacks of September 11th. During the fourth quarter the Company
was notified that no additional payments would be required under the lease on
the facility, and as a result the associated restructuring accrual was reversed.

WRITE-DOWNS OF PROPERTY, EQUIPMENT AND FURNITURE

In the second and third quarters of 2001, Sybase incurred restructuring
charges of $0.5 million and $1.3 million, respectively, which were primarily
related to the impairment of the carrying values of leaseholds and certain
furniture attributable to facilities closed in connection with the
restructuring. The assets were all taken out of service and held for disposal at
the date the associated facility was closed. In the fourth quarter of 2001, the
Company incurred a restructuring charge of $1.4 million, which was related to
the impairment of the carrying value of certain computer equipment and software
associated with individuals terminated during the year for which there was no
intended alternative use, and leaseholds and certain furniture attributable to
facilities closed in connection with the restructuring.

OTHER

During the second quarter of 2001, the Company incurred a restructuring
charge of $0.4 million associated with certain other restructuring related exit
expenses, including legal costs associated with the severance of employees,
travel and security costs associated with the termination of employees, and fees
associated with the cancellation of certain obligations, and relocation expenses
for certain terminated

22

expatriates. During the third and fourth quarters of 2001, the Company incurred
restructuring charges of $0.1 million for professional fees associated with the
restructuring.

The following table summarizes the activity related to the restructuring:

It is estimated that the remaining accruals relating to termination
benefits and other restructuring relating activities will be paid by the second
quarter of 2002. The payments of accruals related to lease cancellations and
commitments which are dependent upon market conditions and our ability to
negotiate acceptable lease buy-out outs or locate suitable subleases, will be
paid over a period not to exceed nine years.

As of December 31, 2001, we had completed substantially all of the employee
terminations identified during the second and third quarters. Approximately 100
of the 200 employees identified in the fourth quarter were notified of their
termination benefits, but had not received their severance payments at December
31, 2001.

OPERATING INCOME/LOSS

Operating income in 2001 decreased 118 percent over 2000 (which had
increased 4 percent over 1999). The 2001 operating loss includes $48.8 million
in 2001 Plan restructuring charges. In 2000 and 1999, operating income included
a reversal to restructuring charges of $0.8 million and $8.5 million,
respectively.

In 2001, the decrease in operating income was primarily due to the decrease
in license fees revenues and the increase in operating expenses including
expenses associated with the amortization of goodwill and other purchased
intangibles, the $18.5 million write-off of in-process research and development
relating to the acquisition of NEN and 2001 Plan restructuring charges. These
decreases were partially offset by the increase in services revenues. The
increase in operating income in 2000, compared to 1999, is primarily due to an
increase in total revenues and the continued benefit from the restructure
actions taken in 1998 that kept 2000 sales and marketing, product development
and engineering, and general and administrative expenses equal to or lower than
the levels obtained 1999, as a percentage of revenue. The increase was partially
offset by an increase in cost of services and expenses associated with the
amortization of goodwill and established customer lists, the write-off of
in-process research and development and the amortization of purchased technology
relating to the acquisition of HFN.

23

OTHER INCOME (EXPENSE), NET

- ---------------

* Not meaningful

In 2001, interest income decreased 6 percent from 2000 (which had increased
32 percent over 1999). Interest income consists primarily of interest earned on
investments. The decrease in interest income in 2001 as compared to 2000 was
primarily due to the decrease in the interest rate yields of the cash balances
invested. The increase between 2000 and 1999 was attributable to larger
average-invested cash balances, and an increase in the interest rate yields of
the cash balances invested.

Interest expense and other, net was $0.6 million in 2001, $(0.8) million in
2000, and $0.2 million in 1999. Interest expense and other, net includes
interest expense from capital lease obligations incurred in prior years; gains
from the disposition of certain real estate and investments; bank fees;
expenses, net gains and losses resulting from foreign currency transactions and
the related hedging activities; and the cost of hedging foreign currency
exposures. In 2001, the increase in interest expense and other, net as compared
to 2000 was primarily due to the hedging activities that mitigated the losses
resulting from foreign currency transactions. The decrease in interest expense
and other, net during 2000 compared to 1999, was due to the 1999 sale of certain
European real estate.

PROVISION FOR INCOME TAXES

In 2001 income taxes of $26.5 million were recorded on pre-tax book income
of $1.0 million. The income tax expense primarily results for taxes on earnings
generated in certain international jurisdictions. Overall, we had significant
pre-tax earnings in foreign jurisdictions and a significant pre-tax loss in the
U.S. The U.S. loss primarily resulted from the amortization or write-off of
intangibles acquired in various acquisitions accounted for as purchases, and the
2001 Plan.

A significant increase in expenses not deductible for tax purposes,
primarily the amortization or write-off of intangibles acquired in the NEN
acquisition, made the tax rate as a percentage of 2001's pre-tax income of $1.0
million, meaningless when compared to 2000 and 1999. In 2000, taxes were
recorded at a rate of 33 percent on pre-tax income, while taxes in 1999 were
recorded at a 38 percent rate.

The 2000 and 1999 tax provisions were the result of taxable earnings
generated from operations in both the US and certain international
jurisdictions. The 2000 provision benefited from a $9.7 million reversal of a
previously recorded valuation allowance on our deferred tax asset. The valuation
allowance reversed related to certain research and development tax credits that
we believe will generate a tax benefit in future periods given their
carryforward periods. The reversal of the valuation allowance is a non-recurring
benefit, and will not impact our provision for income taxes in future years. The
benefit of the valuation allowance reversal was offset somewhat in 2000 by an
increase in expenses that were not deductible for tax purposes. These expenses
were primarily the amortization of goodwill and established customer lists, the
write-off of in-process research and development and the amortization of
purchased technology relating to the acquisition of HFN.

24

We had a net deferred tax asset of $42.0 million at December 31, 2001. This
deferred tax asset included a valuation allowance of $54.4 million. As of
December 31, 2001, the gross deferred tax asset included research and
development tax credits of $19.6 million, foreign tax credits of $9.7 million
and an asset for certain net operating losses of $45.9 million. The research and
development tax credits expire in years from 2005 through 2021, the foreign tax
credits expire in years from 2002 through 2005 and the net operating losses
expire in years from 2006 and 2021. In order to realize the net deferred tax
assets we must generate sufficient taxable income in future years in appropriate
tax jurisdictions so that we can obtain benefit from the reversal of temporary
differences and from tax credit carryforwards. The amount of the deferred tax
assets considered realizable is subject to adjustment in future periods if
estimates of future taxable income are reduced. Any such adjustments to the
deferred tax assets would be charged to income in the period such adjustment was
made. See Note Eight to Consolidated Financial Statements, Part II, Item 8,
incorporated here by reference.

The valuation allowance increased by $38.9 million in 2001. This movement
was primarily the valuation allowance attached to deferred tax assets acquired
during the year which are associated with the net operating losses of NEN.

NET INCOME (LOSS) PER SHARE

Our net income in 2001 decreased by 135 percent over 2000. The reasons for
this decrease have been discussed in the preceding paragraphs. The basic and
diluted net loss per share was $0.27 in 2001. The basic and diluted net income
per share in 2000 was $0.82 and $0.78 per share, respectively. The basic and
diluted net income per share in 1999 was $0.76 and $0.74 per share,
respectively. Shares used in computing basic net income (loss) per share
increased 8 percent in 2001 primarily due to the shares issued in 2001 in
connection with the acquisition of NEN, partially offset by shares repurchased
under our share repurchase plan. Shares used in computing basic net income
(loss) per share increased 7 percent in 2000 primarily due to the shares issued
in 2000 in connection with the acquisition of HFN. Shares used in computing
diluted net income (loss) per share increased 3 percent in 2001 primarily due to
the shares issued in connection with the acquisition of NEN. Shares used in
computing diluted net income (loss) per share increased 10 percent in 2000
primarily due to the shares issued in connection with the acquisition of HFN.
See Note One to Consolidated Financial Statements, Part II, Item 8, incorporated
here by reference.

LIQUIDITY AND CAPITAL RESOURCES

25

Net cash provided by operating activities decreased 46 percent between 2000
and 2001 and 4 percent between 1999 and 2000. Net cash provided by operating
activities during 2001 reflects net loss of $25.5 million compared to net income
of $72.1 million in 2000 and $62.5 million in 1999. The decrease in net cash
provided by operating activities between 2001 and 2000 is primarily due to a
decrease in net income, deferred revenue and accrued liabilities partially
offset a reduction in accounts receivable and an increase in non-cash expenses
relating to amortization, depreciation and the write-off of in-process research
and development. Days sales outstanding in accounts receivables was 71 days for
the quarter ended December 31, 2001 compared to 74 days for the quarter ended
December 31, 2000.

The decrease between net cash provided by operating activities in 2000 and
1999 was primarily due to the increase in accounts receivables and deferred
revenue balances at 2000 compared to 1999, and an increase in depreciation and
amortization, which are included in net income (loss), but do not require the
use of cash. Days sales outstanding in accounts receivable was 74 days for the
quarter ended December 31, 2000 compared to 69 days for the same period in 1999.

Net cash used for investing activities decreased 81 percent between 2000
and 2001. The decrease in cash used by investing activities was primarily due to
net cash gained from business combinations, primarily the $28.1 million acquired
in the NEN acquisition, compared to net cash used, primarily in connection with
the HFN acquisition, for the same period last year. In addition, cash of
approximately $29.5 million was generated from the sale and maturity of cash
investments during 2001 compared to a net cash investment of $18.2 million in
such securities during 2000.

Net cash used for investing activities increased 4 percent between 1999 and
2000. This increase was primarily attributable to $33.6 million used for
business combinations, namely our acquisition of HFN, the use of $15.7 million
to purchase minority equity investments in five early-stage e-Business companies
and a $18.0 million security deposit on a 15-year non-cancelable lease
associated with our new Dublin, California facility. This increase was partially
offset by a $59.6 million year over year decrease in cash investments.

In 1999, we sold our facility in Concord, Massachusetts and simultaneously
entered into a sales-leaseback agreement. Under the terms of this agreement, we
entered into a seven-year operating lease. The sales price of $5.3 million
resulted in a book gain of $2.8 million, which will be amortized over the
seven-year lease period.

Net cash used for financing activities increased 32 percent between 2000
and 2001 and 90 percent between 1999 and 2000. The increases in both 2000 and
1999 were primarily the result of an increase in the cash used to repurchase our
Common Stock during 2000 and 2001. Beginning in 1998, the Board of Directors
authorized Sybase to repurchase its outstanding Common Stock in open market
transactions from time to time, subject to price and other conditions. Through
December 31 2001, aggregate amounts authorized under the repurchase program
total $400.0 million. Under this program, we repurchased 6.4 million shares of
our Common Stock in 2001 at a cost if $106.9 million, 3.9 million shares in 2000
at a cost of $89.1 million, and 4.9 million shares in 1999 at a cost of $60.7
million.

