SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from            to

Commission file number: 1-16493

SYBASE, INC.

One Sybase 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 þ NO o

     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. o

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES þ NO o

     The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter was $1.3 billion. As of March 1, 2005, the Registrant had 89,162,388 shares of Common Stock outstanding.

- 1 -

Table of Contents

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 the performance of the global economy and growth in software industry sales; market acceptance of the Company’s products and services; possible disruptive effects of organizational or personnel changes; shifts in our business strategy; interoperability of our products with other software products; the success of certain business combinations engaged in by us or by competitors; political unrest or acts of war; customer and industry analyst perception of the Company and its technology vision and future prospects; and other risks detailed from time to time in our Securities and Exchange Commission filings, including those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)- Overview,” and “MD&A — Future Operating Results,” Part II, Item 7 of this Annual Report on Form 10-K.

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.

- 2 -

PART I

ITEM 1. BUSINESS

Sybase enables the Unwired Enterprise through enterprise, mobile and wireless software solutions for information management, development and data integration. Sybase solutions provide customers with an information edge by integrating platforms, databases, and applications, and extending those applications by moving critical information from data centers to mobile workers through mobile and wireless technologies. Sybase information management solutions are widely recognized for superior reliability, security and openness, allowing easy and effective development in heterogeneous environments. Our targeted markets include commerce, communications, finance, government, defense, manufacturing, transportation and healthcare. 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 three principal operating divisions, Infrastructure Platform Group (IPG), iAnywhere Solutions, Inc. (iAS), and Financial Fusion, Inc. (FFI). Both iAS and FFI are majority-owned subsidiaries. Below is a brief description of the business of each division:

     •  Infrastructure Platform Group (IPG) focuses on information management with its enterprise class database servers for mission-critical transactions, data warehousing and business analytics. IPG products provide information delivery solutions including high-availability replication, data movement, and data and message integration. IPG solutions help enterprises reduce the complexity of managing their information environment, deliver timely and accurate information to point of action while improving response times and lowering the total cost of operations. IPG products also increase developer productivity by providing dramatically easier-to-use tools that cut time and project complexity while improving collaboration. During 2004, the principal products of IPG accounted for approximately 73 percent of our license revenue.

     •  iAnywhere Solutions, Inc. (iAS) is a subsidiary of Sybase that enables success at the frontlines of business and holds worldwide market leadership positions in mobile and embedded databases, mobile management and security, and mobile middleware. iAS’s unique “Always Available” computing model provides online and offline access to the information and applications users need, when and where they need it most. Millions of subscribers, 15,000 customers, and 1,000 partners rely on iAS’s award-winning technologies, including SQL Anywhere®, Afaria®, and the AvantGo® mobile Internet service. We acquired AvantGo, Inc. in February 2003. In the second quarter of 2004 we acquired and are integrating into iAS, XcelleNet, a developer of mobile device management software and the assets of Dejima, a provider of natural language technology solutions for mobile access. The principal products of iAS accounted for approximately 24 percent of our license revenue in 2004.

     •  Financial Fusion, Inc. (FFI) provides banking, payment, cash management, and trade messaging solutions to more than 200 leading financial institutions. FFI solutions enable banks to provide account access and payment initiation on behalf of their consumer, small business and corporate clients. For financial market customers, FFI messaging and integration solutions enable straight-through processing (STP) of trading transactions. FFI was created to extend the business of Home Financial Network, Inc. (HFN), which we acquired in January 2000, and to develop certain products formerly within NEN. The principal products of FFI accounted for approximately 3 percent of our license revenue in 2004.

A summary of financial results for these divisions is found in Note Ten to Consolidated Financial Statements, Part II, Item 8.

UNWIRED ENTERPRISE

We define the Unwired Enterprise as the free flow of information within an organization, whether inside the office or on the road. An Unwired Enterprise breaks down information technology barriers and delivers critical information and applications to employees, partners, and customers anytime, anywhere providing our customers with an information edge. An Unwired Enterprise is more efficient, more productive, and better able to capitalize on new opportunities because information is moved to the point of action, increasing its relevance and enhancing the power of decisions and transactions. Our Unwired Enterprise

- 3 -

offerings include: Replication Server, Real Time Data Services, Unwired Orchestrator, Unwired Accelerator, SQL Anywhere Studio and Afaria.

CUSTOMERS

Our customers are primarily Fortune 1000 companies in North America and their equivalents around the globe. Our targeted markets include commerce, communications, finance, government, defense, manufacturing, transportation and healthcare. No single customer accounted for more than 10 percent of total revenues during 2004, 2003 or 2002. In 2004 our customers included:

•	One of the largest Federal government agencies employed our Enterprise Portal, ASE, Replication Server, Adaptive Server IQ, PowerBuilder and other Sybase technology to build a new data warehouse that enhanced the back-end of its rapidly growing online marketplace. The back-end enhancements incorporated state-of-the art radio frequency (RF) technology and the Sybase products significantly increased the system’s scalability and efficiency, resulting in large savings to taxpayers.
•	For a new e-government initiative, the statistics bureau of a large Federal agency used Sybase IQ to develop a high-performance solution to compress a large volume of data while making it more accessible and reducing the time needed for data gathering. The bureau’s web page now receives over 25,000 hits per day and provides users a single point of access for efficient searches and higher-quality analysis. The time needed to load and index new data also significantly decreased. In recognition of its public impact, the e-government initiative was selected as a finalist in the 2004 Computerworld Honors awards.
•	One of the largest railroad networks in North America implemented iAS’ mobile database, synchronization, and mobile device management technologies to allow mobile workers to remotely use the railroad’s work order management and timekeeping application. The solution reduced data entry time by up to 50%, resulted in significant data entry-related cost savings, and allows thousands of workers to work in very remote places without needing a connection to the railroad’s back-end system.

Our products are available on hardware platforms manufactured by Dell, 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 our principal products follows:

Infrastructure Platform Group (IPG)

Information Management Products

Sybase IQ is a highly efficient relational database optimized for outstanding query performance for both structured and unstructured data in business intelligence, reporting environments, and large data warehouses. Sybase IQ combines extraordinary speed and agility with a low cost of ownership.

Sybase Adaptive Server® Enterprise (ASE) is a powerful data management platform for high performance business applications especially in high-transaction, mission-critical environments. ASE combines a low total cost of ownership with excellent reliability, security, and scalability.

Replication Server® increases the flexibility and lowers the cost of managing multiple data management platforms. It provides bi-directional, heterogeneous replication and synchronization across enterprise, client/server, desktop, and mobile systems.

Sybase Dynamic Archive is an online database archiving solution that enables customers to proactively manage runaway data growth by offloading inactive data from the production system while keeping both the production and archived data fully available online. Sybase Dynamic Archive allows customers to

- 4 -

reduce maintenance windows, lower storage costs, improve application performance, and comply with regulatory requirements for long-term storage, fast access and data integrity.

Sybase Real-Time Data Services is a simple, cost-effective way to give decision-makers immediate insight into changing business events by proactively pushing time-critical data from heterogeneous enterprise databases to messaging architectures, eliminating the “information lags” created by batch updates or intermittent polling processes.

Sybase Mirror Activator™ improves the economics of high-end storage replication systems by reducing network costs, accelerating recovery time and guaranteeing data integrity. It also extends the usefulness of standby systems by utilizing them for reporting and decision support.

Sybase RepConnect, Open Server™, Open Client™, Open Switch, Replication Agent™, MainframeConnect™ and EnterpriseConnect™ Data Access are among our core data access and integration products that 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.

Integration and Access

Sybase Unwired Accelerator speeds the mobilization of Web applications and data sources for always-available access. Its rapid development tools can mobilize existing applications or create new mobile applications.

Sybase Unwired Orchestrator enables organizations to “unwire” enterprise applications making data available to anyone, anywhere. Unwired Orchestrator facilitates rapid development of new applications, especially composite applications, by combining graphically built process flows, enterprise integration, process monitoring and notification, all within a standards-based infrastructure platform and common toolset. This capability cuts cost and rigidity of labor-intensive, hand-coded traditionally needed to extend enterprise applications.

Sybase Enterprise Portal (EP) provides a consolidated, user-friendly look at all types of information from multiple legacy systems. Sybase Content Capture and Sybase Mach Desktop are sold through our OEM channel.

Sybase HIPAA Audit Solution, Claims Solution, EDI Server and Sybase e-Biz Impact™ are integration products specifically designed for the healthcare industry. The HIPAA solution helps customers manage their compliance and reporting obligations under the Health Insurance Portability and Accountability Act of 1996. EDI Server is an integration product for organizations using electronic data interchange (EDI) to exchange business information with trading partners. e-Biz Impact is a proven integration solution for managing complex information routing, particularly in the healthcare industry.

Development and Modeling Tools

Sybase PowerDesigner® is a leading data-modeling and application design tool for enterprises that need to build or re-engineer applications quickly, cost-effectively and consistently (also sold as Sybase PowerAMC).

Sybase PowerBuilder® is an industry-leading rapid application development (RAD) tool that increases developer productivity through tight integration of design, modeling, development, and management.

Sybase DataWindow.Net boosts the performance of .Net application environments.

Sybase PocketBuilder™ provides a highly productive Integrated Development Environment (IDE) for mobile application development.

- 5 -

Sybase EA Server is an enterprise application server based on open standards for powering mission critical applications.

iAnywhere Solutions (iAS)

SQL Anywhere® Studio is recognized as the industry leading data management and enterprise synchronization solution for applications that typically operate without a traditional data center. Offering high performance out of the box, with low maintenance requirements and a small footprint, SQL Anywhere is an enterprise caliber database ideal for embedding in server, desktop, remote office and mobile applications.

m-Business Anywhere™ is a highly scalable platform for delivering Web-based applications and content to mobile devices. Web developers can leverage their existing skill sets and open standards to develop and deploy fully interactive “always available” Web applications with sync-and-go or wireless capabilities.

Pylon™ is a set of secure, flexible, feature-rich solutions that extends a company’s existing Lotus Notes and Microsoft Exchange infrastructure to hand-held devices. Pylon products enable organizations to easily mobilize corporate e-mail, calendar, contacts, task lists, expenses and custom Notes applications.

Mobile Sales is a customizable software package that helps organizations accelerate the adoption and return on investment of existing customer relationship management (CRM) solutions by enabling sales professionals to access these systems from mobile devices, anywhere, at anytime. Mobile Sales offers adaptors for Siebel and salesforce.com applications, and Mobile Pharma addresses the mobile CRM needs of the pharmaceutical industry.

AvantGo® Mobile Internet Service is a free service that delivers rich, personalized mobile Websites to PDAs and smartphones. Today, hundreds of major brands, including American Airlines, CNET, GM, Rolling Stone and The New York Times leverage AvantGo to target a highly desirable demographic of millions of registered users. AvantGo offers the convenience of anywhere anytime access, seamlessly supporting both wireless and “sync and go” connectivity.

Answers Anywhere™ is a robust, carrier-grade middleware platform with powerful Natural Language and context understanding capabilities that enables end-users – whether they are on a wireless phone, using a handheld PDA, interacting with a customized console, or at a desktop computer – to ask for information and transactions in their own words, in any language, and get accurate, relevant answers back quickly and reliably.

Afaria® proactively manages the remote and mobile devices, applications, data, and communications critical to frontline success. Afaria software solutions keep technology simple and useful for those on the front lines of business while providing headquarters with control and visibility.

RFID Anywhere™ automates the process of developing and deploying RFID applications and networks. RFID Anywhere is a platform that addresses the physical requirements of the technology and even provides the ability to simulate and troubleshot production RFID environments. RFID Anywhere abstracts device interfaces and standards and manages them directly.

RemoteWare® is an industry-leading polling, file transfer, and content distribution solution that support a broad range of frontline systems and networking options. RemoteWare fully supports both classic POS devices and contemporary software environments and is designed to move critical sales data between retail or hospitality sites and headquarters.

Financial Fusion, Inc. (FFI)

Financial Fusion® Banking Solutions enable financial institutions to offer multiple-delivery channel support to their consumer, small business, and large corporate clients. Features include account access, banking, cash management services, imaging, bill payment and presentment, customer care, and

- 6 -

wireless application support. Solutions are supported on an integrated platform driven by Financial Fusion Server™ using advanced Java technology and industry protocols.

Financial Fusion® Financial Markets Solutions are designed to meet the straight-through processing connectivity and integration requirements of the trading industry. FFI solutions provide processing for transaction intensive trading organizations such as securities and investment firms, electronic communications networks and network providers. FFI solutions support a variety of electronic messaging protocols including FIX, FIXML, FpML, EMX, SWIFT, VMUs, and certain proprietary protocols.

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 in all time zones around the world. Our end users and partners have access to technical information sources and newsgroups on our support website, including a problem-solving library, a “solved cases” database, and software fixes that can be downloaded. Generally, customers 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 that become available during the support period.

     • Basic Support is designed for smaller local enterprises and includes 24 x 7 support coverage for up to two customer support contacts.

     • Extended Support is the minimum support level recommended for our enterprise database products such as ASE 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 include a designated enterprise support team, account management, and other specialized options.

In addition to the above support offerings, we offer several support services options geared toward developers for designated workplace level and tools products. These programs are priced on a flat-fee annual basis with updates and new version releases available for purchase separately.

Each of our principal business divisions also offers a variety of support services to their partners and resellers.

Consulting. The Sybase Professional Services (SPS) organization offers customers comprehensive consulting, education 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 education.

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 training providers also provide education 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

- 7 -

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. Sybase products and services are generally licensed through our direct sales organization and our indirect sales channels. “Indirect sales channels” include value added resellers (VARs), systems integrators (SIs), original equipment manufacturers (OEMs) and international distributors and resellers.

International Business. In 2004, 42 percent of our total revenues were from operations outside North America, with operations in EMEA (Europe, Middle East and Africa) accounting for 28 percent, and operations in our Intercontinental region (Asia Pacific and Latin America) accounting for 14 percent. Most of our international sales are made by our foreign subsidiaries. However, certain sales are made in international markets from the United States. We also license our products through distributors and other resellers throughout the world. A summary of our geographical revenues is set forth in “MD&A — Geographical Revenues”, Part II, Item 7, and Note Ten to Consolidated Financial Statements, Part II, Item 8. For a discussion of the risks associated with our foreign operations, see “MD&A – Future Operating Results – We are subject to risks arising from our international operations,” Part II, Item 7.

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 1, 2005, we had 98 issued patents (92 U.S. and 6 non-U.S.) that expire approximately 20 years from the date they were filed. These patents cover various aspects of our technology. We believe that our patents and other intellectual property rights have value, but no single patent is critical to Sybase as a whole. However, any of our proprietary rights could be challenged, invalidated or circumvented, or may not provide us with significant competitive advantage. For a discussion of additional risks associated with our intellectual property, see “MD&A – Future Operating Results – If we are unable to protect our intellectual property, or if we infringe or are alleged to infringe a third party’s intellectual property, our operating results may be adversely affected,” Part II, Item 7.

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 2004, we invested $119.9 million, or 15 percent of our total revenue in research and development. These amounts compared to $116.9 million and 15 percent in 2003, and $117.8 million and 14 percent in 2002. 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 – The ability to rapidly develop and bring to market advanced products and services that are successful is crucial to maintaining our competitive position,” Part II, Item 7.

COMPETITION

     The market for our products and services is extremely competitive due to various factors including a maturing enterprise infrastructure software market, changes in customer IT spending habits, and the trend toward consolidation of companies within the software industry. Our competitors by product groups are described below.

     Information Management Products. Principal competitors to our Information Management Products include Oracle, IBM and Microsoft. We also see compete with certain specialized vendors in niche segments such as Teradata in data warehousing, and GoldenGate Software and Datamirror in the replication software.

     Development and Integration. Principal competitors to our Integration and Access and Development and Modeling Tools offering vary by product type. For Development and Modeling Tools, we compete with Borland, BEA Systems and IBM. Our principal competitors to our Integration and Access products are IBM, WebMethods, BEA Systems, SeeBeyond and Tibco.

     iAnywhere Solutions. Principal competitors to iAS vary by product type. For mobile and embedded database products, we compete with Pervasive Software, Progress Software, Intersystems, MySQL, IBM and Oracle. For mobile middleware products we compete with Extended Systems, IBM and host of numerous small vendors. For mobile device management products, we compete with Intellisync, Altiris, BMC through their recent acquisition of Marimba, iPass through their recent acquisition of Mobile Automation and numerous small vendors.

     Financial Fusion, Inc. Principal competitors to FFI include Corillian, S1, Digital Insights and Open Solutions.

     We believe that we compete favorably against our competitors in each of these areas. However, some of our competitors have longer operating histories, greater name recognition, stronger relationships with partners, larger technical staffs, established relationships with hardware vendors and/or greater financial, technical and marketing resources. These factors may provide our competitors with an advantage in penetrating markets. For a discussion of certain risks associated with competition, see “MD&A – Future Operating Results – Industry consolidation and other competitive pressures could affect prices or demand for our products and services, and our business may be adversely affected,” Part II, Item 7.

EMPLOYEES

As of March 1, 2005, Sybase and its subsidiaries had approximately 3,568 regular employees. For information regarding our executive officers, see “Directors and Executive Officers of the Registrant,” Part III, Item 10.

- 8 -

ITEM 2. PROPERTIES

As of December 31, 2004, our field operations, professional service organizations and subsidiaries occupied leased facilities in approximately 61 separate locations throughout North America, Latin America, Europe and the Asia Pacific region (including Australia and New Zealand), aggregating approximately 1.4 million square feet.

On January 28, 2000, we entered into a 15-year non-cancelable lease of our corporate headquarters facility in Dublin, California. The property consists of approximately 406,000 square feet of administrative and product development facilities. We moved to Dublin from our offices in Emeryville, California beginning in January 2002. We have the option to renew our Dublin lease for up to two five-year periods, generally at then-fair market value, subject to certain conditions.

In the third quarter of 2004 we commenced occupancy of a 105,000 square foot building housing administrative, R&D and other facilities of our subsidiaries in Waterloo, Canada. This lease expires in 2019 and we have a 10 year renewal option at the end of the lease at then-fair market value.

We occupy three buildings totaling approximately 167,000 square feet in Concord, Massachusetts under a lease that terminates in October 2012. In the third quarter of 2004 we determined to sublease one of these buildings, totaling approximately 44,600 square feet in connection with our restructuring activities.

For a further discussion of our leases in Dublin, Concord and Waterloo, see Note Six to Consolidated Financial Statements, Part II, Item 8.

We continue to lease space at other locations around the world that serve a variety of functions, including professional services, sales, engineering, technical support, and general administration. These include significant facilities in Maidenhead, England; Boulder, Colorado; and Alpharetta, Georgia. In addition to the facilities noted above, we maintain engineering centers in Englewood, Colorado; Paris, France; Pune, India, and Singapore.

ITEM 3. LEGAL PROCEEDINGS

See Note Twelve to 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, 2004.

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 (NYSE) 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 NYSE for the quarters indicated.

- 9 -

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 Common Stock on the NYSE on March 1, 2005 was $19.00. The number of stockholders of record on that date was 1,407, according to American Stock Transfer and Trust, our transfer agent.

The information required by this item regarding our securities authorized for issuance under equity compensation plans is provided in “Security Ownership of Certain Beneficial Owners and Management,” Part III, Item 12, which incorporates information to be disclosed in our 2005 Proxy Statement.

Issuer Purchases of Equity Securities

During the fourth quarter of 2004 we conducted the following repurchases of our Common Stock pursuant to our repurchase program:

After completing the repurchases noted above, $103.7 million remained authorized for repurchase pursuant to our publicly announced repurchase program.

- 10 -

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial information is not necessarily indicative of the results of our future operations. This data should be read in conjunction the MD&A, Part II, Item 7, as well as the Consolidated Financial Statements and related Notes included in Part II, Item 8 of this Report on Form 10-K.

Consolidated Statements of Operations Data

- 11 -

Stock compensation expense related to the following:

Consolidated Balance Sheet Data

(In thousands)

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

Overview

•	Our Business
	We are a global enterprise software company that derives revenues primarily from the sale and support of enterprise and mobile software solutions to business and government users.
	Our value proposition involves enabling the Unwired Enterprise through integrated applications and solutions designed to manage information across the enterprise, allowing customers to extract more value from their information technology (IT) investments. Our solutions unlock, integrate, and seamlessly deliver nearly all types of data, whether in a database, a transaction, or an application, anywhere, anytime and on any platform. We deliver a full range of mobile enterprise solutions that includes mobile databases, middleware, synchronization, and management software.
	Our business is organized into three business segments: IPG, which principally focuses on enterprise class database servers, integration and development products, iAS, which provides mobile database and mobile enterprise solutions, and FFI, which delivers integrated banking, payment and trade messaging solutions to large financial institutions. During 2004, approximately 54 percent of our revenues were generated from the U.S. with the balance generated from our non-U.S. operations. For further discussion of our business segments and principal products, see “Business,” Part I, Item 1.
	On April 30, 2004 we acquired Xcellenet, Inc. (Xcellenet) a privately held provider of frontline device management software. This acquisition was made to strengthen the Company’s position in the mobile middleware market and bring important enhancements to our Unwired Enterprise offerings. See Note Eleven to Consolidated Financial Statements – Business combinations, Part II, Item 8.

- 12 -

•	Our Results
	Total revenues were $788.5 million for 2004, compared to $778.1 million for 2003, and $829.9 million for 2002. The increase in total revenues from 2003 to 2004 was primarily due to a $27.1 million (29 percent) increase in iAS revenues offset by a $18.0 million (2 percent) decline in IPG revenues. Without consideration of XcelleNet the iAS revenue growth would have been $6.9 million (7 percent) for 2004. We believe our iAS revenues will remain strong as we continue to integrate and leverage our XcelleNet acquisition, and as our Unwired Enterprise initiative gains momentum. The decline in the revenue of our IPG segment was attributable to a 5 percent decline in license revenues primarily those derived from our core database products. While we expect the market for our core database products to remain challenging, we are encouraged that IPG license revenues increased during both the third and fourth quarters of 2004 when compared to the same periods in 2003, as well as the sales and interest generated by several products that became generally available during the third quarter of 2004, including our real-time database ASE 12.5.2 and Mirror Activator™.
	We reported net income of $68.0 million for 2004, compared to net income of $87.3 million for 2003, and net income of $37.8 million in 2002 (before the cumulative effect of an accounting change). Our 2004 operating margin was 11.3 percent compared to 13.4 percent in 2003. The decrease was partially attributable a $12.6 million increase in restructuring costs incurred in 2004 compared to 2003 (see Note Thirteen to Consolidated Financial Statements, Part II, Item 8), and partially attributable to the inclusion of operating losses of XcelleNet. The acquisition of XcelleNet had an adverse impact of approximately $3.5 million on our 2004 operating margin. The loss generated by Xcellenet was largely attributable to the purchase accounting write-down of approximately $5.1 million in Xcellenet’s deferred revenues associated with technical support services which otherwise would have been recognized in 2004.
	Our overall financial position remains strong. During 2004 we generated net cash from operating activities of $176.2 million, and had $521.6 million in cash, cash equivalents and cash investments (including restricted stock) at December 31, 2004. Our days sales outstanding in accounts receivable was 65 days for the quarter ended December 31, 2004 compared to 60 days for the quarter ended December 31, 2003, the largest factor contributing to this increase was our increase in license revenues.
	For a discussion of certain factors that may impact our business and financial results, see “Future Operating Results,” below.
•	Business Trends
	The market for new sales of enterprise infrastructure software continues to be challenging due to various factors, including a maturing enterprise infrastructure software market, and changing patterns in information technology spending.
	As was the case in 2003, the majority of our license fee revenues during 2004 came from sales to our existing customers. In recent years, fewer of our customers have undertaken large-scale infrastructure investments requiring significant investment in our core enterprise database products and related services (this also contributed to a decline in our consulting and education revenues). We believe this is partly due to market saturation in some of our target markets (including financial services, insurance and telecommunications) where large enterprises have invested heavily in their core database infrastructures during the past 15 years. In the future, we believe that much of the industry’s growth will be generated by sales to middle market companies. We believe we are positioned to exploit this growth opportunity with various initiatives including our strategic partnership with SAP focused on providing enterprise level software to small and medium sized businesses.
	We continue to observe a changing trend in historical IT spending patterns. Specifically, while we continue to see an overall increase in our transaction volume for license revenues, the average dollar value of these transactions is lower than historical amounts. This pattern supports our view that fiscally cautious customers generally are continuing to purchase products and services based more

- 13 -

	on present need and less on fulfilling anticipated future needs. Overall, mixed signs of a strong and sustained U.S. and global economic recovery make it difficult to project whether and to what extent the overall market for enterprise infrastructure software will materially improve. We do note, however, that while our results in the first two quarters of 2004 were disappointing, we reported revenue growth and strong operating results in the third and fourth quarters, both of which exceeded analyst expectations.
	Moving forward, we will continue to manage our operating expenses as we aggressively pursue our Unwired Enterprise initiative and strategic alliances with our key partners including SAP, Intel, and others. For further discussion of the effect of current business trends on our results of operations, see “Future Operation Results,” below. We also believe that we are well positioned to compete within several growing market segments including mobility solutions, data analytic tools, and Linux based enterprise software.

Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP). These accounting principles require us 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 our financial statements. We also are required to make certain judgments that affect the reported amounts of revenues and expenses during each reporting period. We periodically evaluate our estimates and assumptions including those relating to revenue recognition, impairment of goodwill and intangible assets, the allowance for doubtful accounts, capitalized software, restructuring, income taxes, stock-based compensation and contingencies and litigation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable based on specific circumstances. Our management has reviewed the development, selection, and disclosure of these estimates with the Audit Committee of our Board of Directors. These estimates and assumptions form the basis for our 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. Further, changes in accounting and legal standards could adversely affect our future operating results (see “Future Operating Results,” below). Our critical accounting policies include: revenue recognition, impairment of goodwill and other intangible assets, allowance for doubtful accounts, capitalized software, restructuring, income taxes, stock-based compensation, and contingencies and liabilities, each of which are discussed below.

•	Revenue Recognition
	Revenue recognition rules for software companies are very complex. We follow specific and detailed guidance in measuring revenue, although certain judgments affect the application of our revenue recognition policy. These judgments would include, for example, the determination of a customer’s creditworthiness, whether two separate transactions with a customer should be accounted for as a single transaction, or whether included services are essential to the functionality of a product thereby requiring percentage of completion accounting rather than software accounting.
	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 fee revenues are recognized when (a) a non-cancelable license agreement is in force, (b) the product has been delivered, (c) the license fee is fixed or determinable, and (d) collection is reasonably assured. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer.

     Residual Method Accounting. In software arrangements that include multiple elements (e.g., license rights and technical support services), we allocate the total fees among each of the elements using the “residual” method of accounting. Under this method, 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 the delivered elements. Vendor specific objective evidence of

- 14 -

fair value for such undelivered elements is based upon the price we charge for such product or service when it is sold separately. We may modify our pricing practices in the future, which would result in changes to our vendor specific objective evidence. As a result, future revenue associated with multiple element arrangements could differ significantly from our historical results.

     Percentage of Completion Accounting. Fees from licenses sold together with consulting services are generally recognized upon shipment of the licenses, provided (i) the criteria described in subparagraphs (a) through (d) above are met, (ii) payment of the license fee is not dependent upon performance of the consulting services, and (iii) 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 performance of services is a condition to payment of license fees, both the software license and consulting fees are recognized under the “percentage of completion” method of contract accounting. Under this method, we are required to estimate the number of total hours needed to complete a project, and revenues and profits are recognized based on the percentage of total contract hours as they are completed. Due to the complexity involved in the estimating process, revenues and profits recognized under the percentage of completion method of accounting are subject to revision as contract phases are actually completed. Historically, these revisions have not been material.

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

     Service Revenues. Technical support revenues are recognized ratably over the term of the related support agreement, which in most cases is one year. Revenues from consulting services under time and materials contracts, and for education, 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.

•	Impairment of Goodwill and Other Intangible Assets
	Goodwill and intangible assets have generally resulted from our business combinations accounted for as purchases. We are required to test amounts recorded as goodwill or recorded as intangible assets with indeterminate lives, at least annually for impairment. The review of goodwill and indeterminate lived intangibles for potential impairment is highly subjective and requires us to make numerous estimates to determine both the fair values and the carrying values of our reporting units to which goodwill is assigned. For these purposes, our reporting units equate to our reported segments. See Note Ten to Consolidated Financial Statements, Part II, Item 8. If the estimated fair value of a reporting unit is determined to be less than its carrying value, we are required to perform an analysis similar to a purchase price allocation for an acquired business in order to determine the amount of goodwill impairment, if any. This analysis requires a valuation of certain other intangible assets including in-process research and development, and developed technology. Our impairment testing resulted in the first quarter of 2002, in a cumulative effect of an accounting change of $132.5 million and in the fourth quarter of 2002, a goodwill impairment of $12.3 million. As of December 31, 2004, our goodwill balance totaled $214.1 million.
	We performed our annual impairment analysis as of December 31, 2004 for each of our reporting units and for each indeterminate lived intangible. This analysis indicated that the estimated fair value of each reporting unit or indeterminate lived intangible exceeded its carrying value. Therefore, we were not required to recognize an impairment loss in 2004. However, changes in our internal business structure, changes in our future revenue and expense forecasts, and certain other factors that directly impact the valuation of our reporting units could result in a future impairment charge. A goodwill impairment charge is based on the value of a reporting unit at the testing date. Accordingly, reporting units that previously reported an impairment charge (as was the case with FFI in 2002) are particularly prone to additional impairment charges if future revenue and expense forecasts or market conditions

- 15 -

worsen after the testing date. This is because any subsequent reduction of fair value after a testing date would have a strong likelihood of triggering an additional impairment charge.

	We continue to review our other intangible assets (e.g., purchased technology, trade names and customer lists) for indications of impairment whenever events or changes in circumstances indicate the carrying amount of any such asset may not be recoverable. For these purposes, recoverability of these assets is measured by comparing their carrying values to the future undiscounted cash flows the assets are expected to generate. This methodology requires us to estimate future cash flows associated with certain assets or groups of assets. Changes in these estimates could result in impairment losses associated with other intangible assets. See Note One to Consolidated Financial Statements – Goodwill and Other Purchased Intangible Assets, Part II, Item 8.
•	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. Additional allowances might be required if deteriorating economic conditions or other factors affect our customers’ ability to make timely payments.
•	Capitalized Software
	We capitalize certain software development costs after a product becomes technologically feasible and before its general release to customers. Significant judgment is required in determining when a product becomes “technologically feasible.” Capitalized development costs are then amortized over the product’s estimated life beginning upon general release of the product. Quarterly, 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 selling 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 selling certain products. Changes in these estimates could result in write-offs of capitalized software costs.
•	Restructuring
	We have recorded significant accruals in connection with various restructuring activities. These accruals include estimated net costs to settle certain lease obligations based on analysis of independent real estate consultants. While we do not anticipate significant changes to these estimates in the future, the actual costs may differ from estimates. For example, if we are able to negotiate more affordable termination fees, if rental rates increase in the markets where the properties are located, or if we are able to locate suitable sublease tenants more quickly than expected, the actual costs could be lower than our estimates. In that case, we would reduce our restructuring accrual with a corresponding credit to cost of restructuring. Alternatively, if we are unable to negotiate affordable termination fees, if rental rates decrease in the markets where the properties are located, or if it takes us longer than expected to find suitable sublease tenants, the actual costs could exceed our estimates. For example, in the fourth quarter of 2004 we added approximately $0.7 million to our facility related restructuring accruals due to revisions to expected sublease income provided by our real estate consultants with respect to a property located in Colorado. See Note Thirteen to Consolidated Financial Statements, Part II, Item 8.
•	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 bases 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

- 16 -

valuation allowance. If we determine during any period that we could realize a larger net deferred tax asset than the recorded amount, we would adjust the deferred tax asset and record a corresponding reduction to our income tax expense 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 and record a charge to income tax expense for the period. Our gross deferred tax asset at December 31, 2004 was $174.3 million upon which we have recorded a corresponding valuation allowance of $96.3 million. Significant judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences (e.g,, the income we earn within the United States) could materially impact our financial position or results of operations. See Note Eight to Consolidated Financial Statements, Part II, Item 8.

•	Stock-Based Compensation
	SFAS 123, “Accounting for Stock-Based Compensation,” currently encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. We have continued to account for stock-based employee compensation using the intrinsic value method. Under that method, 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. However, as of July 1, 2005, we will be required to apply FASB Statement 123R, Share-Based Payment, which will require us to measure compensation cost for all share-based payments at fair value. See Note One to Consolidated Financial Statements – Stock-Based Compensation, and Other Recent Accounting Pronouncements, Part II, Item 8.

- 17 -

•	Contingencies and Liabilities
	We are involved from time to time in various proceedings, lawsuits and claims involving our customers, products, intellectual property, stockholders and employees, among other things. We routinely review the status of each significant matter and assess our potential financial exposure. When we reasonably determine that a loss associated with any of these matters is probable, and can reasonably estimate the loss, we record a reserve to provide for such loss contingencies. If we are unable to record a reserve because we are not able to estimate the amount of a potential loss in a matter, or if we determine that a loss is not probable, we are nevertheless required to disclose certain information regarding such matter if we determine that there is a reasonable possibility that a loss has been incurred. Because of the inherent uncertainties related to these types of matters, we base our loss reserves on the best information available at the time. As additional information becomes available, we may reevaluate our assessment regarding the probability of a matter or its expected loss. Our financial position or results of operations could be materially and adversely affected by such revisions in our estimates. For further discussion of contingencies and liabilities, see “Future Operating Results,” below.

Results of Operations

Revenues (Dollars in millions)

- 18 -

The increase in iAS license revenues was primarily attributable to products discussed above. Before consideration of license revenues from products acquired in the XcelleNet acquisition, the license revenues of the iAS segment would have increased 9 percent for 2004.

FFI license revenues are largely dependent upon closing large (multi-million dollar) transactions. As a result, the year-over-year results for FFI tend to fluctuate greatly. The increase in FFI license revenues for 2004 was primarily attributable to increased sales of the segment’s core banking application in North America.

In 2003, the most significant decline in license fees revenues resulted from a decline the sales of certain IPG Integration and Access products largely due a major shift in the business of one of our largest North American resellers that significantly lowered the reseller’s need to use our technology as part of its offering. Our revenues from this reseller continued to decline in 2004 and are no longer significant.

Segment revenues includes transactions between the segments, and in the most common instance relates to the sale of iAS and FFI products and services by the IPG segment. In the case of such a transaction, the segment recording the sale also records an intercompany expense on the transaction, with a corresponding intercompany revenue amount recorded by the segment whose product was sold. The net amount retained by the segment that recorded the sale is intended to reflect the costs incurred by such transferring segment. The total transfers between the segments are captured in “Eliminations.”

Total service revenues for 2004 (which include revenues from technical support, education, and professional services) increased 2 percent from total service revenues in 2003. This increase was primarily due to $9.3 million in technical support revenues associated with the XcelleNet business, and a 75 percent increase ($3.9 million) in FFI professional services revenues that primarily resulted from several large consulting engagements in North America. XcelleNet contributed $10.5 million to the iAS segment’s service revenues (primarily technical support) in 2004.

Technical support revenue for 2004 increased 3 percent ($10.7 million) from the 2003 total and the deferred revenue related to technical support contracts at December 31, 2004 was up 11 percent from the deferred revenue related to such contracts at December 31, 2003. Approximately 77 percent of services revenues in each of 2004 and 2003 related to technical support revenues.

Other services revenues declined 1 percent in 2004 from 2003. The increase in FFI’s professional services revenues discussed above was largely offset by a 3 percent decline ($3.1 million) in IPG professional services revenues and a 17 percent ($2.8 million) decline in education services.

The slight decline in 2003 services revenues was due to a drop in IPG and FFI consulting and education revenues, partially offset by an increase in IPG and iAS technical support revenues. The decrease in consulting and education revenues was primarily attributable to the reasons discussed in the “Business Trends” section in “Overview,” above. The technical support revenues were driven by new license revenues combined with a steady level of support renewals by existing customers.

For a description of our technical support, consulting and education services, see “Business – Worldwide Services,” Part I, Item 1.

- 19 -

Geographical Revenues
(Dollars in millions)

- 20 -

Our business and results of operations could be materially and adversely affected by fluctuations in foreign currency exchange rates, even though we take into account changes in exchange rates over time in our pricing strategy. Additionally, changes in foreign currency exchange rates, the strength of local economies, and the general volatility of worldwide software markets could 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,” below.

Cost and Expenses
(Dollars in millions)

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 increased slightly in 2004 over 2003, and increased 18 percent in 2003 over 2002. The 2004 increase was primarily due to a $2.5 million increase in amortization of capitalized software development costs and amortization of $2.6 million on purchased technology acquired as a result of the XcelleNet acquisition, partially offset by a $4.6 million decrease in third-party royalties. The 2003 increase was primarily due to an increase in amortization of capitalized software development costs.

Amortization of capitalized software costs was $33.6 million in 2004, $31.1 million in 2003, and $24.0 million in 2002. In 2004, the increase in amortization of capitalized software costs was primarily due to certain products included in the IPG segment that we began amortizing in the second half of 2003 and in 2004. In 2003, the increase in amortization of capitalized software costs was primarily due to certain enterprise database products that we began amortizing in 2003 and certain enterprise application products that we began amortizing in 2003 and in the second half of 2002. Amortization of purchased technology acquired was $17.8 million in 2004, $15.3 million in 2003, and $14.9 million in 2002. See Note One to the Consolidated Financial Statements — Capitalized Software, Part II, Item 8.

- 21 -

Cost of services

Cost of services consists primarily of the cost of our personnel who provide technical support, education and professional services and, to a lesser degree, services-related product costs (media and documentation). These costs decreased 1 percent in 2004 compared to 2003, primarily due to a reduction in technical support and professional services headcount as a result of our 2004 restructuring activities offset by a $3.3 million increase in consultants utilized by the FFI segment and $2.2 million in expenses associated with the XcelleNet service and support organizations. Our average headcount reflected in this expense category decreased approximately 10 percent in 2004 from 2003. These costs decreased 14 percent in 2003 compared to 2002, primarily due to a reduction in consulting and technical support personnel as a result of our restructuring activities in the second half of 2002 and 2003, and a decrease in costs associated with third-party consultants. Our average headcount reflected in this expense category decreased approximately 19 percent in 2003 from 2002. For further discussion of the effect of our restructuring activities, see Note Thirteen to Consolidated Financial Statements, Part II, Item 8.

Sales and marketing

Sales and marketing expense increased 1 percent in 2004 compared to 2003 due to $7.3 million in sales and marketing costs associated with the XcelleNet organization and a $2.8 million increase in certain allocated common costs offset by a $5.8 million reduction in marketing expenses. We believe that much of the decrease in our spending on marketing resulted from a more effective use of our marketing dollars including the utilization of coordinated market programs with our strategic partners and a more focused internal coordination of marketing programs and messages. We allocate various common costs, primarily certain telecommunications and facilities related expenses, to sales and marketing, product development and engineering, and general and administrative expenses.

The 12 percent decrease in sales and marketing expense in 2003 compared to 2002 was primarily due to a substantial decrease in spending on marketing programs, a decrease in sales and marketing personnel as a result of our 2003 and 2002 restructuring activities, and a reduction in sales commissions (principally due to lower license fees revenues), and a decrease in certain allocated common costs.

For further discussion of the effect of our restructuring activities, see Note Thirteen to Consolidated Financial Statements, Part II, Item 8.

Product development and engineering

Product development and engineering expenses (net of capitalized software development costs – see discussion below) increased 3 percent in 2004 from 2003, primarily due to a $10.4 million increase in headcount related expenses including a $5.3 million increase for XcelleNet product development and engineering personnel, and a $3.0 million increase in certain allocated common costs. These increases are partially offset by an $8.6 million increase in capitalized software development costs.

The 1 percent decrease in product development and engineering expenses in 2003 over 2002 was primarily due to a decrease in allocated common cost partially offset by the addition of product development and engineering personnel resulting from our acquisition of AvantGo, Inc. in February 2003.

We capitalize product development and engineering costs during the period between a product’s achievement of technological feasibility and its general availability. Our capitalized software cost increased during 2004 as we increased our efforts to bring new products and capabilities to the market. In 2004, our capitalized software costs of $36.5 million included costs incurred for the development of Adaptive Server® Enterprise 12.5.2 and 15.0, Financial Fusion® Corporate Banking Solutions 2.20, EA Server 5.2, EDI Server 4.2, Sybase® IQ 12.6, PowerBuilder® 10.0, PowerDesigner® 11.0, and Unwired Orchestrator 4.5. In 2003, our capitalized software costs of $28.0 million included costs incurred for the development of Corporate Banking 2.1, EA Server 5.0, Sybase Enterprise Portal 6.0, Integration Orchestrator 4.3, and PowerDesigner 10.0. In 2002, capitalized software costs of $32.7 million included costs incurred for the development of the Adaptive Server Enterprise 15.0, Business Process Integrator 3.9, Connectivity 15.0, CeBS 1.0 and 1.5, EA Server 4.1, PowerBuilder 9.0, and PowerDesigner 9.5.

- 22 -

We believe 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, which include IT, legal, business operations, finance, and administrative functions, increased 6 percent in 2004 compared to 2003, primarily due to an increase in the total number of general and administrative personnel attributable in part to our acquisition of XcelleNet ($2.3 million addition) and a $1.7 million increase in legal expenses. Also included in the 2004 total were approximately $2.0 million in external costs associated with Sarbanes-Oxley compliance. The 3 percent decrease in 2003 compared to 2002 was primarily due to decreases in allocated common costs and a 5 percent decrease in the average number of G&A personnel resulting from our 2003 restructuring activities (see Note Thirteen to Consolidated Financial Statements, Part II, Item 8.

Amortization of other purchased intangibles

Amortization of other purchased intangibles reflects the amortization of the established customer list associated with our acquisition in 2000 of Home Financial Network, Inc. (now FFI) and the amortization of the established customer list and covenant not to compete associated with our acquisition of XcelleNet in 2004. The amortization of purchased technology associated with our acquisitions of Home Financial Network, New Era of Networks, AvantGo, Dejima, and XcelleNet is included in cost of license fees. See Note One to Consolidated Financial Statements — Goodwill and Other Purchased Intangible Assets, Part II, Item 8.

Goodwill impairment

Following our adoption of SFAS 142 in the first quarter of 2002, we conducted the annual impairment testing required by SFAS 142 as of December 31, 2004, December 31, 2003 and December 31, 2002. See Note One to Consolidated Financial Statements — Goodwill and Other Purchased Intangible Assets, Part II, Item 8. The application of these new rules resulted in a cumulative effect of an accounting change of $132.5 million in the first quarter of 2002 and a goodwill impairment of $12.3 million in the fourth quarter of 2002. Our 2004 and 2003 analysis of goodwill impairment did not indicate an impairment loss for any of the Company’s reporting units. See “Critical Accounting Policies and Estimates,” above, and “Future Operating Results” below. We may encounter difficulties completing or integrating our acquisitions and strategic relationships and may incur acquisition-related charges that could adversely affect our operating results.

Stock compensation expense

Stock compensation expense primarily reflects non-cash compensation expense associated with restricted stock purchase rights granted to certain Sybase executives in the second quarter of 2001, in the first quarter of 2003, and in the first and third quarters of 2004 (see Note Seven to Consolidated Financial Statements — Restricted Stock Grants, Part II, Item 8).

Reversal of AvantGo restructuring accrual

In connection with the 2003 acquisition of AvantGo, we assumed certain liabilities associated with AvantGo’s 2001 and 2002 restructuring programs, primarily related to excess space at AvantGo’s Hayward, California and Chicago, Illinois facilities. At the time of acquisition, we also accrued additional amounts for lease obligations, net of the expected sublease revenue, associated with AvantGo’s remaining facilities in Hayward which would be vacated upon the expected move of all personnel to Sybase’s facilities in Dublin, California. During the quarter ended September 30, 2004, we were able to sublease the Hayward facilities on terms much better than those anticipated when the applicable accruals were recorded. As a result, we reversed accrued restructuring liabilities related to this facility.

- 23 -

Cost (reversal) of restructuring

2004 Restructuring Actions. In the third quarter of 2004, after two straight quarters of failing to meet revenue and earnings expectations, we embarked on a restructuring plan (2004 Plan) aimed at reducing our annual expenses (primarily employee and facility related) by approximately $15 million. Of this amount, approximately $13 million in annual savings is expected to result from headcount reductions and approximately $2 million in annual savings is expected to result from facility consolidation and the avoidance of software maintenance costs. 2004 Plan activities included the termination of approximately 140 employees worldwide, the closure or consolidation of approximately 5 facilities worldwide and the write-off of certain enterprise software purchased from a third party. It is anticipated that the total costs, once the restructuring activities prescribed under the 2004 Plan are fully completed, will be $20.9 million.

2003, 2002 and 2001 Restructuring Activities. We also undertook restructuring activities in 2003, 2002 and 2001 as a means of managing our operating expenses and assumed certain restructuring program liabilities of AvantGo when we acquired that company in 2003.

For descriptions of each restructuring plan, see Note Thirteen to Consolidated Financial Statements, Part II, Item 8.

Operating income/(loss)
(Dollars in millions)

Operating income in 2004 was $89.4 million compared to operating income of $104.3 million in 2003 and operating income of $57.2 million in 2002. The decline in the operating margin to 11.3 percent in 2004 compared to 13.4 percent in 2003 was primarily the result of the accrual of expenses relating to our 2004 restructuring plan, and partially attributable to the 2004 results of XcelleNet. The increase in operating income in the IPG segment for 2004 compared to 2003 was primarily due to the decrease in employee and facilities related operating expenses as a result of our restructuring activities in 2003 and 2004 partially offset by a decline in license fees revenues as a result of factors discussed under “Revenues,” above. The operating margin for this segment was 11.9 percent for 2004 compared to 11.3 percent for 2003. The decrease in operating income in the IPG segment for 2003 compared to 2002 was primarily due to the decline in license fees revenues from Integration and Access products as a result of the factors discussed under “Revenues” above, partially offset by the decrease in operating expenses resulting from the 2002 restructuring activities.

The decline in operating income for the iAS segment in 2004 compared to 2003 was primarily due to an increase in operating expenses largely attributable to the XcelleNet and Dejima transactions, offset by an increase in total revenues. The operating margin associated with XcelleNet and Dejima in 2004 was ($4.5) million, of which ($5.6) million was related to the amortization of intangibles acquired in these acquisitions. The operating margin for this segment was 10.7 percent for 2004 compared to 20.8 percent for 2003. The results of XcelleNet and Dejima accounted for approximately 69 percent of the 2004 decline in iAS’s operating margin. The decline in operating income for the iAS segment in 2003 compared to 2002 was primarily due to an increase in operating expenses largely attributable to the AvantGo acquisition, offset by an increase in total revenues. The operating margin associated with AvantGo in

- 24 -

2003 was ($5.1) million, of which ($0.3) million was related to the amortization of purchased technology acquired in the acquisition.

The decrease in FFI’s operating loss of 2004 primarily resulted from the increase in revenues discussed above. The operating loss in the FFI segment dropped in 2003 compared to 2002 due primarily to the $12.3 million goodwill impairment charge incurred in 2002.

Certain common costs and expenses are allocated to the various segments based on measurable drivers of expense. Unallocated expenses represent corporate expenditures or cost savings that are not specifically allocated to the segment including reversals or restructuring expenses associated with restructuring activities undertaken prior to 2003.

Other income (expense), net
(Dollars in millions)

In 2004, interest income decreased 3 percent from 2003. Interest income consists primarily of interest earned on our investments. The decrease in interest income for 2004 compared to 2003 is primarily due to the decrease in the cash balances invested. Our invested cash balances declined as a result of cash used in our stock repurchase program and for the XcelleNet and Dejima acquisitions. See “Consolidated Statements of Cash Flows,” Part II, Item 8. The 4 percent decrease in interest income from 2002 to 2003 was largely due to the decline in interest rate yields on invested cash balances.

Interest expense and other, net, primarily includes: net gains and losses resulting from foreign currency transactions and the related hedging activities; the cost of hedging foreign currency exposures; bank fees; and gains from the disposition of certain real estate and investments. The net decrease in interest expense and other, net for 2004 compared to 2003 was primarily due to a gain of approximately $3.2 million recorded in 2003 relating to the realization of a note receivable originally generated from our sale of certain Swiss subsidiaries. Interest expense and other, net for 2002 included a gain of approximately $2.5 million that we realized on the initial sale of these Swiss subsidiaries.

Provision for Income Taxes
(Dollars in millions)

In 2004 a provision for income taxes was recorded at a rate of approximately 33 percent on income before taxes. Our effective tax rate differed from the statutory federal rate of 35 percent primarily due to adjustments for the difference between estimated amounts recorded and actual liabilities resulting from the filing of prior years’ tax returns, the utilization of Japanese net operating losses, additional tax reserves relating primarily to foreign transfer pricing exposures and the release of tax reserves upon the completion of various tax audits. Without the benefit of the Japanese net operating losses, adjustments for the difference resulting from the filing of the prior years’ tax returns and for tax reserves, our effective tax rate for the year would have been approximately 39 percent.

- 25 -

In 2003 a provision for income taxes was recorded at a rate of approximately 26 percent on income before taxes. Our effective tax rate differed from the statutory federal rate of 35 percent primarily due to the utilization of certain foreign tax credits upon which a full valuation allowance was provided, the release of certain deferred tax liabilities which were made unnecessary when we were able to restructure certain earnings of a foreign subsidiaries in a manner to allow for their repatriation free from the withholding taxes we provided for with the deferred tax liability, and the release of certain tax reserves upon the completion of various tax audits.

In 2002 a provision for income taxes was recorded at a rate of approximately 47 percent on income before taxes and the cumulative effect of an accounting change. Our 2002 effective tax rate differed from the statutory federal rate of 35 percent primarily due to non-deductible charges associated with the impairment loss on certain goodwill, and the impact of state taxes.

We had a net deferred tax asset of $50.6 million at December 31, 2004. This deferred tax asset is net of a valuation allowance of $96.3 million. As of December 31, 2004, the gross deferred tax asset included a research and development tax credit of $17.7 million, foreign tax credits of $5.8 million and an asset for certain net operating losses of $63.5 million. The research and development tax credits expire from 2010 through 2024, the foreign tax credits expire from 2010 through 2014, and the net operating losses expire from 2007 through 2024. In order to realize our net deferred tax assets we must generate sufficient taxable income in future years in appropriate tax jurisdictions to obtain the recorded benefit from the reversal of temporary differences (i.e., between book and tax basis), and from tax credit carryforwards. Specifically, realization of these assets is dependent on our ability to generate approximately $163.6 million of future taxable income, largely in the U.S. Based on the plans and estimates we are using to manage the underlying business we believe that sufficient income will be earned in the future to realize these assets. 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.

The valuation allowance primarily relates to the deferred tax assets associated with acquired net operating losses, net operating loss and capital loss carryforwards, tax assets associated with stock option activity, and foreign tax credits. Approximately $72.6 million of the valuation allowance relates to deferred tax assets associated with net operating losses and capital losses acquired in, or attributable to, the NEN and AvantGo acquisitions. If the associated deferred tax assets are realized, the benefit from their realization will reduce goodwill carried on our books associated with these acquisitions. The valuation allowance also includes approximately $17.1 million associated with stock option activity for which any recognized tax benefits will be credited directly to shareholders’ equity.

Cumulative effect of an accounting change to adopt SFAS 142
(Dollars in millions)

- 26 -

For a discussion of the cumulative effect of an accounting change to adopt SFAS 142, see Note One to Consolidated Financial Statements – Goodwill and Other Purchased Intangibles, Part II, Item 8.

Net income (loss) per share
(Dollars and shares in millions)

We reported net income of $68.0 million in 2004, net income of $87.3 million in 2003, and net loss of $94.7 million in 2002. In 2004, the decrease in net income compared to 2003 was due to the various factors discussed above. In 2003, the increase in our net income was primarily related to the absence of any goodwill impairment loss as compared to the $132.5 million impairment loss recognized in 2002 as a cumulative effect of an accounting change (see Note One to Consolidated Financial Statements — Goodwill and Other Purchased Intangibles, Part II, Item 8), and the factors discussed in “Operating Income,” above.

In 2004, the increase in shares used for computing basic and diluted net income per share was due primarily to the ongoing exercise of employee stock options, partially offset by shares repurchased under our Stock Repurchase Program (described in “Liquidity and Capital Resources,” below). In 2003, the decrease in shares used for computing basic and diluted net income per share was primarily from shares repurchased under our Stock Repurchase Program. These repurchases primarily occurred during the early part of 2003. The decrease was partially offset by the exercise of employee stock options (which primarily occurred during the later part of 2004) and the issuance of approximately 0.7 million shares of our Common Stock during the third quarter of 2003 to an unrelated third party in connection with an agreement for marketing services (see Note Seven to Consolidated Financial Statements – Issuance of Company Stock for Certain Services, Part II, Item 8). See also Consolidated Statements of Stockholders’ Equity, Part II, Item 8.

Liquidity and capital resources
(Dollars in millions)

- 27 -

Net cash provided by operating activities decreased 13 percent in 2004 compared to 2003 primarily due to a $12.6 million decrease in net income before consideration of depreciation, amortization and asset write-offs, and the impact in 2003 of aggressive collection efforts which significantly reduced our accounts receivables (DSO was reduced from 72 days in Q4 2002 to 60 days in Q4 2003). This decrease was partially offset by a larger reduction of accrued liabilities in 2003 compared to 2004, with the 2003 decrease principally related to restructuring related facility accruals.

Net cash provided by operating activities increased 23 percent between 2002 and 2003, primarily due to a $40.7 million increase in net income before consideration of depreciation, amortization and an impairment loss. The increase also resulted from increased cash of $24.5 million associated with our improved collections in EMEA.

Net cash used for investing activities decreased 54 percent between 2003 and 2004 primarily due to net dispositions of cash investments of $65.0 million compared to net purchases of cash investments of $102.9 million in 2003. For further discussion of our investment portfolio, see “Interest Rate Risk,” below. The decrease was partially offset by the net cash outlay of $81.3 million for the XcelleNet and Dejima transactions in the second quarter of 2004, as compared to the $13.9 million in net cash was used for the acquisition of AvantGo during the first quarter of 2003.

Net cash used for investing activities increased 62 percent between 2002 and 2003 primarily due to net purchases of cash investments of $102.9 million in 2003 compared to $34.0 million in 2002.

Substantially all our financing activities from 2002 through 2004 related to purchases under the Stock Repurchase Program (discussed below) and the utilization of treasury stock issued upon exercise of stock options under certain of our employee stock plans. Net cash used for financing activities in 2004 was $102.2 million compared to net cash provided by financing activates of $25.0 million in 2003. The shift from net cash provided by financing activities to net cash used for financing activities was primarily the result of a $84.7 million increase in the cash used to repurchase our stock during 2004, compared to the cash used for a similar purpose during 2003. In addition, we paid off $22.2 million of long-term obligations assumed as part of the XcelleNet acquisition during the second quarter of 2004. The shift from net cash used for financing activities in 2002 to net cash provided by financing activities in 2003 was primarily due to the fact that we repurchased fewer shares under the Stock Repurchase Program in 2003 compared to 2002.

Beginning in 1998, our Board of Directors authorized the repurchase of our outstanding Common Stock from time to time, subject to price and other conditions (Stock Repurchase Program). Through December 31, 2004, aggregate amounts authorized under the Stock Repurchase Program totaled $600.0 million. During 2004, we repurchased 6.4 million shares at a cost of $115.6 million. In 2003, we repurchased 2.3 million shares at a cost of $30.9 million, and in 2002 we repurchased 6.7 million shares at a cost of $89.8 million.

Approximately $103.7 million remained in the Stock Repurchase Program at December 31, 2004. The average price per share of the shares repurchased under the Stock Repurchase Program during 2004 was $18.06, compared to $13.24 in 2003, and $13.42 in 2002. We had no significant commitments for capital expenditures at December 31, 2004. 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. At December 31, 2004 we had no debt to unrelated parties, however, on February 22, 2005 we issued $460 million in aggregate principal amount of convertible notes. See Note Fifteen to Consolidated Financial Statements, Part II, Item 8.

We engage in global business operations and are therefore exposed to foreign currency fluctuations that can affect the overall value of the assets (including cash.) and liabilities reflected on our balance sheet. For a further discussion of the effect of foreign currency fluctuations on our financial condition, see “Financial Risk Management – Foreign Exchange Risk,” below.

- 28 -

Contractual Obligations

Our contractual obligations at December 31, 2004 are summarized as follows:

Subsequent to December 31, 2004 we issued $460 million in convertible notes. The company will treat this obligation as a debt obligation due on February 22, 2010. We have used approximately $125 million of the proceeds to repurchase 6.7 million shares of Sybase stock. We intend to use the remaining proceeds for working capital and general corporate purposes which may include the acquisition of businesses, products, product rights or technologies, strategic investments or additional purchases of our common stock. See Note Fifteen to Consolidated Financial Statements, Part II, Item 8.

New Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123® supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123® is similar to the approach described in Statement 123. However, Statement 123® requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Disclosure in financial footnotes of the pro forma impact of the fair value of share-based payments, as permitted by APB 25, is not a permitted alternative under Statement 123®.

We are required to apply Statement 123® beginning July 1, 2005 and could choose, but will decline, to apply Statement 123® retroactively from January 1, 2005 to June 30, 2005. The cumulative effect of adoption, if any, will be measured and recognized on July 1, 2005. See Note One to Consolidated Financial Statements – Other Recent Accounting Pronouncements, Part II, Item 8.

Financial Risk Management

Foreign Exchange Risk

We experience foreign exchange translation exposure on our net assets and liabilities denominated in currencies other than the U.S. dollar. The related foreign currency translation gains and losses from translating these amounts into U.S. dollars for subsidiaries that conduct their business in a currency other than the U.S. dollar, are reflected in “Accumulated other comprehensive income/(loss)” under “Stockholders’ equity” on the balance sheet. As of December 31, 2004, we had identifiable net assets totaling $225.4 million associated with our EMEA operations and $73.9 million associated with our Intercontinental operations.

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 material adverse or beneficial impacts on our financial position and results of operations. Historically, our primary exposures have related sales and expenses in EMEA, Asia Pacific, and Latin America which are denominated in a

- 29 -

currency other than the functional currency of the subsidiary recording the transaction. 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. Specifically, we enter into forward contracts with a maturity of approximately 30 days to hedge against the foreign exchange exposure created by certain balances that are denominated in a currency other than the principal reporting currency of the entity recording the transaction. The gains and losses on the forward contracts are meant to mitigate the gains and losses on these 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 our outstanding forward contracts as of December 31, 2004 was immaterial to our consolidated financial statements. The tables below provide information about our forward contracts as of December 31, 2004 and 2003.

(Amounts in thousands except exchange rates)

(Amounts in thousands except exchange rates)

- 30 -

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 three years. We do not use derivative financial instruments in our investment portfolio. 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.

Default Risk

We place our investments with high quality credit issuers and, by policy, limit the amount of credit exposure with any one issuer.We mitigate default risk by investing in safe, high investment grade securities and by monitoring the credit rating of investment issuers. The portfolio includes only marketable securities with 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 below and elsewhere 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 described on Page 2.

Significant variation in the timing and amount of our revenues may cause fluctuations in our quarterly operating results and accurate estimation of our revenues is difficult.

