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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

For the Quarter Ended September 30, 2002

For the transition period from ____________ to ______________

Commission File number 0-19395

SYBASE, INC.
(Exact Name of Registrant as Specified in Its Charter)

One Sybase Drive, Dublin, California 94568

Registrant’s Telephone Number, Including Area Code: (925) 236-5000

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

On October 31, 2002, 94,613,150 shares of the Registrant’s Common Stock, $.001 par value, were outstanding.

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SYBASE, INC.
FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2002

INDEX

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FORWARD-LOOKING STATEMENTS

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

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

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PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SYBASE, INC.

See accompanying notes.

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See accompanying notes.

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See accompanying notes.

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1. Basis of Presentation. The accompanying unaudited condensed consolidated financial statements include the accounts of Sybase, Inc. and its subsidiaries, and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary to fairly state our consolidated financial position, results of operations, and cash flows as of and for the dates and periods presented. The condensed consolidated balance sheet as of December 31, 2001 has been prepared from our audited consolidated financial statements.

Certain information and footnote disclosures normally included in the annual financial statements have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report to Stockholders for the year ended December 31, 2001. The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of results for the entire fiscal year ending December 31, 2002.

Certain previously reported amounts have been reclassified to conform to the current presentation format.

2. Net income per share. Shares used in computing basic and diluted net income (loss) per share are based on the weighted average shares outstanding in each period, excluding treasury stock. Basic net income (loss) per share excludes any dilutive effects of stock options. Diluted net income (loss) per share includes the dilutive effect of the assumed exercise of stock options, warrants and restricted stock using the treasury stock method. The following table shows the computation of basic and diluted net income (loss) per share:

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3. Comprehensive Income (Loss). The following table sets forth the calculation of comprehensive income (loss) for all periods presented:

4. Effects of New Accounting Pronouncements. In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (SFAS 141) effective for fiscal years beginning after December 15, 2001. SFAS 141 required business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadened the criteria for recording intangible assets separate from goodwill. The provisions of this statement did not have a material effect on our financial condition or operating results as of September 30, 2002.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142) effective for fiscal years beginning after December 15, 2001. Under SFAS 142, goodwill and intangible assets deemed to have indefinite lives are to be separately disclosed on the balance sheet, and no longer amortized but subject to annual impairment tests.

SFAS 142 requires that goodwill be tested for impairment at the reporting unit level (i.e., our business segments) upon adoption and at least annually thereafter using a two-step impairment analysis. The first step of the impairment test identifies potential impairment by comparing the fair value of each reporting unit with its carrying amount. We performed the required transitional impairment testing as of January 1, 2002 using an independent third-party appraiser and determined that a potential impairment existed with respect to the e-Business Division (eBD) and Financial Fusion, Inc. (FFI) segments. In the second step, we compared the implied fair value of the affected reporting unit’s goodwill to its carrying value to measure the amount of impairment. The fair value of goodwill was determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation. Based upon the completion of the second step, we measured and recognized a transitional impairment loss of $132.5 million as a cumulative effect of an accounting change which occurred during the quarter

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ended March 31, 2002. Note 5 provides additional discussion regarding the impact to our financial statements as a result of adopting SFAS 142.

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (SFAS 144). SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. The statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. The provisions of this statement did not have a material effect on our financial condition or operating results as of September 30, 2002.

In November 2001, the FASB issued Emerging Issues Task Force No. 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred” (EITF 01-14) formerly named Topic D-103. EITF 01-14 establishes that reimbursements received for out-of-pocket expenses should be characterized as revenue in the statement of operations. We adopted the guidance on January 1, 2002. Comparative financial statements for prior year information have been reclassified to conform to the new presentation. We recorded the reimbursement of $0.5 million and $1.4 million in out-of-pocket expenses as a reduction of cost of services for the three and nine months ended September 30, 2001, respectively. Such reimbursements have been reclassified as service revenue in accordance with EITF 01-14. The provisions of EITF 01-14 did not have any impact on our financial condition, operating results, or cash flow as of September 30, 2002.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146) effective for calendar years beginning after December 31, 2002. Under SFAS 146 a liability for the cost associated with an exit or disposal activity is recognized when the liability is incurred. Under prior guidance, a liability for such costs could be recognized at the date of commitment to an exit plan. SFAS No. 146 also requires that the liability be measured and recorded at fair value. Accordingly, the adoption of this standard may affect the timing of recognizing future restructuring costs as well as the amounts recognized. We will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002.