We had no significant commitments for capital expenditures at December 31,
2001, excluding $3.4 million in restricted cash already set aside for leasehold
improvements associated with the move to our new Dublin, California facility. We
expect to fund expenditures for future capital requirements, liquidity and
strategic operating programs from a combination of available cash balances and
internally generated funds. We have no outside debt, and do not have any plans
to enter into borrowing arrangements.

We engage in global business operations and are therefore exposed to
foreign currency fluctuations. As of December 31, 2001, we had identifiable
assets totaling $172.8 million associated with our European operations and $81.9
million associated with our Asia and Latin American operations. We experience
foreign exchange transaction exposure on our net assets and liabilities
denominated in currencies other than the US dollar. As these assets are
considered by Sybase Inc., the U.S. parent company, to be a permanent investment
in the respective subsidiaries, the related foreign currency translation gains
and losses are reflected in "Accumulated other comprehensive loss" under
"Stockholders' equity" on the balance sheet. We also experience foreign exchange
translation exposure from certain balances that are denominated in a currency
other than the functional currency of the entity on whose books the balance
resides. We hedge certain of these short-term

26

exposures under a plan approved by the Board of Directors. See
"MD&A -- Financial Risk Management," Part II, Item 7.

Our contractual obligations at December 31, 2001, are summarized as
follows:

NEW ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board (FASB) issued
Statements on Financial Accounting Standards (SFAS) 144, "Accounting for the
Impairment or Disposal of Long-lived Assets." SFAS 144, which supercedes SFAS
121, establishes a single accounting model, based on the framework established
in SFAS 121, for long-lived assets to be disposed of by sale. The statement is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The provisions of this statement are not expected to have a
significant impact on our financial condition or operating results.

In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets," effective for fiscal years beginning after December 15, 2001. Under
SFAS 142, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests. Other
intangible assets will continue to be amortized over their useful lives. SFAS
142 also requires that goodwill be tested for impairment at the reporting unit
level at adoption and at least annually thereafter, utilizing a two-step
methodology. The initial step requires us to determine the fair value of each
reporting unit and compare it to the carrying value, including goodwill, of such
unit. If the fair value exceeds the carrying value, no impairment loss would be
recognized. However, if the carrying value of the reporting unit exceeds its
fair value, the goodwill of this unit may be impaired. The amount, if any, of
the impairment would then be measured in the second step.

We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of SFAS 142 is expected to result in an increase in
pre-tax net income of approximately $61 million in 2002, $58 million in 2003,
and $58 million in 2004.

During 2002, we performed, under SFAS 142, the first of the required
impairment tests of goodwill and indefinite lived intangible assets as of
January 1, 2002. That test indicated that the carrying values of certain
reporting units exceeded their estimated fair values, as determined utilizing
various valuation techniques including discounted cash flow and comparative
market analysis. Thereafter, given the indication of a potential impairment, we
completed step two of the test. Based on this analysis, we will recognize an
impairment loss of approximately $150 million in the first quarter of 2002. This
loss will be recognized as the cumulative effect of an accounting change.

During 2001 the applicable accounting policy for measuring goodwill
impairment was an undiscounted cash flow basis, a method required by SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". When analyzed using undiscounted cash flows prescribed by SFAS
121, we did not have an impairment of any intangibles assets at December 31,
2001.

27

In June 2001, the FASB issued SFAS 141, "Business Combinations," effective
for fiscal years beginning after December 15, 2001. SFAS 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting and broadens the criteria for recording intangible
assets separate from goodwill. The provisions of this statement are not expected
to have a significant impact on our financial condition or operating results.

In November 2001, the FASB issued a Staff Announcement Topic No. D-103
(Topic D-103), "Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred." Topic D-103 establishes that reimbursements
received for out-of-pocket expenses should be characterized as revenue in the
statement of operations. We are required to adopt the guidance effective January
1, 2002. We currently record out-of-pocket expense reimbursements as a reduction
to operating expenses. Beginning in January 1, 2002, we will record these
reimbursements as service fees revenue, which will result in increased revenue
and increased operating expenses. Comparative financial statements for prior
year information will be reclassified to conform to the new presentation. The
application of Topic D-103 will not result in any impact to operating or net
income in any past or future periods. The provisions of this statement are not
expected to have a significant impact on our financial condition of operating
results.

In June 1998, the FASB issued SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. In June 1999, the FASB issued
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of FASB Statement No. 133," which amended SFAS
133 by deferring the effective date to the fiscal year beginning after June 30,
2000. In June 2000, the FASB issued FSAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -- an Amendment to FASB Statement No.
133" which amended FSAS 133 with respect to four specific issues. We adopted
FSAS 133 as amended, for the year ending December 31, 2001. The adoption of FSAS
133 did not have a material effect on our consolidated financial position or
results of operations.

FINANCIAL RISK MANAGEMENT

FOREIGN EXCHANGE RISK

As a global concern, we face exposure to adverse movements in foreign
currency exchange rates. These exposures may change over time as business
practices evolve and could have a material adverse impact on our financial
position and results of operations. Historically, our primary exposures have
related to non dollar-denominated sales and expenses in Europe, Asia Pacific,
and Latin America. In order to reduce the effect of foreign currency
fluctuations, we utilize foreign currency forward exchange contracts (forward
contracts) to hedge certain foreign currency transaction exposures outstanding
during the period (approximately 30 days). The gains and losses on the forward
contracts mitigate the gains and losses on our outstanding foreign currency
transactions. We do not enter into forward contracts for trading purposes. All
foreign currency transactions and all outstanding forward contracts are
marked-to-market at the end of the period with unrealized gains and losses
included in interest expense and other, net. The unrealized gain (loss) on the
outstanding forward contracts as of December 31, 2001 was immaterial to our
consolidated financial statements.

28

The tables below provide information about our foreign currency forward
contracts as of December 31, 2001 and 2000. All of the outstanding forward
contracts at December 31, 2001, had maturities of approximately 30 days. The
fair value of these outstanding forward contracts was not material as of
December 31, 2001 and 2000.

INTEREST RATE RISK

Our exposure to market risk for changes in interest rates relates to our
investment portfolio, which consists of taxable, short-term money market
instruments and debt securities with maturities between 90 days and two years.
We have no cash flow exposure due to rate changes for cash equivalents and cash
investments as all of these investments are at fixed interest rates. We do not
use derivative financial instruments in our investment portfolio. We place our
investments with high credit quality issuers and, by policy, we limit the amount
of credit exposure to any one issuer.

We mitigate default risk by investing in only the safest and highest
investment grade securities and by monitoring the credit rating of investment
issuers. The portfolio includes only marketable securities with

29

active secondary or resale markets to ensure portfolio liquidity. We have no
cash flow exposure due to rate changes for our investment portfolio, since all
investments are made in securities with fixed interest rates.

FUTURE OPERATING RESULTS

Our future operating results may vary substantially from period to period
due to a variety of significant risks, some of which are discussed in this
Report on Form 10-K. We strongly urge current and prospective investors to
carefully consider the cautionary statements and risks contained in this Report,
including those regarding forward-looking statements set forth on Page 1 of this
Report.

Stock Price Volatility

Our ability to exceed, or our failure to achieve, expected operating
results for any period could significantly impact our stock price. Inevitably,
some investors will experience gains while others will experience losses
depending on the timing of their investment. The market for our stock and for
technology stocks in general has been highly volatile, and the trading price of
our Common Stock has fluctuated widely in recent years. The stock price may
continue to fluctuate in the future in response to various factors, including
our financial results, press and industry analyst reports regarding our company
and other high technology companies, market acceptance of our products, services
and pricing policies, the activities of our competitors, acquisitions of other
businesses and technologies and other events, including acts of war and other
related events such as the September 11, 2001 terrorist attacks on the World
Trade Center in New York.

Revenue Related Factors

The timing and amount of our revenues are subject to a number of factors
that make it difficult to accurately estimate revenues and operating results on
a quarterly or annual basis. Historically, our license fees revenues have tended
to decline between the fourth quarter of one year and the first quarter of the
following year. This has contributed to lower total revenues and earnings in the
first quarter compared to the preceding fourth quarter. We currently anticipate
that this seasonal pattern will continue.

Since we operate with little or no backlog, quarterly revenues depend
largely on orders booked and shipped in that quarter. Historically, we have
recorded 50% to 70% of our quarterly revenues in the last month of each quarter,
particularly during the final two weeks of that month. Our customers include
many large enterprises that make substantial investments in our products and
services. Therefore, the inability to record one or more large orders from a
customer at the very end of a quarter could materially and adversely impact our
results of operations. Our operating expenses are based on projected annual and
quarterly revenue levels, and are generally incurred ratably throughout each
quarter. Since we strive to align our cost structure with anticipated future
revenues on an ongoing basis, failure to realize projected revenues for a
specified period could impact operating results, causing an operating loss for
that period, as occurred in the second and third quarters of this year, and in
the first and fourth quarters of 1998.

In North America, we currently ship most of our products from our
Emeryville, California distribution facility. Because we tend to record a high
percentage of revenues during the last two weeks of each quarter, disruption of
operations at this distribution facility at that time (e.g., relocation of some
or all of this facility to Dublin, California (as is planned in the first
quarter of 2002), natural calamity, acts of war, governmental intervention or
systems failure) could directly harm our ability to record revenues for such
quarter. This could, in turn, have an adverse impact on operating results.

Competition

The market for our products and services is extremely competitive, and is
marked by dynamic customer demands, short product life cycles, and the rapid
emergence of the e-Business marketplace. We have numerous competitors, including
large companies such as Oracle Corporation, Microsoft Corporation, and IBM
Corporation, as well as smaller highly aggressive firms. Many of these companies
may have greater financial, technical, sales, and marketing resources, and
certain of these companies have larger installed customer bases. In addition,
our competitors' advertising and marketing efforts could adversely influence
30

customer perception of our products and services, and harm our business and
prospects as a result. To remain competitive, we must be able to develop new
customers and new products, enhance existing products and retain competitive
pricing policies in a timely manner. Our failure to compete successfully with
new or existing competitors could have a material adverse impact on our
business, and on the market price of our stock.

Product Development

Increasing widespread use of the Internet may significantly alter how we do
business in the future. This, in turn, could affect our ability to timely meet
the demand for new or enhanced products and services at competitive prices.

In March 2001, we began shipping the latest version of Sybase Enterprise
Portal, the industry's first enterprise-class portal product designed to enable
organizations to provide personalized business interfaces to employees,
customers, partners and suppliers. With our acquisition of NEN in April 2001, we
gained the ability to offer enterprise application integrators that integrate
Sybase Enterprise Portal with other applications. Sybase Enterprise Portal
solutions are intended to enable successful e-Business strategies for
organizations transacting business via the Internet. As a general matter,
deployment of enterprise portals has increased dramatically in recent years, and
we believe that increasing demand for enterprise portal solutions will enhance
our revenues and profitability. However, if the market does not continue to
develop as anticipated, or if our Enterprise Portal solutions and services do
not successfully compete in the marketplace, increased revenues and
profitability may not be realized.

Our future results may also be affected if our products cannot interoperate
and perform well with software products of other companies. Certain leading
applications currently are not interoperable with our products, and others may
never be. In addition, many of our principal products are designed for use with
products offered by competitors. In the future, vendors of non-Sybase products
may become less willing to provide us with access to their products, technical
information, and marketing and sales support, which could harm our business and
prospects.

Divisional Sales Model

We are organized into five separate business segments, each of which
maintains financial accountability for its operating results, dedicated product
development and engineering, product marketing, partner relationship management
and customer support teams. This structure is intended to enhance overall
revenues and profitability by providing increased focus on our key markets. In
January 2000, the acquisition of HFN (now FFI) increased our focus on the
financial services vertical market. In May 2000, we announced the launch of iAS,
a subsidiary formed to continue the business of the former MEC division in
mobile, wireless and embedded products and services. eBD was created in the
second quarter of 2001 and consists of certain operations of NEN along with
certain products previously in the ESD segment and certain products previously
in the former Internet Applications Division. For more information regarding our
divisional sales model, see Note Ten to Consolidated Financial Statements, Part
II, Item 8, incorporated here by reference. Further changes in our divisional
sales model could have a direct affect on our results of operations. If we have
misjudged demand for our products and services in our target markets, or if our
divisions and subsidiaries generally are unable to coordinate their respective
sales efforts in a focused and efficient way, this could materially and
adversely affect our business and prospects.

International Operations

We derive a substantial portion of our revenues from our international
operations. At the end of fourth quarter of 2001, these revenues represented 42%
of our total revenues. As a global concern, we face exposure to adverse
movements in foreign currency exchange rates. For a discussion of risks
associated with currency fluctuation, see "Financial Risk Management" above,
incorporated here by reference.

Our revenues from international operations could also fluctuate due to the
relative immaturity of some markets, rapid growth in other markets, and
organizational changes we have made to accommodate these conditions. For
example, in February 2001, we acquired our distributor in Denmark and in
September 2000,
31

we acquired certain assets and assumed certain liabilities of our distributor in
Mexico. During 1998 and 1999, we closed subsidiaries in Mexico, Thailand, Chile,
Peru and Venezuela. Several significant management and organizational changes
occurred in the same period, including the resignation or replacement of several
country managers in Europe and Asia and the European General Manager.

Other factors that could affect aspects of our international operations
include:

- Changes in political, regulatory, or economic conditions

- Changes or limitations in trade protection laws

- Changes in tax treaties or laws favorable to Sybase

- Natural disasters, political unrest and acts of war

Intellectual Property

Our inability to obtain adequate copyright, patent or trade secret
protection for our products in certain countries may have a material adverse
impact on future operating results. Also, as the number of software products and
associated patents increase, it is possible that software developers will become
subject to more frequent infringement claims. For information about material
litigation involving trademark infringement claims, see Note Twelve to
Consolidated Financial Statements, Part II, Item 8, incorporated here by
reference.

In the past, third parties have claimed that our products violated their
patents or other proprietary rights. It is possible that such claims will be
asserted in the future. Also, to the extent we acquire other technologies,
whether directly from third parties or through acquisitions of other companies,
we face the possibility that such intellectual property will be found to
infringe or violate the proprietary rights of others. Regardless of whether
these claims have merit, they can be time consuming and expensive to defend or
settle, and can harm our business and reputation. We do not believe any of our
products infringe any third party patents or proprietary rights, but there is no
guarantee that we can avoid claims or findings of infringement in the future.

Human Resources

Our inability to hire and retain qualified technical, managerial, sales and
other employees could affect our product development and sales efforts, other
aspects of our operations, and our financial results. The relatively high cost
of living in the San Francisco Bay Area, where our headquarters is located,
could also impact the degree of future employee turnover.

In recent years, we have experienced a number of changes in our Board of
Directors and in our executive management team. For example, in July 2001,
Richard Moore joined us as Senior Vice President and General Manager of our
newly created v-Business Group. In October 2001, Billy Ho, our Senior Vice
President and General Manager of eBD, replaced George F. (Rick) Adam, former CEO
of NEN who had previously been appointed to the position when we acquired NEN in
April 2001. These and other changes involving executives and managers resulting
from acquisitions, mergers and other events could increase the current rate of
employee turnover, particularly in consulting, engineering and sales.
Additionally, further changes in Board membership could affect the Company's
current strategic business plans.

Acquisitions and Strategic Relationships

We continually explore possible acquisitions and other strategic ventures
to expand and enhance our business. We have recently acquired or invested in a
number of companies and will likely continue to do so in the future. For a
further discussion of our recent acquisitions, see Note Eleven to Consolidated
Financial Statements, Part II, Item 8, incorporated here by reference.

We may not achieve the desired benefits of our acquisitions and
investments. For example, we may be unable to successfully assimilate an
acquired company's management team, business infrastructure, company culture, or
other important factors. Also, dedication of additional resources to handle
integration the

32

integration of new companies could temporarily divert attention from other
important business. Such acquisitions could also result in costs, liabilities,
inherited litigation and other additional expenses that could harm our results
of operations and financial condition. With respect to our investments in other
companies, we may not realize a return on our investments, or the value of our
investments may decline if the businesses in which we invest are not successful.
These companies include start-ups seeking to develop technology that has not
been tested in the marketplace. Such companies typically have no history of
earnings and may lack a seasoned management team and/or a well-defined operating
infrastructure.

Euro Currency

On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing currencies and
the Euro. The participating countries adopted the Euro as their common legal
currency on that date. A transition period for conversion to this new currency
ends on January 1, 2002. To date, there has been no significant impact on our
worldwide operations caused by the adoption of the Euro. The introduction and
the use of the Euro has not materially affected, and is not expected to affect
in the future, our foreign exchange activities, our use of derivatives and other
financial instruments, or result in any material cost to us. We will continue to
assess the impact of the introduction of the Euro currency.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is incorporated by reference to
"MD&A -- Financial Risk Management," Part II, Item 7, incorporated here by
reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

33

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Sybase, Inc.

We have audited the accompanying consolidated balance sheets of Sybase,
Inc., as of December 31, 2001 and 2000 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sybase, Inc. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

/s/ ERNST & YOUNG LLP

Walnut Creek, California
January 24, 2002

34

CONSOLIDATED BALANCE SHEETS

See accompanying notes.
35

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.

36

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See accompanying notes.
37

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes.
38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ONE: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Sybase, Inc. (Sybase, or the Company) helps businesses integrate, manage
and deliver applications, content and data anywhere they are needed. The
Company's software products and professional consulting services provide a
comprehensive platform for delivering the integrated solutions businesses need
to be successful. Through its Enterprise Portal strategy, Sybase provides
solutions that allow businesses to build the e-Business infrastructures that
provide their employees, customers, partners and shareholders with a
personalized, seamless integration of content, commerce and communities.

The Company is organized into five separate business segments, each of
which maintains financial accountability for its operating results, dedicated
product development and engineering, product marketing, partner relationship
management and customer support teams.

Our Enterprise Solutions Division (ESD) delivers products, technical
support and professional services required to develop and maintain a variety of
operational systems including e-Business infrastructures that allow enterprises
to integrate external data, events and applications. iAnywhere Solutions, Inc.
(iAS), formerly the Mobile and Embedded Computing Division (MEC), is a
subsidiary that provides solutions for delivering enterprise information and
applications anywhere business transactions occur, including remote locations
and mobile and hand-held platforms. Our e-Business Division (eBD) delivers an
end-to-end e-Business platform and enterprise application integration
capabilities outside a company's "firewall" and across the supply chain. The
Business Intelligence Division (BID) delivers industry specific database
management systems, warehouse design tools and central meta data management
facilities enabling customers to develop business intelligence solutions that
integrate and translate data from multiple sources. Financial Fusion, Inc.
(FFI), formerly HFN, is our subsidiary that delivers turnkey Internet banking
solutions to financial institutions.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Sybase and
its majority owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Management is also required to make certain judgments that affect
the reported amounts of revenues and expenses during the reporting period.
Sybase periodically evaluates its estimates including those relating to the
allowance for doubtful accounts, capitalized software, investments, intangible
assets, income taxes, restructuring, litigation and other contingencies. The
Company bases its estimates on historical experience and various other
assumptions that are believed to be reasonable based on the specific
circumstances, the results of which form the basis for making judgments about
the carrying value of certain assets and liabilities that are not readily
apparent from other sources. Actual results could differ from these estimates.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable consist primarily of amounts due to the Company from
its normal business activities. The Company maintains an allowance for doubtful
accounts to reflect the expected uncollectibility of accounts receivable based
on past collection history and specific risks identified in the portfolio. If
the financial condition of the Company's customers were to deteriorate resulting
in an impairment of their ability to make payments, or if payments from
customers were to be significantly delayed, additional allowances might be
required.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CAPITALIZED SOFTWARE

The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for Costs
of Computer Software to be Sold, Leased or Otherwise Marketed," under which
certain software development costs incurred subsequent to the establishment of
technological feasibility may be capitalized and amortized over the estimated
lives of the related products. The Company determines technological feasibility
to be established upon the internal release of a working model or a detailed
program design as specified by SFAS 86. Upon the general release of the product
to customers, development costs for that product are amortized over periods not
exceeding three years, based on the estimated economic life of the product.
Capitalized software costs amounted to $154.9 million and $117.5 million, at
December 31, 2001 and 2000, respectively, and related accumulated amortization
was $101.4 million, and $83.7 million, respectively. Software amortization
charges included in cost of license fees were $17.8 million, $22.4 million and
$20.0 million for 2001, 2000 and 1999, respectively.

SFAS 86 also requires that the unamortized capitalized costs of a computer
software product be compared to the net realizable value of such product at each
reporting date. To the extent the unamoritzed capitalized cost exceeds the net
realizable value of a software product based upon its estimated future gross
revenues reduced by estimated future costs of completing and disposing of the
product, the excess is written off. If the estimated future gross revenue
associated with certain of our software products were to be reduced, write-offs
of capitalized software costs might be required.

PROPERTY, EQUIPMENT AND IMPROVEMENTS

Property, equipment and improvements are stated at cost less accumulated
depreciation. Major renewals and improvements are capitalized, and minor
replacements, maintenance and repairs are charged to current operations.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets, while leasehold improvements are
amortized over the shorter of the estimated useful life of the asset or the
associated lease term. The Company evaluates its long-lived assets in accordance
with Financial Accounting Standards Board (FASB) SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires impairment losses to be recorded on long-lived assets used
in operations, such as property, equipment and improvements, and intangible
assets, when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the carrying
amount of the assets.

GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

Intangible assets, which have generally resulted from business combinations
accounted for as purchases (Note Eleven), are recorded at amortized cost.
Amortization is computed using the straight-line method over periods of three to
ten years. Management periodically reviews the carrying amounts of the Company's
intangible assets for indications of impairment in accordance with SFAS 121.
During the fourth quarter, various restructuring activities as well as the
overall economic conditions signaled an indication of impairment. The Company
then analyzed the value of its various intangible assets using estimates of
future undiscounted cash flows prescribed by SFAS 121. Based on this analysis,
the Company did not have an impairment of any intangibles assets at December 31,
2001. If the estimated future undiscounted cash flows were reduced, an
impairment write-off under SFAS 121 might result.

In June 2001, FASB issued Statements of Financial Accounting Standards No.
141, "Business Combinations," effective for fiscal years beginning after
December 15, 2001. SFAS 141 requires business combinations initiated after June
30, 2001 to be accounted for using the purchase method of accounting and
broadens the criteria for recording intangible assets separate from goodwill.
The provisions of this statement are not expected to have a significant impact
on the Company's financial condition or operating results.

In June 2001, the FASB issued Statements of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years
beginning after December 15, 2001. Under SFAS 142,
40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests. Other intangible
assets will continue to be amortized over their useful lives. SFAS 142 also
requires that goodwill be tested for impairment at the reporting unit level
(generally the Sybase operating segments) at adoption and at least annually
thereafter, utilizing a two-step methodology. The initial step requires the
Company to determine the fair value of each reporting unit and compare it to the
carrying value, including goodwill, of such unit. If the fair value exceeds the
carrying value, no impairment loss would be recognized. However, if the carrying
value of the reporting unit exceeds its fair value, the goodwill of this unit
may be impaired. The amount, if any, of the impairment would then be measured in
the second step.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. The Company did not
acquire any goodwill or other intangible assets between June 30, 2001 and
December 31, 2001.

The Company performed, under SFAS 142, the first of the required impairment
tests of goodwill and indefinite-lived intangible assets as of January 1, 2002.
That test indicated that the carrying values of certain reporting units exceeded
their estimated fair values, as determined utilizing various valuation
techniques including discounted cash flow and comparative market analysis.
Thereafter, given the indication of a potential impairment, the Company
completed step two of the test. Based on that analysis, the Company will
recognize an impairment loss of approximately $150 million in the first quarter
of 2002. This loss will be recognized as a cumulative effect of an accounting
change.

In future years, a reduction of the Company's estimate of fair values
associated with certain reporting units could result in a further impairment
loss associated with various intangible assets.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and SOP
98-9, and in certain instances in accordance with SOP 81-1, "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts."

The Company licenses software under non-cancelable license agreements.
License fees revenues are recognized when a non-cancelable license agreement is
in force, the product has been shipped, the license fee is fixed or
determinable, and collectibility is reasonably assured. If the fee is not fixed
or determinable, revenue is recognized as payments become due from the customer.
In software arrangements that include rights to multiple software products
and/or services, the Company allocates the total arrangement fee among each of
the deliverables using the residual method, under which revenue is allocated to
undelivered elements based on vendor-specific objective evidence of fair value
of such undelivered elements and the residual amounts of revenue are allocated
to delivered elements.

Fees from licenses sold together with consulting services are generally
recognized upon shipment provided that the above criteria are met, payment of
the license fees are not dependent upon the performance of the services, and the
consulting services are not essential to the functionality of the licensed
software. If the services are essential to the functionality of the software, or
payment of the license fees are dependent upon the performance of the services,
both the software license and consulting fees are recognized under the
"percentage of completion" method of contract accounting using labor hours to
measure the completion percentage. In order to apply the "percentage of
completion" of method, management is required to estimate the number of hours
needed to complete a particular project. As a result, recognized revenues and
profits are subject to revisions as the contract progresses to completion

Sublicense fees are recognized as reported to the Company by its licensees.
License fees revenue for certain application development and data access tools
is recognized upon direct shipment to the end user or direct shipment to the
reseller for the end user. If collectibility is not reasonably assured, revenue
is recognized when the fee is collected.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Maintenance and support revenues are recognized ratably over the term of
the related agreements, which in most cases is one year. Revenues from
consulting services under time and materials contracts and for training are
recognized as services are performed. Revenues from other contract services are
generally recognized under the percentage-of-completion method. In order to
apply the "percentage of completion" method, management is required to estimate
the number of hours needed to complete a particular project. As a result,
recognized revenues and profits from other contract services are subject to
revisions as the contract progresses to completion.

BUSINESS COMBINATIONS

The Company has accounted for all its recent acquisitions using the
purchase method of accounting. In the case of its material acquisitions, the
Company based its purchase price allocation and useful life estimates on an
analysis performed by an independent third party. See Note Eleven for specific
details.

FOREIGN CURRENCIES

The Company translates the accounts of its foreign subsidiaries using the
local foreign currency as the functional currency. For foreign subsidiaries in
countries with highly inflationary economies, the accounts are translated as if
the U.S. dollar was the functional currency. The assets and liabilities of
foreign subsidiaries are translated into U.S. dollars using current exchange
rates, and gains and losses from this translation process are credited or
charged to the "accumulated other comprehensive loss" account included in
stockholders' equity. Foreign currency transaction gains and losses, which
historically have not been material, are included in interest expense and other,
net in the consolidated statements of operations.

In order to reduce the effect of foreign currency fluctuations on its
results of operations, the Company hedges its exposure on certain transactional
balances that are denominated in foreign currencies through the use of
short-term foreign currency forward exchange contracts. For the most part, these
exposures consist of intercompany balances between Sybase entities resulting
from software license royalties and certain management, research, and
administrative services. These exposures are denominated in Canadian, European
and Asia Pacific currencies, primarily the Canadian dollar, Yen, Euro and the
Hong Kong dollar. These forward exchange contracts are recorded at fair value
and the resulting gains or losses, as well as the associated premiums or
discounts, are recorded in interest expense and other, net in the consolidated
statements of operations and are offset by corresponding gains and losses from
foreign exchange contracts on hedged balances. All foreign exchange contracts
have a life of approximately 30 days and are marked-to-market at the end each
reporting period with unrealized gains and losses included in other income.

INCOME TAXES

The asset and liability approach is used to account for income taxes by
recognizing deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
base of assets and liabilities. The Company records a valuation allowance to
reduce deferred tax assets to the amount that is more likely than not to be
realized. The Company has considered future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for the valuation
allowance. If the company were to determine that it would be able to realize its
deferred tax asset in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would be made increasing income in the
period of such determination. Similarly, if the Company determines that it is
unable to realize a portion of its recorded deferred tax asset, an adjustment to
the deferred tax asset would be charged to income in the period made.

STOCK BASED COMPENSATION

SFAS 123, "Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock based employee
compensation plans at fair value. The Company has

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

chosen to continue to account for stock based employee compensation using the
intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees, and Related Interpretations."
Accordingly, compensation cost for stock options granted to employees is
measured as the excess, if any, of the quoted market price of the Company stock
at the date of the grant over the amount an employee must pay to acquire the
stock.

In April 2000, the FASB issued Interpretation No. 44 (FIN 44), "Accounting
for Certain Transactions Involving Stock Compensation: An Interpretation of APB
No. 25." The Company has adopted the provisions of FIN 44. The adoption of these
provisions did not materially impact the Company's results of operations. Note
Seven provides a summary of the pro forma effects on reported net income and
earnings per share for 2001, 2000 and 1999 based on the fair value of options
and shares granted as prescribed by SFAS 123.

NET INCOME (LOSS) PER SHARE

Shares used in computing basic and diluted net income (loss) per share are
based on the weighted average shares outstanding in each period, excluding
treasury stock. Basic net income (loss) per share excludes any dilutive effects
of stock options. Diluted net income (loss) per share includes the dilutive
effect of the assumed exercise of stock options, warrants and restricted stock
using the treasury stock method. However, the effect of outstanding stock
options has been excluded from the calculation of diluted net loss per share in
2001, as their inclusion would be antidilutive. Accordingly, the calculation of
diluted net loss per share does not include the common stock equivalent effect
(using the treasury stock method) of 2,787,807 shares of Common Stock that were
granted under outstanding stock options at December 31, 2001.

The following shows the computation of basic and diluted net income (loss)
per share at December 31:

- ---------------

(a) The effect of outstanding stock options is excluded from the calculation of
diluted net loss per share, as their inclusion would be antidilutive.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes net earnings (loss) and other changes
to stockholders' equity not reflected in net income (loss). The Company's
components of other comprehensive income (loss) consist of foreign currency
translation adjustments and unrealized gain/loss on available-for-sale
securities.

OTHER RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. In June 1999, the FASB
issued Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
amended SFAS 133 by deferring the effective date to the

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

fiscal year beginning after June 30, 2000. In June 2000, the FASB issued
Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities -- an Amendment to FASB Statement No. 133" which amended SFAS
133 with respect to four specific issues. The Company was required to adopt SFAS
133 effective January 1, 2001. The adoption of SFAS 133 did not have a material
effect on the Company's consolidated financial position or results of
operations.

In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-lived Assets." SFAS 144 establishes a single accounting model,
based on the framework established in SFAS 121, for long-lived assets to be
disposed of by sale. The statement is effective for financial statements issued
for fiscal years beginning after December 15, 2001. The provisions of this
statement are not expected to have a significant impact on the Company's
financial condition or operating results.

In July 2000, the Emerging Issues Task Force issued EITF 00-15,
"Classification in the Statement of Cash Flows of the Income Tax Benefit
Realized by a Company upon Employee Exercise of a Nonqualified Stock Option."
EITF 00-15 states that the income tax benefit realized by the company upon
employee exercise should be classified in the operating section of the statement
of cash flows. The EITF is effective for all quarters ending after July 31,
2000. Previously reported amounts have been reclassified to conform to the
current year's presentation.

In November 2001, the FASB issued a Staff Announcement Topic No. D-103
(Topic D-103), "Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred." Topic D-103 establishes that reimbursements
received for out-of-pocket expenses should be characterized as revenue in the
statement of operations. The Company is required to adopt the guidance effective
January 1, 2002. Sybase currently records out-of-pocket expense reimbursements
as a reduction to operating expenses. Beginning in January 1, 2002, these
reimbursements will be recorded as service fees revenue, resulting in increased
revenue and increased operating expenses. Comparative financial statements for
prior year information will be reclassified to conform to the new presentation.
The application of Topic D-103 will not result in any impact to operating or net
income in any past or future periods. The provision of Topic D-103 is not
expected to have a material impact on the Company's financial condition or
operating results.

NOTE TWO: FINANCIAL INSTRUMENTS

CASH, CASH EQUIVALENTS AND CASH INVESTMENTS

Cash and cash equivalents consist of highly liquid investments that consist
principally of taxable, short-term money market instruments with insignificant
interest rate risk and original maturities of three months or less at the time
of purchase and demand deposits with financial institutions. Cash equivalents
are stated at amounts that approximate fair value based on quoted market prices.
Cash investments consist principally of commercial paper, corporate bonds, U.S.
Government bonds and taxable municipal bonds with maturities between 90 days and
up to two years and are stated at amounts that approximate fair value, based on
quoted market prices. No individual investment security equaled or exceeded two
percent of total assets.

In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115)
management determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designation as of each
balance sheet date. At December 31, 2001, the Company has classified all of its
debt and equity securities as available-for-sale pursuant to SFAS 115. Such
securities are recorded at fair value and unrealized holding gains and losses,
net of the related tax effect, if any, are not reflected in earnings but are
reported as a separate component of other comprehensive income (loss) until
realized. Unrealized gains and losses at December 31, 2000 were not significant.
Accordingly, the Company did not make a provision for such amounts in its
December 31, 2000 consolidated financial statements. Realized gains and losses
are determined on the specific identification method and are reflected in
income.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, cash equivalents and amortized cost of investments in
marketable securities and their approximate fair values are as follows:

RESTRICTED CASH

The Company had $3.4 million in restricted cash set aside for leasehold
improvements associated with the move to the new Dublin, California facility.

FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS

At December 31, 2001, the Company had outstanding forward contracts, all
having maturities of approximately 30 days, to exchange various foreign
currencies for U.S. dollars in the amounts of $1.4 million, and to exchange U.S.
dollars and Euros into various foreign currencies in the amounts of $15.5
million and $20.7 million, respectively. At December 31, 2000, the Company had
outstanding forward exchange contracts, all having maturities of approximately
30 days, to exchange various foreign currencies for U.S. dollars in the amounts
of $5.7 million and to exchange U.S. dollars and Euros into various foreign
currencies in the amounts of $9.7 million and $21.4 million, respectively.
Neither the cost nor the fair value of these foreign currency forward contracts
was material at December 31, 2001 or 2000. All foreign currency forward
contracts are marked-to-market at the end each reporting period with unrealized
gains and losses included in other income. One of two major U.S. multinational
banks is counter party to all of these contracts during both 2001 and 2000.

NOTE THREE: PROPERTY, EQUIPMENT AND IMPROVEMENTS

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deprecation expense amounted to $39.8 million, $43.5 million and $54.2
million in 2001, 2000 and 1999, respectively.

NOTE FOUR: GOODWILL AND OTHER PURCHASED INTANGIBLES

Goodwill is generally amortized over a period of 2 to 8 years; purchased
technology is generally amortized over a period of 4 to 7 years; covenant not to
compete is generally amortized over a period of 7 years; customer lists are
generally amortized over a period of 10 years; assembled workforce is generally
amortized over a period of 6 years.

NOTE FIVE: OTHER ASSETS

Other assets consist of the following (in thousands):

During 2000, the Company made an $18.0 million security deposit on a
15-year non-cancelable lease for the Dublin, California facility (Note Six).

NOTE SIX: LEASE OBLIGATIONS AND OTHER LIABILITIES AND COMMITMENTS

The Company leases, or has committed to lease, certain office facilities
and certain furniture and equipment under operating leases expiring through
2017, which generally require Sybase to pay operating costs, including property
taxes, insurance and maintenance. These facility leases generally contain
renewal options and provisions adjusting the lease payments based upon changes
in the consumer price index, increases in real estate taxes and operating
expenses or in fixed increments. Rent expense is reflected on a straight-line
basis over the term of the lease. Capital lease obligations incurred for
equipment acquisitions have not been material.

On January 28, 2000, the Company entered into a 15-year non-cancellable
lease of a new facility built in Dublin, California. The company began fully
occupying the Dublin property in February 2002. Payments under this lease
commenced on December 21, 2001. The Company has the option to renew the lease
for up to two five-year extensions, subject to certain conditions. The lease
provides for 4 percent yearly increases in the base rent, commencing on the
month following the anniversary of the first completion date and thereafter on
each anniversary date of the adjustment date. The lease generally requires
Sybase to pay operating costs, including property taxes, insurance and
maintenance in addition to ordinary operating expenses (such as utilities). The
Company has not entered into an agreement that allows for purchase of the
facilities at the end of the initial lease or at the end of either five-year
lease extension.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In September 1999, the Company sold its facility in Concord, Massachusetts
and simultaneously entered into a sales-leaseback agreement. Under the terms of
this agreement, the Company entered into a seven-year operating lease, which was
amended in June 1, 2001 to extend the lease term an additional six years. The
termination date of this lease is October 31, 2012. The sales price of $5.3
million resulted in a gain of $2.8 million, which is being amortized on a
straight-line basis over the original lease period.

Future minimum lease payments under noncancellable operating leases having
initial terms in excess of one year as of December 31, 2001 are as follows
(dollars in thousands):

2002........................................................ $ 52,928
2003........................................................ 43,414
2004........................................................ 37,717
2005........................................................ 31,488
2006........................................................ 31,087
Thereafter.................................................. 221,233
--------
Total minimum lease payments*............................... $417,867
========

- ---------------

* Minimum payments have not been reduced by minimum sublease rentals of $10.8
million due in the future under noncancellable subleases.

The following schedule shows the composition of total rental expense for
all operating leases except those with terms of a month or less that were not
renewed (dollars in thousands):

At December 31, 2001, the Company had outstanding letters of credit in the
amount of $0.4 million.

NOTE SEVEN: STOCKHOLDERS' EQUITY

Under the Company's stockholder rights plan, each stockholder receives one
right to purchase one one-thousandth of a share of Series A Participating
Preferred Stock (a Right) for each share of Common Stock owned by the
stockholder. Holders of the Rights are entitled to purchase for $250.00 one
one-thousandth of one share of the Company's Series A Participating Preferred
Stock in certain limited circumstances involving acquisitions of, or offers for,
15 percent or more of the Company's Common Stock. After any such acquisition is
completed, each Right entitles its holder to purchase for $250.00 an amount of
Common Stock of the Company, or in certain circumstances securities of the
acquirer, having a then current market value of two times the exercise price of
the Right. In connection with the stockholder rights plan, the Company has
designated 200,000 shares of its 8,000,000 shares of authorized but unissued
Preferred Stock as "Series A Participating Preferred Stock." Each one
one-thousandth of each share of Series A Participating Preferred Stock will
generally be afforded economic rights similar to one share of the Company's
Common Stock. The Rights are redeemable for a specified period at a price of
$0.01 per Right and expire in March 2002.

RESTRICTED STOCK GRANTS

During the year ended December 31, 2001, the Company issued an aggregate of
383,667 shares of its Common Stock as restricted stock under the 1996 Stock Plan
to certain senior executives at a price of $0.10 per share. All of these
restricted shares were outstanding at December 31, 2001 and are subject to a
right to purchase by the Company. The repurchase right lapses over periods of
three to four years.
47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK OPTION PLANS

Pursuant to the terms of the Company's 1988 Stock Plan (1988 Stock Plan),
an aggregate of 17,930,480 shares of Common Stock has been issued or reserved
for issuance at December 31, 2001 upon the exercise of options granted to
qualified employees and consultants of the Company. The Board of Directors,
directly or through committees, administers the Plan and establishes the terms
of option grants. The exercise price per share of all incentive stock options
granted under the 1988 Stock Plan must be at least equal to the fair market
value of the shares at the date of the grant. The exercise price of all
nonstatutory options granted under the 1988 Stock Plan must be at least 85% of
the fair market value of the Common Stock on the date granted. Only employees
are eligible to receive nonstatutory option grants. Options granted prior to
January 1, 1997 expire ten years from the grant date, or one month after
termination of employment, or six months after death or permanent disability of
the optionee. Options granted subsequent to January 1, 1997 expire ten years
from the grant date, or three months after termination of employment, or two
years after death, or one year after permanent disability of the optionee.
Options in all of these cases are exercisable to the extent vested. Vesting
generally occurs at the rate of 12.5 percent after 6 months and the balance in
equal installments over the following 42 months. The 1988 Stock Plan expired in
June 1998, in accordance with its terms. As of that time, no further options
were granted under the 1988 Stock Plan, but optionees are able to exercise their
vested options before those options expire. All unexercised options are
cancelled upon expiration. As of December 31, 2001, there were 4,140,340
unexercised options outstanding under the 1988 Stock Plan.

Pursuant to the Company's 1996 Stock Plan (1996 Stock Plan), at December
31, 2001, an aggregate of 16,727,000 shares of Common Stock has been issued or
reserved for issuance upon the exercise of options granted to qualified
employees and consultants of the Company. The Board of Directors, directly or
through committees, administers the Plan and establishes the terms of option
grants. The exercise price per share of all incentive stock options granted
under the Plan must be at least equal to the fair market value of the shares at
the date of the grant. The exercise price of all nonstatutory stock options
granted under the 1996 Stock Plan must be at least 85% of the fair market value
of the Common Stock on the date granted. Options generally expire ten years from
the grant date, or three months after termination of employment, or two years
after death, or one year after permanent disability. Options are exercisable to
the extent vested. Vesting generally occurs at the rate of 12.5 percent after 6
months and the balance in equal installments over the following 42 months.

Pursuant to the 1999 Nonstatutory Stock Plan (1999 Stock Plan), at December
31, 2001, an aggregate of 7,000,000 shares of Common Stock has been issued or
reserved for issuance upon the exercise of options granted to qualified
employees and consultants of the Company. Employees (i) who are officers of the
Company within the meaning of Section 16 of the Securities Exchange Act of 1934,
or (ii) who hold the title of vice president or above, are not eligible to
receive options under the 1999 Stock Plan. The Board of Directors, directly or
through committees, administers the Plan and establishes the terms of option
grants. The exercise price of all stock options granted under the 1999 Stock
Plan must be at least 85% of the fair market value of the Common Stock on the
date granted. Options expire on terms set forth in the grant notice (generally
with 10 years from the grant date), or three months after termination of
employment, or two years after death, or one year after permanent disability.
Options are exercisable to the extent vested. Vesting occurs at various rates
and over various time periods.

An aggregate of 700,000 shares of Common Stock has been issued or reserved
for issuance under the 1992 Director Option Plan, as amended, (the 1992 Director
Plan) as of December 31, 2001. Options under the 1992 Director Plan may be
granted only to nonemployee directors. The exercise price of all options granted
under the 1992 Director Plan must be the fair market value of the shares at the
date of grant. Options expire in ten years from the date of grant and vest
ratably over four years from the grant date. The 1992 Director Plan expired in
February 2002, and no further options are available for grant under the 1992
Director Plan, but optionees are able to exercise their vested options before
those options expire.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

An aggregate of 300,000 shares of Common Stock has been issued or reserved
for issuance under the 2001 Director Option Plan (the 2001 Director Plan) as of
December 31, 2001. All grants of options under the 2001 Director Plan are
automatic and nondiscretionary and may be granted only to nonemployee directors.
The exercise price of all options granted under the 2001 Director Plan must be
the fair market value of the shares at the date of grant. Options expire in ten
years from the date of grant and vest ratably over four years from the grant
date.

Price data and activity for the Company's option plans, including options
assumed by the Company in mergers with other companies (adjusted for the merger
exchange ratio) are summarized as follows:

The total number of shares granted in 2001 includes 2,764,136 options
assumed by the Company due to its acquisition of NEN. The total number of shares
granted in 2000 includes 1,135,307 options assumed by the Company due to its
acquisition of HFN. At December 31, 2001, options to purchase 9,282,006 shares
were exercisable at prices ranging from $0.10 to $118.62. Shares available for
grant totaled 6,417,307 at December 31, 2001.

The income tax benefits that accrue to the Company from exercises of
nonqualified stock options and disqualifying dispositions of incentive stock
options are recorded as additional paid-in capital.

The following table summarizes information about Sybase fixed stock options
outstanding at December 31, 2001:

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FFI STOCK OPTION PLANS

In February of 2000, the Company established the 2000 FFI Stock Option Plan
(2000 FFI Plan) and reserved for issuance an aggregate of 13,325,000 shares of
Common Stock upon the exercise of options granted to qualified employees and
consultants of FFI, a majority owned subsidiary of the Company, and certain
employees of Sybase, Inc. FFI's Board of Directors, directly or through
committees, administers the 2000 FFI Plan and establishes the terms of option
grants. The exercise price per share of all incentive stock options granted
under the 2000 FFI Plan must be at least equal to the fair market value of the
shares at the date of the grant. The exercise price of all nonstatutory stock
options granted under the 2000 FFI Plan must be at least 85% of the fair market
value of the common stock on the date granted. As FFI is not a public company,
the fair market value of the shares issued under the plan has been determined by
FFI's Board of Directors and supported by a valuation prepared by an independent
valuation expert. All options issued under the 2000 FFI Plan were granted at the
estimated fair market value of the option at the date of grant. Options expire
ten years from the grant date, three months after termination of employment, two
years after death or one year after permanent disability. Options are
exercisable to the extent vested. Vesting generally occurs at the rate of 12.5
percent after 6 months and the balance in equal installments over the following
42 months. In March 2001, the 2000 FFI Plan was terminated and no further
options were granted under the Plan. Optionees holding unexpired options are
able to exercise such options before those options expire. At that time, any
unexercised options expire and are cancelled. As of December 31, 2001, there
were 7,060,268 unexercised options outstanding under the 2000 Plan.

In March 2001, FFI established the 2001 FFI Stock Option Plan (2001 FFI
Plan) and reserved for issuance an aggregate of 2,000,000 shares of FFI's common
stock upon the exercise of options granted to qualified employees and
consultants of FFI, and certain employees of Sybase, Inc. FFI's Board of
Directors, directly or through committees, administers the 2001 FFI Plan and
establishes the terms of option grants. The exercise price per share of all
incentive stock options granted under the 2001 FFI Plan must be at least equal
to the fair market value of the shares at the date of the grant. The exercise
price of all nonstatutory stock options granted under the 2001 FFI Plan must be
at least 85% of the fair market value of the common stock on the date granted.
As FFI is not a public company, the fair market value of the shares issued under
the plan has been determined by FFI's Board of Directors and supported by a
valuation prepared by an independent valuation expert in 2000. All options
issued during 2001 were granted at the estimated fair market value of the option
at the date of grant. Options expire ten years from the grant date, or three
months after termination of employment, or two years after death, or one year
after permanent disability. Options are exercisable to the extent vested.
Vesting occurs at the rate of at least 20 percent per year over 5 years from the
date options are granted.

Price data and activity for the FFI Plan are summarized as follows:

At December 31, 2001 there were 3,188,347 shares exercisable under the FFI
Plans at a weighted average exercise price of $5.00 per share. The weighted
average remaining contractual life of the options outstanding at December 31,
2001 was 8.43 years.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

IAS STOCK OPTION PLAN

In March 2001, iAS established the 2001 iAS Stock Option Plan (iAS Plan)
and reserved for issuance an aggregate of 11,250,000 shares of iAS common stock
upon the exercise of options granted to qualified employees and consultants of
iAnywhere Solutions, Inc., a majority owned subsidiary of the Company, and
certain employees of Sybase, Inc. iAS's Board of Directors, directly or through
committees, administers the iAS Plan and establishes the terms of option grants.
The exercise price of all stock options granted under the iAS Plan must be at
least 85% of the fair market value of the common stock on the date granted. As
iAS is not a public company, the fair market value of the shares issued under
the plan has been determined by iAS's Board of Directors and supported by a
valuation prepared by the Company. All options issued during 2001 were granted
at the estimated fair market value of the option at the date of grant. Options
expire ten years from the grant date, or three months after termination of
employment, or two years after death, or one year after permanent disability.
Options are exercisable to the extent vested. Vesting occurs at the rate of at
least 20 percent per year over 5 years from the date options are granted.

Price data and activity for the iAS Plan are summarized as follows:

The weighted average remaining contractual life of the options outstanding
at December 31, 2001 was 9.53 years.

EMPLOYEE STOCK PURCHASE PLANS

The Company's 1991 Employee Stock Purchase Plan and 1991 Foreign Subsidiary
Employee Stock Purchase Plan, as amended, (collectively the ESPP) allow eligible
employees to purchase Common Stock through payroll deductions. The ESPP consists
of 6-month exercise periods. The shares can be purchased at the lower of 85% of
the fair market value of the Common Stock at the first day of each 6-month
exercise period or at the last day of each 6-month exercise period. Purchases
are limited to 10 percent of an employee's eligible compensation, subject to an
annual maximum, as defined in the ESPP.

As of December 31, 2001, an aggregate of 11,800,000 shares of Common Stock
had been reserved under the ESPP, of which 2,450,686 shares remained available
for issuance. Employees purchased 710,312 shares in 2001, 675,118 shares in
2000, and 1,284,250 shares in 1999.

PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK BASED COMPENSATION PLANS

The Company applies APB Opinion No. 25 and related Interpretations in
accounting for grants to employees under its stock based compensation plans,
described above. As a result, no compensation cost has been recognized for
grants to employees under its fixed stock option plans or its employee stock
purchase plan. Compensation cost for the estimated fair value of grants to
nonemployee consultants of stock-based compensation has not been material. Had
compensation cost been charged to expense for grants to employees under the
Company's fixed stock option plans (including the FFI and iAS Plans) and its
employee stock purchase plan based on the fair value at the grant dates for
awards under those plans, consistent with the

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

method encouraged by Statement of Financial Accounting Standards No. 123, the
Company's net income/ (loss) and net income/(loss) per share would have been
adjusted to the pro forma amounts indicated below:

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:

The weighted average grant date fair value of options (excluding FFI and
iAS options) granted in 2001, 2000 and 1999 was $7.38, $12.81, and $5.98 per
share, respectively. The weighted average grant date fair value of the FFI
options granted in 2001 and 2000 was $2.92 and $2.97 per share, respectively.
The weighted-average grant-date fair value of the iAS options granted in 2001
was $1.46 per share.

NOTE EIGHT: INCOME TAXES

The Company accounts for income taxes under the liability method. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and income tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

The following is a geographical breakdown of consolidated income (loss)
before income taxes (including intercompany royalties and expenses) by income
tax jurisdiction (dollars in thousands):

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provisions (credits) for income taxes consist of the following (dollars
in thousands):

The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes. The sources
and tax effects of the differences are as follows (dollars in thousands):

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes result principally from temporary differences between
years in the recognition of certain revenue and expense items for financial and
tax reporting purposes. Significant components of the Company's net deferred tax
assets were as follows at December 31 (dollars in thousands):

The valuation allowance increased by $38.9 million in 2001. This movement
was primarily the valuation allowance primarily attached to deferred tax assets
acquired during the year which are associated with the net operating losses of
NEN.

The valuation allowance acquired in the NEN acquisition primarily relates
to deferred tax assets associated with the net operating losses of New Era of
Network. If the associated deferred tax assets are realized, the benefit will
reduce goodwill arising from the NEN acquisition rather than future income tax
expense.

Deferred tax assets relating to carryforwards as of December 31, 2001
include approximately $17.7 million associated with stock option activity for
which any subsequently recognized tax benefits will be credited directly to
shareholders' equity. As of December 31, 2001, the Company had research and
development tax credits of $19.6 million, which expire in years from 2005
through 2021, foreign tax credits of $9.7 million expiring in years from 2002
through 2005, and an asset of $45.9 million associated with certain net
operating losses which expire in the years from 2006 and 2021. The Company
records benefit of available research and development credits and foreign tax
credits before it records the benefit of acquired net operating loss
carryforwards existing at the date of acquisition.

Realization of the Company's net deferred tax assets is dependent upon the
Company generating sufficient taxable income in future years in appropriate tax
jurisdictions to obtain benefit from the reversal of

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

temporary differences and from tax credit carryforwards. The amount of deferred
tax assets considered realizable is subject to adjustment in future periods if
estimates of future taxable income are reduced.

No provision has been made for income taxes on a portion of the unremitted
earnings held by certain of the Company's foreign subsidiaries (approximately
$53.4 million at December 31, 2001) since the Company plans to permanently
reinvest all such earnings.

NOTE NINE: RETIREMENT PLAN

The Company maintains a defined contribution pursuant to Section 401(k) of
the Internal Revenue Code (the 401(k) Plan) that allows eligible employees to
contribute up to 18% of their annual compensation to the Plan, subject to
certain limitations. In 2001, the Company matched employee contribution at a
rate of 50 cents to the dollar up to the first $3,000 of salary contributed by
the employee, with a maximum employer match of $1,500 for the year fully vested.
The maximum employer match was $1,500 in 2000 and $1,000 in 1999. The Plan also
allows the Company to make discretionary contributions. There were no such
discretionary contributions made in 2001, 2000 or 1999.

NOTE TEN: SEGMENT AND GEOGRAPHICAL INFORMATION

The Company is organized into five separate business segments, each of
which maintains financial accountability for its operating results, dedicated
product development and engineering, sales and product marketing, partner
relationship management and customer support teams.

The Enterprise Solutions Division (ESD) delivers products, technical
support and professional services required to develop and maintain a variety of
operational systems including e-Business infrastructures that allow enterprises
to integrate external data, events and applications. iAnywhere Solutions, Inc.
(iAS), formerly the Mobile and Embedded Computing Division (MEC), is a
subsidiary that provides solutions to deliver enterprise information and
applications anywhere business transactions occur, including remote locations
and on mobile and hand-held platforms. The e-Business Division (eBD) delivers an
end-to-end e-Business platform and enterprise application integration
capabilities outside a company's "firewall" and across the supply chain. The
Business Intelligence Division (BID) delivers industry specific database
management systems, warehouse design tools and central meta data management
facilities that enable customers to develop business intelligence solutions that
integrate and translate data from multiple sources. Financial Fusion, Inc.
(FFI), formerly HFN, is the subsidiary that delivers turnkey Internet banking
solutions to financial institutions.

The Company reports its iAS and FFI subsidiaries and ESD, eBD and BID
divisions as reportable segments in accordance with SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company had four
reportable segments in 1999: ESD, MEC, IAD and BID. The FFI segment was added to
report the results of HFN which was acquired by the Company in 2000. eBD was
created in the second quarter of 2001, and incorporates operations of NEN,
certain products previously reported in ESD (primarily the Sybase Enterprise
Portal), and certain products previously reported in the former Internet
Application Division (IAD) (primarily Enterprise Application Server,
PowerBuilder, PowerDesigner and PowerJ(R)). IAD is no longer reported as a
separate segment. The Company has restated all earlier periods reported to
reflect the segment changes made in the second quarter of 2001.

The Company's Chief Operating Decision Maker (CODM), which is the President
and Chief Executive Officer, evaluates performance based upon a measure of
segment operating profit or loss that includes an allocation of common expenses,
but excludes certain unallocated expenses. Segment revenue includes transactions
between the segments. These revenues are transferred to the applicable segments
less amounts retained, which are intended to reflect the costs incurred by the
transferring segment. Allocated common costs and expenses are allocated based on
measurable drivers of expense. Unallocated expenses represent corporate
expenditures or cost savings that are not specifically allocated to the
segments. The Company's CODM does not view segment results below operating
profit (loss) before unallocated expenses, and therefore unallocated
55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expenses, interest income, interest expense and other, net and the provision for
income taxes are not broken out by segment. The Company does not account for, or
report to the CODM, its assets or capital expenditures by segment.

A summary of the segment financial information reported to the CODM for the
year ended December 31, 2001 is presented below (in thousands):

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the segment financial information reported to the CODM for the
year ended December 31, 2000 is presented below (in thousands):

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the segment financial information reported to the CODM for the
year ended December 31, 1999 is presented below (in thousands):

- ---------------

(1) Certain previously reported amounts have been reclassified to conform to
current period presentation format.

The Company operates in one industry segment (the development and marketing
of computer software and related services) and markets its products and services
internationally through both foreign subsidiaries and distributors located in
the United States, Canada, Europe, Asia, Australia, New Zealand, and Latin
America. Other includes operations in Asia, Australia, Canada, New Zealand and
Latin America.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents a summary of operating information and certain
year-end balance sheet information by geographic region (in thousands):

NOTE ELEVEN: BUSINESS COMBINATIONS AND INVESTMENTS

On February 20, 2001, the Company agreed to acquire New Era of Networks,
Inc. (NEN), a publicly-traded leading e-Business application integration
company, in a stock-for-stock transaction valued at $339.3 million, and
accounted for as a purchase. The total purchase price was determined as follows:

Under the terms of the acquisition, each share of NEN common stock was
converted into 0.3878 shares of Sybase Common Stock. The same conversion ratio
was used to convert all outstanding NEN stock options to Sybase stock options.

The fair value of the common stock issued was based on the average closing
price of the Sybase Common Stock on the two days before and after the
acquisition was announced on February 20, 2001. The fair value of the NEN
options assumed, which were exchanged for cash and Sybase options, was based on
the Black-Scholes model using the following assumptions:

- Expected life of .25 to 3.5 years

- Expected volatility factor of 70.93%

- Risk-free interest rate of 6.18%

- Expected dividend rate of 0%

The estimated excess of the purchase price over the fair value of the net
assets acquired is expected to be approximately $311.8 million. This amount is
subject to change pending the final analysis of the fair values of the assets
acquired and the liabilities assumed. Of the estimated $311.8 million excess,
$47.7 was allocated to developed technology, $9.0 million was allocated to
assembled workforce, $1.2 million was allocated to stock based compensation,
$18.5 million was allocated to in-process research and development and an
estimated $235.4 million was allocated to goodwill. This allocation was based on
a valuation prepared by an independent

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

third-party appraiser. Included in goodwill is $23.2 million that was allocated
to goodwill with an offsetting amount allocated to long-term deferred tax
liability for the tax effect of the amortization on developed technology and
assembled workforce, which is not deductible for tax purposes.

The amount allocated to in-process research and development was charged to
expense as a non-recurring charge in the second quarter of 2001 since the
in-process research and development had not yet reached technological
feasibility and had no alternative future uses. During 2001, the amounts
allocated to the assembled workforce, the developed technology and the goodwill
were amortized on a straight-line basis over periods of 6 years, 4 years and 6
years, respectively.

On January 20, 2000, the Company acquired Home Financial Network (HFN), a
privately-held Internet financial services company specializing in the
development of customized e-Finance Web sites. HFN subsequently was renamed
Financial Fusion, Inc. This transaction was accounted for as a purchase.

The following unaudited pro forma quarterly financial information presents
the combined results of operations of Sybase as if the acquisition of NEN had
occurred as of the beginning of 2001 and 2000, and the acquisition of HFN had
occurred as of the beginning of 2000. The pro forma quarterly financial
information gives effect to certain adjustments, including amortization of
goodwill and other intangible assets, but excluding the non-recurring charge for
the write-off of $18.5 million in in-process research and development acquired
in the NEN acquisition and $8.0 million in in-process research and development
acquired in the HFN transaction. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
three companies constituted a single entity during such periods.

- ---------------

(a) The effect of outstanding stock options is excluded from the calculation of
diluted net loss per share, as their inclusion would be antidilutive.

On February 1, 2001, the Company acquired Sybase A/S, a privately-held
distributor of Sybase products in Denmark, for approximately $3.5 million in
cash. The acquisition was accounted for using the purchase method of accounting,
and a significant portion of the purchase price was allocated to intangible
assets. The results of operations of the Denmark entity have not been material
in relation to those of our company as a whole and are included in the
consolidated results of operations for periods subsequent to the acquisition
date.

During 2000, the Company invested $15.7 million for equity interests of
between 2 percent and 16 percent in five early-stage e-Business companies, of
which $5.7 million was invested under the terms of its Innovation Fund. These
nonmarketable investment securities are accounted for under the cost method of
accounting. The Innovation Fund, which had a total of $50 million available for
such investments, was approved by the Board of Directors in 1999. In order for
an investment to qualify as an Innovation Fund investment, the following
criteria must be met: (i) total investment by Sybase in the transaction must be
no greater than $5 million, and (ii) Sybase's total equity interest in the
entity must not exceed 19 percent of the total outstanding equity at any time.

In September 2000, the Company acquired certain assets of its distributor
in Mexico for approximately $4.0 million, and assumed certain of its
liabilities. In addition, pursuant to the relevant agreements, the Company is
obligated to make certain contingent payments in subsequent years based on
certain agreed-upon performance criteria. The aggregate maximum additional
contingent amount payable in 2001 and 2002 is

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$5.2 million. This transaction has been accounted for as a purchase. The results
of operations of the Mexico entity have not been material in relation to those
of the Company and are included in the consolidated results of operations for
periods subsequent to the acquisition date.

In March 1999, the Company paid $5.4 million for Convertible Secured
Promissory Notes due December 31, 2002 (Notes) issued by Demica PLC (Demica), a
provider of a wholesale banking application using the Company's technology. The
Notes bear interest at 8 percent per annum and at the time of issuance, were
convertible into 29.9 percent of the share capital of Demica. On August 11,
2000, the Company converted the Notes into Demica shares and in August 2000, an
investor paid Sybase approximately $1.7 million for 348,240 of such shares,
thereby bringing Sybase's investment in Demica below 20 percent. Additionally,
Demica has paid Sybase $331,000 for accrued interest under the Notes. The
investment is being accounted for under the cost method of accounting.

In February 1999, the Company acquired Data Warehouse Network (DWN), an
Ireland-based, privately held provider of packaged, industry-specific business
intelligence applications. Under the acquisition agreement, the Company paid
$2.7 million in cash for certain assets and assumed certain liabilities of DWN.
In addition, pursuant to the terms of the agreement, the Company is obligated to
make contingent payments based on certain agreed-upon performance criteria. The
aggregate maximum additional amount payable over a three-year period is $5.3
million of which $1.8 million has been paid to date. The transaction was
accounted for as a purchase. Substantially the entire amount paid was allocated
to purchased software and intangible assets. The results of operations of DWN
have not been material in relation to those of the Company and are included in
the consolidated results of operations for periods subsequent to the acquisition
date.

NOTE TWELVE: LITIGATION

In January 2001, several class action lawsuits were filed in Federal
District Court for the State of Colorado against NEN alleging violation of
federal securities laws. Certain of NEN's current and former officers also were
named as defendants. All cases were consolidated into a single case with a class
period of October 18, 2000 to November 21, 2000. Although NEN believes this
class action lawsuit is without merit, NEN agreed to settle the lawsuit for $5.0
million in order to avoid protracted and expensive litigation and the
uncertainty of trial. NEN is responsible for $0.9 million of such settlement
amount plus its accumulated legal expenses, and NEN's insurers are responsible
for the balance. The Stipulation of Settlement was filed with the Court on March
22, 2002 and is awaiting approval from the Court. The settlement will have no
material adverse effect on our consolidated financial condition or results of
operations. Sybase has accrued for the settlement in its acquisition accounting
for NEN.

In May 2001, NEN and certain of its current and former officers reached a
settlement agreement with the plaintiffs in an earlier consolidated class action
lawsuit that alleged violation of the federal securities laws and other claims.
That action was filed in federal court in Colorado in July 1999 and asserted
claims on behalf of purchasers of NEN's securities from April 21, 1999, through
July 6, 1999. Although NEN viewed this class action lawsuit to be without merit,
NEN agreed to settle the lawsuit for $5.5 Million in order to avoid protracted
and expensive litigation and the uncertainty of trial. NEN's insurers were
responsible for payment of the entire settlement amount, although NEN was
responsible for a portion of its accumulated legal expenses. The Agreement of
Settlement was filed with the Court on August 3, 2001 and received final
approval from the Court on January 2, 2002. The settlement will have no material
adverse affect on our consolidated financial condition or results of operation.
Sybase has accrued for the settlement in its acquisition accounting for NEN.

NEN also was involved in a trademark infringement and dilution case filed
in June 1999 in Texas District Court for Bend County by NEON Systems, Inc. (NSI)
over the use of the name "NEON." At the conclusion of a jury trial on June 1,
2001, the court issued a judgment against NEN for $14 million in actual damages
and $25 million in punitive damages. In addition, the court issued an injunction
against NEN's use of the "NEON" name. The action was settled on September 5,
2001 for a lesser amount. Key provisions of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

settlement agreement provided for payment of $16.5 million to NSI and extended
transition periods for NEN and certain of its resellers to discontinue use of
the "NEON" name. Sybase has accrued for the settlement amount in its acquisition
accounting for NEN.

Sybase is a party to various other legal disputes and proceedings arising
in the ordinary course of business. In the opinion of management, resolution of
those matters is not expected to have a material adverse effect on our
consolidated financial position. However, depending on the amount and timing of
such resolution, an unfavorable resolution of some or all of these matters could
materially affect our future results of operations or cash flows in a particular
period. We believe we have adequately accrued for these matters at December 31,
2001.

NOTE THIRTEEN: RESTRUCTURING COSTS

In April 2001, in connection with the Company's acquisition of NEN and
after announcement that first quarter and 2001 revenues would be below
expectations, the Company began to implement a restructuring program designed to
eliminate certain personnel, assets and facilities, aligning resources and
streamlining Company costs (2001 Plan). The 2001 Plan resulted in the
elimination of approximately $115 million from the Company's yearly ongoing cost
structure. The goal of the 2001 Plan was to align the Company's cost structure
with anticipated revenues.

The 2001 Plan included restructuring charges of $25.2 million during the
quarter ended June 30, 2001, restructuring charges of $10.3 million during the
quarter ended September 30, 2001, and restructuring charges of $13.3 million
during the fourth quarter ended December 31, 2001. During the second quarter the
Plan called for the termination of approximately 400 employees, the
consolidation or closure of more than 15 facilities worldwide, the write down of
certain assets abandoned as a result of the office closures, and various other
exit expenses directly related to the restructuring activities. During the third
quarter, Sybase terminated the employment of approximately 280 additional
employees, consolidated or closed two additional facilities, wrote down certain
assets abandoned as a result of office closures, and incurred various other
expenses directly related to the 2001 Plan. During the fourth quarter
approximately 200 additional employees were terminated in accordance with the
plan, the Company consolidated or closed twelve additional facilities, wrote
down certain assets abandoned as a result of employee terminations, office
closures and consolidations, and incurred various other exit expenses directly
related to the 2001 Plan. In the fourth quarter, the Company also recorded
additional restructuring charges associated with the costs to vacate eleven
properties previously identified during the second and third quarters, based on
the current analysis of independent real estate consultants.

The amounts included in the 2001 Plan were as follows:

TERMINATION PAYMENTS TO EMPLOYEES AND OTHER RELATED COSTS

During the second quarter of 2001, the Company incurred a restructuring
charge of $10.1 million for severance payments and other termination benefits
provided to approximately 400 employees. During the third quarter of 2001, the
Company incurred a restructuring charge of approximately $5.1 million for
severance

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payments and other termination benefits provided to approximately 280 employees.
During the fourth quarter of 2001, the Company incurred a restructuring charge
of approximately $5.7 million for severance payments and other termination
benefits provided to approximately 200 employees. Severance payments and
termination benefits were accrued and charged to restructuring costs in the
period that amounts were determined and communicated to the affected employees.

During the fourth quarter, the Company evaluated the costs associated with
providing medical coverage and other benefits to certain employees terminated in
the second and third quarters. As a result of the Company's experience through
the end of the fourth quarter, the amount of the severance accrual relating to
medical coverage and other benefits was reduced by approximately $1.0 million.
In addition, there was a reversal in the fourth quarter to the severance accrual
for approximately $0.7 million associated with a number of individuals who were
either not terminated after they were asked to stay to fill positions
voluntarily vacated by employees not included in the restructuring plan, or were
foreign employees paid less then the amount originally provided after a legal
proceeding to determine the severance amount as required under local law. The
above reversal was recorded by a corresponding credit to restructuring expense.

LEASE CANCELLATIONS AND COMMITMENTS

During the second quarter of 2001, Sybase incurred restructuring charges of
$13.5 million for facilities consolidated or closed in Boulder, Colorado;
Emeryville, California; Hartford, Connecticut; Englewood, Colorado; Milpitas,
California; New York, New York; Southfield, Michigan; Watertown, Massachusetts;
Westport, Connecticut; and Orem, Utah. The Company also incurred restructuring
charges of $0.7 million for facilities consolidated or closed in Canada, the
United Kingdom, Belgium, Spain and Sweden. During the third quarter of 2001,
Sybase incurred restructuring charges of $4.1 million for facilities
consolidated or closed in Boston, Massachusetts, and in the United Kingdom.
During the fourth quarter of 2001, the Company incurred restructuring charges of
$4.4 million for facilities consolidated or closed in California, Colorado,
Florida, Virginia, Mexico, Argentina, Puerto Rico, Japan, France and
Switzerland. In addition, based on the analysis of independent real estate
consultants, and reflecting changes in the economic conditions since the
original accruals were established, the Company recorded additional
restructuring charges of $4.0 million during the fourth quarter to fully provide
for the current estimated cost to consolidate or close facilities in California,
Colorado, Michigan, Utah, Massachusetts, New York and the UK.

The offices included above were primarily used for the sale of Sybase
software products, professional services and customer support, and in certain
instances research and development. These restructuring charges reflect the
remaining contractual obligations under the facility leases and certain costs
associated with the expected sublease of the facilities, net of anticipated
sublease income from the date of abandonment to the end of the lease term.
Certain facilities described above continued in use during the completion of the
restructuring. The Company continued to record monthly rent expense on these
facilities as an operating expense until the facilities were abandoned.

During the fourth quarter of 2001, approximately $0.6 million was reversed
by a corresponding credit to restructuring expense, a second quarter accrual
established to terminate a lease on a building which was later destroyed during
the terrorist attacks of September 11th. During the fourth quarter the Company
was notified that no additional payments would be required under the lease on
the facility, and as a result the associated restructuring accrual was reversed.

WRITE-DOWNS OF PROPERTY, EQUIPMENT AND FURNITURE

In the second and third quarters of 2001, Sybase incurred restructuring
charges of $0.5 million and $1.3 million, respectively, which were primarily
related to the impairment of the carrying values of leaseholds and certain
furniture attributable to facilities closed in connection with the
restructuring. The assets were all taken out of service and held for disposal at
the date the associated facility was closed. In the fourth quarter of 2001, the
Company incurred a restructuring charge of $1.4 million, which was related to
the impairment of the

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carrying value of certain computer equipment and software associated with
individuals terminated during the year for which there was no intended
alternative use, and leaseholds and certain furniture attributable to facilities
closed in connection with the restructuring.

OTHER

During the second quarter of 2001, the Company incurred a restructuring
charge of $0.4 million associated with certain other restructuring related exit
expenses, including legal costs associated with the severance of employees,
travel and security costs associated with the termination of employees, and fees
associated with the cancellation of certain obligations, and relocation expenses
for certain terminated expatriates. During the third and fourth quarters of
2001, the Company incurred restructuring charges of $0.1 million for
professional fees associated with the restructuring.

The following table summarizes the activity related to the restructuring:

It is estimated that the remaining accruals relating to termination
benefits and other restructuring relating activities will be paid by the second
quarter of 2002. The payments of accruals related to lease cancellations and
commitments which are dependent upon market conditions and our ability to
negotiate acceptable lease buy-out outs or locate suitable subleases, will be
paid over a period not to exceed nine years.

As of December 31, 2001, Sybase had completed substantially all of the
employee terminations identified during the second and third quarters.
Approximately 100 of the 200 employees identified in the fourth quarter had been
notified of their termination benefits, but had yet to receive their severance
payments as of December 31, 2001.

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QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

66

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The information required by this item with respect to identification of
directors is incorporated by reference to "Election of Directors" in our
definitive Proxy Statement for the Annual Meeting of Stockholders to be held May
23, 2002 (Proxy Statement). The Proxy Statement will be filed with the
Commission within 120 days after the end of Sybase's fiscal year ended December
31, 2001. For information regarding the Company's executive officers, see
"Executive Officers of the Registrant" at the end of Part I of this Report on
Form 10-K.

The information required by this item with respect to the information
required under Item 405 of Regulation S-K is incorporated by reference to
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to
"Executive Compensation" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to
"Stock Ownership of Management and Beneficial Owners" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to
"Employment Agreements and Certain Transactions" in the Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Report on Form 10-K:

1. Financial Statements. See list of financial statements at the
beginning of Part II, Item 8, incorporated here by reference.

2. Financial Statement Schedules. The following financial statement
schedules of Sybase, Inc. for the years ended December 31, 2001, 2000, and 1999
are filed as part of this Report on Form 10-K and should be read in conjunction
with the Consolidated Financial Statements in Part II, Item 8, and related
notes.

3. Exhibits. Item 14(c) below is incorporated here by reference. All
management contracts and compensatory plans filed as exhibits (or incorporated
by reference into this Report) pursuant to Item 601 of Regulation S-K, are as
follows:

- ---------------

(1) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
33-41549) declared effective on August 13, 1991.

(2) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 (file no. 33-89334) filed on February 10, 1995.

(3) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.

(4) Incorporated by reference to exhibits filed in response to the exhibits to
the Company's Annual Report on Form 10-K for the year ended December 31,
2000.

68

(5) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 (file no. 333-63360) filed June 19, 2001.

(6) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.

(b)Reports on Form 8-K.

There were no reports on Form 8-K filed during the quarter ended December
31, 2001.

(c)Exhibits. The exhibits required by Item 601 of Regulation S-K are listed in
the Exhibit Index to this Report on Form 10-K, incorporated here by
reference.

Schedules not listed above have been omitted because they are either
(i) not applicable or are not required, or (ii) the information is included
in the Consolidated Financial Statements and related notes, Part II, Item
8.

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SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
---------------------

SYBASE, INC.

- ---------------

A Sales returns and credit memos allowances

B Uncollectible accounts written off and recoveries

The required information regarding the valuation allowance for deferred tax
assets is included in Note Eight to the Consolidated Financial Statements.

70

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf of the undersigned, thereunto duly authorized.

SYBASE, INC.

By: /s/ JOHN S. CHEN

------------------------------------
John S. Chen
Chairman of the Board, Chief
Executive Officer and President

March 29, 2002

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John S. Chen, Pieter Van der Vorst and
Teresa D. Chuh, jointly and severally, his or her attorneys-in-fact, each with
the power of substitution, for him or her in any and all capacities, to sign any
amendment to this Report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of
1934, this Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:

72

EXHIBIT INDEX

- ---------------

(1) To be filed with Securities and Exchange Commission not later than 120 days
after the end of the period covered by this Report on Form 10-K.

(2) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 (file no. 33-89334) filed on February 10, 1995.

(3) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.

(4) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
33-41549) declared effective on August 13, 1991.

(5) Incorporated by reference to exhibits filed in response to the exhibits to
the Company's Annual Report on Form 10-K for the year ended December 31,
2000.

(6) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 (file no. 333-63360) filed June 19, 2001.

(7) Incorporated by reference to the signature page of this Report.

(8) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.

74