Our operating results have varied from quarter to quarter in the past and may vary in the future depending upon a number of factors described below, including many that are beyond our control. As a result, we believe that quarter-to-quarter comparisons of our financial results should not be relied on to indicate our future performance. We operate with little or no backlog, and our quarterly license revenues depend largely on orders booked and shipped in that quarter. Historically, we have recorded a majority of our quarterly license revenues in the last month of each quarter, particularly during the final two weeks. In recent periods, we have experienced fluctuations in the purchasing patterns of our customers. For example, during 2003 and the first half of 2004, we experienced an overall increase in the volume of license revenue transactions but an overall decrease in the average dollar value of these transactions. During the fourth quarter of 2004, our average dollar value for these transactions increased significantly over the fourth quarter of 2003, but the total number of orders declined. Although many of our customers are larger enterprises, an apparent trend toward more conservative IT spending could result in fewer of these customers making substantial investments in our products and services in any given period. Therefore, if one or more significant orders do not close in a particular quarter, our results of operations could be materially and adversely affected, as was the case in the first and second quarters of 2004.

Our operating expenses are based on projected annual and quarterly revenue levels, and are generally incurred ratably throughout each quarter. Since our operating expenses are relatively fixed in the short term, failure to realize projected revenues for a specified period could adversely impact operating results, reducing net income or causing an operating loss for that period. The deferral or non-occurrence of such revenues would materially adversely affect our operating results for that quarter and could impair our business in future periods. Because we do not know when, or if, our potential customers will place orders and finalize contracts, we cannot accurately predict our revenue and operating results for future quarters.

In addition to the above 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. For example, in the first and second quarters of fiscal 2004, our results fell short of our previously announced forecasts for those periods. In our experience revenues in the fourth quarter benefit from large enterprise customers placing orders before the expiration of budgets tied to the calendar year. As a result, revenues from license fees tend to decline from the fourth quarter of one year to the first quarter of the

- 31 -

next year. In the past, this seasonality has contributed to lower total revenues and earnings in the first quarter compared to the prior fourth quarter. We cannot assure you that estimates of our revenues and operating results can be made with certain accuracy or predictability. Fluctuations in our operating results may contribute to volatility in our stock price.

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

Our revenues and operating results depend on the overall demand for our products and services. General weakening of the U.S. and worldwide economy in recent years contributed to a decrease in our revenues from 2000 to 2003. Economic uncertainty caused many of our customers to delay or significantly reduce discretionary spending for larger infrastructure IT projects, which contributed to the decline in our revenues from 2000 to 2003. In part due to improvements in the worldwide economy, our 2004 revenues exceeded 2003 revenues by 1.3%. If the U.S. and worldwide economies do not continue to stabilize and improve, or if these economies weaken, either alone or in tandem with other factors beyond our control (including war, political unrest, shifts in market demand for our products, etc.), we may not be able to maintain or expand our recent revenue growth.

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

We currently derive a significant portion of our license revenues from sales of our products and services through non-exclusive distribution channels, including strategic partners, systems integrators (SIs), original equipment manufacturers (OEMs) and value-added resellers (VARs). We generally anticipate that sales of our products through these channels will account for a substantial portion of our license revenues in the foreseeable future. Because most of our channel relationships are non-exclusive, there is a risk that some or all of them could promote or sell our competitors’ products instead of ours, or that they will be unable to effectively sell new products that we may introduce. Additionally, if we are unable to expand our indirect channels, or these indirect channels fail to generate significant revenues in the future, our business could be harmed.

Our development, marketing and distribution strategies also depend in part on our ability to form strategic relationships with other technology companies. If these companies change their business focus, enter into strategic alliances with other companies or are acquired by our competitors or others, support for our products could be reduced or eliminated, which could have a material adverse effect on our business and financial condition.

Industry consolidation and other competitive pressures could affect prices or demand for our products and services, and our business may be adversely affected.

The IT industry and the market for our core database infrastructure products and services is becoming increasingly competitive due to a variety of factors including a maturing enterprise infrastructure software market, changes in customer IT spending habits, and mixed economic recovery in the U.S. There also appears to be a growing trend toward consolidation in the software industry, as evidenced by Oracle’s recent acquisition of PeopleSoft, Symantec’s announcement that it will acquire Veritas, PeopleSoft’s 2003 acquisition of J.D. Edwards, and IBM’s 2001 acquisition of the Informix database business. Continued consolidation within the software industry could create opportunities for larger software companies, such as IBM, Microsoft and Oracle, to increase their market share through the acquisition of companies that dominate certain lucrative market niches or that have loyal installed customer bases. Because of Oracle’s acquisition of PeopleSoft, we anticipate that a limited number of our customers that use PeopleSoft products will choose to run these applications on Oracle products rather than on our products. Continued consolidation activity could pose a significant competitive disadvantage to us.

The significant purchasing and market power of larger companies may also subject us to increased pricing pressures. Many of our competitors have greater financial, technical, sales and marketing resources, and a larger installed customer base than us. In addition, our competitors’ advertising and marketing efforts could overshadow our own and/or adversely influence customer perception of our

- 32 -

products and services, and harm our business and prospects as a result. To remain competitive, we must develop and promote new products and solutions, enhance existing products and retain competitive pricing policies, all in a timely manner. Our failure to compete successfully with new or existing competitors in these and other areas could have a material adverse impact on our ability to generate new revenues or sustain existing revenue levels.

The ability to rapidly develop and bring to market advanced products and services that are successful is crucial to maintaining our competitive position.

Widespread use of the Internet and fast-growing market demand for mobile and wireless solutions may significantly alter the manner in which business is conducted in the future. In light of these developments, our ability to timely meet the demand for new or enhanced products and services to support wireless and mobile business operations at competitive prices could significantly impact our ability to generate future revenues. We acquired AvantGo in 2003, as well as XcelleNet and certain assets of Dejima in April 2004, to enhance our mobile, wireless and embedded solutions that form the foundation of our Unwired Enterprise initiative. In 2004 we introduced more new and enhanced products than in any previous year. If the market for unwired solutions does not continue to develop as we anticipate, if our solutions and services do not successfully compete in the relevant markets, or our new products are not widely adopted and successful, our competitive position and our operating results could be adversely affected.

If our existing customers cancel or fail to renew their technical support agreements, or if customers do not license new or additional products on terms favorable to us, our technical support revenues could be adversely affected.

We currently derive a significant portion of our overall revenues from technical support services, which are included in service revenues. The terms of our standard software license arrangements provide for the payment of license fees and prepayment of first-year technical support fees. Support is renewable annually at the option of the end user. We have recently been experiencing increasing pricing pressure from customers when purchasing or renewing technical support agreements and this pressure may result in our reducing support fees or in lost support fees if we refuse to reduce our pricing, either of which could result in reduced revenue. If our existing customers cancel or fail to renew their technical support agreements, or if we are unable to generate additional support fees through the license of new products to existing or new customers, our business and future operating results could be adversely affected.

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

The length of our sales cycles varies significantly from product to product. The sales cycle for some of our products can take up to 18 months to complete. Any delay or unanticipated acceleration in the closing of a large license or a number of smaller licenses could result in significant fluctuations in our quarterly operating results. For example, in the second quarter of 2004, the license revenue in IPG declined 15% from the prior year period, in part due to larger sales being delayed and a lengthening sales cycle. The length of the sales cycle may vary depending on a number of factors over which we may have little or no control, including the size and complexity of a potential transaction, the level of competition that we encounter in our selling activities and our potential customers’ internal budgeting process. Our sales cycle can be further extended for product sales made through third party distributors. As a result of the lengthy sales cycle, we may expend significant efforts over a long period of time in an attempt to obtain an order, but ultimately not complete the sale, or the order ultimately received may be smaller than anticipated.

We may encounter difficulties completing or integrating our acquisitions and strategic relationships and may incur acquisition-related charges that could adversely affect our operating results.

We regularly explore possible acquisitions and other strategic ventures to expand and enhance our business. Additionally, we have in the past and may in the future make strategic investments in other companies. We have recently acquired a number of companies and formed certain strategic relationships.

- 33 -

For example, we acquired AvantGo in 2003 and XcelleNet and certain assets of Dejima in April 2004. We expect to continue to pursue acquisitions of complimentary or strategic business product lines, assets and technologies.

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, employees or business infrastructure. Also, dedication of additional resources to execute acquisitions and handle integration tasks could temporarily divert attention from other important business. Such acquisitions could also result in costs, liabilities, or additional expenses that could harm our results of operations and financial condition. In addition, we may not be able to maintain customer, supplier or other favorable business relationships of ours, or of our acquired operations, or be able to terminate or restructure unfavorable relationships.

Under Statement of Financial Accounting Standard No. 142 we no longer amortize goodwill but evaluate goodwill recorded in connection with acquisitions at least annually for impairment. As of December 31, 2004, we had approximately $214 million of goodwill recorded on our balance sheet, none of which was determined to be impaired as of that date. Goodwill impairments are based on the value of our reporting units and reporting units that previously recognized impairment charges (as was the case with FFI in 2002) are prone to additional impairment charges if future revenue and expense forecasts or market conditions worsen after an impairment is recognized. If goodwill is determined to be impaired in the future we will be required to take a non-cash charge to earnings to write-off impaired goodwill, which could significantly impact our net income.

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. Future acquisitions may also result in dilutive issuances of equity securities, the incurrence of debt, restructuring charges relating to the consolidation of operations and the creation of other intangible assets that could result in amortization expense or impairment charges, any of which could adversely affect our operating results.

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

Since 2000, we have implemented several restructuring plans in an effort to align our expense structure to our expected revenue. As a result of these restructuring activities, we have recorded restructuring charges totaling approximately $116 million through December 31, 2004. Our ability to significantly reduce our current cost structure in any material respects through future restructurings may be difficult without fundamentally changing elements of our current business. If we are unable to generate increased revenues or control our operating expenses going forward, our results of operations will be adversely affected.

Our sales model has evolved significantly during the past few years to keep pace with new and developing markets and changing business environments. If we have overestimated demand for our products and services in our target markets, or if we are unable to coordinate our sales efforts in a focused and efficient way, our business and prospects could be materially and adversely affected. For example, in January 2003, we reorganized our sales focus with the creation of the IPG, which was designed to integrate and provide synergies among our different products lines and to focus on increasing our market presence and revenue through indirect channels such as SIs, OEMs and VARs and other resellers. In the process of this reorganization, we brought three of our former divisions, ESD, eBD and BID, under a single umbrella, and reduced the number of our business divisions from five to three. In early 2005 the IPG sales organization was restructured into two organizations, North America and International. Other organizational changes in our sales or divisional model could have a direct effect on our results of operations depending on whether and how quickly and effectively our employees and management are able to adapt to and maximize the advantages these changes are intended to create. We cannot assure that these or other organizational changes in our sales or divisional model will result in any increase in revenues or profitability, and they could adversely affect our business.

- 34 -

Our results of operations may depend on the compatibility of our products with other software developed by third parties.

Our future results may be affected if our products cannot interoperate and perform well with software products of other companies. Certain leading applications currently are not, and may never be, interoperable with our products. 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.

We are subject to risks arising from our international operations.

We derive a substantial portion of our revenues from our international operations, and we plan to continue expanding our business in international markets in the future. In 2004, revenues outside North America represented 42 percent of our total revenues. As a result of our international operations, we are affected by economic, regulatory and political conditions in foreign countries, including changes in IT spending generally, the imposition of government controls, changes or limitations in trade protection laws, unfavorable changes in tax treaties or laws, natural disasters, labor unrest, earnings expatriation restrictions, misappropriation of intellectual property, acts of terrorism and continued unrest and war in the Middle East and other factors, which could have a material impact on our international revenues and operations. Our revenues outside North America 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.

We face exposure to adverse movements in foreign currency exchange rates.

We experience foreign exchange translation exposure on our net assets and transactions denominated in currencies other than the U.S. dollar. In 2004, our net income and revenues benefited from the decline in the value of the U.S. dollar against a number of foreign currencies, including the Euro and the Japanese Yen. We do not utilize foreign currency hedging contracts to smooth the impact of converting non-U.S. dollar denominated revenues into U.S. dollars for financial reporting. Because we do not anticipate entering into currency hedges for non-U.S. dollar revenues, our future results will fluctuate based on the appreciation or depreciation of the U.S. dollar against major foreign currencies.

As of December 31, 2004, we had identified net assets totaling $225.4 million associated with our EMEA operations, and $73.9 million associated with our Asia Pacific and Latin America operations. Accordingly, we may experience fluctuations in operating results as a result of translation gains and losses associated with these asset and liability values. In order to reduce the effect of foreign currency fluctuations on our and certain of our subsidiaries’ balance sheets, we utilize foreign currency forward exchange contracts (forward contracts) to hedge certain foreign currency transaction exposures. Specifically, we enter into forward contracts with a maturity of approximately 30 days to hedge against the foreign exchange exposure created by certain balances that are denominated in a currency other than the principal reporting currency of the entity recording the transaction. The gains and losses on the forward contracts are intended to mitigate the gains and losses on these outstanding foreign currency transactions and we do not enter into forward contracts for trading purposes. However, our efforts to manage these risks may not be successful. Failure to adequately manage our currency exchange rate exposure could adversely impact our financial condition and results of operations.

Growing market acceptance of “open source” software could cause a decline in our revenues and operating margins.

Growing market acceptance of open source software has presented both benefits and challenges to the commercial software industry in recent years. “Open source” software is made widely available by its authors and is licensed “as is” for a nominal fee or, in some cases, at no charge. For example, Linux is a free Unix-type operating system, and the source code for Linux is freely available. We have developed certain products to operate on the Linux platform, which has created additional sources of revenues.

- 35 -

Additionally, we have incorporated other types of open source software into our products, allowing us to enhance certain solutions without incurring substantial additional research and development costs. Thus far, we have encountered no unanticipated material problems arising from our use of open source software. However, as the use of open source software becomes more widespread, certain open source technology could become competitive with our proprietary technology, which could cause sales of our products to decline or force us to reduce the fees we charge for our products, which could have a material adverse impact on our revenues and operating margins.

If we are unable to protect our intellectual property, or if we infringe or are alleged to infringe a third party’s intellectual property, our operating results may be adversely affected.

We rely on a combination of copyright, patent, trademark and trade secret laws and contractual restrictions on disclosure to protect our intellectual property rights. We cannot be certain that the steps we have taken will prevent unauthorized use of our technology. Our inability to obtain adequate copyright, patent or trade secret protection for our products in certain countries could diminish the competitive advantages we derive from our proprietary technology and may have a material adverse impact on future operating results. In addition, as the number of software products and associated patents increase, it is possible that software developers will become subject to more frequent infringement claims.

We have in the past received claims by third parties asserting that our products violate their patents or other proprietary rights. It is likely that such claims will be asserted in the future. In addition, to the extent we acquire other intellectual property rights, 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. For example, a trademark infringement and dilution case filed in 1999 against NEN, which we acquired in April 2001, resulted in a multi-million dollar judgment against NEN and an injunction against NEN’s use of the trade name “NEON.” The action was settled in September 2001 for a lesser amount as well as certain other concessions. 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 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.

We currently license our software products to end users directly, or through a number of reseller channels including OEMs, VARs and SIs. Under our standard software license agreements, we contractually agree to indemnify our licensees against claims that our software infringe the intellectual property rights of third parties. Some of our products, including our core enterprise database product, incorporate intellectual property licensed from third parties or open source software. We attempt to exclude open source software and other products for which no IP indemnity is provided by the licensor from the scope of our indemnification obligations. However, if we fail to successfully exclude such technology from our indemnification obligations, claims that such open source or third party technology infringes the intellectual property rights of a third party could materially and adversely affect our business and financial condition.

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

Our success depends on the continued service of our executive officers and other key personnel. In recent years, we have made additions and changes to our executive management team. For example, in August 2004, Martin J. Healy, Vice President and Corporate Controller, retired and was replaced by Jeffrey G. Ross, formerly Group Director of Tax and Accounting. Further 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. We cannot be certain that we will retain our officers and key employees. In particular, if we are unable to hire and retain qualified technical, managerial, sales and other employees it could adversely affect our product development and sales efforts, other aspects of our operations, and our financial results. Competition for highly skilled personnel in the software industry is intense. Our financial and stock price performance relative to the companies with whom we compete for employees, and the high cost of living in the San Francisco Bay Area, where our headquarters is located, could also impact the degree of future employee turnover.

- 36 -

Changes in accounting and legal standards could adversely affect our future operating results.

During the past several years, various accounting guidance has been issued with respect to revenue recognition rules in the software industry. However, much of this guidance addresses software revenue recognition primarily from a conceptual level, and is silent as to specific implementation requirements. As a consequence, we have been required to make assumptions and judgments, in certain circumstances, regarding application of the rules to transactions not addressed by the existing rules. We believe our current business arrangements and contract terms have been properly reported under the current rules. However, if final interpretations of, or changes to, these rules necessitate a change in our current revenue recognition practices, our results of operations, financial condition and business could be materially and adversely affected.

In October 2004, the FASB concluded that Statement 123(R), Share-Based Payment “Statement 123(R)” requiring companies to measure compensation cost for all share-based payments at fair value, will be effective for most public companies for interim or annual periods beginning after June 15, 2005. We currently 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.” However, we will be required to measure and recognize the cumulative effect, if any, from the adoption of Statement 123(R) beginning July 1, 2005. Statement 123(R) likely will affect the accounting for our current employee stock option and stock purchase plans, and could have an adverse effect on our accounting for compensation expenses if we are unable to modify our plans in an appropriate or timely manner.

In addition to the changes discussed above, the U.S. Congress enacted the Sarbanes-Oxley Act of 2002, or the SOA, in July 2002, providing for or mandating the implementation of extensive corporate governance reforms relating to public company financial reporting, internal controls, corporate ethics, and oversight of the accounting profession, among other areas. These SEC-mandated rules and procedures became effective starting in the latter half of 2002, and new rules are expected to evolve and become implemented over the next several years. We are also subject to additional rules and regulations, including those enacted by the New York Stock Exchange where our common stock is traded. Compliance with existing or new rules that influence significant adjustments to our business practices and procedures could result in significant expense and may adversely affect our results of operations. Failure to comply with these rules could result in delayed financial statements and might adversely impact the price of our common stock.

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

We are subject to a variety of claims and lawsuits from time to time, some of which arise in the ordinary course of our business. Adverse outcomes in some or all of such pending cases may result in significant monetary damages or injunctive relief against us. While management currently believes that resolution of these matters, individually or in the aggregate, will not have a material adverse impact on our financial position or results of operations, the ultimate outcome of litigation and other claims noted are subject to inherent uncertainties, and management’s view of these matters may change in the future. It is possible that our financial condition and results of operations could be materially adversely affected in any period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable.

Our operations and financial results could be severely harmed by certain natural disasters.

Our headquarters and some of our major customers’ facilities are located near major earthquake faults. We have not been able to maintain earthquake insurance coverage at reasonable costs. Instead, we rely on self-insurance and preventative safety measures. We currently ship most of our products from our Dublin, California facility near the site of our corporate headquarters. If a major earthquake or other natural disaster occurs, disruption of operations at that facility could directly harm our ability to record revenues for such quarter. This could, in turn, have an adverse impact on operating results.

- 37 -

Provisions of our corporate documents have anti-takeover effects that could prevent a change in control.

Provisions of our certificate of incorporation, bylaws, stockholder rights plan and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include authorizing the issuance of preferred stock without stockholder approval, prohibiting cumulative voting in the election of directors, prohibiting the stockholders from calling stockholders meetings and prohibiting stockholder actions by written consent.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is presented under “MD&A – Financial Risk Management,” Part II, Item 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

Report of Management on Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2004 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2004.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

- 38 -

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.

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

The Board of Directors and Stockholders of Sybase, Inc.

We have audited management’s assessment, included in the accompanying Report of Management on Internal Control Over Financial Reporting, that Sybase, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sybase, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Sybase, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Sybase, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2004 consolidated financial statements of Sybase, Inc. and our report dated March 14, 2005 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California
March 14, 2005

- 39 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Sybase, Inc.

We have audited the accompanying consolidated balance sheets of Sybase, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sybase, Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Sybase, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2005 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose , California
March 14, 2005

- 40 -

Consolidated Balance Sheets

See accompanying notes.

- 41 -

Consolidated Statements of Operations

See accompanying notes.

- 42 -

Consolidated Statements of Stockholders’ Equity