5. Accounting for Goodwill. In accordance with SFAS 142, we have performed the required two-step impairment tests of goodwill and indefinite-lived intangible assets as of January 1, 2002 using an independent third-party appraiser. In performing the first step of the analysis, we first assigned our assets and liabilities, including existing goodwill and other intangible assets, to our identified reporting units to determine their carrying value. For this purpose, the reporting units were determined to be our five business segments described in Note 6. The estimated fair value of each reporting unit was then determined utilizing the income approach. After the carrying value of each reporting unit was compared to its fair value, it was determined that goodwill recorded by the FFI and eBD reporting units was impaired. After the second step of comparing the implied fair value of the impaired goodwill to its carrying value,

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we recognized an impairment loss of $132.5 million in the first quarter of 2002. Of this impairment loss, $39.0 million related to the FFI reporting unit and $93.5 million related to the eBD reporting unit. This loss was recognized as a cumulative effect of an accounting change which occurred during the quarter ended March 31, 2002. The impairment loss had no income tax effect.

The fair value of the eBD and FFI reporting units were determined using the income approach. The income approach focuses on the income-producing capability of an asset, measuring the current value of the asset by calculating the present value of its future economic benefits such as cash earnings, cost savings, tax deductions, and proceeds from disposition. Value indications are developed by discounting expected cash flows to their present value at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation, and risks associated with the particular investment. The eBD calculation assumed compound annual growth rates in revenues and expenses of approximately 21 percent and 17 percent, respectively, based on management and long term industry growth expectations. The FFI calculation assumed compound annual growth rates in revenues and expenses of approximately 24 percent and 19 percent, respectively. For both calculations, a discount rate of 21 percent was utilized.

During the third quarter there were no events or circumstances, as defined by paragraph 17 of SFAS 142, that triggered the required impairment testing of our reporting units’ goodwill. The annual impairment testing specified by SFAS 142 will be completed during the fourth quarter of 2002.

In future periods, a reduction of our estimated fair values associated with certain reporting units could result in a further impairment loss associated with various intangible assets.

As required by SFAS 142, intangible assets that did not meet the criteria for recognition apart from goodwill were reclassified. We transferred $7.9 million of net assembled workforce to goodwill as of January 1, 2002. This amount was partially offset by the reclassification of $3.2 million of an associated deferred tax liability.

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The following financial information reflects consolidated results adjusted as though the accounting for goodwill and other intangible assets was consistent in all comparable periods presented:

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The following table reflects the changes in the carrying amount of goodwill (including assembled workforce) by reporting unit.

The following table reflects intangible assets subject to amortization as of September 30, 2002 and December 31, 2001:

The amortization expense on these intangible assets for the three and nine months ended September 30, 2002 was $4.2 million and $12.7 million, respectively. Estimated amortization expense for each of the next five years ending December 31, is as follows (dollars in thousands):

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6. Segment Information. We are organized into five separate business segments, each of which maintains financial accountability for its operating results, dedicated product development and engineering, sales and product marketing, partner relationship management and customer support teams.

Our Enterprise Solutions Division (ESD) delivers products, technical support and professional services required to develop and maintain a variety of operational systems including e-Business infrastructures that allow enterprises to integrate external data, events and applications. iAnywhere Solutions, Inc. (iAS), is our subsidiary that provides solutions to deliver enterprise information and applications anywhere business transactions occur, including remote locations and on mobile and hand-held platforms. Our e-Business Division (eBD) delivers an end-to-end e-Business platform and enterprise application integration capabilities outside a company’s “firewall” and across the supply chain. The Business Intelligence Division (BID) delivers industry specific database management systems, warehouse design tools and data management facilities that enable customers to develop business intelligence solutions that integrate and translate data from multiple sources. Financial Fusion, Inc. (FFI), formerly HFN, is our subsidiary that provides e-Finance solutions to leading financial institutions, including complete financial destinations for banking, and straight-through processing for capital markets.

We report our iAS and FFI subsidiaries and our ESD, eBD and BID divisions as reportable segments in accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

Our Chief Operating Decision Maker (CODM), which is the President and Chief Executive Officer, evaluates performance based upon a measure of segment operating profit or loss that includes an allocation of common expenses, but excludes certain unallocated expenses. Segment revenue includes transactions between the segments. These revenues are transferred to the applicable segments less amounts retained, which are intended to reflect the costs incurred by the transferring segment. Allocated common costs and expenses are allocated based on measurable drivers of expense. Unallocated expenses represent corporate expenditures or cost savings that are not specifically allocated to the segments, as well as the cost (reversal) of restructuring. Our CODM does not view segment results below operating profit (loss) before unallocated costs, and therefore unallocated expenses, interest income, interest expense and other, net and the provision for income taxes are not broken out by segment. We do not account for, or report to the CODM, our assets or capital expenditures by segment.

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A summary of the segment financial information reported to the CODM for the three months ended September 30, 2002 is presented below: