UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number: 1-16493
SYBASE, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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94-2951005
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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One Sybase Drive, Dublin, California
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94568
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(Address of principal executive offices)
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(Zip Code)
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(925)
236-5000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $.001 par value per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Preferred Share Purchase Rights
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes
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No
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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
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No
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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 registrants 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.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
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No
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As of June 30, 2008, the aggregate market value of the registrants common stock held by
non-affiliates of the registrant was $2,331,561 based on the closing sale price as reported on the
New York Stock Exchange.
Indicate the number of shares outstanding of each of the registrants classes of common stock,
as of the latest practicable date.
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Class
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Outstanding at February 13, 2009
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Common Stock, $.001 par value per share
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81,021,153 shares
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DOCUMENTS INCORPORATED BY REFERENCE
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Document
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Parts Into Which Incorporated
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Annual Report to Stockholders for the Fiscal
Year Ended December 31, 2008 (Annual Report)
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Parts I, II, and IV
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Proxy Statement for the Annual Meeting of
Shareholders to be held April 14, 2009
(Proxy Statement)
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Part III
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TABLE OF CONTENTS
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 global economic and credit market conditions;
software industry sales trends; customers willingness to renew their technical support agreements;
market acceptance of the Companys products and services; possible disruptive effects of
organizational or personnel changes; shifts in our business strategy; interoperability of our
products with other software products; system failures or other issues that impact our ability to
deliver mobile messages; 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 Managements
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.
We file registration statements, periodic and current reports, proxy statements, and other
materials with the Securities and Exchange Commission, or SEC. You may read and copy any materials
we file with the SEC at the SECs Office of Public Reference at 450 Fifth Street, NW, Room 1300,
Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at
www.sec.gov
that
contains reports, proxy and information statements and other information regarding issuers that
file electronically with the SEC, including our filings.
We are headquartered at One Sybase Drive, Dublin, CA 94568, and the telephone number at that
location is (925) 236-5000. Our internet address is
www.sybase.com
. We make available, free
of charge, through the investor relations section of our website, our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports
filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as
soon as reasonably practicable after they are electronically filed with or furnished to the SEC.
The contents of our website are not incorporated into, or otherwise to be regarded as part of this
Annual Report on Form 10-K.
Sybase, Adaptive Server Enterprise, Advantage Database Server, Afaria, Avaki, AvantGo, Extended
Systems, Financial Fusion, iAnywhere, iAnywhere Solutions, Information Anywhere, Information
Anywhere Suite, Mirror Activator, Mobile 365, PowerBuilder, PowerDesigner, RAP The Trading
Edition, Remoteware, Replication Server, SQL Anywhere, Sybase 365, XTNDConnect, XcelleNet, are
trademarks of Sybase, Inc. or its subsidiaries. All other names may be trademarks of the
companies with which they are associated.
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PART I
ITEM 1. BUSINESS
With 2008 annual revenue exceeding $1.1 billion dollars, Sybase is the only global enterprise
software and services company exclusively focused on managing and mobilizing information. With our
global solutions, enterprises can extend their information securely and make it useful for people
anywhere using any device. Sybases vision is to enable the Unwired Enterprise, where
business-critical information can be securely moved back and forth from the data center to the end
device, and delivered to the right person anytime, anywhere. Sybase solutions, combined with our
global access and network, allow enterprises unparalleled reach to the broadest base of users and
subscribers.
Sybase delivers mission-critical enterprise software to manage, analyze and mobilize information.
We are globally recognized as a performance leader, proven in the most data-intensive industries
and across all systems, networks and devices. Sybase was founded and incorporated in California on
November 15, 1984, and was re-incorporated in Delaware on July 1, 1991.
During 2008, our business was organized into three principal operating segments, Infrastructure
Platform Group (IPG), iAnywhere Solutions (iAS) and Sybase 365 (Sybase 365). Below is a brief
description of the business of each division:
Infrastructure Platform Group (IPG)
focuses on software infrastructure for managing and
analyzing information. IPG offers two lines of enterprise class data servers: Adaptive Server
®
Enterprise (ASE) a relational database management system for mission-critical transactions and
Sybase IQ, a specialized column-based analytics server for business intelligence applications such
as accelerated reporting, advanced analytics and analytics services. IPG also produces solutions
for data movement including the Sybase Replication Server
®
and the Sybase Mirror Activator for
disaster recovery. IPG products also include PowerDesigner
®
, a leading modeling tool, and
PowerBuilder
®
, a leading Rapid Application Development (RAD) tool. IPG also offers vertical
information management solutions for financial services. Sybase RAP The Trading Edition is a
unified market analytics platform that lets capital markets firms make better trading and portfolio
decisions across the trade lifecycle. IPG also offers a line of products that enable banks to
provide account access and payment initiation on behalf of their consumer, small business and
corporate clients over the internet. During 2008, the products of IPG accounted for approximately
72 percent of our license revenue.
iAnywhere Solutions (iAS)
enables success at the front lines of business. iAS holds
worldwide market leadership positions in mobile device management, wireless email, mobile
middleware platforms, database and synchronization, and Bluetooth and infrared protocol
technologies. Tens of millions of mobile devices, millions of subscribers, and 20,000 customers
and partners rely on iASs Always Available technologies, including Sybase Unwired Platform, SQL
Anywhere
®
, Afaria
®
and iAnywhere Mobile Office. The products of iAS accounted for approximately
28 percent of our license revenue in 2008.
Sybase 365
is the world leader in mobile messaging services. Sybase 365 services range
from SMS (Short Messaging Service), MMS (Multimedia Messaging Service), GRX (GPRS Roaming Exchange)
mobile messaging interoperability to mobile content delivery and mobile commerce services, for
operators, brands and content providers, enterprises and financial institutions. Sybase 365
delivers advanced mobile services to its customers by addressing the inherent complexities of the
wireless ecosystem: incompatible networks, messaging protocols, handsets, and billing systems.
Sybase 365 holds worldwide market leadership positions in inter-operator messaging, mobile commerce
and enterprise messaging. In order to deliver services, Sybase 365 utilizes an operator-grade,
secure messaging platform connected via a global private network of IP and SS7 connections to more
than 700 mobile operators worldwide. Sybase 365 offers customers unparalleled subscriber reach
(more than three billion mobile subscribers) supported by high quality of service and worldwide
message delivery, billing, and settlement capabilities.
A summary of financial results for these divisions is found in Note Ten to Consolidated Financial
Statements, Part II, Item 8.
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UNWIRED ENTERPRISE
We define the Unwired Enterprise as an enterprise that uses information technology to create the
seamless flow of information from the data center to any device. An Unwired Enterprise breaks down
information technology barriers and delivers critical information and applications to employees,
partners, and customers, to any platform, device or network, anytime, anywhere. The benefits for
enterprises becoming an Unwired Enterprise are substantial. 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.
To enable the Unwired Enterprise, Sybase offers a cohesive platform that leverages our core
strength in data management, analytics, market leading mobile solutions and operator-grade network
infrastructure. This platform provides unique opportunities for Sybase to deliver ongoing value to
the enterprise market, while at the same time addressing emerging high-growth markets, such as
analytics, mobile banking and mobile commerce leveraging Sybases global enterprise reach and
mobile messaging capabilities.
CUSTOMERS
Our customers are primarily Fortune 1000 companies in North America and their equivalents around
the globe. No single customer accounted for more than 10 percent of total revenues during 2008,
2007 or 2006. In 2008 our customers included:
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A large digital advertising network uses Sybase ASE Cluster Edition to ensure continuous
availability across high-demand systems and to provide cost-efficient consolidation of its
data center. Using Sybase ASE Cluster Edition, this customer can now easily manage its
environment using virtual resource management technology to provide expected service
levels.
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One of the worlds largest medical device companies developed a sales force automation
solution using Sybase. The company supplies thousands of field representatives with a
complete mobility solution that includes Sybases device management, security, mobile
database and data synchronization technology. The company chose Sybase to support the
daily operations requirements of the sales force and to enable it to scale this foundation
for future requirements.
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A global financial services company uses Sybase RAP The Trading Edition to execute
its long-term strategic trading mission. To take this long-view, this bank gathers vast
amounts of trade data for ongoing analysis. With Sybase RAP The Trading Edition, this
trading operation can process enough data in real-time to support its model development and
validation to make smart, profitable decisions.
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A bank-owned entity processing billions of credit card transactions uses Sybase IQ to
manage its massive data loads and to provide real-time performance insights to the
organization. With Sybase IQ, complex, ad hoc queries rapidly supply on-demand information
to users and houses more archive data cost-effectively.
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Indias leading power utility uses Sybase 365 SMS messaging service to offer two-way
mobile utility services to its customers, enhancing its CRM processes. Providing SMS
connectivity, Sybase empowers utility customers to take advantage of a variety of services
via SMS, including: receipt of their electricity bill, billing alerts, disconnection
alerts, and alerts of power shutdowns before they occur, and service issue tracking. The
utility now has a cost effective and efficient way to update its customers on any reported
faults, and to minimize inbound and outbound calls to its call center
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PRODUCTS AND SERVICES
Depending on the product, Sybase offers products on an on-premise license model or as hosted
services. On-premise license 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. These products are also
available for a wide range of operating systems including various UNIX environments, Windows,
Windows NT, and Linux. Sybase 365 offerings are available as hosted services. A description of
our principal products and service offerings follows:
Infrastructure Platform Group (IPG)
Sybase Adaptive Server Enterprise
(ASE) is a powerful data management platform for high performance
business applications especially in large database, high-transaction, mission-critical
environments. Sybase ASE combines a low total cost of ownership with excellent reliability,
security, and scalability. Sybase ASE 15 key features include patented encryption, partitioning for
scalability and new patent-pending query technology for smarter transactions, increased
performance and enhanced support for unstructured data management. Sybase ASE Cluster Edition
combines the benefits of ASE with support for continuous availability on a system comprising of
multiple machines connected in a cluster.
Sybase IQ
is a column-oriented analytics server optimized for outstanding query performance for
high volumes of both structured and unstructured data in business intelligence applications such as
accelerated reporting, advanced analytics and analytics services. Sybase IQ, which holds the record
for the worlds largest data warehouse at one petabyte of data, improves analytic performance by up
to 100x over traditional solutions while lowering storage and maintenance costs.
Sybase RAP The Trading Edition
is a unified market analytics platform that lets capital markets
firms make better trading and portfolio decisions across the trade lifecycle. From better model
development to real-time trade and risk analytics to multi-year historical quantitative analysis,
Sybase RAP is optimized to support the most demanding analytics requirements. It supports and
integrates trade processing applications, such as risk management and algorithmic trading,
throughout the trade life-cycle. Sybase RAP enables customers to respond more quickly to market
events and increases real-time decision making capability.
Sybase Replication Server
®
is a premier data movement product that supports multiple data
management platforms including Sybase ASE, Oracle, Microsoft, IBM DB2 and mainframes. It provides
bi-directional, heterogeneous distribution, consolidation and synchronization of data across the
enterprise. The product supports a number of uses such as reporting without impacting operational
systems, data distribution and consolidation for workload management and business continuity.
Sybase Mirror Activator
is a disaster recovery solution that 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 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 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
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access, banking, cash management services, imaging, bill payment and presentment, customer care,
and mobile banking application support.
iAnywhere Solutions (iAS)
SQL Anywhere
is an industry leading mobile and embedded solution providing data management and data
synchronization technologies that operate in frontline environments without onsite IT support. It
offers enterprise-caliber features in databases that are easily embedded and widely deployed in
server, desktop, remote office and mobile application environments. SQL Anywhere data
synchronization technologies extend information in corporate applications and enterprise systems to
databases running in frontline environments.
Advantage Database Server
provides both ISAM table-based and SQL-based data access, enabling
application developers to easily chart a growth path for legacy database applications to todays
modern techniques.
Afaria
is frontline management software that allows companies to centrally manage and secure
devices used by workers at the front lines of business, such as sales people and service
technicians. Afaria goes beyond traditional systems management software to help companies secure
devices, automate processes and manage software, content and data whenever workers have a
connection. Afaria supports a broad range of frontline devices, including handhelds, smart phones,
laptops and tablets.
iAnywhere Mobile Office
is a flexible and powerful solution that lets enterprises securely extend
email and business processes to mobile workers. It combines rich infrastructure support with
enhanced on-device security, usability and performance. iAnywhere Mobile Office offers key features
that provide the foundation for a companys mobile inbox of the future, that enables the ability
to take action on time-sensitive business processes, such as approving purchase orders or
submitting reports, all through a single, secure mobile email client
Sybase Unwired Platform
is a mobile enterprise application platform that simplifies the
development, deployment and management of mobile enterprise applications. It addresses the
difficult mobile application challenges of back office integration, secure access for mobile
devices into the enterprise, reliable push data synchronization, and support for multiple device
types.
RemoteWare
®
is an industry leader in polling, file transfer, and content distribution, RemoteWare
supports a broad range of frontline systems and networking options, and supports both classic POS
devices and contemporary software environments.
Standards-based SDKs
iAS provides standards-based software development kits (SDKs) for implementing
protocol stack technologies for infrared, Bluetooth, data synchronization and device management. In
addition, XTNDConnect
®
PC is a software application that allows users to synchronize contacts,
calendar, tasks, email and notes between mobile devices and popular PC applications such as
Microsoft Outlook and ACT! Over the past 10 years, iAS embedded SDKs have been used in hundreds of
product designs resulting in tens of millions of iAS-enabled products deployed into the market.
Sybase 365
Operator Services
are focused on SMS, MMS and GRX (data roaming) messaging interoperability between
mobile operators worldwide. Sybase 365 is a global leader in interoperability services. Messages
are delivered through a secure operator-grade messaging platform, with advanced protocol
conversion, routing, queuing, and transcoding capabilities. Sybase 365 interoperability service
reaches over 700 mobile operators, with over 300 direct two-way SMS destinations greatly
simplifying the deployment and delivery of inter-operator messaging over incompatible networks,
protocol stacks, and handsets. Services include robust traffic analysis and detailed reporting and
statistics.
Enterprise Services
Sybase 365 is the premier provider of mobile services for enterprises, brand
and content providers, enabling customers to monetize premium mobile content and deliver
interactive
services,
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mobile advertising and mobile marketing campaigns globally. A high volume delivery
infrastructure ensures messages, content and applications get delivered by SMS and MMS regardless
of their final destination. Services include MMS 365, content delivery gateway to send and receive
MMS from multiple sources; application and content management, mobile advertising services, global
billing, settlement, reporting and analysis.
mBanking Services
Sybase 365 is at the forefront of mobile banking, with the only product that
offers a single connection to complete, multi-channel mobile banking solutions with SMS, mobile
browser, and rich-client on a single platform. Multi-channel support, universal alerts engine,
unique interactive natural language intelligent SMS banking and built-in operator
connectivity, enable financial institutions to launch mbanking services quickly and easily. Sybase
is a trusted partner for some of the worlds biggest banks with over 20 years experience in
providing integrated services to more than 200 of the worlds leading financial institutions.
Coupled with Sybase 365s mobile banking expertise as the leading provider of mobile services (SMS,
MMS) for financial corporations worldwide, Sybase 365 is uniquely placed to enable banks to realize
the potential of mobile banking.
AvantGo
®
is a free, ad-supported service that delivers rich, personalized mobile websites to
smartphones, PDAs, and mobile browsers. Today, major brands and media publishers,
including Dell, CNET, Rolling Stone and The New York Times, leverage AvantGo to target a highly
desirable demographic of registered users with mobile content and mobile advertising.
AvantGo offers the convenience of anywhere, anytime access, seamlessly supporting both wireless and
sync and go connectivity.
WORLDWIDE SERVICES
Technical Support.
Our Customer Service and Support organization offers technical support for our
family of IPG and iAS products. We currently maintain regional support centers in North America,
South 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 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 percentage of net license
fee basis and include updates and new version releases that become available during the support
period.
Standard Support
is designed for high quality around the clock support for critical
issues, access to new releases and online support services.
Enterprise Support
offers personalized high-availability support for companies with
mission-critical projects. Services include priority access to the Enterprise Technical Team,
proactive services, and other specialized options. Enterprise Support provides the highest
priority of response times.
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 for
an additional annual fee. iAS also offers support programs to end users priced on a flat-fee
annual basis with updates and new version releases available for purchase separately for an
additional fee.
Our IPG and iAS business divisions also offer a variety of support services to their partners and
resellers.
Sybase 365 operates two 24x7x365 Network Operations Centers (NOCs), one in Singapore and the other
in the United States. The NOCs monitor our messaging service infrastructure, direct and monitor
global maintenance and repair activities, and provide direct technical support to our customers.
Additionally, Sybase 365 maintains two 24x7x365 customer care facilities, one in Dublin, Ireland
and one in Mumbai,
India, that supports customer requests and services inquiries in 6 languages (English, French,
Italian, Spanish, German and Mandarin).
- 7 -
Consulting.
The Sybase Professional Services (SPS) organization offers customers comprehensive
consulting, education and integration services designed to optimize their business solutions using
both Sybase IPG, iAS products, Sybase mBanking 365 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.
Education.
We provide a broad education curriculum allowing customers and partners to increase
their proficiency in our IPG and iAS 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 and Services Model.
Consistent with software industry practice, we do not sell or
transfer title to our IPG and iAS 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/or cpus, and the type of operating system. License fees range from several hundred dollars
for single user desktop products to several million dollars for solutions that can support hundreds
or thousands of users. We also license many of our products for use in connection with customer
applications on the Internet. Our products and services are offered in a wide variety of
configurations depending on each customers needs and hardware environment. In the case of Sybase
365, we sell hosted, turn-key messaging solutions where revenue is generated primarily on a per
message or transactional basis.
Distribution Method.
Sybase products and services are sold through our direct sales organizations
and our indirect IPG and iAS 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 2008, 50 percent of our total revenues were from operations outside
North America, with operations in EMEA (Europe, Middle East and Africa) accounting for 35 percent,
and operations in our Intercontinental region (Asia Pacific and Latin America) accounting for 15
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 IPG and iAS
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 Risk Factors Future Operating Results We are subject to
risks arising from our international operations, Part I, Item 1 (A).
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 February 1, 2009, we had 184
issued patents (148 U.S. and 36 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. 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
Risk Factors Future Operating Results Insufficient protection for our intellectual property
rights may have a material adverse affect on our results of operations or our ability to compete
and If third parties claim that we are in violation of their intellectual property rights, it
could have a negative impact on our results of operations or ability to compete, Part I, Item
1(A).
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RESEARCH AND DEVELOPMENT
Since inception, we have made substantial investments in software 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 2008, our investment in research
and product development generated expenses of $146.9 million, or 13 percent of our total revenue.
These amounts compared to $152.6 million and 15 percent in 2007 and $149.5 million and 17 percent
in 2006. In addition, our capitalized software costs were $50.7 million and $36.4 million in
2008 and 2007, respectively. 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 Risk Factors 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 and We may not receive significant revenues from our current research and
development efforts for several years, if at all, Part I, Item 1(A).
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 telecommunications and software industries.
Principal competitors to IPG vary by product type.
Information Management Products.
Principal competitors to our Information Management Products
include Oracle, IBM and Microsoft. We also compete with specialized vendors such as Teradata,
Netezza, and Vertica in data warehousing; Informatica, GoldenGate Software, and Composite Software
in data integration; and CA in modeling.
Financial Fusion Products:
Principal competitors for our banking solutions include Fiserv:
Checkfree, Metavante, Intuit: Digital Insight, S1, Fidelity Information Services, Online Resources,
and ACI.
Principal competitors to iAS vary by product type.
Mobile and Embedded Database Products
. Principal competitors to our mobile and embedded
database products include Pervasive Software, Progress Software, Intersystems, Sun, IBM and Oracle.
Mobile Middleware and Device Management Products.
Principal competitors to our mobile
middleware products include IBM, Research in Motion and Microsoft and a host of numerous small
vendors. For mobile device management and security products, we compete with Microsoft, Symantec,
Check Point, Credant, Mformation Technologies and Trust Digital.
Principal competitors to Sybase 365 vary by service.
Operator Services.
Principal competitors to our interoperability services include VeriSign,
Syniverse, Aicent, Iris and Belgacom. While the industry is highly competitive, we and others may
peer from time to time in order to provide more ubiquitous coverage to our customers.
Enterprise Services.
Principal regional competitors to our content aggregation and enterprise
messaging services include mBlox, NetSize, VeriSign via its mQube and 3United acquisitions and
Amdocs through its OpenMarket division.
mBanking
. Principal regional competitors to our mBanking products include Clairmail,
mFoundary, mShift, Firethorn, Monetize and Yodlee
- 9 -
AvantGo.
There are a number of competitors who provide alternatives for viewing content on
mobile devices, including extensions of existing Internet portal services such as Yahoo, AOL, and
MSN, media publishers own mobile offerings, as well as content provided by carriers.
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 Risk Factors 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 I, Item 1(A).
EMPLOYEES
As of February 1, 2009, Sybase and its subsidiaries had approximately 3,995 regular employees. For
information regarding our executive officers, see Directors, Executive Officers of Registrant and
Corporate Governance, Part III, Item 10.
ITEM 1 (A): RISK FACTORS
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 3.
Significant variation in the timing and amount of our revenues may cause fluctuations in our
quarterly operating results and an 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.
Our revenues, and particularly our new software license revenues, are difficult to forecast, and as
a result our quarterly operating results can fluctuate substantially. 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 software license backlog, and quarterly license
revenues for our IPG and iAS businesses depend largely on orders booked and shipped in a 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 the past we have experienced fluctuations
in the purchasing patterns of our customers. Although many of our customers are larger enterprises,
a trend toward more conservative IT spending and continued weakness in the economic and capital
markets 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 second quarter of 2007 when we refused to accept certain terms in a large
transaction, which delayed the closing of this transaction from the second quarter of 2007 to the
third quarter of 2007, but resulted in better terms for us.
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.
- 10 -
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. Or financial forecasts are based on aggregated internal sales forecasts which may
incorrectly assess our ability to complete sales within the forecast period, due to competitive
pressures, economic conditions or reduced information technology spending. In our past experience
IPG and iAS revenues in the fourth quarter benefit from the annual renewal of contracts by large
enterprise customers or such customers placing orders before the expiration of budgets tied to the
calendar year. This typically results in revenues from license fees declining from the fourth
quarter of one year to the first quarter of the 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. In the fourth quarter of 2008 we experienced a minimal amount of transactions attributable
to large enterprise customers placing orders before budgets expired. 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 and credit market 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. Our
revenues for the quarter ending December 31, 2008 exceeded revenues for the quarter ending December
31, 2007 by 3 percent. If the U.S. and worldwide economies continue to weaken, either alone or in
tandem with other factors beyond our control (including war, political unrest, shifts in market
demand for our products, actions by competitors, etc.), we may not be able to maintain revenue
growth. The ongoing worldwide recession, weakness in the credit markets and significant liquidity
problems for the financial services industry may also impact our revenues. While we have not noted
significant change in buying patterns by financial services customers, the financial services
industry is one of the largest markets for our products and services and decreased demand from this
industry, including from consolidation in the financial services industry, would adversely affect
our revenues and operating results. In light of the difficult economic and business environment, we
are acting to conservatively manage our expenses in an effort to maintain or expand our financial
performance. If the worldwide recession continues or worsens, these efforts many not be successful
and our financial results could be materially weaker than forecast.
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 IPG and iAS
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 software 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 unwilling or 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.
System failures, delays, insufficient capacity and other problems could harm our reputation and
business, cause us to lose customers and expose us to customer liability.
- 11 -
The success of Sybase 365 is highly dependent on its ability to provide reliable services to
customers. These operations could be interrupted by any damage to or failure of, or insufficient
capacity of, computer hardware, software or networks utilized or maintained by us, our customers,
or suppliers. Additionally, the failure of, or insufficient capacity of our connections and
outsourced service arrangements with third parties could interrupt our services and materially
adversely impact our financial performance and relations with customers, including causing
liability to our customers.
Sybase 365s systems and operations may also be vulnerable to damage or interruption from power
loss, transmission cable cuts and other telecommunications failures, natural disasters,
interruption of service due to potential facility migrations, computer viruses or software defects,
physical or electronic break-ins, sabotage, intentional acts of vandalism and similar events and
errors by our employees or third-party service providers. As use of Sybase 365s services
increases, we must continue to expand and upgrade our systems and operations. If we do not
accurately project the need for expansions and upgrades to our operations and perform such
expansions and upgrades in a timely manner, our services could fail or be interrupted.
Because many of our services play a mission-critical role for our customers, any damage to or
failure of the infrastructure we rely on, including that of our customers and vendors, could
disrupt the operation of our network and the provision of our services, result in the loss of
current and potential customers and expose us to potential contractual performance and other
liabilities.
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 and changes in customer IT spending habits. There is also a growing
trend toward consolidation in the software industry. Continued consolidation within the software
industry could create opportunities for larger technology 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. 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 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.
We may encounter difficulties in completing acquisitions or strategic relationships and we 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. We have recently acquired a number of companies.
For example, in December 2008 we acquired paybox Solutions AG, a mobile payments solutions
provider. In July 2008 we acquired Cable & Wireless international inter-operator MMS hubbing
service (MMX) and obtained the exclusive rights to market and sell mobile data roaming services.
In November 2006 we acquired Mobile 365, Inc. In addition, in October 2005 we acquired Extended
Systems Incorporated, a NASDAQ listed company. We expect to continue to pursue acquisitions of
complimentary or strategic business product lines, assets and technologies.
- 12 -
We may not achieve the desired benefits of our acquisitions and investments. Acquisitions may not
further our business strategy or we may pay more for acquired companies or assets than they may
prove to be worth. Further, such companies may have limited infrastructure and systems of internal
controls. In addition, for portions of the first year after acquisition, acquired companies may
not be subject to our established system of internal control or subject to internal control testing
by internal and external auditors.
We may be unable to successfully assimilate an acquired companys management team, employees,
business infrastructure or data centers and related systems, capacity requirements, customer
mandated requirements, and third party communication provider relationships or implement and
maintain effective internal controls. Our acquisition due diligence may not identify technical,
legal, financial, internal control or other problems associated with an acquired entity and our
ability to seek indemnification may be limited by the acquisition structure or agreement. Also,
dedication of resources to execute acquisitions and handle integration tasks and management changes
accompanying acquisitions could divert attention from other important business. Acquisitions may
also result in costs, liabilities, additional expenses or internal control weaknesses that could
harm our results of operations, financial condition or internal control assessment. In addition, we
may not be able to maintain customer, supplier, employee or other favorable business relationships
of ours, or of our acquired operations, or be able to terminate or restructure unfavorable
relationships, any of which might reduce our revenue or limit the benefits of an acquisition.
Under Statement of Financial Accounting Standard No. 142 we do not amortize goodwill but evaluate
goodwill recorded in connection with acquisitions at least annually for impairment. As of December
31, 2008, we had approximately $527.2 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 are prone to
additional impairment charges if future revenue and expense forecasts or market conditions worsen
after an impairment is recognized. We test the impairment of goodwill annually in our fourth fiscal
quarter or more frequently if indicators of impairment arise. The timing of the formal annual test
may result in charges to our statement of operations in our fourth fiscal quarter that could not
have been reasonably foreseen in prior periods. New acquisitions, and any impairment of the value
of purchased assets, could have a significant negative impact on our future operating results.
Acquisitions may also result in other charges, including stock-based compensation charges for
assumed stock awards and restructuring charges. The timing and amount of such charges will be
dependent on future acquisition and integration activities.
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.
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 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. 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, either internally developed or resulting from acquisitions, are not
widely adopted and successful, our competitive position and our operating results could be
adversely affected.
- 13 -
If our existing customers cancel or fail to renew their technical support agreements, 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 experienced increasing pricing
pressure from customers when purchasing or renewing technical support agreements and the current
economic and credit environment may cause further increased pricing pressure from customers. 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.
Pricing pressure in the mobile messaging market could adversely affect our operating results.
Competition and industry consolidation in the mobile messaging market have resulted in pricing
pressure, which we expect to continue in the future. This pricing pressure could cause large
reductions in the selling price of our services. For example, consolidation in the wireless
services industry could give our customers increased transaction volume leverage in pricing
negotiations. Our competitors or our customers in-house solutions may also provide services at a
lower cost, significantly increasing pricing pressures on us. Pricing pressure may also arise from
wireless carriers increasing the cost of access to their services and networks, if we are unable to
pass these costs on to our customers. While historically pricing pressure has been largely offset
by volume increases and the introduction of new services, in the future we may not be able to
offset the effects of any price reductions.
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 IPG and iAS 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
2007 we refused to accept certain terms in a large transaction, which delayed the closing of this
transaction from the second quarter of 2007 to the third quarter of 2007, but resulted in better
terms for us. 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; our
customers financial condition, liquidity or ability to access credit markets; 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.
Our mobile messaging customer contracts may not continue to generate revenues and margins at or
near our historical levels of revenues and margins from these customers and we rely on a limited
number of customers for most of our messaging revenue.
If our customers decide for any reason not to continue to purchase services from us at current
levels or at current prices, to terminate their contracts with us or not to renew their contracts
with us, our
messaging revenues and margins would decline. Additionally, a limited number of customers provide
most of our messaging revenue and if they terminate their contracts with us, do no renew their
contracts or renegotiate their contracts in a way that is unfavorable to us, our messaging revenue
and/or margin could be adversely impacted.
- 14 -
If we do not adapt to rapid technological change in the telecommunications industry, we could lose
customers or market share.
The mobile market is characterized by rapid technological change, frequent new service
introductions and changing customer demands. Significant technological changes could make our
technology and services obsolete. Our success depends in part on our ability to adapt to our
rapidly changing market by continually improving the features, functionality, reliability and
responsiveness of our existing services and by successfully developing, introducing and marketing
new features, services and applications to meet changing customer needs. We cannot assure you that
we will be able to adapt to these challenges or respond successfully or in a cost-effective way to
adequately meet them. Our failure to do so would impair our ability to compete, retain customers or
maintain our financial performance. Our future revenues and profits will depend, in part, on our
ability to sell to new market participants.
Impairments in our investment portfolio may result in temporary and/or realized losses.
As of December 31, 2008 we had an aggregate par value of $28.9 million invested in six auction rate
securities (ARS). The underlying collateral of the ARS we hold consists primarily of corporate
bonds, commercial paper, debt instruments issued by the U.S. Treasury and governmental agencies,
money market funds, asset backed securities, collateralized debt obligations, similar assets, and
in one instance, preferred stock in a bond insurance company. Certain of the ARS may have direct or
indirect investments in mortgages, mortgage related securities, or credit default swaps. As of
December 31, 2008, the other-than-temporary impairment associated with these ARS totaled $13.4
million
The credit and capital markets have continued to deteriorate in 2008. If uncertainties in these
markets continue, these markets deteriorate further or we experience any additional ratings
downgrades on any investments in our portfolio (including on ARS), we may incur additional
impairments to our investment portfolio, which could negatively affect our financial condition,
cash flow and reported earnings.
Restructuring activities and reorganizations in our sales model or business units 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
gross restructuring charges totaling approximately $120 million through December 31, 2008. 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 the second quarter of 2005, our FFI business was integrated into IPG in an effort
to better support the FFI product line and promote synergies between FFI and IPG technical
resources. In the second quarter of 2006 IPGs International and North American sales
organizations were combined to form Worldwide Field Operations. In January 2009 we integrated the
product marketing groups for IPG, iAS and Sybase 365 into our Worldwide Marketing Operations under
the leadership of Raj Nathan. At that time we commenced the integration of certain back office
functions in order to reduce overlap between business operations. 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.
- 15 -
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 the fourth quarter of
2008, revenues outside North America represented 52 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, 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, continued unrest and war in the Middle East and other factors, which
could have a material impact on our international revenues and operations. Our international
operations also require that we comply with, and could have liabilities due to, US laws that may
not apply to companies that operate only in the United States, including the Foreign Corrupt
Practices Act and export control laws. Our revenues outside North America could also fluctuate due
to the relative immaturity of some markets, growth or contraction in other markets, the strength or
weakness of local economies, the general volatility of worldwide software markets and
organizational changes we have made to accommodate these conditions.
We may not receive significant revenues from our current research and development efforts for
several years, if at all.
Developing and localizing software is expensive and the investment in product development often
involves a long payback cycle. We have and expect to continue making significant investments in
software research and development and related product opportunities. Accelerated product
introductions and short product life cycles require high levels of expenditures for research and
development that could adversely affect our operating results if not offset by revenue increases.
We believe that we must continue to dedicate a significant amount of resources to our research and
development efforts to maintain our competitive position. Revenues may not be realized from
particular research and development expenditures and revenues which are generated may occur
significantly later than when the associated research and development costs were incurred.
We might experience significant errors or security flaws in our products and services.
Despite testing prior to their release, software products may contain errors or security flaws,
particularly when first introduced or when new versions are released. Errors in our software
products could affect the ability of our products to work with other hardware or software products,
could delay the development or release of new products or new versions of products and could
adversely affect market acceptance of our products. If we experience errors or delays in releasing
new products or new versions of products, we could lose revenues. Our customers rely on our
products and services for critical parts of their businesses and they may have a greater
sensitivity to product errors and security vulnerabilities than customers for software products
generally. Software product errors and security flaws in our products or
services could expose us to product liability, performance and/or warranty claims as well as harm
our reputation, which could impact our future sales of products and services. The detection and
correction of any security flaws can be time consuming and costly.
- 16 -
We are subject to risks related to the terms of our 1.75% Convertible Subordinated Notes.
In February 2005 we issued $460 million in convertible subordinated notes (notes) in a private
offering to qualified institutional buyers. The notes bear interest at 1.75% and are subordinated
to all of our future senior indebtedness. The notes mature in February 2025 unless earlier
redeemed by us at our option, or converted or put to us by the holders of the notes. We may redeem
all or a portion of the notes at par on and after March 1, 2010. The holders may require that we
repurchase notes at par on February 22, 2010, February 22, 2015 and February 22, 2020. Recent
changes in applicable accounting rules for convertible notes require interest expense to be imputed
at fair value as of the debt issuance date. This will result in increases in previously reported
and future interest expense and reductions in our net income in prior and future years. See
Future Operating Results Changes in accounting and legal standards could adversely affect our
future operating results for a discussion of the impact of changes in GAAP on our accounting for
the notes.
The holders may convert the notes into the right to receive the conversion value (described below)
(i) when our stock price exceeds 130% of the $24.99 per share adjusted conversion price (equal to
$32.49 per share) for at least 20 trading days in the period of the 30 consecutive trading days
ending on the last trading day of the previous fiscal quarter, (ii) in certain change in control
transactions, (iii) if the notes are redeemed by us, (iv) in certain specified corporate
transactions, and (v) when the trading price of the notes does not exceed a minimum price level.
During the three months ended December 31, 2008, our stock price did not exceed 130% of the $24.99
per share adjusted conversion price for the required specified time. As such, the notes did not
become convertible during this period. For each $1,000 principal amount of notes, the conversion
value represents the amount equal to 40.02 shares multiplied by the per share price of our common
stock at the time of conversion. If the conversion value exceeds $1,000 per $1,000 in principal of
notes, we will pay $1,000 in cash and may pay the amount exceeding $1,000 in cash, stock or a
combination of cash and stock, at our election.
If our stock price exceeds 130% of the $24.99 per share adjusted conversion price for the specified
period in any subsequent fiscal quarter or the notes are otherwise convertible under the notes
terms, and the holders of the notes elect to convert the notes, we will be required to repay up to
all of the notes $460 million in principal amount in cash and must pay cash, stock or a
combination of cash and stock, the amount by which the converted notes exceed the principal amount
of the notes. At the time of such conversion we may have insufficient financial resources or may
be unable to arrange financing to pay for the conversion value of all notes tendered for
conversion. Additionally, if the holders of the notes exercise their right to have us repurchase
the notes at par on February 22, 2010, at that time we may have insufficient financial resources or
may be unable to arrange financing to pay for par value of all notes tendered for repurchase.
The conversion feature of the notes also serves to reduce our diluted net income per share. In
periods when our stock price exceeds the notes $24.99 per share adjusted conversion price, we must
include the shares that may be issued to the holders of the notes in the shares included in our
diluted net income per share. The reduction in our diluted earnings per share attributable to
shares associated with the conversion of the notes may adversely impact the market price of our
common stock
Unanticipated changes in our tax rates could affect our future financial results.
Our future effective tax rates could be favorably or unfavorably affected by unanticipated changes
in the valuation of our deferred tax assets and liabilities, the geographic mix of our revenue, or
by changes in tax laws or their interpretation. In addition, we are subject to the continuous
examination of our income tax returns by tax authorities. We regularly assess the likelihood of
adverse outcomes resulting from
these examinations to determine the adequacy of our provision for income taxes. There can be no
assurance that the outcomes from these continuous examinations will not have an adverse effect on
our operating results and financial condition.
- 17 -
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. 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.
Due to the significance of our business conducted in currencies other than the U.S. dollar, our
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. Recently, in connection with disruptions in the worldwide credit markets, the
U.S. dollar rapidly strengthened against certain currencies, including the Euro and British Pound.
Continued rapid fluctuations in foreign currency exchange rates may materially and adversely affect
our operating results.
As of December 31, 2008, we had identified net assets totaling $268.9 million associated with our
EMEA operations, and $51.6 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 without charge for the license itself (there may be a charge
for related services or rights). We have developed certain products to operate on the Linux
platform, which has created additional sources of revenues. 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.
Insufficient protection for our intellectual property rights may have a material adverse effect on
our results of operations or our ability to compete.
We attempt to protect our intellectual property rights in the United States and in selected foreign
countries through a combination of reliance on intellectual property laws (including copyright,
patent, trademark and trade secret laws) and registrations of selected patent, trademark and
copyright rights in
selected jurisdictions, as well as licensing and other agreements preventing the unauthorized
disclosure and use of our intellectual property. We cannot assure you that these protections will
be adequate to prevent third parties from copying or reverse engineering our products, from
engaging in other unauthorized use of our technology, or from independently developing and
marketing products or services that are substantially equivalent to or superior to our own.
Moreover, third parties may be able to successfully challenge,
- 18 -
oppose, invalidate or circumvent our
patents, trademarks, copyrights and trade secret rights. We may elect or be unable to obtain or
maintain certain protections for certain of our intellectual property in certain jurisdictions, and
our intellectual property rights may not receive the same degree of protection in foreign countries
as they would in the United States because of the differences in foreign laws concerning
intellectual property rights. Lack of protection of certain intellectual property rights for any
reason could have a material adverse effect on our business, results of operations and financial
condition. Moreover, monitoring and protecting our intellectual property rights is difficult and
costly. From time to time, we may be required to initiate litigation or other action to enforce our
intellectual property rights or to establish their validity. As an example, Sybase filed a
complaint against Vertica Systems, Inc., on January 30, 2008 in the Eastern District of Texas,
alleging infringement of Sybases patent #5,794,229 (Database System with Methodology for Storing
a Database Table by Vertically Partitioning All Columns of the Table). Such action could result in
substantial cost and diversion of resources and management attention and we cannot assure you that
any such action will be successful.
If third parties claim that we are in violation of their intellectual property rights, it could
have a negative impact on our results of operations or ability to compete.
Patent litigation involving software and telecom companies has increased significantly in recent
years as the number of software and telecom patents has increased and as the number of patent
holding companies has increased. We face the risk of claims that products or services that we
provide have infringed the intellectual property rights of third parties. We are currently
litigating with different parties regarding claims that our products or services violate their
patents, we have in the past received similar claims and it is likely that such claims will be
asserted in the future. See Note Twelve to Consolidated Financial Statements, Part II, Item 8, for
a discussion of our patent litigation with Telecommunications Systems, Inc. In May 2005, we
received a claim from TeliaSonera alleging that iAnywheres product now known as Answers Anywhere
Mobile Edition infringes a TeliaSonera patent issued in Finland. We are currently involved in
litigation in Finland regarding the ownership of the patent. No trial date has been set.
Additionally, in February 2006, two Financial Fusion product customers received claims from a
patent licensing company, Ablaise, Ltd., alleging that the customers websites are infringing
(although Ablaise later withdrew that charge as to one of the two). Financial Fusion filed a
declaratory judgment action against Ablaise in the Northern District of California which is
ongoing. The customers websites are or were based in part on our products and the customers
tendered defense of the claims to us under their contractual indemnification provisions. In August
2007 Sybase (along with 20 other defendants, including Microsoft and IBM) was sued by JuxtaComm
Technologies, a Canadian company, for infringement of its US patent 6,195,662 (System for
Transforming and Exchanging Data Between Distributed Heterogeneous Computer Systems) and the
matter is ongoing. In November 2008, we were sued by Data Retrieval LLC, along with co-defendant
Informatica Corporation, for alleged infringement of U.S. Patents number 6,026,392 and 6,631,382,
both entitled Data Retrieval Method and Apparatus with Multiple Source Capability. We are in the
process of assessing the claims and potential defenses for the matter raised by Data Retrieval. We
believe that our positions in each of the matters noted above are meritorious and we intend to
pursue our positions vigorously. In addition, Sybase from time to time receives indemnity demands
from customers involved in litigation.
Regardless of whether patent or other intellectual property claims have merit, they can be time
consuming and expensive to defend or settle, and can harm our business and reputation. In
particular, such claims may cause us to redesign our products or services, if feasible, or cause us
to enter into royalty or licensing agreements in order to obtain the right to use the necessary
intellectual property. Patent claimants may seek to obtain injunctions or other permanent or
temporary remedies that prevent
us from offering our products or services, and such injunctions could be granted by a court before
the final resolution of the merits of a claim. Our competitors in both the U.S. and foreign
countries, many of which have substantially greater resources than we have and have made
substantial investments in competing technologies, may have applied for or obtained, or may in the
future apply for and obtain, patents that will prevent, limit or otherwise interfere with our
ability to make and sell our products and services. We have not conducted an independent review of
patents issued to third parties. The large
- 19 -
number of patents, the rapid rate of new patent
issuances, the complexities of the technology involved and uncertainty of results and expense of
potential litigation increase the risk of business assets and managements attention being diverted
to patent issues.
Laws and regulations affecting our customers and us and future laws and regulations to which they
or we may become subject may harm our business.
When Sybase 365 delivers mobile messages on behalf of content owners into our network of wireless
carriers, we are subject to legal, regulatory and wireless carrier requirements governing, among
other things, the nature of content delivered, as well as necessary notice and disclosure to, and
consent from, consumers receiving mobile messages. Even though we dont create or control the
content delivered over our network, if we are unable to effectively prevent or detect violations of
legal, regulatory or wireless carrier requirements, or otherwise unable to mitigate the effect of
these violations, we may be subject to fines or the suspension or termination of some or all of our
wireless carrier connections or telecommunications licenses in one or more territories which could
materially and adversely affect our business and results of operation. Such suspension or
termination may also result in loss of current and potential customers and expose us to potential
customer liability. Also, we cannot predict when, or upon what terms and conditions, future
regulation might occur or the effect regulation may have on our business or our markets.
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
connection with our acquisition of Mobile 365, Marty Beard was appointed to be the President of
Sybase 365 in November 2006. In January 2007, Raj Nathan, formerly the head of IPG was named our
Chief Marketing Officer, Billy Ho was promoted to head IPGs technology operations and Mark
Westover was promoted to head Corporate Development. In November 2007, Pieter Van der Vorst,
formerly our Chief Financial Officer relocated to London to be our Senior Vice President and
General Manager for the EMEA region and Jeff Ross, formerly our Corporate Controller became our
Chief Financial Officer. Additionally, Keith Jensen, formerly our senior director became our
Corporate Controller at that time. 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, finance 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.
Our sales to government clients subject us to risks including early termination, audits,
investigations, sanctions and penalties.
We derive revenues from contracts with the United States government, state and local governments
and their respective agencies, which may terminate most of these contracts at any time, without
cause. Federal Government contracts may be affected by political pressure to reduce government
spending. Our federal government contracts are subject to the approval of appropriations being made
by the United
States Congress to fund the expenditures under these contracts. Similarly, our contracts at the
state and local levels are subject to government funding authorizations.
Additionally, government contracts are generally subject to audits and investigations which could
result in various civil and criminal penalties and administrative sanctions, including termination
of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments,
fines and suspensions or debarment from future government business.
- 20 -
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 May 2008, the Financial Accounting Standards Board (FASB) issued FSP No. APB 14-1, Accounting
for Convertible Debt Instruments that May be Settled in Cash upon Conversion (Including Partial
Cash Settlement) (FSP APB 14-1). FSP APB 14-1 requires issuers of convertible debt instruments
that may be settled in cash upon conversion (including partial cash settlement) to separately
account for the liability and equity (conversion feature) components of the instruments and became
effective January 1, 2009. Retrospective adoption is required. As a result, interest expense
should be retrospectively imputed and recognized based upon the issuers nonconvertible debt
borrowing rate, which retrospectively will result in lower net income. Our 1 3/4% convertible
subordinated notes (Notes) due 2025 issued in February 2005 are subject to FSP APB 14-1. Prior to
FSP APB 14-1, Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants (APB 14), provided that no portion of the proceeds from the
issuance of the instruments should be attributable to the conversion feature. Upon adoption of FSP
APB 14-1 in 2009, we will record a debt discount, which will be amortized to interest expense
through February 22, 2010, representing the first date on which holders of the Notes may require us
to repurchase all or a portion of their notes. In addition, we will retrospectively record a non
cash increase in interest expense for 2007 and 2008 of $16.8 million and $17.8 million,
respectively. This will result in a retrospective noncash after tax reduction in diluted earnings
per common share of approximately $0.10 and $0.12 in 2007 and 2008, respectively. In addition, the
carrying amount of the Notes will be retrospectively adjusted to reflect a discount of $85.0
million on the date of issuance, with an offsetting increase in additional paid-in capital of $51.0
million and deferred tax liability of $34.0 million.
The Notes are our only instrument which fall under FSP APB 14-1. FSP APB 14-1 will be applied to
our Notes from their issuance date, and the cumulative effect of such application will be captured
with an adjustment to our opening 2007 retained earnings balance. The cumulative effect of this
change will total approximately $16.5 million on periods prior to 2007. In 2009 interest expense
will increase approximately $18.9 million due to this change. In 2009 after tax diluted earnings
per common share will be reduced correspondingly by $0.13. If future interpretations of, or changes
to, the FSP APB 14-1 rules necessitate a further change in these reporting practices, our
previously reported and future results of operations could be adversely affected.
In December 2007, the FASB issued Statement of Financial Accounting Standards (FAS) No. 141
(Revised 2007), Business Combinations (FAS 141(R)). FAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and measures in its financial
statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interests
in the
acquiree, as well as the goodwill acquired. Significant changes from current practice resulting
from FAS 141(R) include the expansion of the definitions of a business and a business
combination. For all business combinations (whether partial, full or step acquisitions), the
acquirer will record 100% of all assets and liabilities of the acquired business, including
goodwill, generally at their fair values; contingent consideration will be recognized at its fair
value on the acquisition date and, for certain arrangements, changes in fair value will be
recognized in earnings until settlement; and acquisition-related transaction and restructuring
costs will be expensed rather than treated as part of the cost of the acquisition. FAS 141(R) also
establishes disclosure requirements to enable users to evaluate the nature and financial effects of
the business combination. FAS
- 21 -
141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. Earlier adoption is not permitted.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes: An Interpretation of FASB Statement No. 109, or FIN No. 48. FIN 48 prescribes a recognition
and measurement threshold for a tax position taken or expected to be taken in a tax return. We
adopted FIN No. 48 on January 1, 2007.
In addition to the changes discussed above, the U.S. Congress enacted the Sarbanes-Oxley Act of
2002 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. 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 are subject to inherent uncertainties, and managements 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, some of our offices, 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 that are delivered in physical and not electronic form from our Dublin,
California 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.
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 1 (B): UNRESOLVED STAFF COMMENTS
None.
- 22 -
ITEM 2. PROPERTIES
As of December 31, 2008, our field operations, professional service organizations and subsidiaries
occupied leased facilities in approximately 93 separate locations throughout North America, Latin
America, Europe and the Asia Pacific region, aggregating approximately 1.5 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 lease commenced with occupancy of the building in January 2002
with a lease expiration date of January 31, 2017. The property consists of approximately 406,000
square feet of administrative and product development facilities. 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.
For a further discussion of our leases, 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 the United States, including New York City, New York;
Boulder, Colorado; Alpharetta, Georgia, Concord, Massachusetts, Reston, Virginia and Boise, Idaho;
Waterloo, Canada; Maidenhead, England; Düsseldorf, Germany, Paris, France, Singapore, Hong Kong,
Beijing China and Utrecht, Netherlands. In addition to the facilities noted above, we maintain
engineering centers in Englewood, Colorado; Pune, India, and Shanghai and Xian, China.
ITEM 3. LEGAL PROCEEDINGS
We are involved from time to time in various proceedings, lawsuits and claims involving our
customers, products, intellectual property, stockholders and employees, among other parties. 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, results of operations or cash flows could be
materially and adversely affected by such revisions in our estimates. For further discussion of
contingencies and liabilities, see Future Operating Results, above.
On July 13, 2006, Telecommunications Systems, Inc. (TCS), a wireless services provider, filed a
complaint for patent infringement in the U.S. District Court for the Eastern District of Virginia,
alleging that Mobile 365 infringes U.S. Patent 6,985,748 (the 748 patent). The matter was tried
before a jury beginning on May 14, 2007. On May 25, 2007, the jury rendered its verdict, finding
that Mobile 365 willfully infringed the 748 patent, and awarded TCS a total amount of $12.1
million. TCS filed post-trial motions for enhanced damages and attorneys fees, for an award of
prejudgment interest, and for entry of a permanent injunction (although it requested that any
injunction be stayed pending the outcome on appeal), but subsequently withdrew its request for
enhanced damages for the time period prior to the verdict. Sybase 365 filed post-trial motions for
a judgment in its favor as a matter of law, for reduction of the jury award, and for entry of
judgment in its favor based on TCSs inequitable conduct before the Patent and Trademark Office in
obtaining the patent. The court has made the following rulings: i)
granted TCSs motion for an injunction but stayed it pending the outcome on appeal, ii) granted
TCSs motion for pre-judgment interest, at the rate of prime plus 1%, compounded quarterly, iii)
granted Sybase 365s motion for remittitur, reducing the pre-issuance damages portion of the jury
award by $2.2 million, iv) denied Sybase 365s motions for judgment as a matter of law, for
reduction of the jury award, and for entry of judgment based on inequitable conduct, and v) denied
TCSs motion for attorneys fees. Sybase 365 intends to appeal once the court enters judgment in
the matter.
- 23 -
The November 2006 merger agreement between Sybase and Mobile 365 established an escrow which
provides for indemnification of Sybase by Mobile 365s former stockholders for certain losses
related to the TCS litigation. Sybase believes that the escrow established by the merger agreement
will be adequate to address the substantial majority of losses, if any, related to this litigation.
Since the jurys verdict, Sybase 365 has developed a design-around so that its service for
intercarrier wireless text messaging can operate in a way that avoids the infringement as found by
the jury. Sybase 365 is in the process of implementing the design-around across its customer base.
For a discussion of risks related to intellectual property rights and certain pending intellectual
property litigation, see Future Operating Results If third parties claim that we are in
violation of their intellectual property rights, it could have a negative impact on our results of
operations or ability to compete, Part I, Item 1(A).
We currently believe that the ultimate liability, if any, for any pending claims of any type
(either alone or combined) will not materially affect our financial position, results of operations
or cash flows. However, the ultimate outcome of any litigation is uncertain and, regardless of
outcome, litigation can have an adverse impact on Sybase because of defense costs, negative
publicity, diversion of management resources and other factors. Our inability to obtain necessary
license or other legal rights, or litigation arising out of intellectual property claims could
adversely affect our business.
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, 2008.
PART II
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ITEM 5.
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MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Sybase, Inc. Common Stock, par value $.001, began trading on the New York Stock Exchange (NYSE) on
May 22, 2001, under the symbol SY. Prior to that, our stock traded on the NASDAQ National Market
System under the symbol SYBS. Following is the range of low and high closing prices for our
stock as reported on the NYSE for the quarters indicated.
|
|
|
|
|
|
|
|
|
|
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High
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Low
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2007
|
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$
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26.28
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|
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$
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24.01
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Quarter ended June 30, 2007
|
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$
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26.19
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$
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22.64
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Quarter ended September 30, 2007
|
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$
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25.08
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$
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22.07
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Quarter ended December 31, 2007
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$
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28.60
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$
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23.50
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Fiscal 2008
|
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|
|
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|
|
|
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|
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|
|
|
|
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Quarter ended March 31, 2008
|
|
$
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28.59
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|
|
$
|
24.95
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Quarter ended June 30, 2008
|
|
$
|
33.09
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|
|
$
|
25.74
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Quarter ended September 30, 2008
|
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$
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36.53
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|
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$
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28.50
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Quarter ended December 31, 2008
|
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$
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30.60
|
|
|
$
|
22.44
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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 February 13, 2009
was $28.64. The number of stockholders of record on that date was 1,104, according to American
Stock Transfer and Trust, our transfer agent.
- 24 -
The information required by this item regarding our securities authorized for issuance under equity
compensation plans is provided in Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters, Part III, Item 12, which incorporates information to be disclosed
in our 2009 Proxy Statement.
Issuer Purchases of Equity Securities
During the fourth quarter of 2008 we conducted the following repurchases of our common stock
pursuant to our publicly announced repurchase program:
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Number of Shares
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Avg. Price Paid Per
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Period
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Purchased
|
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Share
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October 2008
|
|
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47,000
|
|
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$
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23.73
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November 2008
|
|
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184,080
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|
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$
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23.13
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December 2008
|
|
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0
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0
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|
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|
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Total for Fourth Quarter 2008
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|
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231,080
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$
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23.26
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Beginning in 1998 our Board of Directors implemented our stock repurchase program and has
authorized an aggregate of $850 million for stock repurchases. After completing the repurchases
noted above, $77.5 million remained authorized for repurchase pursuant to our publicly announced
repurchase program. For additional information about our historical stock repurchase activities see
Note Seven to the Consolidated Financial Statements Stockholders Equity, Part II, Item 8.
On February 25, 2008 the Company agreed with one of its stockholders, Sandell Asset Management
Corp. (Sandell) to undertake a self-tender offer to purchase $300 million worth of its common stock
at a price between $28.00 and $30.00 per share in a modified Dutch auction. On April 15, 2008, the
Company completed the self-tender offer and purchased 10.7 million shares of its common stock for a
purchase price of $28.00 per share or a total cost of $300 million. The Company also incurred costs
of approximately $0.6 million to undertake the self-tender offer. These costs are included in Cost
of treasury stock in the Companys consolidated balance sheets at December 31, 2008. See Note
Seven to the Consolidated Financial Statements Stockholders Equity, Part II, Item 8.
PERFORMANCE GRAPHS
The graphs and tables below compare the cumulative total return on a $100 investment in our Common
Stock on December 31, 2003 and December 31, 1998, respectively, with the cumulative total returns
on $100 investments (assuming reinvestment of all dividends) in the indices noted. The seven
companies comprising the S&P Systems Software index are BMC Software Inc., CA Inc., Microsoft
Corporation, McAfee, Inc, Novell, Inc., Oracle Corporation and Symantec Corporation. McAfee was
added to the S&P Systems Software index in 2008.
- 25 -
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*
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$100 invested on 12/31/03 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
|
Copyright
©
2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
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December, 31
|
|
|
|
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2003
|
|
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2004
|
|
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2005
|
|
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2006
|
|
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2007
|
|
|
2008
|
|
|
Sybase, Inc.
|
|
|
|
100
|
|
|
|
|
96.94
|
|
|
|
|
106.22
|
|
|
|
|
120.02
|
|
|
|
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126.77
|
|
|
|
|
120.36
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S&P 500
|
|
|
|
100
|
|
|
|
|
110.88
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|
|
|
|
116.33
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|
|
|
|
134.7
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|
|
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142.1
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|
|
|
|
89.53
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S&P Systems Software
|
|
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100
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|
|
|
|
108.39
|
|
|
|
|
103.52
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|
|
|
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122.27
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|
|
|
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146.54
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|
|
|
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91.52
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- 26 -
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*
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$ 100 invested on 12/31/98 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
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Copyright
©
2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
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December, 31
|
|
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1998
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1999
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2000
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2001
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2002
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2003
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2004
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2005
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2006
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2007
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2008
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|
|
Sybase, Inc.
|
|
|
|
100.00
|
|
|
|
|
229.53
|
|
|
|
|
267.51
|
|
|
|
|
212.79
|
|
|
|
|
180.93
|
|
|
|
|
277.87
|
|
|
|
|
269.37
|
|
|
|
|
295.15
|
|
|
|
|
333.50
|
|
|
|
352.27
|
|
|
|
|
334.44
|
|
|
S&P 500
|
|
|
|
100.00
|
|
|
|
|
121.04
|
|
|
|
|
110.02
|
|
|
|
|
96.95
|
|
|
|
|
75.52
|
|
|
|
|
97.18
|
|
|
|
|
107.76
|
|
|
|
|
113.05
|
|
|
|
|
130.91
|
|
|
|
138.10
|
|
|
|
|
87.01
|
|
|
S&P Systems Software
|
|
|
|
100.00
|
|
|
|
|
187.59
|
|
|
|
|
94.45
|
|
|
|
|
99.32
|
|
|
|
|
74.55
|
|
|
|
|
86.99
|
|
|
|
|
94.29
|
|
|
|
|
90.05
|
|
|
|
|
106.36
|
|
|
|
127.47
|
|
|
|
|
79.62
|
|
|
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information is not necessarily indicative of the results of our
future operations. The comparability of the information is affected by a variety of factors,
including share-based compensation, impairment charges related to investments in auction rate
securities, amortization and impairment of intangible assets and goodwill, acquisitions and
restructurings, effective tax rates, accounting changes, and repurchases of common stock.
We adopted Statement of Financial Accounting (SFAS) 123(R), Share-Based Payment, on January 1, 2006
using the modified prospective transition method. Operating income from continuing operations
included an increase in pre-tax share-based compensation expense for stock options and stock
appreciation rights of $13.6 million in 2006 that we recorded as a result of adopting SFAS 123(R).
Operating income from continuing operations included pre-tax share-based compensation expense for
stock options and stock appreciation rights of $13.9 million and $12.3 million in 2007 and 2008,
- 27 -
respectively. Because we elected to use the modified prospective transition method, results for
prior periods have not been restated to include share-based compensation for options, and stock
appreciation rights. For a further discussion of SFAS 123 (R), see Note Seven to the Consolidated
Financial Statements Stockholders Equity, Part II, Item 8.
We hold six auction rate securities (ARS) with a combined par value of $28.9 million and fair value
of $15.5 million as of December 31, 2008. The difference between the par and fair values represents
a $13.4 million other than temporary impairment charge to earnings recognized on these securities
during 2008. The auctions for these securities discontinued in the second half of 2007. No
secondary market exists. As a result, the ARS are not liquid. Further, the fair values of the ARS
underlying collateral decreased substantially during 2008 and the ARS credit ratings have
correspondingly been downgraded. These factors led us to impair the securities.
On November 8, 2006 we acquired Mobile 365, Inc. (which we renamed Sybase 365), a privately held
mobile messaging and content delivery company for approximately $418.5 million. Sybase 365
delivers mobile data and messaging, premium content, and value-added services for leading mobile
operators, content providers, global brands, media companies, and financial institutions worldwide.
Total revenues and operating income of Sybase 365 were $178.1 million and $5.3 million,
respectively in 2008. Total revenues and operating loss of Sybase 365 were $140.7 million and $0.5
million, respectively in 2007. Total revenues and operating loss of Sybase 365 were $19.4 million
and $1.2 million, respectively for period from November 8, 2006 through December 31, 2006.
We undertook restructuring activities in 2004 and 2003 as a means of managing our operating
expenses and undertook restructuring activities as part of our acquisition of Mobile 365 in 2006.
For descriptions of each restructuring plan, see Note Thirteen to the Consolidated Financial
Statements Restructuring Costs, Part II Item 8.
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.
- 28 -
Consolidated Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
383,661
|
|
|
$
|
344,807
|
|
|
$
|
326,751
|
|
|
$
|
291,695
|
|
|
$
|
275,872
|
|
Services
|
|
|
572,090
|
|
|
|
544,209
|
|
|
|
531,172
|
|
|
|
527,000
|
|
|
|
512,664
|
|
Messaging
|
|
|
176,179
|
|
|
|
136,514
|
|
|
|
18,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,131,930
|
|
|
|
1,025,530
|
|
|
|
876,163
|
|
|
|
818,695
|
|
|
|
788,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees
|
|
|
67,342
|
|
|
|
53,114
|
|
|
|
50,540
|
|
|
|
51,556
|
|
|
|
60,795
|
|
Cost of services
|
|
|
160,604
|
|
|
|
157,790
|
|
|
|
152,962
|
|
|
|
156,325
|
|
|
|
162,016
|
|
Cost of messaging
|
|
|
107,757
|
|
|
|
82,598
|
|
|
|
11,097
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
285,376
|
|
|
|
266,995
|
|
|
|
263,281
|
|
|
|
250,003
|
|
|
|
242,778
|
|
Product development and engineering
|
|
|
146,932
|
|
|
|
152,571
|
|
|
|
149,510
|
|
|
|
139,011
|
|
|
|
119,959
|
|
General and administrative
|
|
|
138,980
|
|
|
|
129,319
|
|
|
|
106,025
|
|
|
|
92,106
|
|
|
|
91,117
|
|
Amortization of other purchased
intangibles
|
|
|
14,716
|
|
|
|
13,783
|
|
|
|
7,331
|
|
|
|
6,639
|
|
|
|
5,139
|
|
Reversal of AvantGo restructuring
accrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,677
|
)
|
Cost of restructuring
|
|
|
167
|
|
|
|
797
|
|
|
|
1,653
|
|
|
|
1,115
|
|
|
|
20,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
921,874
|
|
|
|
856,967
|
|
|
|
742,399
|
|
|
|
696,755
|
|
|
|
699,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
210,056
|
|
|
|
168,563
|
|
|
|
133,764
|
|
|
|
121,940
|
|
|
|
89,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and expense, net
|
|
|
(2,955
|
)
|
|
|
21,377
|
|
|
|
27,634
|
|
|
|
14,824
|
|
|
|
11,574
|
|
Minority interest
|
|
|
51
|
|
|
|
12
|
|
|
|
(81
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
207,152
|
|
|
|
189,952
|
|
|
|
161,317
|
|
|
|
136,715
|
|
|
|
100,966
|
|
Provision for income taxes
|
|
|
68,581
|
|
|
|
41,102
|
|
|
|
66,253
|
|
|
|
51,132
|
|
|
|
33,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
138,571
|
|
|
$
|
148,850
|
|
|
$
|
95,064
|
|
|
$
|
85,583
|
|
|
$
|
67,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
1.69
|
|
|
$
|
1.65
|
|
|
$
|
1.06
|
|
|
$
|
0.95
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net
income per share
|
|
|
82,060
|
|
|
|
90,019
|
|
|
|
89,557
|
|
|
|
90,307
|
|
|
|
95,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
1.64
|
|
|
$
|
1.61
|
|
|
$
|
1.03
|
|
|
$
|
0.92
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net
income per share
|
|
|
84,455
|
|
|
|
92,598
|
|
|
|
92,251
|
|
|
|
93,257
|
|
|
|
98,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 29 -
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
Cash, cash equivalents and
cash investments
|
|
$
|
635,566
|
|
|
$
|
734,907
|
|
|
$
|
637,696
|
|
|
$
|
859,936
|
|
|
$
|
513,632
|
|
Working capital
|
|
|
518,044
|
|
|
|
604,728
|
|
|
|
455,143
|
|
|
|
573,247
|
|
|
|
290,237
|
|
Total assets
|
|
|
1,835,417
|
|
|
|
1,913,483
|
|
|
|
1,787,550
|
|
|
|
1,570,614
|
|
|
|
1,183,522
|
|
Long-term obligations
|
|
|
548,768
|
|
|
|
549,591
|
|
|
|
518,876
|
|
|
|
500,339
|
|
|
|
33,121
|
|
Stockholders equity
|
|
|
817,173
|
|
|
|
930,810
|
|
|
|
843,131
|
|
|
|
698,830
|
|
|
|
756,556
|
|
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Our Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
includes the following sections:
|
|
|
Executive Overview that discusses at a high level our operating
results and some of the trends that affect our business.
|
|
|
|
|
Critical Accounting Policies that we believe are important to
understanding the assumptions and judgments underlying our financial
statements.
|
|
|
|
|
Results of Operations that begins with an overview followed by a more
detailed discussion of our revenue and expenses.
|
|
|
|
|
Liquidity and Capital Resources which discusses key aspects of our
statements of cash flows, changes in our balance sheets and our
financial commitments.
|
You should note that this MD&A discussion contains forward-looking statements that involve risks
and uncertainties. Please see the section entitled
Risk Factors, Future Operating Results
at the
beginning of Item 1(A) for important information to consider when evaluating such statements.
You should read this MD&A in conjunction with the Consolidated Financial Statements and related
Notes in Part II, Item 8.
On November 8, 2006 we acquired Mobile 365, Inc. (which we renamed Sybase 365) for approximately
$418.5 million. Sybase 365 delivers mobile data and messaging, premium content, and value-added
services for leading mobile operators, content providers, global brands, media companies, and
financial institutions worldwide. Total revenues and operating income of Sybase 365 were $178.1
million and $5.3 million, respectively in 2008. Total revenues and operating loss of Sybase 365
were $140.7 million and $0.5 million, respectively in December 31, 2007. Total revenues and
operating loss of Mobile 365, were $19.4 million and $ 1.2 million, respectively for period from
November 8, 2006 through December 31, 2006.
- 30 -
Executive Overview
Our Business
Sybase is a global enterprise software and services company exclusively focused on managing and
mobilizing information from the data-center to the point of action. We provide open, cross-platform
solutions that securely deliver information anytime, anywhere, providing decision-ready information
to the right people at the right time.
Our value proposition involves enabling the Unwired Enterprise by allowing enterprises to extend
their information securely and make it useful for people anywhere using any device. We deliver a
full range of solutions to ensure that customer information is securely managed and mobilized to
the point of action, including enterprise and mobile databases, middleware, synchronization,
encryption and device management software, and mobile messaging services.
During 2008 our business was 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 Sybase 365, which provides global services for
mobile messaging interoperability and the management and distribution of mobile content. For
further discussion of our business segments, see Note Ten to Consolidated Financial Statements,
Part II, Item 8, incorporated here by reference.
Our Results
We reported total revenues of $1,132 million for 2008 compared to $1,026 million for 2007. The
increase in total revenues from 2007 to 2008 was attributable to increases in each of our revenue
streams, with license revenues increasing 11 percent, service revenue increasing 5 percent and
messaging revenues increasing 29 percent. Our IPG segment saw a $64.5 million (8 percent) increase
in revenues, Sybase 365 grew revenues $37.3 million (27 percent) and iAS experienced a $5.6 million
(3 percent) increase in revenues.
The increase in IPG revenues was driven by a 12 percent increase in license revenue and a 6 percent
increase in services revenues. The growth in IPG license revenues was primarily attributed to a 28
percent increase in database revenues, namely our IQ and Adaptive Server Enterprise Products
Adaptive Server
®
Enterprise (ASE) 15.0 and Sybase IQ products, while the increase in services
revenues was primarily attributable to an 8 percent increase in technical support services revenue.
The increase in iAS revenues from 2007 to 2008 was driven by a 3 percent increase in license
revenue
and a 4 percent increase in services revenues. The increase in license revenues was primarily
attributed to a 23 percent increase in revenues from our Afaria device management product, while
the increase in service revenue came from an increase in technical support services. Our iAnywhere
product platform continues to garner accolades for its market leadership from the likes of Gartner
and IDC. Currently, Sybase is the only vendor to be rated as a leader in three enterprise mobility
categories: multi-access gateways, enterprise mobile email, and mobile device management &
security. We have also been a long-time leader in the mobile and embedded database market. We
believe that as a market leader, we are positioned to benefit from growth in the enterprise
mobility market.
Sybase 365 revenues were driven by a 29 percent increase in messaging revenue spurred by strong
growth in both Europe and the United States. Our Sybase 365 segment continued to see strong growth
in messaging volume and greater adoption of messaging as an effective means for enterprises to
reach their customers. We believe continued growth in messaging traffic and the adoption of
messaging by the enterprise will offset continued pricing compression and lead to growth in our
messaging revenues.
- 31 -
We reported net income of $138.6 million for 2008, compared to 148.9 million 2007. Our 2008
operating income was $210.1 million (19 percent operating margin) compared to $168.6 million (16
percent operating margin) in 2007. The increase in operating income was primarily attributable to
the IPG segments $35.4 million increase in operating income representing both their revenue growth
and operating margin expansion.
Net income decreased year over year due to a charge of $13.0 million in 2008 to write down the
value of certain auction rate securities, and the absence of a $27.6 million 2007 tax credit
relating to the release of certain valuation allowances.
During 2008, we generated a record amount of net cash from operating activities at $295.5 million,
a 16
percent increase over the prior year. Our days sales outstanding in accounts receivable was 80
days for the quarter ended December 31, 2008 compared to 75 days for the quarter ended December 31,
2007.
For a discussion of certain factors that may impact our business and financial results, see Risk
Factors Future Operating Results, above.
Business Trends
Our business activity and pipeline was strong throughout 2008 despite a deterioration in the macro
economic environment. Entering 2009, we are encouraged by the strength of our pipeline and the
general condition of our business. We believe, however, that the overall spending environment will
be very challenging in 2009, with the world economy mired in a recession and most analysts
predicting a decline in overall IT spending. While our short-term pipeline is strong, it is more
difficult than in the past to predict the overall buying environment in the second half of the
year. Additionally, in 2009 we expect that our year over year revenue and net margin comparisons
will be adversely impacted by a significant strengthening of the U.S. dollar against various
foreign currencies, most specifically the Euro and other European currencies.
We continue to see spending strength on mission critical applications and new capabilities like
business analytics and risk management areas where our key products have been doing very well.
In contrast, we believe the spending environment for discretionary projects and solutions requiring
long professional services engagements will continue to be poor during 2009. We have maintained a
strong short-term pipeline for enterprise infrastructure products used in mission critical
applications, especially our Adaptive Server Enterprise (ASE) 15.0 product, for which we added 954
new customers during 2008.
We also benefit from the continued proliferation of enterprise data with our customers showing
willingness to invest resources on new analytic solutions. We saw strong demand for our analytic
solutions during 2008 with 200 new customers for our IQ Analytic Server (IQ) product and 14 new
customers for our Risk Analytics Platform (RAP) product. IQ offers a highly optimized analytic
engine specifically designed to deliver dramatically faster results for business intelligence,
analytic and reporting solutions. Our RAP product , which is built on IQ, is targeted to the
financial service industry for risk, trading and compliance analytics. The pipeline for RAP,
which was launched in the first half of 2008, continues to build and provides what we believe, will
be a future growth engine for our IQ product.
With respect to the market for mobility and integration products we believe these products continue
to gain market acceptance and will provide us with growth opportunities in the future. For 2009 we
are supported by a strong product cycle with our refreshed iAnywhere product platform and will be
focused on expanding our relationships with system integrators and other partners.
With respect to the market for messaging services, we believe that our messaging business will see
revenue driven by continuing growth in worldwide Short Messaging Services (SMS) and Multimedia
Messaging Services (MMS) traffic levels and an expanding demand for mobile data roaming (GRX)
services. Additionally, we continue to see growth as enterprises, focus more of their business
towards mobile messaging as an inexpensive means of interacting with their customers on a real time
basis. Offsetting to some extent the growth in message volume has been continued price compression.
Our plans for the future are focused on providing additional value added services such as hosted
analytics
- 32 -
and mobile commerce solutions which we believe will allow us to demonstrate service
differentiation and provide us with the opportunity to expand financial performance for the
messaging business.
In 2009 we will be aggressively maintaining cost controls to improve financial performance. One
area of focus will be to drive cost and revenue synergies between our operating segments as we
eliminate research and development overlap, combine marketing efforts, integrate back office
functions and streamline business operations. With this focus we believe we can improve operating
results and maintain our strong cash flow in an uncertain environment.
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 software and mobile
messaging revenue recognition, impairment of goodwill and intangible assets, valuation of
investments without readily available markets and the classification of related impairments, the
allowance for doubtful accounts, capitalized software, income taxes, stock-based compensation,
purchase accounting, restructuring, and contingencies and liabilities. We base our estimates on
historical experience, observable and unobservable inputs under the 3-level SFAS 157 framework, 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 Risk
Factors Future Operating Results, above). Our critical accounting policies include: software
and mobile messaging revenue recognition, impairment of goodwill and other intangible assets,
valuation of investments without readily available markets and classification of related
impairments, allowance for doubtful accounts, capitalized software, income taxes, stock-based
compensation, purchase accounting, restructuring and contingencies and liabilities, each of which
are discussed below.
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Revenue Recognition
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Revenue recognition rules for software and message services 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 customers creditworthiness, whether two separate transactions with a
customer should be accounted for as a single transaction, reporting certain third party content
delivery revenues net as an agent versus gross as a principal, or whether included software
services are essential to the functionality of a product.
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License and Service Revenues
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We recognize software revenue in accordance with Statement of Position (SOP) 97-2, Software
Revenue Recognition, 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 or SEC
Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition. 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 and all other
revenue recognition criteria have been met.
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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 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 could result in changes to our vendor specific objective evidence
of fair value for such undelivered elements. As a result, the timing of revenue recognition
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 accounting. We use labor hours to estimate the progress to
completion. Under this method, we are required to estimate the number of total hours needed to
complete a project, and revenues are recognized based on the percentage of total contract hours
as they are completed while costs are recognized as incurred. 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 and all other revenue recognition criteria have been
met.
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 fixed price consulting agreements are generally recognized based on the
proportional performance of the project, with performance measured based on hours of work
performed.
Message Revenues
We recognize message revenue in accordance with SAB No. 104, Emerging Issues Task Force
No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21) and where applicable
in accordance with EITF, No. 99-19,
Reporting Revenue Gross as a Principal Versus Net as an
Agent
(EITF 99-19). We recognize revenue when (a) there is persuasive evidence of an
arrangement; (b) the service has been provided to the customer; (c) the amount of the fees to be
paid by the customer is fixed and determinable; and (d) the collection of the fees is reasonable
assured.
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We generate a significant portion of our message revenue from per message transaction fees and
to a lesser extent, from fixed price messaging arrangements providing for the delivery of an
unlimited number of messages for a specified period of time, and revenue share agreements
related to the delivery of third party content. We recognize revenue from transaction fees
based upon the number of messages successfully processed by our platforms and delivered in
accordance with the terms of our arrangements. We recognize revenue from the fixed price
messaging arrangements ratably over the period of time specified in the agreement.
In some instances third party content providers, and other enterprises enter into revenue
sharing arrangements with us. Under a standard revenue sharing transaction we deliver content
from a third party provider to the cell phone of a mobile operators subscriber. Third party
content includes, among others, ringtones, wallpapers, interactive games, competitions,
directory inquiry services, and information services. The subscriber is invoiced by their
mobile operator, who upon receipt of payment, remits a portion of the charge to us. Upon
payment from the mobile operator, we generally remit payment to the third party content
provider. In accordance with EITF 99-19, we have determined that we act as an agent under these
revenue sharing arrangements and accordingly, record as revenue the net amount retained by us.
The net amount retained by us reflects the gross amount billed to the operator less amounts due
to the content provider.
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Impairment of Goodwill, Non-amortizable Intangible Assets and Other Purchased Intangible Assets
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Goodwill and other non-amortizable intangible assets, such as tradenames, have generally
resulted from our business combinations accounted for as purchases. We are required to test
amounts recorded as goodwill or other non-amortizable 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, using a discounted cash flow model, to determine the fair 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,
incorporated here by reference. 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 purchased intangible
assets with determinate and indeterminate useful lives including in-process research and
development, and developed technology. We performed our annual impairment analysis for each of
our historical operating units (IPG, iAS, and SY365) and for each indeterminate lived intangible
asset as of December 31, 2008. 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 2008. As of December 31, 2008, our goodwill
balance totaled $527.2 million and our other non-amortizable purchased intangibles totaled $7.1
million. Changes in our internal business structure, increases in the applicable discount rate,
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.
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We also continue to separately review our other purchased intangible assets (e.g., purchased
technology, customer lists and covenants not to compete) 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, technology obsolescence, customer terminations and other
factors could result in impairment losses associated with other intangible assets. In 2008, we
wrote off $4.5 million of certain purchased technologies.
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Valuation, Classification and Impairments of Investments
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On January 1, 2006 we adopted the FASB Staff positions FAS Nos. 115-1 and FAS 124-1,
The Meaning
of Other-Than-Temporary Impairment and its Application to Certain Investments (the FSPs).
The
FSPs were issued on November 3, 2005 and nullified certain provisions of EITF No. 03-01 related
to evaluating an other-than temporary impairment and clarified the accounting policies set forth
in FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities
.
On October 10, 2008 we adopted FSP No. 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset is Not Active, (FSP 157-3). FSP 157-3 clarifies the application
of SFAS 157 in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the market for that
financial asset is not active. FSP 157-3 is applicable to the valuation of auction-rate
securities held by the Company for which there was no active market as of December 31, 2008.
In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, (SFAS 115) management determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designation as of each balance sheet
date. At December 31, 2008, we have classified short term bank deposits and long-term cash
investments as available-for-sale pursuant to SFAS 115. In addition, the Company has classified
$8.6 million invested in mutual funds as directed by participants of a Rabbi Trust related to a
deferred compensation plan as trading securities. Investments classified as available for sale
are recorded at fair value and unrealized holding gains and losses (excluding impairments that
are deemed other than temporary), net of the related tax effect, if any, are not reflected in
earnings but are reported as a separate component of other comprehensive income (loss) until
realized. Realized gains and losses and impairments that are deemed other than temporary are
determined on the specific identification method and are reflected in income. Investments
classified as trading securities are recorded at fair value and unrealized gains and losses and
realized gains and losses are included in the earnings of the Company.
As of December 31, 2008, long-term cash investments totaling $15.5 million consist of six
auction rate securities (ARS) with an aggregate par value of $28.9 million. Our ARS are
floating rate securities with longer-term maturities which were marketed by financial
institutions with auction reset dates at 28 day intervals to provide short term liquidity. The
underlying collateral of the ARS we hold consists primarily of corporate bonds, commercial
paper, debt instruments issued by the U.S. Treasury and governmental agencies, money market
funds, asset backed securities, collateralized debt obligations, similar assets, and in one
instance, preferred stock in a bond insurance company. Certain of the ARS may have direct or
indirect investments in mortgages, mortgage related securities, or credit default swaps. The
credit ratings for five of the ARS were AAA and for one of the ARS was AA at the time of
purchase. Beginning in August 2007 and into September 2007, each of the ARS auctions began to
fail due to a lack of market for these securities. As of the fourth quarter of 2008, the credit
ratings of four of the ARS were Baa1. The credit rating on a fifth ARS was Baa2. And the credit
rating on a sixth ARS was B3. In addition the investments currently lack short-term liquidity
and we will not be able to access these funds until a future auction for the ARS investments is
successful or until we sell the securities in a reasonable secondary market which currently does
not exist.
During 2008, we recorded impairment losses totaling $13.4 million for the six ARS. In
determining whether each ARS is other than temporarily impaired we considered the guidance
provided by FAS 115, Accounting for Certain Investments in Debt and Equity Securities and
related guidance. This guidance specified that we consider a variety of factors including
(i) the quality and estimated value of the investments held by the trust/issuer; (ii) the
financial condition and credit rating of the trust, issuer, sponsors, and insurers; and,
(iii) the frequency of the auction function failing. Future changes in these and other factors
could result in additional realized impairment losses. Based on our cash, cash equivalents and
cash investment balances of $635.6 million as of December 31, 2008 and expected operating cash
flows, we do not anticipate that the lack of liquidity for the ARS will adversely affect our
ability to conduct business.
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The fair values of the ARS as of December 31, 2008 are based on an estimation using a discounted
cash flow model for each of the six ARS using credit related discount rates and term to recovery
as key inputs. Changes in assumptions and other factors could result in additional realized
impairment losses. For example, if the assumed discount rate was increased by 100 basis points
for each ARS, then the total estimated fair value of the Companys ARS portfolio would decrease
$0.55 million and the impairment charge to earnings in the fourth quarter would have increased
by $0.55 million. Similarly, if the assumed term to recovery was increased by 1 year for each
ARS, then the total estimated fair value of the Companys ARS portfolio would decrease $1.2
million and the impairment charge to earnings in the fourth quarter would have increased by $1.2
million.
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Notwithstanding our valuation of the securities in accordance with FAS 157 and our determination
that these securities were other than temporarily impaired in accordance with FAS 115, we have
both the intent and ability to hold these securities until a reasonable market returns.
Accordingly, while the current valuation of these securities follows GAAP, management believes
that it is possible that the proceeds we receive on the ultimate liquidation of certain of these
securities may be higher than their current recorded value.
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Allowance for Doubtful Accounts
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We maintain an allowance for doubtful accounts to reflect the expected non-collection of
accounts receivable. In determining the amount of the allowance we consider our historical
level of credit losses; judgments about the creditworthiness of significant customers; an
assessment of current economic and industry trends that might impact the level of credit losses
in the future; and other factors. Our allowances have generally been adequate to cover our
actual credit losses. However, since we cannot reliably predict future changes in the financial
stability of our customers, we cannot guarantee that our allowance will continue to be adequate.
For example, our allowance for doubtful accounts totaled $3.9 million at December 31, 2008. If
our allowance for doubtful accounts, including identified specific customer matters, changed by
10% our allowance for doubtful accounts and operating results would change by $0.4 million.
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Capitalized Software
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We capitalize certain software development costs after a product becomes technologically
feasible and before its general release to customers. Our net capitalized software totaled $82.4
million at December 31, 2008. Significant judgment is required in determining when a product
becomes technologically feasible. Capitalized development costs are then amortized over the
products estimated life beginning upon general release of the product. Quarterly, we compare a
products unamortized capitalized cost to the products net realizable value. To the extent
unamortized capitalized cost exceeds net realizable value based on the products 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.
Capitalized software amortization and write-off charges totaled $42.9 million in 2008.
Amortization of capitalized software cost included write-offs of $4.1 million in 2008. See Note
One to Consolidated Financial Statements, Part II, Item 8, incorporated here by reference.
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Income Taxes Estimates of Effective Tax Rates, Deferred Taxes and Valuation Allowance
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Significant judgment is required in determining our worldwide income tax provision. In the
ordinary course of a global business, there are many transactions and calculations where the
ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of the
process of identifying items of revenues and expenses that qualify for preferential tax
treatment, and segregating foreign and domestic earnings and expenses to avoid double taxation,
and determining required intercompany revenue sharing, cost reimbursement and other transfer
pricing arrangements among related entities. Although we believe that our estimates are
reasonable, the final tax outcome of these matters could be different from that which is
reflected in our historical income tax provisions and accruals. Such differences could have a
material effect on our income tax provision and net income in the period in which such
determination is made.
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Our effective tax rate includes the impact of certain undistributed foreign earnings for which
no U.S. taxes have been provided because such earnings are planned to be indefinitely reinvested
outside the United States. Remittances of foreign earnings to the U.S. are planned based on
projected cash flow, working capital, stock buyback and investment needs of our foreign and
domestic operations. Based on these assumptions, we estimate the amount that will be distributed
to the U.S. and provide U.S. federal taxes on these amounts. Material changes in our estimates
could impact our effective tax rate.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more
likely than not (a likelihood of more than 50 percent) to be realized. In order for us to
realize our deferred tax assets, we must be able to generate sufficient taxable income in those
jurisdictions where the deferred tax assets are located. We evaluate our valuation allowance
each quarter based on factors such as the mix of earnings in the jurisdictions in which we
operate, prudent and feasible tax planning strategies, current taxable income and forecasted
future taxable income. Forecasts of future taxable income are further refined as a result of
each years budget and goal setting process generally occurring annually in the fourth quarter.
In the event we were to determine that we would not be able to realize all or part of our net
deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to
earnings in the period in which we make such a determination. Likewise, if we later determine
that it is more likely than not that the net deferred tax assets would be realized, we would
reverse the applicable portion of the previously provided valuation allowance. For example, as
a result of the Companys assessment of its valuation allowances for its deferred tax assets for
the three month period ending December 31, 2008, the Company concluded that it was more likely
than not that a portion of its deferred tax assets relating to federal tax loss carryforwards
and state tax loss and credit carryforwards will be realized based on a number of factors
including projections of future year federal taxable income and, in the case of state credits
and losses, projections of future year taxable income in the relevant states. As a result of
this re-evaluation, during the three month period ending December 31, 2008, the Company released
approximately $16.5 million of valuation allowances relating to federal tax loss carryforwards,
which reduced goodwill, and approximately $11.7 million of valuation allowances relating to
state tax credit and loss carryforwards, of which $6.7 million reduced tax expense,
approximately $1.7 million reduced goodwill, and approximately $3.3 million increased deferred
tax liability for the related federal tax effect.
As of December 31, 2008, our valuation allowance was approximately $60 million. The valuation
allowance includes approximately $14 million associated with stock option activity for which any
recognized tax benefits will be credited directly to shareholders equity if and when the
related deferred tax asset is used to reduce current tax payable. The remaining valuation
allowance relates primarily to federal net operating loss carrfyorwards and state net operating
loss and tax credit carryforwards, which, if realized, will be credited to tax benefit.
Realizing the benefit of these loss and credit carryforwards depends primarily on earning
sufficient future taxable income in the United States, and in the case of state losses and
credits, earning sufficient future taxable income in the relevant states.
We calculate our current and deferred tax provision based on estimates and assumptions that
could differ from the actual results reflected in income tax returns filed during the subsequent
year. Adjustments based on filed returns are generally recorded in the period when the tax
returns are filed and the global tax implications are known.
The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax
authorities, which often result in proposed assessments. Our estimate of the potential outcome
for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any
reasonably foreseeable outcome related to these matters. However, our future results may include
favorable or unfavorable adjustments to our estimated tax liabilities in the period the
assessments are made or resolved, audits are closed or when statutes of limitation on potential
assessments expire. Additionally, the jurisdictions in which our earnings or deductions are
realized may differ from our current estimates. As a result, our effective tax rate may
fluctuate significantly on a quarterly basis.
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As part of our accounting for business combinations, some of the purchase price is allocated to
goodwill and intangible assets. Impairment charges associated with goodwill are generally not
tax deductible and will result in an increased effective income tax rate in the quarter any
impairment is recorded. Amortization expenses associated with acquired intangible assets are
generally not tax deductible pursuant to our existing tax structure; however, deferred taxes
have been recorded for non-deductible amortization expenses as a part of the purchase price
allocation process. We have taken into account the allocation of these identified intangibles
among different taxing jurisdictions, including those with nominal or zero percent tax rates, in
establishing the related deferred tax liabilities. Income tax contingencies existing as of the
acquisition dates of the acquired companies are evaluated quarterly and any adjustments are
recorded as adjustments to goodwill. Under FASB Statement No. 141R, any future adjustments will
be recorded as tax expense or benefit beginning with our three month period ending March 31,
2009.
On January 1, 2007, we adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109
(FIN 48), which contains a two-step approach
to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax
return by determining if the weight of available evidence indicates that it is more likely than
not that the tax position will be sustained on audit assuming that all issues are audited and
resolution of any related appeals or litigation processes are considered. The second step is to
measure the tax benefit as the largest amount that is more than 50% likely to be realized upon
ultimate settlement. The adoption of FIN 48 did not have a material impact on the Companys
consolidated financial position. Although we believe we have adequately reserved for our
uncertain tax positions, no assurance can be given with respect to the final outcome of these
matters. We adjust reserves for our uncertain tax positions due to changing facts and
circumstances, such as the closing of a tax audit, expiration of statutes of limitation on
potential assessments or the refinement of an estimate. To the extent that the final outcome of
these matters is different than the amounts recorded, such differences will impact our provision
for income taxes in the period in which such a determination is made. Our provisions for income
taxes include the impact of reserve provisions and changes to reserves that are considered
appropriate and also include the related interest and penalties.
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Accounting for Stock-Based Compensation Plans
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Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123(R),
Share-Based Payment,
using the modified prospective transition method. Under that transition
method, compensation expense that we recognize beginning on that date includes: (a) period
compensation expense for all share-based payments granted prior to, but not yet vested as of,
January 1, 2006, based on the grant date fair value estimated in accordance with the original
provisions of SFAS 123, adjusted for estimated forfeitures, and (b) period compensation expense
for all stock-based payments granted on or after January 1, 2006, based on the grant date fair
value estimated in accordance with the provisions of SFAS 123(R). Because we elected to use the
modified prospective transition method, results for prior periods have not been restated.
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At December 31, 2008, there was $41.0 million of total unrecognized compensation cost before
income tax benefit related to non-vested stock-based compensation arrangements granted under all
equity compensation plans which we will amortize to expense in the future. Total unrecognized
compensation cost will be adjusted for future changes in estimated forfeitures. We expect to
recognize that cost over a weighted average period of 2.1 years.
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We estimate the fair value of options granted using the Black-Scholes option valuation model and
the assumptions shown in Note Seven to the Consolidated Financial Statements Stockholders
Equity , Part II, Item 8. We estimated the expected term of options granted based on historical
exercise patterns. We estimated the volatility of our options and stock appreciation rights
considering both the
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historical volatility of our stock over the average expected life of our
options and the prices of publicly traded options, consistent with SFAS 123(R) and Securities
and Exchange Commission Staff Accounting Bulletin No. 107. We base the risk-free interest rate
that we use in the Black-Scholes option valuation model on the average of the 5 year treasury
rates as published by the Federal Reserve. We have never paid any cash dividends on our common
stock and we do not anticipate paying any cash dividends in the foreseeable future.
Consequently, we use an expected dividend yield of zero in the Black-Scholes option valuation
model. SFAS 123(R) requires us to estimate forfeitures at the time of grant and revise those
estimates in subsequent periods if actual forfeitures differ from those estimates. We use
historical data to estimate pre-vesting option forfeitures and record share-based compensation
expense only for those awards that are expected to vest. We amortize the fair value on a
ratable basis over the requisite service periods of the awards, which are generally the vesting
periods.
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Changes in the subjective input assumptions can materially affect the fair value estimates
determined under the Black-Scholes option valuation model. In the future, changes in the
assumptions under the Black-Scholes valuation model, or our election to use a different
valuation model, could result in a significantly different impact on our net income or loss.
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Purchase Accounting
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We have made estimates of the fair values of purchased intangible and other assets acquired in
conjunction with our purchase of Mobile 365, Inc. as of November 8, 2006, and other acquired
companies after considering valuations prepared by independent third-party appraisers and
certain internally generated information.
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Purchased intangible assets, excluding goodwill, totaled $114.0 million at December 31, 2008.
If the subsequent actual and updated projections of the underlying business activity are less as
compared to the underlying assumptions and projections used to develop these values, then we
could experience impairment losses, as described above. In addition, we have estimated the
economic lives of certain of these assets and these lives were used to calculate depreciation
and amortization expense. If our estimates of the economic lives change, then additional
depreciation or amortization expense could be incurred on an annual basis. Historically, we have
not made any changes in these areas. If the estimates of the economic lives of the
definite-lived intangible assets acquired as part of our acquisition of Mobile 365 were reduced
by one year, our 2008 amortization expense would increase by approximately $1.7 million.
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Restructuring
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Our remaining restructuring accruals primarily relate to the 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 or goodwill. 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 See Note Thirteen to Consolidated Financial Statements
Restructuring Costs, Part II, Item 8.
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Contingencies and Liabilities
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We are involved from time to time in various proceedings, lawsuits and claims involving our
customers, products, intellectual property, stockholders and employees. 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, results of operations or
cash flows could be materially and adversely affected by such revisions in our estimates. For
further discussion of contingencies and liabilities, see Risk Factors Future Operating
Results, above.
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We currently believe that the ultimate liability, if any, for any pending claims of any type
(either alone or combined) will not materially affect our financial position, results of
operations or cash flows. We also believe that we would be able to obtain any necessary
licenses or other rights to disputed intellectual property rights on commercially reasonable
terms. However, the ultimate outcome of any litigation is uncertain and, regardless of outcome,
litigation can have an adverse impact on Sybase because of defense costs, negative publicity,
diversion of management resources and other factors. Our inability to obtain necessary license
or other legal rights, or litigation arising out of intellectual property claims could adversely
affect our business.
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Results of Operations
Revenues
(Dollars in millions)
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2008
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Change
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2007
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Change
|
|
|
2006
|
|
License fees by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPG
|
|
$
|
308.5
|
|
|
|
12
|
%
|
|
$
|
275.5
|
|
|
|
6
|
%
|
|
$
|
261.1
|
|
iAS
|
|
|
103.0
|
|
|
|
3
|
%
|
|
|
100.3
|
|
|
|
9
|
%
|
|
|
92.1
|
|
SY365
|
|
|
0.2
|
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
Eliminations
|
|
|
(28.1
|
)
|
|
|
(9
|
%)
|
|
|
(31.0
|
)
|
|
|
17
|
%
|
|
|
(26.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license fees
|
|
$
|
383.6
|
|
|
|
11
|
%
|
|
$
|
344.8
|
|
|
|
6
|
%
|
|
$
|
326.8
|
|
Percentage of total revenues
|
|
|
34
|
%
|
|
|
|
|
|
|
34
|
%
|
|
|
|
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPG
|
|
$
|
528.1
|
|
|
|
6
|
%
|
|
$
|
496.6
|
|
|
|
2
|
%
|
|
$
|
485.4
|
|
iAS
|
|
|
75.7
|
|
|
|
4
|
%
|
|
|
72.8
|
|
|
|
3
|
%
|
|
|
70.9
|
|
SY365
|
|
|
1.7
|
|
|
|
(60
|
%)
|
|
|
4.2
|
|
|
|
250
|
%
|
|
|
1.2
|
|
Eliminations
|
|
|
(33.4
|
)
|
|
|
14
|
%
|
|
|
(29.4
|
)
|
|
|
12
|
%
|
|
|
(26.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services
|
|
$
|
572.1
|
|
|
|
5
|
%
|
|
$
|
544.2
|
|
|
|
2
|
%
|
|
$
|
531.2
|
|
Percentage of total revenues
|
|
|
50
|
%
|
|
|
|
|
|
|
53
|
%
|
|
|
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Messaging by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SY365
|
|
$
|
176.2
|
|
|
|
29
|
%
|
|
$
|
136.5
|
|
|
|
650
|
%
|
|
$
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total messaging
|
|
$
|
176.2
|
|
|
|
29
|
%
|
|
$
|
136.5
|
|
|
|
650
|
%
|
|
$
|
18.2
|
|
Percentage of total revenues
|
|
|
16
|
%
|
|
|
|
|
|
|
13
|
%
|
|
|
|
|
|
|
2
|
%
|
Total revenues
|
|
$
|
1,131.9
|
|
|
|
10
|
%
|
|
$
|
1,025.5
|
|
|
|
17
|
%
|
|
$
|
876.2
|
|
- 41 -
Total license fees for 2008 increased $38.8 million (11 percent) from total license fees in 2007
which had increased $18.0 million (6 percent) from 2006. The increase in license fees during 2008
was primarily attributable to a $33.0 million (12 percent) increase in IPG license fees and to a
$2.7 million (3 percent) increase in iAS license fees. The increase in license fees during 2007
was attributable to increases in both iAS and IPG license fees.
The increase in IPG license fees during 2008 was largely attributable to a 28 percent increase in
database license revenues, namely our IQ and Adaptive Server Enterprise Products. The increase in
IPG license fees during 2007 was primarily attributable to an increase in our IQ analytics server
product. We believe that strong growth trends in IQ and RAP; and the adoption of ASE 15 will drive
future revenue.
The increase in iAS license fees during 2008 was largely attributable to a 23 percent increase in
our Afaria mobile device management product. The increase in iAS license fees during 2007 was
primarily attributable to an increase in revenues from our mobile and embedded database products.
Segment license and service revenues include transactions between iAS and IPG, The most common
instance relates to the sale of iAS products and services to third parties by IPG. In the case of
such a transaction, IPG records the revenue on the sale with a corresponding inter-company expense
on the transaction. iAS then records intercompany revenue and continues to bear the costs of
providing the product or service. The excess of revenues over inter-company expense recognized by
IPG is intended to reflect the costs incurred by IPG to complete the sales transaction. Total
transfers between the segments are captured in Eliminations.
Total service revenues for 2008 (which include revenues from technical support, professional
services, and education) increased $27.9 million (5 percent) from total service revenues in 2007
.
This increase was due to a $31.5 million (6 percent) increase in IPG services and a $2.9 million (4
percent) increase in iAS services. This increase is offset by a $2.5 million (60 percent) decline
in Sybase 365 service revenues primarily relating to our AvantGo service. The increase in IPG
service revenues was primarily due to a $30.2 million (8 percent) increase in technical support
revenues and a $2.5 million (3 percent) increase in professional services revenues. The increase in
iAS service revenues was primarily due to a $2.9 million (4 percent) increase in iAS technical
support revenues.
Technical support revenues comprised approximately 80 percent of total services revenues for 2008
and 79 percent in 2007. Total technical support revenue for 2008 increased $29.1 million (7
percent) from the 2007 total. Current and long-term deferred revenue balances in the balance
sheet which relate principally to technical support contracts increased $7.7 million (4 percent)
from December 31, 2007 to December 31, 2008.
Services revenues other than technical support decreased 1 percent in 2008 from 2007. The decrease
was primarily related to a decrease in AvantGo advertising revenue of $2.7 million (64 percent) and
education revenue $0.9 million (8 percent) partially offset by a $2.4 million (2 percent) increase
in consulting services.
Messaging revenues for 2008 increased $39.7 million (29 percent) from 2007. We have experienced a
significant increase in the volume of messaging traffic that we deliver. Our increase in messaging
revenues primarily relates to expansion of messaging business by our enterprise customers and to a
lesser extent, new revenue from GRX and MMX services.
For a description of our technical support, consulting and education services, see Business -
Worldwide Services, Part I, Item 1.
- 42 -
Geographical Revenues
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Change
|
|
2007
|
|
Change
|
|
2006
|
North America
|
|
$
|
567.7
|
|
|
|
7
|
%
|
|
$
|
532.0
|
|
|
|
12
|
%
|
|
$
|
474.0
|
|
Percentage of total revenues
|
|
|
50
|
%
|
|
|
|
|
|
|
52
|
%
|
|
|
|
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA (Europe, Middle East and
Africa)
|
|
$
|
399.5
|
|
|
|
17
|
%
|
|
$
|
342.0
|
|
|
|
22
|
%
|
|
$
|
279.3
|
|
Percentage of total revenues
|
|
|
35
|
%
|
|
|
|
|
|
|
33
|
%
|
|
|
|
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercontinental (Asia Pacific
and Latin America)
|
|
$
|
164.7
|
|
|
|
9
|
%
|
|
$
|
151.5
|
|
|
|
23
|
%
|
|
$
|
122.9
|
|
Percentage of total revenues
|
|
|
15
|
%
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Outside North America
|
|
$
|
564.2
|
|
|
|
14
|
%
|
|
$
|
493.5
|
|
|
|
23
|
%
|
|
$
|
402.2
|
|
Percentage of total revenues
|
|
|
50
|
%
|
|
|
|
|
|
|
48
|
%
|
|
|
|
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,131.9
|
|
|
|
10
|
%
|
|
$
|
1,025.5
|
|
|
|
17
|
%
|
|
$
|
876.2
|
|
North American revenues (United States, Canada and Mexico) for 2008 increased $35.7 million (7
percent) from 2007. The increase from 2007 was due to an $18.9 million (12 percent) increase in
license revenues, a $10.3 million (22 percent) increase in messaging revenues, and a $6.5 million
(2 percent) increase in service revenues. In 2007, the increase in North America revenues was
primarily due to messaging revenues and license revenues offset by a decrease in consulting
services.
EMEA (Europe, Middle East and Africa) revenues for 2008 increased $57.5 million (17 percent) from
2007. The increase was due to a $29.6 million (41 percent) increase in messaging revenues, a $14.9
million (14 percent) increase in license revenues, and a $13.0 million (8 percent) increase in
service revenues. Increased messaging and service revenues in France, Holland and Germany; and
increased license revenue in the United Kingdom contributed most to the overall increase for 2008.
The increase in 2007 revenues compared to 2006 was due to an increase in messaging revenues and an
increase in technical support revenues, offset by a decline in license fees. Increased revenues in
France, Spain and Germany contributed most to the overall increase for 2007.
Intercontinental (Asia Pacific and Latin America) revenues for 2008 increased $13.2 million (9
percent) from 2007. The increase was primarily due to an $8.3 million (14 percent) increase in
service revenues, and a $5.1 million (7 percent) increase in license revenues. The results of our
operations in Asia Pacific contributed most significantly to the increased revenue. The increase
in 2007 Intercontinental revenues compared to 2006 was due primarily due to an increase in
messaging revenues, an increase in license revenues primarily from our IPG products and an increase
in service revenues.
In EMEA and the Intercontinental region, most revenues and expenses are denominated in local
currencies. The cumulative impact of changes in foreign currency exchange rates from 2007 to 2008
resulted in an increase in our revenues of under 3 percent and an increase in our operating
expenses of just over 1 percent. During the first three quarters of 2008 the dollar weakened
against most foreign currencies, resulting in higher revenues and expenses compared to 2007.
However, in the fourth quarter of 2008 the dollar strengthened considerably, resulting in a year
over year revenue and expense reduction of around 5 percent in the fourth quarter. The cumulative
impact of changes in foreign currency exchange rates from 2006 to 2007 resulted in a 3 percent
increase in our revenues and a 2 percent increase in our operating expenses. The change for both
comparable periods was primarily due to the weakness of the U.S. dollar against certain European
and Intercontinental currencies.
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.
- 43 -
Cost and Expenses
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Change
|
|
2007
|
|
Change
|
|
2006
|
Cost of license fees
|
|
$
|
67.3
|
|
|
|
27
|
%
|
|
$
|
53.1
|
|
|
|
5
|
%
|
|
$
|
50.5
|
|
Percentage of license fee revenues
|
|
|
18
|
%
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
$
|
160.6
|
|
|
|
2
|
%
|
|
$
|
157.8
|
|
|
|
3
|
%
|
|
$
|
153.0
|
|
Percentage of services revenues
|
|
|
28
|
%
|
|
|
|
|
|
|
29
|
%
|
|
|
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of messaging
|
|
$
|
107.8
|
|
|
|
31
|
%
|
|
$
|
82.6
|
|
|
|
644
|
%
|
|
$
|
11.1
|
|
Percentage of messaging revenues
|
|
|
61
|
%
|
|
|
|
|
|
|
61
|
%
|
|
|
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
285.4
|
|
|
|
7
|
%
|
|
$
|
267.0
|
|
|
|
1
|
%
|
|
$
|
263.3
|
|
Percentage of total revenues
|
|
|
25
|
%
|
|
|
|
|
|
|
26
|
%
|
|
|
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development and engineering
|
|
$
|
146.9
|
|
|
|
(4
|
%)
|
|
$
|
152.6
|
|
|
|
2
|
%
|
|
$
|
149.5
|
|
Percentage of total revenues
|
|
|
13
|
%
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
139.0
|
|
|
|
8
|
%
|
|
$
|
129.3
|
|
|
|
22
|
%
|
|
$
|
106.0
|
|
Percentage of total revenues
|
|
|
12
|
%
|
|
|
|
|
|
|
13
|
%
|
|
|
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other purchased intangibles
|
|
$
|
14.7
|
|
|
|
7
|
%
|
|
$
|
13.8
|
|
|
|
89
|
%
|
|
$
|
7.3
|
|
Percentage of total revenues
|
|
|
1
|
%
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of restructuring
|
|
$
|
0.2
|
|
|
|
(75
|
%)
|
|
$
|
0.8
|
|
|
|
(53
|
%)
|
|
$
|
1.7
|
|
Percentage of total revenues
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
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 $14.2 million (27 percent) in 2008 over 2007, and increased $2.6
million (5 percent) in 2007 over 2006. Such costs were 18 percent, 15 percent, and 15 percent of
license revenues in 2008, 2007, and 2006 respectively. The 2008 increase was primarily due to a
$9.8 million increase in the amortization of capitalized software development costs and a $4.8
million increase in the amortization of purchased technology. The 2007 increase was primarily due
to a $1.9 million increase in the amortization of capitalized software development costs and a $1.1
million increase in royalties.
Amortization of capitalized software costs was $42.9 million, $33.1 million, and $31.2 million in
2008, 2007, and 2006, respectively. In 2008, the increase in capitalized software amortization was
due to the full year of amortization of capitalized costs associated with our IQ and Mobility
products, and impairment charges totaling $4.1 million. In 2007, the increase in the amortization
of capitalized software costs was primarily related to the ASE 15.0.2 product that began fully
amortizing in the fourth quarter of 2006. See Note One to the Consolidated Financial Statements -
Capitalized Software, Part II, Item 8.
The amortization of purchased technology was $14.6 million, $9.8 million, and $10.1 million in
2008, 2007 and 2006 respectively. The increase in amortization of purchased technology was
primarily due to a $4.5 million write-down of certain purchased technologies.
Cost of services
Cost of services consists primarily of the fully burdened cost of our personnel who provide
technical support, professional services and education. These costs increased $2.8 million (2
percent) compared to 2007. These costs were 28 percent of services revenues for 2008 compared with
29 percent of services revenues for 2007. The increase in cost of services in absolute dollars for
2008 is primarily due to an
- 44 -
increase in payroll and related costs for personnel providing
professional services. Cost of services increased approximately 4 percent in 2007 from 2006 and
remained at 29 percent as a percentage of service in both 2007 and 2006.
Cost of messaging
Costs of messaging consist primarily of (1) fees payable to non-domestic wireless operators for
delivering traffic into their networks; (2) fully burdened cost of personnel who manage and monitor
network datacenters; (3) depreciation, fees and other costs associated with the network
datacenters; and (4) amortization of purchased technology used internally by the Sybase 365
segment. Costs of messaging for 2008 increased $25.2 million (31 percent) compared to 2007. Cost of
messaging has increased in absolute dollars primarily as a result of the increased volume of
messages delivered and the associated fees payable to operators for delivering traffic into their
networks. Cost of messaging remained at 61 percent as a percentage of messaging revenue in both
2008 and 2007. The amortization of purchased technology was $4.0 million for 2008 compared to
$3.8 million 2007.
Sales and marketing
Sales and marketing expenses increased $18.4 million (7 percent) in 2008 from 2007 and were 25
percent and 26 percent of total revenues in 2008 and 2007, respectively. The increased expenses in
2008 were primarily due to increases in salaries, benefits and increased commissions associated
with increases in license revenues though headcount was relatively flat. The increased expenses in
2007 were primarily due to the addition of Mobile 365 and sales commissions on higher revenues,
partially offset by a reduction in payroll and related costs caused by a decrease in headcount and
a decrease in certain allocated costs and a decrease in advertising costs.
Product development and engineering
Product development and engineering expenses (net of capitalized software development costs)
decreased $5.7 million (4 percent) in 2008 from 2007 and as a percentage of total revenue decreased
to 13 percent in 2008 from 15 percent 2007. The decrease in absolute dollars was primarily due to
an increase in capitalized software costs offset by increases in compensation, benefits and other
employee-related expenses, and various other product development-related costs.
The 2 percent increase in product development and engineering expenses in 2007 over 2006 was
primarily due to an increase in payroll and related expenses, partially offset by an increase in
capitalized software and a decrease in certain allocated common expenses.
We capitalize product development and engineering costs during the period between a products
achievement of technological feasibility and its general availability. Our capitalized software
costs in 2008 of $48.6 million included costs incurred for the development of the Adaptive Server
Enterprise, Replication Server, IQ, mBanking and Mobility products. Our capitalized software costs
in 2007 of $36.2 million included costs incurred for the development of the Adaptive Server
Enterprise, IQ, Data Integration Suite, Workspace and eBanking.
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, human
resources and administrative functions, increased $9.7 million (8 percent) in 2008 compared to 2007
and decreased as a percent of total revenue to 12 percent in 2008 from 13 percent in 2007. The
increase in general and administrative expenses in absolute dollars for 2008 was primarily due to
additional legal and
- 45 -
other professional fees as well as increases in salaries and benefits related
to annual performance evaluations and bonuses. General and administrative expenses included
stock-based compensation expense of $12.2 million and $13.7 million in 2008 and 2007, respectively.
The 22 percent increase in 2007 compared to 2006 was primarily due to the acquisition of Mobile 365
in the fourth quarter of 2006 and a slight increase in stock compensation expense.
Stock-based compensation expense
Stock-based compensation expense reflects non-cash compensation expense associated with restricted
option and stock grants to certain Sybase executives and employees. Stock-based compensation
expense also reflects employee stock options and stock appreciation rights accounted for under
SFAS123R. (See Note Seven to the Consolidated Financial Statements Stockholders Equity, Part
II, Item 8). Stock-based compensation expense was included in costs and expenses as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
2008
|
|
2007
|
|
2006
|
Costs of services
|
|
|
1,364
|
|
|
|
1,544
|
|
|
|
1,629
|
|
Costs of messaging
|
|
|
484
|
|
|
|
544
|
|
|
|
124
|
|
Sales and marketing
|
|
|
5,538
|
|
|
|
5,304
|
|
|
|
4,432
|
|
Product development and engineering
|
|
|
2,887
|
|
|
|
2,982
|
|
|
|
2,679
|
|
General and administrative
|
|
|
12,242
|
|
|
|
13,670
|
|
|
|
12,861
|
|
|
|
|
|
|
|
22,515
|
|
|
|
24,044
|
|
|
|
21,725
|
|
|
|
|
The decrease in stock-based compensation expenses in 2008 was primarily due to the decline in stock
options granted to employees. The increase in stock-based compensation expenses in 2007 primarily
resulted from the grant of certain performance-based restricted stock described more fully in Note
Seven to the Consolidated Financial Statements and the assumption of stock options related to the
Mobile 365 acquisition.
Amortization of other purchased intangibles
Amortization of other purchased intangibles primarily reflects the amortization of the established
customer lists associated with the acquisition in 2000 of Home Financial Network, Inc, of XcelleNet
in 2004, of Extended Systems in 2005, of Mobile 365 in 2006, and of Cable & Wireless businesses in
July 2008. See Note Four to Consolidated Financial Statements Goodwill and Other Purchased
Intangible Assets, Part II, Item 8.
- 46 -
Restructuring Activities
We undertook restructuring activities in 2004, 2003, 2002 and 2001 as a means of managing our
operating expenses.
For descriptions of each restructuring plan, see Note Thirteen to Consolidated Financial Statements
- Restructuring Costs, Part II, Item 8.
Operating income
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Change
|
|
|
2007
|
|
|
Change
|
|
|
2006
|
|
Operating income by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPG
|
|
$
|
200.0
|
|
|
|
19
|
%
|
|
$
|
167.9
|
|
|
|
17
|
%
|
|
$
|
142.9
|
|
IAS
|
|
|
27.2
|
|
|
|
1
|
%
|
|
|
27.0
|
|
|
|
71
|
%
|
|
|
15.8
|
|
SY365
|
|
|
5.3
|
|
|
|
*
|
|
|
|
(0.5
|
)
|
|
|
(58
|
%)
|
|
|
(1.2
|
)
|
Unallocated costs
|
|
|
(22.4
|
)
|
|
|
(13
|
%)
|
|
|
(25.8
|
)
|
|
|
9
|
%
|
|
|
(23.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
210.1
|
|
|
|
25
|
%
|
|
$
|
168.6
|
|
|
|
26
|
%
|
|
$
|
133.8
|
|
Percentage of total revenues
|
|
|
19
|
%
|
|
|
|
|
|
|
16
|
%
|
|
|
|
|
|
|
15
|
%
|
Operating income in 2008 was $210.1 million compared to operating income of $168.6 million in 2007
and $133.8 million in 2006. The increase in operating income was primarily due to the various
factors discussed under Revenues, Geographical Revenues and Costs and Expenses above. Segment
operating income includes the revenues and expenses described in Note Ten to Consolidated Financial
Statements, Part II, Item 8, incorporated here by reference.
Consolidated operating margins improved to 19 percent in 2008 from 16 percent in 2007. The
increases in operating margin are primarily due to improvements in operating margin in the IPG and
Sybase 365 segment offset by a decline in the operating margin in the iAS segment as discussed
below.
The operating margin for the IPG segment was 24 percent in 2008 compared to 22 percent in 2007. The
increase in operating income and margin in the IPG segment for 2008 compared to 2007 was primarily
due to a 12 percent increase in license fees, a 6 percent increase in service revenues, partially
offset by a 5 percent increase in total expenses primarily due to increases in compensation,
benefits and other employee-related expenses, and intangible asset amortization.The increase in
revenue for 2008 is primarily due to the various factors discussed under Revenues and
Geographical Revenues above.
The increase in operating income and margin in the IPG segment for 2007 compared to 2006 was
primarily due to a 6 percent increase in license fees, a 3 percent increase in maintenance fees, a
2 percent decrease in lower margin consulting fees and reduced payroll and related costs associated
with a 6 percent decrease in total IPG headcount.
The operating margin for the iAS segment was 15 percent for 2008 compared to 16 percent in 2007.
The decrease in iAS segment operating margin was primarily due to the write-down of certain
purchased technologies during 2008. Until December 31, 2007, AvantGo results were reported as part
of the iAS segment. Commencing on January 1, 2008, AvantGo is a part of the SY365 segment. We have
reclassified certain revenue and expense amounts for all earlier periods reported to reflect this
segment change.
The increase in operating margin for the iAS segment in 2007 was to due a 9 percent increase in
license fees, a 10 percent increase in maintenance fees and a lower increase in total expenses.
The operating margin for the Sybase 365 segment was 3 percent for 2008 compared to 0 percent in
2007. The increase in operating margin was primarily due to a 29 percent increase messaging revenue
partially offset by a 30 percent increase in cost of messaging.
- 47 -
Certain common costs and expenses are allocated to the various segments based on measurable drivers
of expense. Unallocated expenses represent stock compensation expense and other corporate
expenditures or cost savings that are not specifically allocated to the segments including
reversals or restructuring expenses associated with restructuring activities undertaken prior to
2003. Unallocated costs for 2008 consisted primarily of stock-based compensation expenses.
During 2008, foreign currency exchange rate changes from 2007 resulted in an improvement in
operating profits of approximately $18.0 million.
Other income (expense), net
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Change
|
|
2007
|
|
Change
|
|
2006
|
Interest income
|
|
$
|
23.8
|
|
|
|
(29
|
%)
|
|
$
|
33.5
|
|
|
|
(13
|
%)
|
|
$
|
38.7
|
|
Percentage of total revenues
|
|
|
3
|
%
|
|
|
|
|
|
|
3
|
%
|
|
|
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and other, net
|
|
$
|
(26.8
|
)
|
|
|
121
|
%
|
|
$
|
(12.1
|
)
|
|
|
10
|
%
|
|
$
|
(11.0
|
)
|
Percentage of total revenues
|
|
|
(1
|
%)
|
|
|
|
|
|
|
(1
|
%)
|
|
|
|
|
|
|
(1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
$
|
0.1
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
$
|
(0.1
|
)
|
Percentage of total revenues
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
In 2008, Interest income decreased $9.7 million from 2007. Interest income consists primarily of
interest earned on our investments. The decrease is primarily due to a decrease in the cash
balances invested along with a 117 basis point decrease in the effective interest rates earned on
such cash balances. Our invested cash balances decreased as a result of our $300 million repurchase
of 10.7 million shares of common stock during April 2008 offset by cash provided from operations.
In 2007, interest income decreased $5.2 million from 2006. The decrease is primarily due to lower
cash balances due to the acquisition of Mobile 365 in the fourth quarter of 2006. See
Consolidated Statements of Cash Flows, Part II, Item 8.
Interest expense and other, net, primarily includes: impairment charges related to investments in
auction-rate securities (ARS); interest expense on our convertible subordinated notes which bear
interest at 1.75 percent; amortization of deferred offering expenses associated with these notes;
net gains and losses resulting from foreign currency transactions and the related hedging
activities; the cost of hedging foreign currency exposures; and bank fees. Interest expense and
other, net increased $14.7 million in 2008 as compared to 2007. The increase in interest expense
and other, net is primarily due to the impairment loss associated with our investment in auction
rate securities of $13.4 million and losses resulting from foreign currency transactions and the
related hedging activities of $2.0 million in 2008. The ARS investments currently lack short-term
liquidity and we will not be able to access these funds until a future auction for the ARS
investments is successful or until we sell the securities in a reasonable secondary market which
currently does not exist.
The increase in interest expense and other, net from 2007 compared to 2006 was primarily due to a
decline in gains on disposition of cash investments in 2007.
Recent changes in applicable accounting rules for convertible notes require interest expense to be
imputed at fair value as of the debt issuance date. This will result in increases in previously
reported and future our interest expense and reductions in our net income in prior and future
years. In addition, further impairments to the ARS investments, if any, will result in additional
charges to earnings.
- 48 -
Provision for Income Taxes
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Change
|
|
2007
|
|
Change
|
|
2006
|
Provision for income taxes
|
|
$
|
68.6
|
|
|
|
67
|
%
|
|
$
|
41.1
|
|
|
|
(38
|
%)
|
|
$
|
66.3
|
|
In 2008 a provision for income taxes was recorded at a rate of approximately 33 percent of income
before taxes. Our effective rate differed from the statutory federal rate of 35 percent primarily
due to adjustments for the release of valuation allowances on deferred tax assets, and the effect
of foreign operations; offset somewhat by the impact of state taxes. After assessing the
valuation on our deferred tax assets at December 31, 2008, we concluded that it was more likely
than not (a likelihood of more than 50 percent) that a portion of our deferred tax assets relating
to federal tax loss carryforwards and state tax credit and loss carryfowards would be realized
based on a number of factors including projections of future year federal taxable income and, in
the case of state credits and losses, projections of future year taxable income in the relevant
states. As a result of this re-evaluation, during the three month period ending December 31, 2008,
we released approximately $16.5 million of valuation allowances relating to federal tax loss
carryforwards, all of which reduced goodwill, and approximately $11.7 million of valuation
allowances relating to state tax credit and loss carryforwards, of which $6.7 million reduced tax
expense, approximately $1.7 million reduced goodwill, and approximately $3.3 million increased
deferred tax liability for the related federal tax effect.
Our tax expense in 2008 was higher than our tax expense in 2007 primarily due to the $26.4 million
valuation allowance release which reduced 2007s tax expense. In 2007 a provision for income taxes
was recorded at a rate of approximately 22 percent of income before taxes. Our effective rate
differed from the statutory federal rate of 35 percent primarily due to adjustments for the release
of valuation allowances on deferred tax assets, the effect of foreign operations, offset somewhat
by the impact of state taxes.
We record a deferred tax liability for US taxes expected to be incurred on our foreign
subsidiaries earnings that are not considered to be permanently reinvested overseas. Prior to the
quarter ending December 31, 2007, we had anticipated a certain amount of foreign earnings to not be
permanently reinvested. During the three month period ending December 31, 2007, due to possible
share repurchases or acquisitions, we concluded that a total of approximately $60 million of
earnings of a foreign subsidiary were not considered permanently reinvested since the funds were
required for possible share repurchases or acquisitions. This change had the effect of increasing
full year tax expense by approximately $13 million.
During the three month period ending December 31 2007, we also evaluated our projections of the
Companys future US taxable income and released approximately $27.6 million of valuation allowances
relating to federal research tax credit and foreign tax credit carryforwards, of which $26.4
million reduced tax expense and approximately $1.2 million reduced goodwill.
In 2006 a provision for income taxes was recorded at a rate of approximately 41 percent of income
before taxes. Our effective rate differed from the statutory federal rate of 35 percent primarily
due to adjustments for the impact of state taxes, and the tax effect of our foreign operations;
offset somewhat by adjustments for the difference between estimated amounts recorded and actual
liabilities resulting from the filing of prior years tax returns.
We had a gross deferred tax asset of $121 million at December 31, 2008. This deferred tax asset is
reduced by a valuation allowance of $61 million, for a net balance of $60 million. 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 loss and credit carryforwards. 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
- 49 -
adjustment in future periods if estimates of future
taxable income are reduced. Any such adjustments to the deferred tax assets would be charged to
income in the period such adjustment was made. See Note Eight to the Consolidated Financial
Statements Income Taxes, Part II, Item 8.
Net income per share
(Dollars and shares in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Change
|
|
2007
|
|
Change
|
|
2006
|
Net income
|
|
$
|
138.6
|
|
|
|
(7
|
%)
|
|
$
|
148.9
|
|
|
|
57
|
%
|
|
$
|
95.1
|
|
Percentage of total revenues
|
|
|
12
|
%
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
1.69
|
|
|
|
2
|
%
|
|
$
|
1.65
|
|
|
|
56
|
%
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing
basic net income per share
|
|
|
82.1
|
|
|
|
(9
|
%)
|
|
|
90.0
|
|
|
|
*
|
|
|
|
89.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
1.64
|
|
|
|
2
|
%
|
|
$
|
1.61
|
|
|
|
56
|
%
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing
diluted net income per
share
|
|
|
84.5
|
|
|
|
(9
|
%)
|
|
|
92.6
|
|
|
|
*
|
|
|
|
92.3
|
|
In 2008 the decrease in net income compared to 2007 was due to the various factors discussed above,
primarily the increase in operating income offset an increase in tax expenses and a reduction of
non-operating interest income and expense, net.
In 2008, shares used in computing basic and diluted net income per share decreased 9 percent
compared to 2007. The decreases were due primarily to shares repurchased in accordance with a
self-tender offer to repurchase $300 million of common stock offset somewhat by the exercises of
employee stock options.
Shares that may be issued to holders of our convertible subordinated debt due to the appreciation
of our stock price are included in the calculation of diluted earnings per share if their inclusion
is dilutive to earnings per share. Generally, such shares would be included in periods in which the
average price of our common stock exceeds $24.99 per share, the adjusted conversion price. As the
average price of the Companys stock did not exceed the conversion price in the fourth quarter of
2008, the 2008 computation of diluted earnings per share excludes the dilutive effects of the
Companys convertible debt. See Note Fifteen to Consolidated Financial Statements, Part II, Item 8,
incorporated here by reference.
Liquidity and capital resources
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Change
|
|
2007
|
|
Change
|
|
2006
|
Working capital
|
|
$
|
518.0
|
|
|
|
(14
|
%)
|
|
$
|
604.7
|
|
|
|
33
|
%
|
|
$
|
455.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
611.4
|
|
|
|
1
|
%
|
|
$
|
604.8
|
|
|
|
70
|
%
|
|
$
|
355.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
295.5
|
|
|
|
16
|
%
|
|
$
|
254.0
|
|
|
|
18
|
%
|
|
$
|
214.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for)
investing activities
|
|
$
|
(14.6
|
)
|
|
|
*
|
|
|
$
|
86.7
|
|
|
|
*
|
|
|
$
|
(276.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for)
financing activities
|
|
$
|
(245.9
|
)
|
|
|
118
|
%
|
|
$
|
(112.6
|
)
|
|
|
*
|
|
|
$
|
(0.1
|
)
|
- 50 -
Our primary source of cash is collections from our customers following the purchase of our products
and services. Our business activity and cash generation was strong in 2008. While we are aware of
concerns regarding the macro economic environment, we have not noted a meaningful impact on the
cash flows generated by our business to date.
Our primary use of cash is payment of our operating costs, which consist primarily of compensation,
benefits and other employee-related expenses, as well as other operating expenses for marketing,
facilities and overhead costs. In addition to operating expenses, we also use cash to invest in our
growth initiatives, which include acquisitions of products, technology and businesses and to fund
our stock repurchase program.
As a result of recent volatile conditions in global capital markets, general liquidity in
short-term credit markets has been constrained despite several pro-active intervention measures
undertaken by the U.S. government. At December 31, 2008, our principal sources of liquidity were
cash (excluding long-term cash investments), cash equivalents and short-term marketable securities
totaling $620.1 million and accounts receivable of $270.4 million.
At December 31, 2008, we had $611.4 million invested in money market funds, bank time deposits,
savings accounts and checking accounts. Our short-term investments totaling $8.7 million consisted
principally of marketable securities held in a Rabbi Trust under non-qualified deferred
compensation plans. See Note Two to Consolidated Financial Statements, Part II, Item 8,
incorporated here by reference. Approximately 40 percent of our cash is held outside the U.S.. As
discussed above in Critical Accounting Policies Income Taxes, approximately $50 million of these
funds are considered permanently reinvested in our foreign operations. Management may, from time to
time, revise its estimates of foreign subsidiaries earnings permanently reinvested depending on US
cash needs. Such changes will correspondingly affect US taxable income. In addition, management
periodically evaluates whether funds not permanently reinvested can be repatriated based on local
country operating needs, foreign governmental and regulatory controls and/or dividend restrictions
and any additional U.S. or foreign taxes when repatriated.
At December 31, 2008, long-term cash investments included auction rate securities with an estimated
fair value of $15.5 million and a par value of $28.9 million. These investments have failed to
settle at auction since August 2007 due to a lack of market. At this time, these investments are
not liquid. Based on our current cash, investment balances and expected operating cash flows, we do
not anticipate that the lack of ARS liquidity to adversely affect our ability to conduct business.
See Short-term and Long-term Cash Investments and Auction-Rate Securities below for further
discussion on these securities.
Our only significant debt is a $460 million convertible debt instrument which may be put to us or
called by us in February 2010. See Note Fifteen to Consolidated Financial Statements, Part II, Item
8. Though it may be somewhat dependent upon the actions of our noteholders (if some or all of them
decide to put the convertible note to us), it is our current expectation that this instrument will
be repaid in February 2010, possibly through the issuance of another debt instrument. That said,
at this time, we believe our cash and cash equivalents of $611.4 million and future cash flow from
operations is sufficient to pay the notes if they are redeemed.
Recent changes in applicable accounting rules for convertible notes require interest expense to be
imputed at fair value as of the debt issuance date. This will result in increases in previously
reported and future interest expense and reductions in our net income in prior and future years.
Working Capital
The decrease in working capital during 2008 was primarily due changes in our cash balance. Such
changes in our cash balance reflect the net use of $306 million to fund stock buybacks offset by
net cash
- 51 -
flows provided from operations of $295.5 million. The increase in working capital during
2007 is primarily due to net cash provided from operations and investing activities of $254.0
million and $86.7 million respectively.
Cash Flow
Net cash provided by operating activities increased by 16.3 percent in 2008 to $295.5 million
primarily due to an increase in non-cash expenses, increases in income taxes payable, and decreases
in prepaid taxes from the collection of certain tax refunds. The primary use of cash was for an
increase in accounts receivable. Our days sales outstanding in accounts receivable was 80 days for
the year ended December 31, 2008 compared to 75 days for the year ended December 31, 2007. The
increased days sales outstanding was due to a larger amount of sales transactions occurring closer
to the end of the fourth quarter compared with the same period in 2007. Net cash provided by
operating activities increased 18 percent in 2007 compared to 2006 primarily due to a $53.8 million
increase in net income. This was partially offset by changes in non-cash expenses related to stock
compensation expense, accounts receivable and prepaid taxes.
Net cash used for investing activities was $14.6 million for 2008 compared to a $86.7 million
source of cash in 2007. The primary uses of cash for investing activities were for capitalized
software development business combinations, and purchases of property, equipment and improvements;
partially offset by maturities and sales of short-term investments during 2008. Net cash provided
by investing activities increased $363.0 million from 2006 to 2007. The increase in net cash used
for investing activities is primarily due to the liquidation of marketable securities to fund our
acquisition of Mobile 365 in 2006.
Net cash used for financing activities was $245.9 million for 2008 compared to a $112.6 million use
of cash for the 2007. The increase in cash used for financing activities is primarily due to a
$306.1 million repurchase of our common stock during 2008, partially offset by net proceeds from
the reissuance of treasury stock associated with stock option exercises and our employee stock
purchase plan totaling $50.0 million. Net cash used for financing activities totaled $112.6 million
in 2007 compared to $0.1 million in 2006. The increase in cash used for financing activities in
2007 is primarily due to purchases of treasury stock which increased $106.9 million in 2007 from
2006.
Revaluation of cash denominated in currencies other than US dollars had a negative impact on cash
of $28.4 million during 2008.
Our Board of Directors has authorized the repurchase of our outstanding common stock from time to
time, subject to price and other conditions (Stock Repurchase Program). Through December 31, 2008,
aggregate amounts purchased under the Stock Repurchase Program totaled $1,197.4 million. During
2008, we repurchased 11.0 million shares at a cost of $306.1 million. The majority of the 2008
purchases occurred on April 15, 2008, when we completed a self-tender offer on 10.7 million shares
of our common stock for $28 per share at a total cost of $300 million. On April 26, 2006 our Board
of Directors approved a $250 million increase to our Stock Repurchase Program. Approximately
$77.5 million remained available in the Stock Repurchase Program at December 31, 2008.
On July 4, 2008 we acquired certain businesses from Cable and Wireless. On December 30, 2008 we
acquired Paybox Solutions AG. See Note Eleven to Consolidated Financial Statements, Part II, Item
8, incorporated here by reference.
In response to the uncertain economic climate and the constrained short-term credit market, in the
fourth quarter of 2008 we reassessed and tightened our credit extension policy. The effect of the
reassessment resulted in deferral of revenue in certain cases.
At December 31, 2008 we did not have any significant off-balance sheet arrangements, as defined in
Item 303(a)(4)(ii) of Regulation S-K.
- 52 -
We evaluate, on an ongoing basis, the merits of acquiring technology or businesses, or establishing
strategic relationships with and investing in other companies. We may decide to use cash and cash
equivalents and investments or incur additional debt to fund such activities in the future.
Additionally, in order to fund such investment we may decide to repatriate certain funds held
outside the US. The repatriation of such funds could result in the payment of additional US taxes.
We engage in global business operations and are therefore exposed to foreign currency fluctuations.
As of December 31, 2008, we had identifiable net assets totaling $416.9 million associated with our
foreign operations. We experience foreign exchange transaction exposure on our net assets and
liabilities denominated in currencies other than the US dollar. The related foreign currency
translation gains and losses are reflected in Accumulated other comprehensive income/ (loss)
under Stockholders equity on the balance sheet. We also experience foreign exchange translation
exposure from certain balances that are denominated in a currency other than the functional
currency of the entity on whose books the balance resides. We hedge certain of these short-term
exposures under a plan approved by the Board of Directors. The principal currencies hedged during
2008 were the Euro, British Pound, South African Rand, and Singapore dollar. We monitor our foreign
exchange exposures to ensure the overall effectiveness of our foreign currency hedge positions. For
a further discussion of the effect of foreign currency fluctuations on our financial condition, see
Financial Risk Management Foreign Exchange Risk, below.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments that are comprised principally of
taxable, short-term money market instruments with maturities of three months or less at the time of
purchase and demand deposits with financial institutions. The increase in cash and cash
equivalents together with cash investments during 2008 is due to increases in cash from operations
partially offset by stock repurchases.
Short-term and Long-term Cash Investments and Auction-Rate Securities
Short-term cash investments consist principally of a defined set of mutual funds that are invested
as directed by participants of the Rabbi Trust established in 1994 related to our Executive
Deferred Compensation Plan. Short term cash investments also include short-term bank deposits with
maturities up to one year.
As of December 31, 2008, long-term cash investments totaling $15.5 million consist of six auction
rate securities (ARS) with an aggregate par value of $28.9 million. As of December 31, 2008, the
other-than-temporary impairment associated with these six ARS totaled $13.4 million.
Contractual Obligations
Our contractual obligations at December 31, 2008 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
(Dollars in Millions)
|
|
|
|
|
|
2009
|
|
2010-2011
|
|
2012-2013
|
|
|
Contractual Obligations
|
|
Total
|
|
Commitments
|
|
Commitments
|
|
Commitments
|
|
After 2013
|
Operating leases
|
|
$
|
229.9
|
|
|
$
|
46.7
|
|
|
$
|
68.9
|
|
|
$
|
48.3
|
|
|
$
|
66.0
|
|
Capital lease
|
|
|
10.3
|
|
|
|
1.0
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
5.5
|
|
Debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale-and-leaseback
|
|
|
2.1
|
|
|
|
0.4
|
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
|
|
Note(s) payable
|
|
|
2.7
|
|
|
|
0.9
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
1.0
|
|
Convertible
subordinated notes
|
|
|
472.1
|
|
|
|
8.1
|
|
|
|
464.0
|
|
|
|
|
|
|
|
|
|
Purchase Obligations
|
|
|
17.3
|
|
|
|
13.2
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
Accrued income taxes
|
|
|
17.6
|
|
|
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$
|
752.0
|
|
|
$
|
87.9
|
|
|
$
|
540.2
|
|
|
$
|
51.4
|
|
|
$
|
72.5
|
|
|
|
|
- 53 -
Upon completion of our acquisition of Extended Systems Incorporated (ESI) in October 2005, we
assumed the obligations under a sale-and-leaseback transaction completed by ESI in September 2003
related to ESIs headquarters building and land in Boise, Idaho. The sale-and-leaseback is recorded
as a financing transaction. Under the terms of the agreement we have an option to repurchase the
building and land at any time before September 2013 at a price of $5.1 million. The gross proceeds
received of $4.8 million are included in other long-term liabilities on our balance sheet at
December 31, 2008.
As part of the agreement, ESI entered into a 10-year master lease for the building with annual
lease payments, which are recorded as interest expense, equal to 9.2 percent of the sale price, or
approximately $442,000. We are also obligated to pay all expenses associated with the building
during our lease, including the costs of property taxes, insurance, operating expenses and
restoration and other repairs. (See Note Six to Consolidated Financial Statements, Part II, Item
8).
As part of the 15-year capital lease agreement entered into for our Waterloo, Canada facility (see
Note Six to Consolidated Financial Statements, Part II, Item 8), we entered into an agreement with
the landlord to finance approximately $1.5 million of tenant improvements at an annual interest
rate of 8.76%. The loan requires monthly payments of $14,955 which includes both principal and
interest commencing October 2004 through October 2019.
On February 22, 2005, we issued through a private offering to qualified institutional buyers in the
U.S. $460 million of convertible subordinated notes pursuant to exemptions from registration
afforded by the Securities Act of 1933, as amended. These notes have an interest rate of 1.75
percent and are subordinated to all of our future senior indebtedness. The notes mature on
February 22, 2025 unless earlier redeemed by us at our option, or converted or put to us at the
option of the holders. Interest is payable semi-annually in arrears on February 22 and August 22
of each year, commencing on August 22, 2005. We used approximately $125 million of the proceeds to
repurchase 6.7 million shares of Sybase stock in February of 2005. For purposes of determining the
total principal and interest payment commitments above, we have assumed the notes will be held
until the first day we may redeem the notes, March 1, 2010. See Note Fifteen to Consolidated
Financial Statements, Part II, Item 8.
We have other long-term liabilities reflected in the Consolidated Balance Sheets, including
Long-term tax liabilities related to FIN48 contingencies of approximately $32 million. We have not
included this amount in the table above because we cannot make a reasonably reliable estimate
regarding the timing of settlements with taxing authorities, if any.
New Accounting Pronouncements
FSP APB 14-1,
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion
In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments that
May be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). FSP APB
14-1, which is effective January 1, 2009 requires issuers of convertible debt instruments that may
be settled in cash upon conversion (including partial cash settlement) to separately account for
the liability and equity (conversion feature) components of the instruments. Retrospective
adoption is required. As a result, interest expense will be retrospectively imputed and recognized
on our convertible subordinated notes (Notes) based upon the difference between the Notes 1.75
percent coupon rate and the nonconvertible debt borrowing rate which would have applied to us in
February of 2005 when we issued the Notes. This imputed interest will result in lower net income.
Upon adoption of FSP APB 14-1 in 2009,
- 54 -
we will record a debt discount, which will be amortized to
interest expense through February 22, 2010, representing the first date on which holders of the
Notes may require us to repurchase all or a portion of their notes. In addition, we will
retrospectively record a non cash increase in interest expense for 2007 and 2008 of $16.8 million
and $17.8 million, respectively. This will result in a retrospective non cash after tax reduction
in diluted earnings per common share of approximately $0.10 and $0.12 in 2007 and 2008,
respectively. In addition, the carrying amount of the Notes will be retrospectively adjusted to
reflect a discount of $85.0 million on the date of issuance, with an offsetting increase in
additional paid-in capital of $51.0 million and deferred tax liability of $34.0 million.
The convertible debt is our only instrument which falls under FSP APB 14-1. FSP APB 14-1 will be
applied to the convertible debt from its inception date. The cumulative effect of such application
will be captured with an adjustment to our opening 2007 retained earnings balance. The cumulative
effect of this change will total approximately $16.5 million on periods prior to 2007. 2009
interest expense will increase approximately $18.9 million due to this change. 2009 after tax
diluted earnings per common share will be reduced correspondingly by $0.13.
SFAS 141(R),
Business Combinations"
In December 2007, the FASB issued Statement of Financial Accounting Standards (FAS) No. 141
(Revised 2007), Business Combinations (FAS 141(R)). FAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and measures the tangible and
intangibles assets acquired. FAS 141(R) will result in a number of significant changes from current
practice, including: the definitions of a business and a business combination will be expanded;
contingent considerations will be recognized at their fair value on the acquisition date and; for
certain arrangements, changes in fair value will be recognized in earnings until settlement; and
acquisition-related transaction and restructuring costs will be expensed rather than treated as
part of the cost of the acquisition. FAS 141(R) also establishes disclosure requirements to enable
users to evaluate the nature and financial effects of the business combination. Except for certain
income tax accounting, FAS 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. Earlier adoption is not permitted. Generally, the effects of SFAS 141(R)
will depend on future acquisitions. FAS 141(R) applies retrospectively to our deferred tax asset
valuation allowance relating primarily to our acquired federal tax loss carryforwards. If in the
future the realization of these tax loss carryforwards is evaluated as being more likely than not,
then under current generally accepted accounting principles the tax benefit would have been
credited to goodwill. Under FAS 141(R), any tax benefit will now be credited to our operations.
As of December 31, 2008, approximately $22 million of our valuation allowance relates to acquired
federal tax loss carryforwards.
FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets"
In April 2008, the FASB issued FSP FAS 142-3, Determination of Useful Life of Intangible Assets
(FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing the
renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under FAS 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 also requires expanded
disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is
effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. As
we evaluate the useful lives of recognized intangible assets we will apply the FSP and expand our
disclosures accordingly.
FSP FAS 157-2,
Effective Date of FASB Statement No. 157"
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB
Statement No. 157 (FSP 157-2), to partially defer FASB Statement No. 157, Fair Value
Measurements (FAS 157). FSP 157-2 defers the effective date of FAS 157 for nonfinancial assets
and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), to fiscal years, and interim periods
within those fiscal years, beginning after November 15, 2008. We do not expect the adoption of FSP
FAS 157-2 will have a material impact on our financial position, results of operations, or cash
flows.
- 55 -
SFAS 160
, NonControlling Interests in Consolidated Financial Statements
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 160,
NonControlling Interests in Consolidated Financial
Statements
FAS 160 establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and deconsolidation of a subsidiary. The provisions of FAS 160 are effective for
the fiscal year beginning January 1, 2009. FAS 160 will change the presentation of our
noncontrolling interests in our balance sheet and income statement. Specifically, noncontrolling
interests will now appear as a separate component of consolidated equity in our balance sheet
rather than a mezzanine item between liabilities and equity. Further, earnings and other
comprehensive income will be attributed to both the controlling and noncontrolling interests.
Earnings per share will continue to be calculated based on net income attributable to our
controlling interest. We do not expect the adoption of FAS 160 will have a material impact on our
financial position, results of operations, or cash flows.
SFAS 161,
Disclosures about Derivative Instruments and Hedging Activities"
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging
Activities.
FAS 161 amends and expands the disclosure requirements related to derivative
instruments and hedging activities. The Statement requires qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. The provisions of FAS 161 are effective for the fiscal year
beginning January 1, 2009. We do not expect the adoption of FAS 161 will have a material impact on
our financial position, results of operations, or cash flows.
EITF No. 07-5,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entitys Own Stock"
In June 2008 the FASB ratified EITF consensus No. 07-5. Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5). The objective of this Issue is
to provide guidance for determining whether an equity-linked financial instrument (or embedded
feature) is indexed to an entitys own stock. Such determination is required when assessing whether
certain financial instruments should be accounted for as derivative instruments. This Issue is
effective for financial statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. We do not expect the adoption of EITF 07-5 will have a
material impact on our financial position, results of operations, or cash flows.
EITF No. 08-3,
Accounting by Lessees for Maintenance Deposits"
In June 2008, the FASB ratified EIFT consensus No. 08-3, Accounting by Lessees for Maintenance
Deposits (EITF 08-3). EITF 08-3 clarifies how a lessee accounts for a maintenance deposit under
an arrangement accounted for as a lease that is refunded only if the lessee performs specified
maintenance activities. This Issue is effective for financial statements issued for fiscal years
beginning after December 15, 2008. We do not expect the adoption of EITF 08-3 will have a material
impact on our financial position, results of operations, or cash flows.
EITF No. 08-4,
Transition Guidance for Conforming Changes to Issue No. 98-5"
In June 2008, the FASB ratified EITF consensus No. 08-4 Transition Guidance for Conforming Changes
to Issue No. 98-5 (EITF 08-4). EITF 08-4 provides guidance for accounting for convertible
securities with Beneficial Conversion Features that are in the money at the time off issuance. The
issue is effective for financial statements issued for fiscal years ending after December 15, 2008.
We do not expect the adoption of EITF 08-4 will have a material impact on our financial position,
results of operations, or cash flows.
- 56 -
See Note One to Consolidated Financial Statements Recent Accounting Pronouncements, Part II, Item
8.
Financial Risk Management
Foreign Exchange Risk
The functional currency of our international operating subsidiaries is generally the local
currency. 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 under Stockholders equity on the balance sheet. Foreign currency
transaction gains and losses, which historically have not been material, are included in interest
expense and other, net in the consolidated statements of operations. As of December 31, 2008, we
had identifiable net assets totaling $817.2 million worldwide. Of those net assets, $416.9 million
were associated with our foreign operations
.
As a global concern, we face exposure to 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 been related to sales and expenses in EMEA, Asia Pacific, and Latin America;
intercompany sublicense fees, intercompany messaging revenues and expenses and other intercompany
transactions which are denominated in a 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. Although the
impact of currency fluctuations on our financial results has generally been immaterial in the past,
there can be no guarantee the impact of currency fluctuations related to our intercompany messaging
revenues and expenses and other activities will not be material in the future.
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. Net foreign exchange transaction
gains (losses) included in interest expense and other, net were ($4.2) million, $0.3 million and
$0.3 million in 2008, 2007 and 2006, respectively. The realized loss of $4.2 million on our
outstanding forward contracts as of December 31, 2008 was due to fluctuation in foreign exchange
rates in September and October of 2008. The tables below provide information about our forward
contracts as of December 31, 2008 and 2007.
- 57 -
(Amounts in thousands except exchange rates)
|
|
|
|
|
|
|
|
|
|
|
US $
|
|
|
Average
|
|
Forward Contracts - As of December 31, 2008
|
|
Notional amount
|
|
|
Contract rate
|
|
Contracts for the sale of US Dollars and purchase of:
|
|
|
|
|
|
|
|
|
Canadian Dollars
|
|
$
|
1,473
|
|
|
|
0.8183
|
|
Euro
|
|
$
|
18,294
|
|
|
|
1.3965
|
|
Mexican Pesos
|
|
$
|
1,278
|
|
|
|
13.9255
|
|
Indian Rupee
|
|
$
|
2,016
|
|
|
|
48.6000
|
|
|
|
|
|
|
|
|
|
|
Contracts for the sale of GBP and purchase of:
|
|
|
|
|
|
|
|
|
South African Rand
|
|
$
|
8,943
|
|
|
|
13.7971
|
|
|
|
|
|
|
|
|
|
|
Contracts for the purchase of US Dollars and sale of:
|
|
|
|
|
|
|
|
|
British Pound
|
|
$
|
1,161
|
|
|
|
0.6889
|
|
Singapore Dollar
|
|
$
|
1,386
|
|
|
|
0.6931
|
|
|
|
|
|
|
|
|
|
|
Contracts for the purchase of Euros and sale of:
|
|
|
|
|
|
|
|
|
Swedish Krona
|
|
$
|
1,332
|
|
|
|
11.0047
|
|
Swiss Franc
|
|
$
|
2,804
|
|
|
|
1.4951
|
|
UK Pound
|
|
$
|
17,709
|
|
|
|
0.9621
|
|
Norwegian Krone
|
|
$
|
1,407
|
|
|
|
9.7286
|
|
Singapore Dollars
|
|
$
|
4,369
|
|
|
|
2.0138
|
|
South African Rand
|
|
$
|
9,710
|
|
|
|
13.2743
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,882
|
|
|
|
|
|
(Amounts in thousands except exchange rates)
|
|
|
|
|
|
|
|
|
|
|
US $
|
|
|
Average
|
|
Forward Contracts - As of December 31, 2007
|
|
Notional amount
|
|
|
Contract rate
|
|
Contracts for the sale of US Dollars and purchase of:
|
|
|
|
|
|
|
|
|
Canadian Dollars
|
|
$
|
18,438
|
|
|
|
1.0130
|
|
Euro
|
|
$
|
15,056
|
|
|
|
1.4618
|
|
Singapore Dollars
|
|
$
|
2,018
|
|
|
|
0.6957
|
|
|
|
|
|
|
|
|
|
|
Contracts for the sale of GBP and purchase of:
|
|
|
|
|
|
|
|
|
South African Rand
|
|
$
|
1,299
|
|
|
|
13.7194
|
|
|
|
|
|
|
|
|
|
|
Contracts for the purchase of US Dollars and sale of:
|
|
|
|
|
|
|
|
|
Japanese Yen
|
|
$
|
16,899
|
|
|
|
111.8400
|
|
British Pound
|
|
$
|
5,544
|
|
|
|
0.5051
|
|
Korean Won
|
|
$
|
1,814
|
|
|
|
937.2000
|
|
|
|
|
|
|
|
|
|
|
Contracts for the purchase of Euros and sale of:
|
|
|
|
|
|
|
|
|
Swedish Krona
|
|
$
|
524
|
|
|
|
9.4842
|
|
Swiss Franc
|
|
$
|
2,292
|
|
|
|
1.6572
|
|
UK Pound
|
|
$
|
19,585
|
|
|
|
0.7384
|
|
Norwegian Krone
|
|
$
|
3,388
|
|
|
|
7.9763
|
|
Australian Dollars
|
|
$
|
2,621
|
|
|
|
1.6718
|
|
Hong Kong Dollars
|
|
$
|
1,667
|
|
|
|
11.3904
|
|
South African Rand
|
|
$
|
2,466
|
|
|
|
10.1288
|
|
Malaysian Ringits
|
|
$
|
908
|
|
|
|
4.8268
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
94,519
|
|
|
|
|
|
- 58 -
Interest Income Rate and Investment Level Risk
Our investments consist primarily 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. Based on our intentions regarding investments, we
classify our investments as either held-to-maturity, available-for-sale or trading securities.
Held-to-maturity investments are reported on the balance sheet at amortized cost.
Available-for-sale and trading securities are reported at market value.
As a majority of our investments are classified as available-for-sale such securities are recorded
at fair value and unrealized holding gains and losses, net of the related tax effect, if any, are
not reflected in earnings but are reported as a separate component of other comprehensive income
(loss) until realized. Declines in fair value judged to be other than temporary are reflected in
earnings. Declines in fair value recorded as impairment losses in earnings have not been material
in any reporting period. Realized gains and losses are determined on the specific identification
method and are reflected in income.
Changes in the overall level of interest rates and investment levels affect our interest income
that is generated from our investments. For 2008 total interest income was $23.8 million with
investments yielding 3.63 percent on a worldwide basis on an average investment portfolio that
totaled $647 million. This interest rate level was down from the 4.48 percent yield earned during
2007. If interest rates fell by a similar amount (1.17 percent) in 2009, our interest income would
decline approximately $7.9 million assuming consistent investment levels.
The table below presents the cash, cash equivalents, cash investments, trading securities and the
related weighted average interest rates for our investment portfolio at December 31, 2008. The
cash, cash equivalents, cash investments, and trading securities balances approximate fair value at
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Weighted Average
|
|
(Dollars in Thousands)
|
|
Principal Amount
|
|
|
Interest Rate
|
|
Cash and cash equivalents
|
|
$
|
611,364
|
|
|
|
|
|
Cash investments
|
|
|
15,606
|
|
|
|
|
|
Trading securities
|
|
|
8,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
635,608
|
|
|
|
3.14
|
%
|
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, with the exception of failed auction securities described below. 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.
Failed Auction Securities
A small proportion of our investment portfolio is held in Auction Rate Securities with credit
ratings ranging from AA to AAA at the time of purchase. The securities, which met Sybases
investment guidelines at the time the investments were made, have failed to settle in auctions
since August 2007. ARS are floating rate securities with long-term nominal maturities of 25 to 30
years which are marketed by financial institutions with auction reset dates at 28 day intervals to
provide short term liquidity. The underlying collateral of the ARS we hold consists primarily of
corporate bonds, commercial paper, debt instruments issued by the U.S. Treasury and governmental
agencies, money market funds, asset backed securities, collateralized debt obligations, similar
assets, and in one instance, preferred stock in a bond insurance company. Certain of the ARS may
have direct or indirect investments in mortgages, mortgage related securities, or credit default
swaps. At December 31, 2008 we held approximately $15.5
million in estimated market value in ARS for which the reset auctions have failed. The par value of
these securities
- 59 -
is $28.9 million. The write-downs on these securities have been booked in Other
Income and Expense. In addition the investments currently lack short-term liquidity and we will not
be able to access these funds until a future auction for the ARS investments is successful or until
we sell the securities in a reasonable secondary market which currently does not exist. Therefore,
we have moved the balance sheet classification of these investments from short term to long term.
Any future evaluations by the credit agencies could result in downgrades to the credit ratings of
the ARS we hold. Based on our current cash, investment balances and expected operating cash flows,
we do not anticipate that the lack of short-term liquidity for the ARS to adversely affect our
ability to conduct business. See Note Two to Consolidated Financial Statements, Part II, Item 8.
Interest Expense Rate Risk
Borrowings, which were at fixed rates, as of December 31, 2008, were $460 million. Interest
expense was $11.5 million for 2008. Sybase might decide to borrow additional funds in the future.
The potential interest rates could be higher in the future than in our past borrowing. A 50 basis
point increase in interest rates of our borrowings subject to variable interest rate fluctuations
would increase our interest expense by $2.3 million annually. Additionally, as further discussed in
Note One to Consolidated Financial Statements, Part II, Item 8, FSP APB 14-1 takes effect January
1, 2009 and will increase the amount of interest expense we recognize.
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.
- 60 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
Report of Management on Internal Controls over Financial Reporting
|
|
|
62
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm on Internal Controls over
Financial Reporting
|
|
|
63
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
64
|
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2008 and 2007
|
|
|
65
|
|
|
|
|
|
|
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006
|
|
|
66
|
|
|
|
|
|
|
Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2008,
2007 and 2006
|
|
|
67
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006
|
|
|
68
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
69
|
|
- 61 -
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, 2008 based on the framework in Internal
ControlIntegrated 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, 2008 to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with generally accepted accounting principles. We reviewed the
results of managements assessment with the Audit Committee of our Board of Directors.
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.
Our internal control over financial reporting as of December 31, 2008 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, who expressed an unqualified opinion
on the effectiveness of internal control over financial reporting as stated in their report which
is included elsewhere herein.
- 62 -
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 Sybase, Inc.s internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal ControlIntegrated 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 in the accompanying
Report of Management on Internal Controls over Financial Reporting. Our responsibility is to
express an opinion on the Companys 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, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
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 companys 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
companys 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 companys 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, Sybase, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Sybase, Inc. as of December 31, 2008 and
2007, and the related consolidated statements of operations, stockholders equity, and cash flows
for each of the three years in the period ended December 31, 2008, and our report dated February
26, 2009 expressed an unqualified opinion thereon.
San Francisco, California
February 26, 2009
- 63 -
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,
2008 and 2007, and the related consolidated statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended December 31, 2008. 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 Companys 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, 2008 and 2007, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2008, 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, presents 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), Sybase, Inc.s internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26,
2009 expressed an unqualified opinion thereon.
San Francisco, California
February 26, 2009
- 64 -
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
(Dollars in thousands, except share and per share data)
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
611,364
|
|
|
$
|
604,808
|
|
Short-term cash investments
|
|
|
8,689
|
|
|
|
93,462
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and short-term cash investments
|
|
|
620,053
|
|
|
|
698,270
|
|
Restricted cash
|
|
|
2,773
|
|
|
|
3,424
|
|
Accounts receivable, less allowance for doubtful accounts of $3,888
(2007 - $3,735)
|
|
|
270,400
|
|
|
|
245,267
|
|
Deferred income taxes
|
|
|
45,524
|
|
|
|
37,979
|
|
Prepaid income taxes
|
|
|
4,932
|
|
|
|
17,604
|
|
Prepaid expenses and other current assets
|
|
|
34,208
|
|
|
|
25,182
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
977,890
|
|
|
|
1,027,726
|
|
Long-term cash investments
|
|
|
15,513
|
|
|
|
36,637
|
|
Restricted long-term cash investments
|
|
|
41
|
|
|
|
|
|
Property, equipment and improvements, net
|
|
|
62,263
|
|
|
|
64,841
|
|
Deferred income taxes
|
|
|
26,474
|
|
|
|
10,038
|
|
Capitalized software, net
|
|
|
82,400
|
|
|
|
74,278
|
|
Goodwill
|
|
|
527,151
|
|
|
|
533,339
|
|
Other purchased intangibles, less accumulated amortization of $177,839
(2007 $147,311)
|
|
|
113,970
|
|
|
|
130,608
|
|
Other assets
|
|
|
29,715
|
|
|
|
36,016
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,835,417
|
|
|
$
|
1,913,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
26,300
|
|
|
$
|
30,290
|
|
Accrued compensation and related expenses
|
|
|
80,031
|
|
|
|
63,852
|
|
Accrued income taxes
|
|
|
17,562
|
|
|
|
273
|
|
Other accrued liabilities
|
|
|
124,050
|
|
|
|
124,849
|
|
Deferred revenue
|
|
|
211,903
|
|
|
|
203,734
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
459,846
|
|
|
|
422,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
44,788
|
|
|
|
44,669
|
|
Deferred income taxes
|
|
|
11,898
|
|
|
|
14,115
|
|
Long-term tax liability
|
|
|
32,082
|
|
|
|
30,807
|
|
Long-term deferred revenue
|
|
|
4,535
|
|
|
|
4,937
|
|
Minority interest
|
|
|
5,095
|
|
|
|
5,147
|
|
Convertible subordinated notes
|
|
|
460,000
|
|
|
|
460,000
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 8,000,000 shares authorized; none
Issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 200,000,000 shares authorized;
105,337,362 shares issued and 79,571,991 shares outstanding (2007
105,337,362 shares issued and 87,210,339 shares outstanding)
|
|
|
105
|
|
|
|
105
|
|
Additional paid-in capital
|
|
|
1,054,517
|
|
|
|
1,019,930
|
|
Accumulated earnings
|
|
|
367,286
|
|
|
|
241,329
|
|
Accumulated other comprehensive income
|
|
|
36,912
|
|
|
|
66,954
|
|
Cost of 25,765,371 shares of treasury stock (2007 18,127,023 shares)
|
|
|
(641,647
|
)
|
|
|
(397,508
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
817,173
|
|
|
|
930,810
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,835,417
|
|
|
$
|
1,913,483
|
|
|
|
|
|
|
|
|
See accompanying notes.
- 65 -
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31
|
|
(In thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
383,661
|
|
|
$
|
344,807
|
|
|
$
|
326,751
|
|
Services
|
|
|
572,090
|
|
|
|
544,209
|
|
|
|
531,172
|
|
Messaging
|
|
|
176,179
|
|
|
|
136,514
|
|
|
|
18,240
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,131,930
|
|
|
|
1,025,530
|
|
|
|
876,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees
|
|
|
67,342
|
|
|
|
53,114
|
|
|
|
50,540
|
|
Cost of services
|
|
|
160,604
|
|
|
|
157,790
|
|
|
|
152,962
|
|
Cost of messaging
|
|
|
107,757
|
|
|
|
82,598
|
|
|
|
11,097
|
|
Sales and marketing
|
|
|
285,376
|
|
|
|
266,995
|
|
|
|
263,281
|
|
Product development and engineering
|
|
|
146,932
|
|
|
|
152,571
|
|
|
|
149,510
|
|
General and administrative
|
|
|
138,980
|
|
|
|
129,319
|
|
|
|
106,025
|
|
Amortization of other purchased intangibles
|
|
|
14,716
|
|
|
|
13,783
|
|
|
|
7,331
|
|
Cost of restructuring
|
|
|
167
|
|
|
|
797
|
|
|
|
1,653
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
921,874
|
|
|
|
856,967
|
|
|
|
742,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
210,056
|
|
|
|
168,563
|
|
|
|
133,764
|
|
Interest income
|
|
|
23,813
|
|
|
|
33,521
|
|
|
|
38,662
|
|
Interest expense and other income, net
|
|
|
(26,768
|
)
|
|
|
(12,144
|
)
|
|
|
(11,028
|
)
|
Minority interest
|
|
|
51
|
|
|
|
12
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
207,152
|
|
|
|
189,952
|
|
|
|
161,317
|
|
Provision for income taxes
|
|
|
68,581
|
|
|
|
41,102
|
|
|
|
66,253
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
138,571
|
|
|
$
|
148,850
|
|
|
$
|
95,064
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
1.69
|
|
|
$
|
1.65
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income
per share
|
|
|
82,060
|
|
|
|
90,019
|
|
|
|
89,557
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
1.64
|
|
|
$
|
1.61
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income
per share
|
|
|
84,455
|
|
|
|
92,598
|
|
|
|
92,251
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
- 66 -
Consolidated Statements of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three years ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Unearned
|
|
|
|
|
|
|
Outstanding
|
|
|
Par
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Stock
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
capital
|
|
|
Earnings/
|
|
|
Income/(Loss)
|
|
|
Stock
|
|
|
Compensation
|
|
|
Total
|
|
(Dollars and shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
90,531
|
|
|
$
|
105
|
|
|
$
|
953,771
|
|
|
$
|
16,195
|
|
|
$
|
19,231
|
|
|
$
|
(277,510
|
)
|
|
$
|
(12,962
|
)
|
|
$
|
698,830
|
|
Common stock issued and
treasury stock reissued under stock option, stock purchase plans and other
|
|
|
3,467
|
|
|
|
|
|
|
|
|
|
|
|
(18,744
|
)
|
|
|
|
|
|
|
69,317
|
|
|
|
|
|
|
|
50,573
|
|
Treasury stock repurchased due to Forfeiture in restricted stock option plan
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
302
|
|
|
|
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
(3
|
)
|
Acquisition of treasury stock
|
|
|
(2,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,815
|
)
|
|
|
|
|
|
|
(59,815
|
)
|
Reclassification of unearned stock compensation balance upon adoption of SFAS 123(R)
|
|
|
|
|
|
|
|
|
|
|
(12,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,962
|
|
|
|
|
|
Stock-based compensation restricted Stock
|
|
|
|
|
|
|
|
|
|
|
8,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,141
|
|
Stock-based compensation all other
|
|
|
|
|
|
|
|
|
|
|
13,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,585
|
|
Tax benefit from stock-based compensation plans
|
|
|
|
|
|
|
|
|
|
|
15,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,137
|
|
|
|
|
Subtotal
|
|
|
91,282
|
|
|
|
105
|
|
|
|
977,672
|
|
|
|
(2,247
|
)
|
|
|
19,231
|
|
|
|
(268,313
|
)
|
|
|
|
|
|
|
726,448
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,064
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,521
|
|
|
|
|
|
|
|
|
|
|
|
21,521
|
|
Unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,683
|
|
|
|
|
Balances at December 31, 2006
|
|
|
91,282
|
|
|
$
|
105
|
|
|
$
|
977,672
|
|
|
$
|
92,817
|
|
|
$
|
40,850
|
|
|
$
|
(268,313
|
)
|
|
$
|
|
|
|
$
|
843,131
|
|
|
|
|
Common stock issued and treasury stock reissued under stock option, stock purchase plans and other
|
|
|
2,514
|
|
|
|
|
|
|
|
3,985
|
|
|
|
(338
|
)
|
|
|
|
|
|
|
37,543
|
|
|
|
|
|
|
|
41,190
|
|
Acquisition of treasury stock
|
|
|
(6,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(166,738
|
)
|
|
|
|
|
|
|
(166,738
|
)
|
Stock-based compensation restricted Stock
|
|
|
|
|
|
|
|
|
|
|
10,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,155
|
|
Stock-based compensation all other
|
|
|
|
|
|
|
|
|
|
|
13,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,889
|
|
Tax benefit from stock-based compensation plans
|
|
|
|
|
|
|
|
|
|
|
14,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,229
|
|
|
|
|
Subtotal
|
|
|
87,210
|
|
|
|
105
|
|
|
|
1,019,930
|
|
|
|
92,479
|
|
|
|
40,850
|
|
|
|
(397,508
|
)
|
|
|
|
|
|
|
755,856
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,850
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,881
|
|
|
|
|
|
|
|
|
|
|
|
26,881
|
|
Unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(540
|
)
|
|
|
|
|
|
|
|
|
|
|
(540
|
)
|
Adjustment to apply FASB Statement No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,954
|
|
|
|
|
Balances at December 31, 2007
|
|
|
87,210
|
|
|
$
|
105
|
|
|
$
|
1,019,930
|
|
|
$
|
241,329
|
|
|
$
|
66,954
|
|
|
$
|
(397,508
|
)
|
|
$
|
|
|
|
$
|
930,810
|
|
|
|
|
Common stock issued and treasury stock reissued under stock option, stock purchase plans and other
|
|
|
3,313
|
|
|
|
|
|
|
|
594
|
|
|
|
(12,614
|
)
|
|
|
|
|
|
|
61,972
|
|
|
|
|
|
|
|
49,952
|
|
Acquisition of treasury stock
|
|
|
(10,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(306,111
|
)
|
|
|
|
|
|
|
(306,111
|
)
|
Stock-based compensation restricted Stock
|
|
|
|
|
|
|
|
|
|
|
10,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,236
|
|
Stock-based compensation all other
|
|
|
|
|
|
|
|
|
|
|
12,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,279
|
|
Tax benefit from stock-based compensation plans
|
|
|
|
|
|
|
|
|
|
|
11,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,478
|
|
|
|
|
Subtotal
|
|
|
79,572
|
|
|
|
105
|
|
|
|
1,054,517
|
|
|
|
228,715
|
|
|
|
66,954
|
|
|
|
(641,647
|
)
|
|
|
|
|
|
|
708,644
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,571
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,877
|
)
|
|
|
|
|
|
|
|
|
|
|
(30,877
|
)
|
Unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,529
|
|
|
|
|
Balances at December 31, 2008
|
|
|
79,572
|
|
|
$
|
105
|
|
|
$
|
1,054,517
|
|
|
$
|
367,286
|
|
|
$
|
36,912
|
|
|
$
|
(641,647
|
)
|
|
$
|
|
|
|
$
|
817,173
|
|
|
|
|
See accompanying notes.
- 67 -
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31
|
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
138,571
|
|
|
$
|
148,850
|
|
|
$
|
95,064
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
105,915
|
|
|
|
87,923
|
|
|
|
72,803
|
|
Minority interest in income of subsidiaries
|
|
|
(51
|
)
|
|
|
(12
|
)
|
|
|
81
|
|
Loss on disposal of assets
|
|
|
2,498
|
|
|
|
37
|
|
|
|
811
|
|
Impairment of investment in auction rate securities
|
|
|
13,387
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(5,603
|
)
|
|
|
(14,008
|
)
|
|
|
(1,306
|
)
|
Stock-based compensation restricted stock
|
|
|
10,236
|
|
|
|
10,155
|
|
|
|
8,141
|
|
Stock-based compensation all other
|
|
|
12,279
|
|
|
|
13,889
|
|
|
|
13,585
|
|
Tax benefit from stock-based compensation plans
|
|
|
11,478
|
|
|
|
14,229
|
|
|
|
15,137
|
|
Excess tax benefit from stock-based compensation plans
|
|
|
(11,182
|
)
|
|
|
(14,485
|
)
|
|
|
(9,569
|
)
|
Amortization of note issuance costs
|
|
|
1,969
|
|
|
|
1,969
|
|
|
|
1,969
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(25,985
|
)
|
|
|
(23,232
|
)
|
|
|
6,005
|
|
Prepaid income taxes
|
|
|
12,672
|
|
|
|
(17,604
|
)
|
|
|
|
|
Other current assets
|
|
|
(8,963
|
)
|
|
|
372
|
|
|
|
3,552
|
|
Other assets operating
|
|
|
4,218
|
|
|
|
2,202
|
|
|
|
(2,406
|
)
|
Accounts payable
|
|
|
(4,740
|
)
|
|
|
6,784
|
|
|
|
(7,838
|
)
|
Accrued compensation and related expenses
|
|
|
7,508
|
|
|
|
3,708
|
|
|
|
2,427
|
|
Accrued income taxes
|
|
|
27,509
|
|
|
|
12,852
|
|
|
|
13,237
|
|
Other accrued liabilities
|
|
|
(5,706
|
)
|
|
|
9,617
|
|
|
|
(828
|
)
|
Deferred revenues
|
|
|
7,767
|
|
|
|
11,288
|
|
|
|
928
|
|
Other liabilities
|
|
|
1,737
|
|
|
|
(520
|
)
|
|
|
2,817
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
295,514
|
|
|
|
254,014
|
|
|
|
214,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) Decrease in restricted cash
|
|
|
610
|
|
|
|
2,590
|
|
|
|
(641
|
)
|
Purchases of cash investments
|
|
|
(16,275
|
)
|
|
|
(280,632
|
)
|
|
|
(468,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of cash investments
|
|
|
38,299
|
|
|
|
241,292
|
|
|
|
282,403
|
|
Sales of cash investments
|
|
|
80,982
|
|
|
|
190,778
|
|
|
|
365,962
|
|
Business combinations, net of cash acquired
|
|
|
(35,368
|
)
|
|
|
(6,848
|
)
|
|
|
(399,676
|
)
|
Purchases of property, equipment and improvements
|
|
|
(32,320
|
)
|
|
|
(23,839
|
)
|
|
|
(18,347
|
)
|
Capitalized software development costs
|
|
|
(50,706
|
)
|
|
|
(36,431
|
)
|
|
|
(37,531
|
)
|
(Increase) Decrease in other assets investing
|
|
|
138
|
|
|
|
(188
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
(14,640
|
)
|
|
|
86,722
|
|
|
|
(276,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term obligations
|
|
|
(910
|
)
|
|
|
(1,582
|
)
|
|
|
(403
|
)
|
Net proceeds from the issuance of common stock and
reissuance of treasury stock
|
|
|
49,953
|
|
|
|
41,190
|
|
|
|
50,570
|
|
Purchases of treasury stock
|
|
|
(306,111
|
)
|
|
|
(166,738
|
)
|
|
|
(59,815
|
)
|
Excess tax benefit from stock-based compensation plans
|
|
|
11,182
|
|
|
|
14,485
|
|
|
|
9,569
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(245,886
|
)
|
|
|
(112,645
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(28,432
|
)
|
|
|
21,414
|
|
|
|
18,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
6,556
|
|
|
|
249,505
|
|
|
|
(43,438
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
604,808
|
|
|
|
355,303
|
|
|
|
398,741
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
611,364
|
|
|
$
|
604,808
|
|
|
$
|
355,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
9,543
|
|
|
$
|
9,663
|
|
|
$
|
9,516
|
|
Income taxes paid, net of refunds
|
|
$
|
25,643
|
|
|
$
|
43,345
|
|
|
$
|
34,442
|
|
See accompanying notes.
- 68 -
Notes to Consolidated Financial Statements
Note One: Summary of Significant Accounting Policies
The Company
Sybase, Inc. (Sybase or the Company) enables the Unwired Enterprise for customers and partners by
delivering enterprise and mobile software solutions for information management, development and
integration. Sybase solutions enable information to securely move back and forth from the data
center to the end device, anytime and anywhere.
The Companys business was organized into three business segments: Infrastructure Platform Group
(IPG), which principally focuses on enterprise class database servers, integration and development
products; iAnywhere Solutions, Inc. (iAS), which provides mobile device management, mobile
middleware platforms, database, synchronization, and Bluetooth and infrared protocol technologies;
and Sybase 365 (SY365), which provides application services that allows customers to easily deliver
and financially settle mobile data and messages, including short message services or SMS,
multimedia messaging services or MMS, and GPRS roaming exchange services or GRX.
Principles of Consolidation
The consolidated financial statements include the accounts of Sybase and its majority owned
subsidiaries. All significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements. Management is also required to make certain judgments that
affect the reported amounts of revenues and expenses during the reporting period. Sybase
periodically evaluates its estimates including those relating to revenue recognition, impairments
of investments, goodwill and intangible assets, the allowance for doubtful accounts, capitalized
software, income taxes, restructuring, stock-based compensation, litigation and other
contingencies. The Company bases its estimates on historical experience, observable and
unobservable inputs under the 3-level SFAS 157 framework, and various other assumptions that are
believed to be reasonable based on the specific circumstances. The Companys management has
discussed these estimates with the Audit Committee of Sybases Board of Directors. These estimates
and assumptions form the basis for making judgments about the carrying value of certain assets and
liabilities that are not readily apparent from other sources. Actual results could differ from
these estimates.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consist primarily of amounts due to the Company from its normal business
activities. The Company maintains an allowance for doubtful accounts to reflect the expected
non-collection of accounts receivable based on past collection history and specific risks
identified in the portfolio. Additional allowances might be required if deteriorating economic
conditions or other factors affect Sybase customers ability to make timely payments.
Concentration of Credit Risk
Financial instruments that are potentially subject to concentrations of credit risk consist
primarily of cash and cash equivalents, cash investments and trade receivables. Investment
policies have been designed to limit investments to triple-A credit instrument issuers at the time
of purchase. As of December 31, 2008, investments classified as long-term cash investments includes
six auction rate securities (ARS) with a par value of $28.9 million at the time of purchase. ARS
are floating rate securities with long-term nominal maturities which are marketed by financial
institutions with auction reset dates at 28 day intervals to provide short term liquidity.
Beginning in August 2007 and into September 2007, each of ARS auctions began to fail. The failed
auctions initially have resulted in higher interest rates being earned on these investments than if
the auctions had not failed, but there can be no assurance that such higher interest
levels will be maintained. In addition the investments currently lack short-term liquidity. The
Company will
- 69 -
not be able to access these funds until a future auction for the ARS investments is
successful or until it sells the securities in a secondary market which currently does not exist.
See Note Two Financial Instruments. The Company does not require collateral to secure accounts
receivable. The risk with respect to trade receivables is mitigated by credit evaluations the
Company performs on its customers, the short duration of its payment terms and by the
diversification of the Companys customer base.
As of December 31, 2008 the Company invested $493.1 million in various money market funds and in
various geographies. FDIC insurance coverage related to these investments is insignificant.
Capitalized Software
The Company capitalizes software development costs in accordance with SFAS No. 86, Accounting for
Costs of Computer Software to be Sold, Leased or Otherwise Marketed, (SFAS 86), under which
certain software development costs incurred subsequent to the establishment of technological
feasibility may be capitalized and amortized over the estimated lives of the related products. The
Company determines technological feasibility to be established upon the internal release of a
detailed program design as specified by SFAS 86. Upon the general release of the product to
customers, development costs for that product are amortized over periods not exceeding three years,
based on the estimated economic life of the product. Capitalized software costs amounted to $409.8
million and $359.1 million, at December 31, 2008 and 2007, respectively, and related accumulated
amortization was $327.4 million, and $284.8 million, respectively. Capitalized software
amortization and write-off charges included in cost of license fees were $42.9 million, $33.1
million and $31.2 million for 2008, 2007 and 2006, respectively.
SFAS 86 also requires that the unamortized capitalized costs of a computer software product be
compared to the net realizable value of such product at each reporting date. To the extent the
unamortized capitalized cost exceeds the net realizable value of a software product based upon its
estimated future gross revenues reduced by estimated future costs of completing and disposing of
the product, the excess is written off. If the estimated future gross revenue associated with
certain of the Companys software products were to be reduced, write-offs of capitalized software
costs might be required. Amortization of capitalized software cost includes write-offs of $4.1
million in 2008. There were no significant write-offs in 2007 or 2006.
Property, Equipment and Improvements
Property, equipment and improvements are stated at cost less accumulated depreciation. Major
renewals and improvements are capitalized, and minor replacements, maintenance and repairs are
charged to current operations. Depreciation and amortization are computed using the straight line
method over the estimated useful lives of the assets, while leasehold improvements are amortized
over the shorter of the estimated useful life of the asset or the associated lease term. The
Company includes amortization of assets that are recorded under capital leases in depreciation
expense.
Costs related to internally developed software and software purchased for internal use, which are
required to be capitalized pursuant to Statement of Position (SOP) No. 98-1, Accounting for Costs
of Computer Software Developed or Obtained for Internal Use, are included in property, equipment
and improvements. Such amounts are amortized over a three-year period which is the estimated
economic life, from the time they are placed in service.
Goodwill and Other Purchased Intangible Assets
The Company accounts for goodwill and other purchased intangible assets in accordance with SFAS No.
142, Goodwill and Other Intangible Assets, (SFAS 142). The Company conducted the annual
impairment testing required by SFAS 142 of the IPG and iAS operating units as of December 31, 2008,
2007, and 2006 and for the SY365 operating unit as of December 31, 2008 and 2007. The analysis for
these years did not indicate an impairment for any of the Companys reporting units. Therefore, no
impairment loss was recognized for these years.
- 70 -
Other purchased intangible assets have generally resulted from business combinations accounted for
as purchases (see Note Eleven below). Other purchased intangibles with determinate lives are
amortized using the straight-line method over periods of 3 to 10 years to align with timing of
expected future cash flows. Other purchased intangibles with indeterminate lives (e.g., trade
names) are not amortized.
Impairment of Long-Lived Assets
The Company complies with the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, (SFAS 144) which generally requires impairment losses to be
recorded on long-lived assets (excluding goodwill) used in operations, such as property, equipment
and improvements, and other purchased intangible assets, when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are less than the
carrying amount of the assets. In 2008, the Company wrote off $4.5 million of certain purchased
technologies and $2.5 million of internal use software. There were no such significant impairment
losses in 2007. Impairment losses of internal use software were $1.5 million in 2006.
Revenue Recognition
Prior to the fourth quarter of 2006, the Company derived revenues from two primary sources: the
licensing of software, primarily under perpetual software licenses, which are recorded as license
fee revenue; and the provision of services which primarily include technical support revenues,
consulting, and education revenues. Subsequent to the acquisition of Mobile 365, the Company also
derived revenues from messaging transactions.
License and Services Revenues
The Company recognizes revenue in accordance with Statement of Position (SOP) 97-2, Software
Revenue Recognition, 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 or SEC
Staff Accounting Bulletin, or SAB, No. 104, Revenue Recognition. The Company licenses 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) collectibility is reasonably assured. If the fee is not
fixed or determinable, revenue is recognized as payments become due from the customer and all other
revenue recognition criteria are met.
In software arrangements that include rights to multiple software products and/or services, the
Company allocates the total arrangement fee among each of the deliverables using the residual
method, under which revenue is allocated to undelivered elements based on vendor-specific objective
evidence of fair value of such undelivered elements and the residual amounts of revenue are
allocated to delivered elements.
Fees from licenses sold together with consulting services are generally recognized upon shipment
provided that the above criteria are met, payment of the license fees are not dependent upon the
performance of the services, and the consulting services are not essential to the functionality of
the licensed software. If the services are essential to the functionality of the software; payment
of the license fees are dependent upon the performance of the services; the arrangement includes
milestones or customer specific acceptance criteria; or the services include significant
modification or customization of the software both the software license and consulting fees are
recognized under the percentage of completion method of accounting. The Company uses labor hours
to estimate the progress to completion. In order to apply the percentage of completion method,
management is required to estimate the number of hours needed to complete a particular project and
revenues are recognized based on the percentage of total contract hours as they are completed while
costs are recognized as incurred. As a result, recognized revenues and profits are subject to
revisions as the project progresses to completion. When the total cost estimate associated with a
contract accounted for under the percentage of completion method exceeds revenues, the Company
accrues for the estimated loss based on the amount its estimated cost of completing the contract
exceeds the applicable revenues.
- 71 -
Sublicense fees are recognized as reported to the Company by its licensees. License fee revenues
from sublicense transactions for certain application development and data access tools are
recognized upon direct shipment to the end user or direct shipment to the reseller for the end
user. If collectibility is not reasonably assured, revenue is recognized when the fee is collected
and all other revenue recognition criteria are met.
Technical support revenues are recognized ratably over the term of the related agreements, which in
most cases is one year. Revenues from consulting services under time and materials contracts and
for education are recognized as services are performed. Revenues from other contract services
(e.g., fixed price arrangements) are recognized based on the proportional performance of the
project, with performance measured based on hours of work performed.
Message Revenues
The Company recognizes messaging revenue in accordance with SAB No. 104, Emerging Issues Task
Force, No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21) and EITF,
No. 99-19,
Reporting Revenue Gross as a Principal Versus Net as an Agent
(EITF 99-19). The
Company recognizes revenue when (a) there is persuasive evidence of an arrangement; (b) the
service has been provided to the customer; (c) the amount of the fees to be paid by the
customer is fixed and determinable; and (d)) the collection of the fees is reasonable assured.
The Company generates a significant portion of its messaging revenue from per message transaction
fees and, to a lesser extent, from fixed price messaging arrangements providing for the
delivery of an unlimited number of messages for a specified period of time, and revenue share
agreements related to third party content. Assuming all other criteria have been met the
Company recognizes revenue from transaction fees based upon the number of messages
successfully processed by its platforms and delivered in accordance with the terms of its
arrangements. The Company recognizes revenue from the fixed price messaging arrangements
ratably over the period of time specified in the agreement
In some instances mobile operators, content providers, and other enterprises enter into revenue
sharing arrangements with the Company. Under a standard revenue sharing transaction the Company
delivers content from a third party provider to the cell phone of a mobile operators subscriber.
Third party content includes, among other, ringtones, wallpapers, interactive games, competitions,
directory inquiry services, and information services. The subscriber is invoiced by their mobile
operator, who upon receipt of payment, remits a portion of the charge to the Company. Upon payment
from the mobile operator, the Company remits payment to the third party content provider. In
accordance with EITF 99-19, the Company has determined that it acts as an agent under these revenue
sharing arrangements and accordingly, record as revenue the net amount retained by the Company. The
net amount retained by the Company reflects the gross amount billed the operator less amounts due
to the third party content provider.
Foreign Currencies
The Company translates the accounts of its foreign subsidiaries using the local foreign currency as
the functional currency. The assets and liabilities of foreign subsidiaries are translated into
U.S. dollars using year-end exchange rates, while revenues and expenses are translated into U.S.
dollars using the average exchange rate for the period. Gains and losses from this translation
process are credited or charged to the accumulated other comprehensive loss account included in
stockholders equity. Foreign currency transaction gains and losses are included in interest
expense and other, net in the consolidated statements of operations.
In order to reduce the effect of foreign currency fluctuations on its results of operations, the
Company hedges its exposure on certain transactional balances that are denominated in foreign
currencies through the use of short-term foreign currency forward exchange contracts. For the most
part, these exposures consist of inter-company balances between Sybase entities resulting from
software license royalties, accounts receivable, intercompany messaging revenues and expenses, and
certain management, research, and administrative services. These exposures are denominated in many
foreign currencies, primarily the Euro, South African rand, UK pound, and Singapore dollar. These
forward exchange
- 72 -
contracts are recorded at fair value and the resulting gains and the losses, as well as the
associated premiums or discounts, are recorded in interest expense and other, net in the
consolidated statements of operations and are offset by corresponding gains and losses on hedged
balances. All foreign exchange contracts have a life of approximately 30 days. The Company does
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. Net foreign exchange transaction gains
(losses) included in interest expense and other, net were ($4.2) million, $0.3 million and $0.3
million in 2008, 2007 and 2006, respectively.
Income Taxes
The asset and liability approach is used to account for income taxes by recognizing deferred tax
assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax base of assets and liabilities. The Company records a valuation
allowance to reduce deferred tax assets to the amount that is more likely than not (a likelihood of
more than 50 percent) to be realized. The Company has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for the valuation allowance. On
January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (Interpretation No. 48) to account for uncertainty in income taxes recognized in
the Companys financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.
Refer to Note Eight below.
Stock-Based Compensation
The Companys stock-based employee compensation plans are described in Note Seven Stockholders
Equity.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R)
using the modified prospective transition method. Under that transition method, compensation
expense that was recognized for 2006 included: (a) compensation expense for all stock-based
instruments granted prior to, but not yet vested as of, January 1, 2006, based on the grant date
fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation
expense for all stock-based instruments granted on or after January 1, 2006, based on the grant
date fair value estimated in accordance with the provisions of SFAS 123(R). See Note Seven for
information on the impact of the Companys adoption of SFAS 123(R) and the assumptions the Company
used to calculate the fair value of stock-based employee compensation.
Net Income Per Share
Shares used in computing basic and diluted net income per share are based on the weighted average
shares outstanding in each period, excluding treasury stock. Basic net income per share excludes
any dilutive effects of stock options, stock option appreciation rights, unvested restricted stock,
and the Companys convertible subordinated debt. Diluted net income per share includes the
dilutive effect of the assumed exercise of stock options, vesting of restricted stock, and stock
appreciation rights using the treasury stock method. The dilutive effect of stock options,
restricted stock, and stock appreciation rights includes performance based restricted common stock
granted to certain executives and employees of 0.5 million shares and 0.4 million shares in 2008
and 2007, respectively. The computation of diluted earnings per share includes the dilutive effects
of the Companys convertible subordinated debt due to the appreciation of the Companys stock
price, if any. Such computation includes computing the excess, if any, of the average price of the
Companys common stock over the conversion price of $24.99 per share. The Company calculates the
average stock price in accordance with the terms of the debt agreement. The Company has
consistently applied this policy to all periods in which the convertible debt had a dilutive effect
on earnings per share. In 2007, the computation of diluted earnings per share includes the dilutive
effects of the Companys convertible subordinated debt due to the appreciation of the Companys
stock price in which the average price of the Companys common stock during the final portion of
the fourth quarter exceeded the conversion price. As the average price of the Companys stock did
not exceed the conversion price in the fourth quarter of 2008 or 2006, the 2008 and 2006
computations of diluted earnings per share excludes the dilutive effects of the Companys
convertible debt. See Note Fifteen Convertible Subordinated Notes.
- 73 -
The following shows the computation of basic and diluted net income per share at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2008
|
|
2007
|
|
2006
|
Net income
|
|
$
|
138,571
|
|
|
$
|
148,850
|
|
|
$
|
95,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income
Per share
|
|
|
82,060
|
|
|
|
90,019
|
|
|
|
89,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, restricted
stock, and stock appreciation rights
|
|
|
2,395
|
|
|
|
2,109
|
|
|
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of convertible subordinated debt
|
|
|
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income
Per share
|
|
|
84,455
|
|
|
|
92,598
|
|
|
|
92,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
1.69
|
|
|
$
|
1.65
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
1.64
|
|
|
$
|
1.61
|
|
|
$
|
1.03
|
|
The anti-dilutive weighted average shares that were excluded from the shares used in computing
diluted net income per share, were 2.4 million, 3.1 million and 5.2 million in 2008, 2007 and 2006,
respectively. The Company excludes shares with combined exercise prices and unamortized fair
values that are greater than the average market price for the Companys common stock from the
calculation of diluted net income per share because their effect is anti-dilutive.
Comprehensive Income
Comprehensive income includes net earnings and other changes to stockholders equity not reflected
in net income. The Companys components of other comprehensive income consist of foreign currency
translation adjustments, unrealized gain/loss on available-for-sale securities, and adjustment to
apply FASB Statement No. 158.
Advertising
The Company expenses its advertising costs as they are incurred. The Companys advertising
expenses for the years ended December 31, 2008, 2007 and 2006 were approximately $6.3 million, $6.7
million and $11.1 million, respectively.
Recent Accounting Pronouncements
FSP APB 14-1,
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion
In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments that
May be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1) which is
effective January 1, 2009. FSP APB 14-1 requires issuers of convertible debt instruments that may
be settled in cash upon conversion (including partial cash settlement) to separately account for
the liability and equity (conversion feature) components of the instruments. Retrospective adoption
is required. As a result, interest expense will be imputed and recognized on the Companys
convertible subordinated notes (Notes) based upon the difference between the Notes 1.75 percent
coupon rate and the nonconvertible debt borrowing rate which would have applied to the Company in
February of 2005 when it issued the Notes. This imputed interest will result in lower net income.
Upon adoption of FSP APB 14-1 in 2009, the Company will record a debt discount, which will be
amortized to interest expense through February 22, 2010, representing the first date on which
holders of the Notes may require the Company to repurchase all or a portion of their notes. In
addition, the Company will record a non cash increase in interest expense for 2007 and 2008 of
$16.8 million and $17.8 million, respectively. This will result in a non cash
- 74 -
after tax reduction
in diluted earnings per common share of approximately $0.10 and $0.12 in 2007 and 2008,
respectively. In addition, the carrying amount of the Notes will be retrospectively adjusted to
reflect a discount of $85.0 million on the date of issuance, with an offsetting increase in
additional paid-in capital of $51.0 million and deferred tax liability of $34.0 million.
SFAS 141(R),
Business Combinations
In December 2007, the FASB issued Statement of Financial Accounting Standards (FAS) No. 141
(Revised 2007), Business Combinations (FAS 141(R)). FAS 141(R) establishes principles and
requirements for how an acquirer in a business combination recognizes and measures the tangible and
intangibles assets acquired. FAS 141(R) will result in a number of significant changes from current
practice, including: the definitions of a business and a business combination will be expanded;
contingent considerations will be recognized at their fair value on the acquisition date and, for
certain arrangements, changes in fair value will be recognized in earnings until settlement; and
acquisition-related transaction and restructuring costs will be expensed rather than treated as
part of the cost of the acquisition. FAS 141(R) also establishes disclosure requirements to enable
users to evaluate the nature and financial effects of the business combination. Except for certain
income tax accounting, FAS 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. Earlier adoption is not permitted. Generally, the effects of SFAS 141(R)
will depend on future acquisitions. FAS 141(R) applies retrospectively to the Companys deferred
tax asset valuation allowance relating primarily to our acquired federal tax loss carryforwards.
If in the future the realization of these tax loss carryforwards is evaluated as being more likely
than not, then under current generally accepted accounting principles the tax benefit would have
been credited to goodwill. Under FAS 141(R), any tax benefit will now be credited to the Companys
operations. As of December 31, 2008, approximately $22 million of our valuation allowance relates
to acquired federal tax loss carryforwards.
FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets
In April 2008, the FASB issued FSP FAS 142-3, Determination of Useful Life of Intangible Assets
(FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing the
renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under FAS 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 also requires expanded
disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is
effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. As
the Company evaluates the useful lives of recognized intangible assets it will apply this FSP and
expand its disclosures accordingly.
FSP FAS 157-2,
Effective Date of FASB Statement No. 157
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB
Statement No. 157 (FSP 157-2), to partially defer FASB Statement No. 157, Fair Value
Measurements (FAS 157). FSP 157-2 defers the effective date of FAS 157 for nonfinancial assets
and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), to fiscal years, and interim periods
within those fiscal years, beginning after November 15, 2008. The Company has deferred the
effective date of FAS 157 for its nonfinancial assets and nonfinancial liabilities accordingly. The
Company does not expect the adoption of FSP FAS 157-2 will have a material impact on its financial
position, results of operations, or cash flows.
SFAS 160
, NonControlling Interests in Consolidated Financial Statements
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 160,
NonControlling Interests in Consolidated Financial
Statements
FAS 160 establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and deconsolidation of a subsidiary. The provisions of FAS 160 are effective for
the fiscal year beginning January 1, 2009. FAS 160 will change the presentation of the Companys
noncontrolling interests in its balance sheet and income statement. Specifically, noncontrolling
interests would appear as a separate component of consolidated equity in on the balance sheet
rather than a mezzanine item between liabilities and equity. Further, earnings and other
comprehensive income would be attributed to both the
- 75 -
controlling and noncontrolling interests.
Earnings per share will continue to be calculated based on net
income attributable to the Companys controlling interest. The Company does not expect the adoption
of FAS 160 will have a material impact on its financial position, results of operations, or cash
flows.
SFAS 161,
Disclosures about Derivative Instruments and Hedging Activities
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging
Activities.
FAS 161 amends and expands the disclosure requirements related to derivative
instruments and hedging activities. The Statement requires qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. The provisions of FAS 161 are effective for the fiscal year
beginning January 1, 2009. The Company does not expect the adoption of FAS 161 will have a material
impact on its financial position, results of operations, or cash flows.
EITF No. 07-5,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entitys Own Stock
In June 2008 the FASB ratified EITF consensus No. 07-5. Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5).The objective of this Issue is
to provide guidance for determining whether an equity-linked financial instrument (or embedded
feature) is indexed to an entitys own stock. Such determination is required when assessing whether
certain financial instruments should be accounted for as derivative instruments. This Issue is
effective for financial statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The Company does not expect the adoption of EITF 07-5
will have a material impact on its financial position, results of operations, or cash flows.
EITF No. 08-3,
Accounting by Lessees for Maintenance Deposits
In June 2008, the FASB ratified EIFT consensus No. 08-3, Accounting by Lessees for Maintenance
Deposits (EITF 08-3). EITF 08-3 clarifies how a lessee accounts for a maintenance deposit under
an arrangement accounted for as a lease that is refunded only if the lessee performs specified
maintenance activities. This Issue is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Company does not expect the adoption of EITF 08-3 will have
a material impact on its financial position, results of operations, or cash flows.
EITF No. 08-4,
Transition Guidance for Conforming Changes to Issue No. 98-5
In June 2008, the FASB ratified EITF consensus No. 08-4 Transition Guidance for Conforming Changes
to Issue No. 98-5 (EITF 08-4). EITF 08-4 provides guidance for accounting for convertible
securities with Beneficial Conversion Features that are in the money at the time off issuance. The
issue is effective for financial statements issued for fiscal years ending after December 15, 2008.
The Company does not expect the adoption of EITF 08-4 will have a material impact on its financial
position, results of operations, or cash flows.
Note Two: Financial Instruments
Cash, Cash Equivalents and Cash Investments
In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, (SFAS 115) management determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designation as of each balance sheet date.
At December 31, 2008, the Company has classified short-term bank deposits and Auction Rate
Securities (ARS) as available-for-sale pursuant to SFAS 115. In addition, the Company has
investments in mutual funds which are classified as trading securities. The Companys policy for
such investment trading mirrors the investment trading decisions as directed by participants of a
Rabbi Trust related to a deferred compensation plan. Investments classified as available for sale
are recorded at fair value and unrealized holding gains and losses (excluding impairments that are
deemed other than temporary), net of the related tax effect, if any, are not reflected in earnings
but are reported as a separate component of other
- 76 -
comprehensive income (loss) until realized.
Realized gains and losses and impairments that are deemed
other than temporary are determined on the specific identification method and are reflected in
income. Investments classified as trading securities are recorded at fair value and unrealized
gains and losses and realized gains and losses are included in the
earnings of the Company.
Cash and cash equivalents consist of highly liquid investments that are comprised principally of
taxable, short-term money market instruments with maturities of three months or less at the time of
purchase and demand deposits with financial institutions. These instruments carry insignificant
interest rate risk because of the short-term maturities. Cash equivalents are stated at amounts
that approximate fair value based on quoted market prices. In 2008, current and long-term cash
investments consist principally of short-term bank deposits, mutual funds held in a Rabbi Trust,
and ARS. In 2007, current and long-term cash investments consisted principally of commercial paper,
corporate bonds, U.S. and Canadian government obligations and U.S. government sponsored enterprise
obligations with stated maturities between 90 days and up to three years and are recorded at
amounts that approximate fair value. With the exception of the ARS, fair value estimates are based
on quoted market prices. No individual investment security equaled or exceeded two percent of
total assets.
At December 31, 2008 cash equivalents, short term and long term cash investments and their
amortized costs, unrealized gains and losses and approximate fair values are as follows:
- 77 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair Market
|
(In thousands)
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
611,364
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
611,364
|
|
Short-term bank deposits
(maturities of one year or less)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
Trading securities
|
|
|
8,638
|
|
|
|
|
|
|
|
|
|
|
|
8,638
|
|
Long-term corporate notes and bonds
(maturities over one year)
|
|
|
15,513
|
|
|
|
|
|
|
|
|
|
|
|
15,513
|
|
|
|
|
|
|
$
|
635,566
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
635,566
|
|
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
604,808
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
604,808
|
|
Short-term corporate notes and bonds
(maturities of one year or less)
|
|
|
42,201
|
|
|
|
69
|
|
|
|
(17
|
)
|
|
|
42,253
|
|
Short-term government obligations
(maturities of one year or less)
|
|
|
26,468
|
|
|
|
8
|
|
|
|
(6
|
)
|
|
|
26,470
|
|
Short-term government sponsored enterprise
obligations (maturities of one year or less)
|
|
|
24,696
|
|
|
|
43
|
|
|
|
|
|
|
|
24,739
|
|
Long-term corporate notes and bonds
(maturities over one year)
|
|
|
33,064
|
|
|
|
50
|
|
|
|
(1,536
|
)
|
|
|
31,578
|
|
Long-term government obligations
(maturities over one year)
|
|
|
5,063
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
5,059
|
|
|
|
|
|
|
$
|
736,300
|
|
|
$
|
170
|
|
|
$
|
(1,563
|
)
|
|
$
|
734,907
|
|
|
|
|
As of December 31, 2008, long-term cash investments totaling $15.5 million consist of six auction
rate securities (ARS) with an aggregate par value of $28.9 million. ARS are floating rate
securities with longer-term maturities which were marketed by financial institutions with auction
reset dates at 28 day intervals to provide short term liquidity. The underlying collateral of the
ARS the Company holds consists primarily of corporate bonds, commercial paper, debt instruments
issued by the U.S. Treasury and governmental agencies, money market funds, asset backed
securities, collateralized debt obligations, similar assets, and in one instance, preferred stock
in a bond insurance company. Certain of the ARS may have direct or indirect investments in
mortgages, mortgage related securities, or credit default swaps. The credit ratings for five of the
ARS were AAA and for one of the ARS was AA at the time of purchase. Beginning in August 2007 and
into September 2007, each of the ARS auctions began to fail due to a lack of market for these
securities. As of the fourth quarter of 2008, the credit ratings of four of the ARS were Baa1. The
credit rating on a fifth ARS was Baa2. And the credit rating on a sixth ARS was B3. In addition the
investments currently lack short-term liquidity. The Company will not be able to access these
funds until a future auction for the ARS investments is successful or until it sells the securities
in a reasonable secondary market which currently does not exist.
During 2008, the Company recorded a charge to earning for other than temporary impairment losses
totaling $13.4 million for the six ARS. In determining whether each ARS is other than temporarily
impaired, the Company considered the guidance provided by FAS 115, Accounting for Certain
Investments in Debt and Equity Securities and related guidance. This guidance specified that the
Company consider a variety of factors including (i) the quality and estimated value of the
investments held by the trust/issuer; (ii) the financial condition and credit rating of the trust,
issuer, sponsors, and insurers; and, (iii) the frequency of the auction function failing.
There were no unrealized gains or losses at December 31, 2008. The following table summarizes the
fair value and gross unrealized losses related to 14 available for sale marketable securities,
aggregated by type of investment and length of time that individual securities have been in a
continuous unrealized loss position, at December 31, 2007:
- 78 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In a Loss Position for
|
|
|
In a Loss Position for
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total In a Loss Position
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Unrealized
|
|
(In thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
Corporate notes and bonds
|
|
|
31,323
|
|
|
|
(1,546
|
)
|
|
|
1,956
|
|
|
|
(7
|
)
|
|
|
33,279
|
|
|
|
(1,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government obligations
|
|
|
25,183
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
25,183
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
56,506
|
|
|
$
|
(1,556
|
)
|
|
$
|
1,956
|
|
|
$
|
(7
|
)
|
|
$
|
58,462
|
|
|
$
|
(1,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Cash
At December 31, 2008, the Company had approximately $2.8 million in restricted cash set aside for a
guarantee against certain payroll and lease obligations in France, United Kingdom, Sweden, Norway,
Denmark, and Australia.
Foreign Currency Forward Exchange Contracts
At December 31, 2008, the Company had outstanding forward exchange contracts, all having maturities
of approximately 30 days, to exchange various foreign currencies for U.S. dollars and Euros in the
amounts of $2.5 million and $37.3 million, respectively, and to exchange U.S. dollars into various
foreign currencies in the amount of $23.1 million and to exchange British Pounds for South African
Rand in the amount of $8.9 million. At December 31, 2007, the Company had outstanding forward
contracts, all having maturities of approximately 30 days, to exchange various foreign currencies
for U.S. dollars and Euros in the amounts of $24.3 million and $33.5 million, respectively, to
exchange U.S. dollars into various foreign currencies in the amount of $35.5 million, and to
exchange British Pounds for South African Rand in the amount of $1.3 million. All foreign currency
forward contracts are marked-to-market at the end of each reporting period with unrealized gains
and losses included in other income. The realized loss of $4.2 million on our outstanding forward
contracts as of December 31, 2008 was due to fluctuation in foreign exchange rates in September and
October of 2008.
Fair Value Measurements
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS
157). In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB
Statement No. 157, which provides a one year deferral of the effective date of SFAS 157 for
non-financial assets and non-financial liabilities, except those that are recognized or disclosed
in the financial statements at fair value at least annually. Therefore, the Company has adopted the
provisions of SFAS 157 with respect to its financial assets and liabilities only. SFAS 157 defines
fair value, establishes a framework for measuring fair value under generally accepted accounting
principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS
157 as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation techniques used to
measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use
of unobservable inputs. The standard describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be
used to measure fair value. The three levels are as follows:
- 79 -
|
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
Level 2 Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
|
|
|
|
|
Level 3 Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities.
|
The adoption of this statement did not have a material impact on the Companys consolidated results
of operations and financial condition.
Effective January 1, 2008, the Company adopted SFAS No. 159 The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159). SFAS 159 allows an entity the irrevocable option to
elect fair value for the initial and subsequent measurement for specified financial assets and
liabilities on a contract-by-contract basis. The Company did not elect to adopt the fair value
option under this Statement.
Effective September 30, 2008 the Company adopted FSP 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active. This statement clarifies the
application of SFAS 157 in a market that is not active.
The following table represents the Companys fair value hierarchy for its financial assets measured
at fair value on a recurring basis as of December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money market funds
|
|
$
|
493,113
|
|
|
|
|
|
|
|
|
|
|
$
|
493,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
$
|
8,638
|
|
|
|
|
|
|
|
|
|
|
|
8,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale cash investments
|
|
|
63,573
|
|
|
|
|
|
|
$
|
15,513
|
|
|
|
79,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
565,324
|
|
|
|
|
|
|
$
|
15,513
|
|
|
$
|
580,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds are included in cash and cash equivalents on the Companys consolidated balance
sheet. Level 1 available-for-sale cash investments consist of short-term bank deposits with
maturities less than one year. These cash investments are included in cash and cash equivalents
and short-term cash investments on the Companys consolidated balance sheet. Level 1 trading
securities are the defined set of mutual funds that are invested as directed by participants of the
Rabbi Trust established related to the Companys Deferred Compensation Plan. The trading securities
are included in short-term cash investments on the Companys consolidated balance sheet as of
December 31, 2008. Level 3 assets consist of six ARS.
- 80 -
The fair values of the ARS as of December 31, 2008 are based on an estimation employing a
discounted cash flow model for each of the six ARS using credit related discount rates and term to
recovery as key inputs. The following table provides a summary of changes in fair value of the
Companys Level 3 financial assets as of December 31, 2008 (in thousands):
|
|
|
|
|
|
|
Auction Rate
|
|
|
|
Securities
|
|
Balance at December 31, 2007
|
|
$
|
27,364
|
|
Reversal of unrealized loss in accumulated other comprehensive income
|
|
|
1,536
|
|
Impairment loss included in interest expense and other, net
|
|
|
(13,387
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
15,513
|
|
|
|
|
|
- 81 -
Note Three: Property, Equipment and Improvements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated useful
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
lives
|
|
Computer equipment and software
|
|
$
|
241,684
|
|
|
$
|
228,474
|
|
|
|
3 to 5 years
|
|
Furniture and fixtures
|
|
|
58,603
|
|
|
|
62,185
|
|
|
|
5 to 10 years
|
|
Leasehold improvements and real property
|
|
|
77,188
|
|
|
|
78,578
|
|
|
Improvements
|
|
|
|
|
|
|
|
|
|
|
over shorter of 5 years
|
|
|
|
|
|
|
|
|
|
|
or lease term;
|
|
|
|
|
|
|
|
|
|
|
property over 7 to
|
|
|
|
|
|
|
|
|
|
|
40 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
377,475
|
|
|
|
369,237
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(315,212
|
)
|
|
|
(304,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, equipment and improvements
|
|
$
|
62,263
|
|
|
$
|
64,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense amounted to $29.7 million, $27.5 million and $24.2 million in 2008, 2007 and
2006, respectively. Included in operating expenses is the Companys write-off of $2.5 million of
internal use software in 2008.
Note Four: Goodwill and Other Purchased Intangibles
The following table reflects the changes in the carrying amount of goodwill (including assembled
workforce) by reporting unit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
IPG
|
|
|
iAS
|
|
|
SY365
|
|
|
Consolidated Total
|
|
Balance at January 1, 2007
|
|
$
|
96,186
|
|
|
$
|
110,408
|
|
|
$
|
333,709
|
|
|
$
|
540,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill recorded on CoboPlan acquisition
|
|
|
|
|
|
|
3,510
|
|
|
|
|
|
|
|
3,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition in goodwill recorded on Mobile 365
acquisition
|
|
|
|
|
|
|
|
|
|
|
2,829
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction for utilization of acquired tax assets
|
|
|
(4,901
|
)
|
|
|
(3,699
|
)
|
|
|
(5,783
|
)
|
|
|
(14,383
|
)
|
Foreign currency translation adjustments and other
|
|
|
907
|
|
|
|
173
|
|
|
|
|
|
|
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
92,192
|
|
|
$
|
110,392
|
|
|
$
|
330,755
|
|
|
$
|
533,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill recorded on Cable & Wireless acquisition
|
|
|
|
|
|
|
|
|
|
|
12,457
|
|
|
|
12,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill recorded on Paybox acquisition
|
|
|
|
|
|
|
|
|
|
|
8,872
|
|
|
|
8,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in goodwill recorded on Mobile 365
acquisition
|
|
|
|
|
|
|
|
|
|
|
(155
|
)
|
|
|
(155
|
)
|
Reduction for utilization of acquired tax assets
|
|
|
(17,149
|
)
|
|
|
(7,367
|
)
|
|
|
(937
|
)
|
|
|
(25,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments and other
|
|
|
(1,158
|
)
|
|
|
(237
|
)
|
|
|
(514
|
)
|
|
|
(1,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
73,885
|
|
|
$
|
102,788
|
|
|
$
|
350,478
|
|
|
$
|
527,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 82 -
The following table reflects the carrying amounts and accumulated amortization of other purchased
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
(In thousands)
|
|
12/31/08
|
|
|
12/31/08
|
|
|
12/31/08
|
|
|
12/31/07
|
|
|
12/31/07
|
|
|
12/31/07
|
|
Purchased technology
|
|
$
|
169,758
|
|
|
$
|
(125,265
|
)
|
|
$
|
44,493
|
|
|
$
|
168,436
|
|
|
$
|
(108,997
|
)
|
|
$
|
59,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AvantGo tradenames
|
|
|
3,100
|
|
|
|
|
|
|
|
3,100
|
|
|
|
3,100
|
|
|
|
|
|
|
|
3,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
XcelleNet tradenames
|
|
|
4,000
|
|
|
|
|
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant not to compete
|
|
|
319
|
|
|
|
(271
|
)
|
|
|
48
|
|
|
|
319
|
|
|
|
(165
|
)
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists
|
|
|
114,632
|
|
|
|
(52,303
|
)
|
|
|
62,329
|
|
|
|
102,064
|
|
|
|
(38,149
|
)
|
|
|
63,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
291,809
|
|
|
$
|
(177,839
|
)
|
|
$
|
113,970
|
|
|
$
|
277,919
|
|
|
$
|
(147,311
|
)
|
|
$
|
130,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased technology is amortized over a period of 4 to 7 years; covenant not to compete is
amortized over a period of 3 years; customer lists are amortized over a period of 5 to 10 years.
The AvantGo and XcelleNet tradenames are assigned an indeterminate life and are not amortized but
instead tested for impairment in the same manner as goodwill. At December 31, 2008, the weighted
average amortization period of the gross carrying value of other purchased intangible assets was
7.3 years. At December 31, 2008, the weighted average amortization period of the gross carrying
value of purchased technology and customer lists were 6.6 years and 7.9 years, respectively.
Amortization expense for other purchased intangibles totaled $33.4 million, $27.4 million and $17.4
million in 2008, 2007 and 2006, respectively.
The Company reviews its other purchased intangible assets 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 the Company to estimate future cash flows associated with certain assets or
groups of assets. Changes in these estimates, technology obsolescence, customer terminations
including message customers due to technology interoperability and other factors could result in
impairment losses associated with other purchased intangible assets. Cost of license fees includes
the Companys write-off of $4.5 million of certain purchased technologies in 2008. There were no
such write-offs in 2007 or 2006.
Estimated amortization expense for other purchased intangibles in each of the next five years
ending December 31, is as follows (in thousands):
|
|
|
|
|
2009
|
|
|
27,540
|
|
2010
|
|
|
25,537
|
|
2011
|
|
|
20,227
|
|
2012
|
|
|
13,659
|
|
2013
|
|
|
11,683
|
|
Note Five: Other Assets
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Deposits
|
|
$
|
23,693
|
|
|
$
|
28,021
|
|
Other
|
|
|
6,022
|
|
|
|
7,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,715
|
|
|
$
|
36,016
|
|
|
|
|
|
|
|
|
- 83 -
Deposits include an $13.9 million security deposit on a 15-year non-cancelable lease for the
Companys Dublin, California facility. Other includes $2.3 million of capitalized note issuance
costs related to the Companys issuance of convertible subordinated notes in 2005. See Note
Fifteen to Consolidated Financial Statements.
Note Six: Lease Obligations, Other Liabilities and Commitments
Capital Lease
The Company leases office space and equipment under non-cancelable capital leases that expire
through October 2019.
In May of 2003, the Company entered into a 15-year capital lease for a new facility in Waterloo,
Canada. The lease requires monthly payments of approximately $79,163, which includes both principal
and interest commencing October 2004 through October 2019. Gross assets of approximately $7.9
million and accumulated depreciation of $2.2 million have been recorded in relation to this capital
lease as of December 31, 2008. This capital lease asset is captured on the Companys balance sheet
within property, equipment and improvements, net. The corresponding liability is captured within
other liabilities.
Future minimum lease payments under capital lease obligations at December 31, 2008 are as follows
(dollars in thousands):
|
|
|
|
|
2009
|
|
$
|
1,000
|
|
2010
|
|
|
950
|
|
2011
|
|
|
950
|
|
2012
|
|
|
950
|
|
2013
|
|
|
950
|
|
Thereafter
|
|
|
5,500
|
|
|
|
|
|
Sub-total
|
|
|
10,300
|
|
Less amount representing interest
|
|
|
3,634
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
6,666
|
|
|
|
|
|
Sale-and-Leaseback
Upon completion of the Companys acquisition of Extended Systems Incorporated (ESI) in October
2005, the Company assumed the obligations under a sale-and-leaseback transaction completed by ESI
in September 2003 related to ESIs headquarters in Boise, Idaho. The sale-and-leaseback is recorded
as a financing transaction. Under the terms of the agreement the Company has an option to
repurchase the building and land at any time before September 2013 at a price of $5.1 million. The
gross proceeds received of $4.8 million are included in other long-term liabilities on the balance
sheet at December 31, 2008.
As part of the agreement, ESI entered into a 10-year master lease for the building with annual
lease payments, which are recorded as interest expense, equal to 9.2 percent of the sale price, or
approximately $442,000. The Company is also obligated to pay all expenses associated with the
building during the lease, including the costs of property taxes, insurance, operating expenses and
repairs.
Leasehold Improvements Note
As part of the 15-year capital lease agreement entered into for the Companys Waterloo, Canada
facility (see discussion under Capital Lease Obligation above), the Company entered into an
agreement with the landlord to finance approximately $1.5 million of leasehold improvements at an
annual interest rate of 8.76 percent. The loan requires monthly principal and interest payments of
$14,955, commencing October
2004 through October 2019. The corresponding liabilities of $0.1 million and $1.2 million at
December 31, 2008 have been recorded in the current and long-term portions of other liabilities,
respectively.
- 84 -
Operating leases and Commitments
The Company leases, or has committed to lease, certain office facilities and equipment under
operating leases expiring through 2019 which generally require Sybase to pay operating costs,
including property taxes, insurance and maintenance. The facility leases generally contain renewal
options and provisions adjusting the lease payments based upon changes in the consumer price index,
increases in real estate taxes and operating expenses or in fixed increments. Rent expense is
reflected on a straight-line basis over the term of the lease.
Future minimum lease payments under non-cancelable operating leases having initial terms in excess
of one year as of December 31, 2008 (including those provided for in the Companys restructuring
accrual) are as follows (dollars in thousands):
|
|
|
|
|
2009
|
|
$
|
46,692
|
|
2010
|
|
|
39,152
|
|
2011
|
|
|
29,768
|
|
2012
|
|
|
26,603
|
|
2013
|
|
|
21,746
|
|
Thereafter
|
|
|
65,959
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments*
|
|
$
|
229,920
|
|
|
|
|
|
|
|
|
*
|
|
Minimum payments have not been reduced by minimum sublease rentals of $6.0 million due in the
future under non-cancelable subleases.
|
The following schedule shows the composition of total rent expenses for all operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Rent expense
|
|
$
|
46,852
|
|
|
$
|
47,913
|
|
|
$
|
46,051
|
|
Less: sublease rentals
|
|
|
3,401
|
|
|
|
4,011
|
|
|
|
4,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,451
|
|
|
$
|
43,902
|
|
|
$
|
41,762
|
|
|
|
|
|
|
|
|
|
|
|
Note Seven: Stockholders Equity
Preferred Stock Rights
Pursuant to a Preferred Stock Rights Agreement between the Company and American Stock Transfer and
Trust Company, as rights agent, the Companys Board of Directors declared a dividend of one right
(a Right) to purchase one one-thousandth share of the Companys Series A Participating Preferred
Stock for each outstanding share of the Companys Common Stock outstanding on August 15, 2002.
Each Right entitles the registered holder to purchase one one-thousandth of a share of Series A
Participating Preferred Stock at an exercise price of $90, subject to certain adjustments, upon the
acquisition of, or announcement of the intent to acquire, 15 percent of the Companys Common Stock
by a person or group of affiliated or associated persons. The Rights plan is intended to maximize
the value of the Company in the event of an unsolicited attempt to take over the Company in a
manner or on terms not approved by the Companys Board of Directors.
- 85 -
Restricted Stock Grants
The Company issued service-based restricted Common Stock under the 2003 Stock Plan to certain
senior executives and employees totaling 61,966, 129,000, and 92,786 shares during 2008, 2007, and
2006, respectively. The Company issued performance-based restricted Common Stock under the 2003
Stock Plan to certain executives and employees totaling 313,294, 422,437, and 335,264 shares during
2008, 2007, and 2006, respectively. The service-based and performance-based restricted shares are
subject to return to the Company over a period of three years from date of grant. The Companys
return right is triggered in the event a restricted shareholders recipients employment is
terminated any time during the three year period. As of December 31, 2008, 20,975 of these
service-based restricted shares have been returned to the Company. Performance-based restricted
shares returned to the Company due to terminations for shares issued in 2008, 2007, and 2006 were
10,250, 33,295, and 49,061, respectively. In addition, the percentage of performance based shares,
if any, that will vest will be determined based on the Companys percentage achievement of certain
specified one to three year performance targets. Up to 125% of the shares issued in 2008, 2007, and
2006 can vest if the performance achievement exceeds the performance targets. The Company has
estimated that vested shares will be 303,044, 389,142, and 286,203 related to the 2008, 2007 and
2006 issuance, respectively. The Company has amortized the fair market value of the underlying
shares on the date the service-based and performance based restricted shares were granted pro rata
over the term of the applicable return right period. The fair value amortization is adjusted
periodically for any changes to the amount of service-based and performance-based restricted shares
expected to vest as a result of the Companys return right triggers.
Stock Repurchase Program
On February 25, 2008 the Company agreed with one of its stockholders, Sandell Asset Management
Corp. (Sandell) to undertake a self-tender offer to purchase $300 million worth of its common stock
at a price between $28.00 and $30.00 per share in a modified Dutch auction. On April 15, 2008, the
Company completed the self-tender offer and purchased 10.7 million shares of its common stock for a
purchase price of $28.00 per share or a total cost of $300 million. The Company also incurred costs
of approximately $0.6 million to undertake the self-tender offer. These costs are included in
Cost of treasury stock in the Companys consolidated balance sheet at December 31, 2008.
Beginning in 1998, the Companys Board of Directors authorized the repurchase of Sybase outstanding
Common Stock from time to time, subject to price and other conditions (Stock Repurchase Program).
Through December 31, 2008, aggregate amounts authorized under the Stock Repurchase Program totaled
$850.0 million. The Company repurchased 0.2 million shares, 6.6 million shares and 2.7 million
shares, at costs of $5.5 million, $166.7 million, and $59.8 million during 2008, 2007, and 2006,
respectively.
Employee Stock Purchase Plans
The Companys 1991 Employee Stock Purchase Plan and 1991 Foreign Subsidiary Employee Stock Purchase
Plan, as amended (collectively the ESPP), allow eligible employees to purchase our Common Stock
through payroll deductions. The ESPP consists of 6-month exercise periods. The shares can be
purchased at 95 percent of the fair market value of the Common Stock on the last day of each
6-month exercise period. Purchases are limited to 10 percent of an employees eligible
compensation, subject to an annual maximum, as defined in the ESPP.
As of December 31, 2008, an aggregate of 13,400,000 shares of Common Stock had been reserved under
the ESPP, of which 1,057,265 shares remained available for issuance. Employees purchased 112,823
shares, 129,591 shares and 165,554 shares in 2008, 2007, 2006, respectively.
- 86 -
Stock Option Plans
As of December 31, 2008 exercisable and vested options outstanding totaled 196,000 under the
expired 1992 Director Option Plan, as amended (the 1992 Director Plan). These options expire 10
years from the date of grant. Common stock issued or reserved for issuance under the 2001 Director
Option Plan totaled 300,000 shares.
As of December 31, 2008 Common Stock reserved for issuance upon the exercise of options
granted to qualified employees, directors and consultants of the Company pursuant to the 2003 Stock
Plan (2003 Stock Plan) totaled 12,145,538 shares. The Board of Directors, directly or through
committees, administers the Plan and establishes the terms of option grants. Options expire on
terms set forth in the grant notice (generally 10 years from the grant date, and for options
granted after May 25, 2005 not more than 7 years from the grant date), three months after
termination of employment, two years after death, or one year after permanent disability. Options
are exercisable to the extent vested. Vesting occurs at various rates and over various time
periods, but generally vest over four years.
On May 27, 2004, the Companys stockholders approved the transfer of all shares available for grant
pursuant to the Companys 1996 Stock Plan and the Companys 1999 Stock Plan to the 2003 Stock Plan
along with all remaining shares represented by grants that are cancelled or forfeited without
exercise under these plans and the 1992 Director Plan and the 2001 Director Option Plan. The
Companys 1988 Stock Plan terminated in June 1998 and the 1992 Director Option Plan terminated in
February 2002 in accordance with its terms, at that time no further grants were made under either
plan, but optionees may exercise vested options prior to their expiration. As of December 31, 2008
unexercised vested options remaining outstanding under both plans totaled 335,174
Stock-Based Compensation Expense
The following table summarizes the total stock-based compensation expense for stock options,
restricted option and stock grants, and stock appreciation rights that was recorded on the
Companys results of operations in accordance with SFAS 123(R).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
In thousands, except per share data
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cost of services
|
|
$
|
1,364
|
|
|
$
|
1,544
|
|
|
$
|
1,629
|
|
Cost of messaging
|
|
|
484
|
|
|
|
544
|
|
|
|
124
|
|
Sales and marketing
|
|
|
5,538
|
|
|
|
5,304
|
|
|
|
4,432
|
|
Product development and engineering
|
|
|
2,887
|
|
|
|
2,982
|
|
|
|
2,679
|
|
General and administrative
|
|
|
12,242
|
|
|
|
13,670
|
|
|
|
12,861
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in total costs and expenses
|
|
|
22,515
|
|
|
|
24,044
|
|
|
|
21,725
|
|
Tax benefit related to stock-based compensation expense
|
|
|
(6,194
|
)
|
|
|
(6,775
|
)
|
|
|
(5,730
|
)
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in net income
|
|
$
|
16,321
|
|
|
$
|
17,269
|
|
|
$
|
15,995
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
|
$
|
0.18
|
|
Diluted
|
|
$
|
0.19
|
|
|
$
|
0.19
|
|
|
$
|
0.17
|
|
SFAS 123(R) requires the cash flows resulting from the tax benefits for tax deductions in excess of
the compensation expense recorded for stock-based compensation (excess tax benefits) to be
classified as financing cash flows. Accordingly, the Company classified $11.2 million, $14.5
million, and $9.6 million in excess tax benefits as financing cash inflows rather than as operating
cash inflows on its statement of cash flows for 2008, 2007, and 2006, respectively.
Determining Fair Value
Valuation and Amortization Method.
The Company estimates the fair value of stock options and stock
appreciation rights granted using the Black-Scholes option valuation model and a single option
award approach. The fair value on all options is amortized on a ratable basis over the requisite
service periods of the awards, which are generally the vesting periods.
- 87 -
Expected Term
. The expected term of options and stock appreciation rights granted represents the
period of time that they are expected to be outstanding. The Company estimated the expected term of
options granted based on historical exercise patterns, which the Company believes are
representative of future behavior.
Expected Volatility
. The Company estimates the volatility of its options and stock appreciation
rights considering both the historical volatility of its stock over periods that were equal to the
expected term of our options and the prices of its publicly traded options, which the Company
believes provides a reasonable estimate of expected volatility factors over the life of the
options.
Risk-Free Interest Rate.
The Company based its risk free interest rate on the average of the 3 and
5 year treasury rates as published by the Federal Reserve.
Dividends.
The Company has never paid any cash dividends on its common stock and does not
anticipate paying any cash dividends in the foreseeable future. Consequently, the Company used an
expected dividend yield of zero in the Black-Scholes option valuation model.
Forfeitures.
The Company estimates forfeitures at the time of grant and revises those estimates in
subsequent periods if actual forfeitures differ from those estimates. The Company used historical
data to estimate pre-vesting option forfeitures and record stock-based compensation expense only
for those awards that are expected to vest.
The Company used the following assumptions to estimate the fair value of options and stock
appreciation rights granted for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
Expected volatility
|
|
|
28.33
|
%
|
|
|
25.84
|
%
|
|
|
27.73
|
%
|
Risk-free interest rates
|
|
|
2.84
|
%
|
|
|
4.51
|
%
|
|
|
4.71
|
%
|
Expected lives (years)
|
|
|
5.00
|
|
|
|
4.52
|
|
|
|
3.98
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
- 88 -
Equity Compensation Plans
Price data and activity for the Companys equity compensation plans, including options assumed by
the Company in mergers with other companies (adjusted for the merger exchange ratio) are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options,
|
|
|
|
|
Stock Appreciation
|
|
|
|
|
Rights and Restricted
|
|
Weighted Average
|
|
|
Stock
|
|
Exercise Price
|
|
|
(Number of Shares)
|
|
Per Share
|
Balance at December 31, 2005
|
|
|
14,762,614
|
|
|
$
|
15.59
|
|
Granted
|
|
|
3,413,093
|
|
|
|
17.15
|
|
Exercised
|
|
|
(3,380,478
|
)
|
|
|
13.92
|
|
Forfeited or expired
|
|
|
(794,710
|
)
|
|
|
17.26
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
14,000,519
|
|
|
$
|
16.26
|
|
Granted
|
|
|
2,268,607
|
|
|
|
18.60
|
|
Exercised
|
|
|
(2,952,576
|
)
|
|
|
12.94
|
|
Forfeited or expired
|
|
|
(630,646
|
)
|
|
|
17.13
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
12,685,904
|
|
|
$
|
17.41
|
|
Granted
|
|
|
1,924,587
|
|
|
|
23.49
|
|
Exercised
|
|
|
(3,212,985
|
)
|
|
|
14.74
|
|
Forfeited or expired
|
|
|
(414,370
|
)
|
|
|
19.46
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
10,983,136
|
|
|
$
|
19.18
|
|
|
|
|
|
|
|
|
|
|
The total number of shares granted in 2006 includes 549,728 options assumed by the Company due to
its acquisition of Mobile 365, Inc. The weighted average fair value of options, restricted stock,
and stock appreciation rights granted was $12.52, $11.68, and $10.00 per share in 2008, 2007 and
2006, respectively.
At December 31, 2008, options and stock appreciation rights to purchase 6,624,577 shares were
exercisable at prices ranging from $1.25 to $32.26. All 3,675,103 shares available for grant at
December 31, 2008 were available under the 2003 Stock Plan.
- 89 -
Equity compensation plans outstanding and exercisable at December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, Restricted Stock, & Stock Appreciation Rights
|
|
|
|
|
Outstanding
|
|
Options & Stock Appreciation Rights Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Remaining
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Remaining
|
|
Average
|
|
Aggregate
|
Ranges of
|
|
|
|
|
|
Contractual
|
|
Exercise
|
|
Intrinsic
|
|
|
|
|
|
Contractual
|
|
Exercise
|
|
Intrinsic
|
Exercisable Prices
|
|
Shares
|
|
Life
|
|
Price
|
|
Value
|
|
Shares
|
|
Life
|
|
Price
|
|
Value
|
$0.00 to $12.81
|
|
|
1,915,052
|
|
|
|
4.49
|
|
|
$
|
3.33
|
|
|
$
|
41,065,157
|
|
|
|
634,403
|
|
|
|
2.91
|
|
|
$
|
9.71
|
|
|
$
|
9,556,575
|
|
$12.90 to $19.46
|
|
|
1,846,305
|
|
|
|
4.27
|
|
|
$
|
15.80
|
|
|
|
16,555,314
|
|
|
|
1,833,743
|
|
|
|
4.26
|
|
|
$
|
15.78
|
|
|
|
16,486,938
|
|
$19.51 to $21.59
|
|
|
2,176,712
|
|
|
|
3.84
|
|
|
$
|
20.76
|
|
|
|
8,720,033
|
|
|
|
1,574,128
|
|
|
|
3.69
|
|
|
$
|
20.65
|
|
|
|
6,488,727
|
|
$21.60 to $24.26
|
|
|
2,178,566
|
|
|
|
3.75
|
|
|
$
|
23.52
|
|
|
|
2,724,239
|
|
|
|
1,312,305
|
|
|
|
2.69
|
|
|
$
|
23.29
|
|
|
|
1,946,741
|
|
$24.44 to $26.63
|
|
|
1,889,864
|
|
|
|
4.21
|
|
|
$
|
25.60
|
|
|
|
30,000
|
|
|
|
1,138,112
|
|
|
|
3.08
|
|
|
$
|
25.42
|
|
|
|
15,753
|
|
$27.38 to $36.13
|
|
|
976,637
|
|
|
|
6.19
|
|
|
$
|
31.03
|
|
|
|
0
|
|
|
|
131,886
|
|
|
|
5.24
|
|
|
$
|
28.34
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.00 to $36.13
|
|
|
10,983,136
|
|
|
|
4.28
|
|
|
$
|
19.18
|
|
|
$
|
69,094,743
|
|
|
|
6,624,577
|
|
|
|
3.50
|
|
|
$
|
19.75
|
|
|
$
|
34,494,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company defines in-the-money options as options that had exercise prices that were lower than
the $24.77 market price of its common stock at December 31, 2008. The aggregate intrinsic value of
options outstanding is calculated as the difference between the exercise price of the underlying
options and the market price of its common stock for the 8.2 million shares that were in-the-money
at December 31, 2008. There were 5.4 million in-the-money options exercisable at December 31, 2008.
The total intrinsic value of options exercised during 2008 was $48.7 million and during 2007 was
$38.1 million, determined as of the date of exercise.
Nonvested restricted stock grants as of December 31, 2008 and changes during 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
|
grant date fair
|
|
|
Shares
|
|
value per share
|
Nonvested at December 31, 2007
|
|
|
1,505,326
|
|
|
$
|
21.64
|
|
Granted
|
|
|
375,260
|
|
|
|
27.55
|
|
Vested
|
|
|
(589,000
|
)
|
|
|
18.70
|
|
Forfeited
|
|
|
(47,120
|
)
|
|
|
23.69
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2008
|
|
|
1,244,466
|
|
|
$
|
24.74
|
|
|
|
|
|
|
|
|
|
|
The Company recorded $12.3 million in stock-based compensation expense before income tax benefit
for stock options and stock appreciation rights and $10.2 million in stock-based compensation
expense before income tax benefit for restricted stock grants in its results of operations for
2008. The total tax benefit related to this stock-based compensation was $6.2 million. The Company
recorded $13.9 million in stock-based compensation expense before income tax benefit for stock
options and stock appreciation rights and $10.2 million in stock-based compensation expense before
income tax benefit for restricted stock grants in its results of operations for 2007. The total
tax benefit related to this stock-based compensation was $6.8 million. The Company recorded $13.6
million in stock-based compensation expense before income tax benefit for stock options and stock
appreciation rights and $8.1 million in stock-based compensation expense before income tax benefit
for restricted stock grants in its results of operations for 2006. The total tax benefit related
to this stock-based compensation was $5.7 million. As of December 31, 2008, there was $41.0 million
of total unrecognized compensation cost before income tax benefit related to non-vested stock-based
compensation arrangements granted under all equity compensation plans. Total unrecognized
compensation cost will be adjusted for future changes in estimated forfeitures. The Company expects
to recognize that cost over a weighted average period of 2.1 years.
- 90 -
The Company received $50.0 million, $41.2 million, and $50.6 million in cash from option exercises
and its Employee Stock Purchase Plan in 2008, 2007, and 2006, respectively. The actual tax benefits
that the Company realized related to tax deductions for non-qualified option exercises and
disqualifying dispositions under all stock-based payment arrangements totaled $10.1 million during
2008, $7.3 million during 2007, and $12.0 million during 2006.
Due primarily to the Companys ongoing program of repurchasing its common stock on the open
market, at December 31, 2008 the Company had 25.8 million treasury shares. The Company satisfies
option exercises from this pool of treasury shares.
Other Stock Option Plans
FFI Stock Option Plans
In 2000, the Company established the 2000 FFI Stock Option Plan (2000 FFI Plan). In March 2001,
the 2000 FFI Plan was terminated and no further options were granted under the Plan. At December
31, 2008, an aggregate of 7,088,870 shares of Common Stock have been reserved for issuance upon the
exercise of options granted to qualified employees and consultants of the Company. As a
majority-owned subsidiary of the Company, All options issued under the 2000 FFI Plan were granted
at the estimated fair market value of the option at the date of grant FFI is not a public company,
the fair market value of the shares issued under the plan has been determined by the Company.
Options expire ten years from the grant date.
In 2001, the Company established the 2001 FFI Stock Option Plan (2001 FFI Plan). At December 31,
2008, an aggregate of 6,175,360 shares of FFIs common stock have been reserved for issuance upon
the exercise of options granted to qualified employees and. As FFI is not a public company, the
fair market value of the shares issued under the plan has been determined based on a valuation
prepared by the Company. FFIs Board of Directors, directly or through committees, administers the
2001 FFI Plan and establishes the terms of option grants. Options expire ten years from the grant
date. Vesting occurs at the rate of at least 20 percent per year over 5 years from the date options
are granted. No options have been granted subsequent to 2004.
iAS Stock Option Plan
In 2001, the Company established the 2001 iAS Stock Option Plan (iAS Plan) and reserved for
issuance an aggregate of 15,250,000 shares of iAS common stock upon the exercise of options granted
to qualified employees and consultants of iAnywhere Solutions, Inc., a majority-owned subsidiary of
the Company, and certain employees of Sybase, Inc. iASs Board of Directors, directly or through
committees, administers the iAS Plan and establishes the terms of option grants. Because iAS is
not a public company, the fair market value of the shares issued under the plan has been determined
by iASs Board of Directors and supported by a valuation prepared by the Company. Options expire
ten years from the grant date, or three months after termination of employment, or two years after
death, or one year after permanent disability. Vesting occurs at the rate of at least 20 percent
per year over 5 years from the date options are granted. No options have been granted subsequent to
2005.
- 91 -
Price data and activity for the FFI stock option plans and the iAS Plan are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFI Stock Plans
|
|
iAS Plan
|
|
|
Outstanding
|
|
Weighted
|
|
Outstanding
|
|
Weighted
|
|
|
options
|
|
average
|
|
options
|
|
average
|
|
|
number of
|
|
Exercise price
|
|
number of
|
|
Exercise price
|
|
|
shares
|
|
Per share
|
|
shares
|
|
Per share
|
Balance at December 31, 2005
|
|
|
7,752,506
|
|
|
$
|
3.37
|
|
|
|
11,516,699
|
|
|
$
|
2.51
|
|
Forfeited or expired
|
|
|
(4,574,138
|
)
|
|
|
3.51
|
|
|
|
(1,283,359
|
)
|
|
|
2.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
3,178,368
|
|
|
$
|
3.22
|
|
|
|
10,233,340
|
|
|
$
|
2.51
|
|
Forfeited or expired
|
|
|
(876,078
|
)
|
|
|
1.98
|
|
|
|
(1,079,021
|
)
|
|
|
2.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
2,302,290
|
|
|
$
|
2.83
|
|
|
|
9,154,319
|
|
|
$
|
2.51
|
|
Forfeited or expired
|
|
|
(251,624
|
)
|
|
|
2.31
|
|
|
|
(539,442
|
)
|
|
|
2.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
2,050,666
|
|
|
$
|
2.90
|
|
|
|
8,614,877
|
|
|
$
|
2.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No FFI options were granted in 2008, 2007, and 2006. Forfeitures in 2006 include 1,650,008 returned
by senior executives of the Company. No iAS options were granted in 2008, 2007, and 2006.
The following table summarizes information about the FFI stock options outstanding at December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Options
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted-
|
|
|
|
|
|
|
Remaining
|
|
Average
|
Ranges of
|
|
|
|
|
|
Contractual
|
|
Exercise
|
Exercisable prices
|
|
Shares
|
|
Life
|
|
Price
|
$ 0.75
|
|
|
518,500
|
|
|
|
3.93
|
|
|
$
|
0.75
|
|
$ 0.78
|
|
|
500,500
|
|
|
|
4.51
|
|
|
$
|
0.78
|
|
$ 5.00
|
|
|
1,031,666
|
|
|
|
1.73
|
|
|
$
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.75 to $5.00
|
|
|
2,050,666
|
|
|
|
2.97
|
|
|
$
|
2.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, there were 8,614,657 shares exercisable under the iAS Plan all at an exercise
price of $2.51 per share. The weighted average remaining contractual life of the options
outstanding and options exercisable was 2.98 years at December 31, 2008.
There are no intrinsic values for FFI or iAS stock options as of December 31, 2008
Note Eight: Income Taxes
The Company accounts for income taxes under the liability method. Under this method, deferred tax
assets and liabilities are determined based on differences between financial reporting and income
tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
The following is a geographical breakdown of consolidated income (In thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
United States
|
|
$
|
104,156
|
|
|
$
|
118,655
|
|
|
$
|
51,110
|
|
Foreign
|
|
|
102,996
|
|
|
|
71,297
|
|
|
|
110,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
207,152
|
|
|
$
|
189,252
|
|
|
$
|
161,317
|
|
|
|
|
|
|
|
|
|
|
|
- 92 -
The provisions (credits) for income taxes consist of the following (In thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
12,185
|
|
|
$
|
5,005
|
|
|
$
|
1,898
|
|
Deferred
|
|
|
22,056
|
|
|
|
11,366
|
|
|
|
20,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,241
|
|
|
|
16,371
|
|
|
|
22,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
5,886
|
|
|
$
|
2,572
|
|
|
$
|
218
|
|
Deferred
|
|
|
(4,088
|
)
|
|
|
3,659
|
|
|
|
4,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,798
|
|
|
|
6,231
|
|
|
|
5,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
35,199
|
|
|
$
|
21,417
|
|
|
$
|
36,904
|
|
Deferred
|
|
|
(2,657
|
)
|
|
|
(2,917
|
)
|
|
|
2,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,542
|
|
|
|
18,500
|
|
|
|
39,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,581
|
|
|
$
|
41,102
|
|
|
$
|
66,253
|
|
|
|
|
|
|
|
|
|
|
|
The Company records a valuation allowance to reduce its deferred tax assets to the amount that is
more likely than not to be realized. In order for the Company to realize its deferred tax assets,
it must be able to generate sufficient taxable income in those jurisdictions where the deferred tax
assets are located. The Company evaluates its valuation allowance each quarter based on factors
such as the mix of earnings in the jurisdictions in which it operates, prudent and feasible tax
planning strategies, current taxable income and forecasted future taxable income. Forecasts of
future taxable income are further refined as a result of each years budget and goal setting
process generally occurring annually in the fourth quarter.
As a result of the Companys assessment of its valuation allowances for its deferred tax assets for
the quarter ending December 31, 2008, the Company concluded that it was more likely than not that a
portion of its deferred tax assets relating to federal tax loss carryforwards and state tax credit
and loss carryfowards will be realized based on a number of factors including projections of future
year federal taxable income and, in the case of state credits and losses, projections of future
year taxable income in the relevant states. As a result of this re-evaluation, during the quarter
ending December 31, 2008, the Company released $16.5 million of valuation allowances relating to
federal tax loss carryforwards, which reduced goodwill, and $11.7 million of valuation allowances
relating to state tax credit and loss carryforwards, of which $6.7 million reduced tax expense,
$1.7 million reduced goodwill, and $3.3 million increased deferred tax liability for their federal
tax effect.
During the quarter ending December 31 2007, due to possible share repurchases or acquisitions,
management reduced its estimate of foreign subsidiaries earnings permanently reinvested. This
change had the effect of increasing income tax expense by approximately $13 million. In addition,
this change could have the effect of increasing the Companys future dividends from its foreign
subsidiaries and thus its future US taxable income. As a result of this change and other projected
changes in the Companys future US taxable income, management re-evaluated the need for valuation
allowances for the Companys US deferred tax assets. As a result of this re-evaluation, during
the quarter ending December 31, 2007, the Company released $27.6 million of valuation allowances
relating to federal research tax credit and foreign tax credit carryforwards, of which $26.4
million reduced tax expense and $1.2 million reduced goodwill.
- 93 -
The provision for income taxes differs from the amount computed by applying the statutory federal
income tax rate to income before income taxes. The sources and tax effects of the differences are
as follows (In thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Tax (credit) at U.S. statutory rate
|
|
$
|
72,488
|
|
|
$
|
66,483
|
|
|
$
|
56,461
|
|
State tax, net of federal benefit
|
|
|
6,743
|
|
|
|
4,710
|
|
|
|
5,019
|
|
Federal research credit
|
|
|
(1,019
|
)
|
|
|
(1,925
|
)
|
|
|
0
|
|
Domestic production activities deduction
|
|
|
(2,925
|
)
|
|
|
(1,848
|
)
|
|
|
0
|
|
Valuation allowances added for unused capital losses
|
|
|
4,685
|
|
|
|
0
|
|
|
|
0
|
|
Valuation allowances released
|
|
|
(6,675
|
)
|
|
|
(26,428
|
)
|
|
|
0
|
|
Difference between estimated amounts recorded and
actual liabilities resulting from the filing of
prior years tax return
|
|
|
|
|
|
|
|
|
|
|
(2,806
|
)
|
Effect of foreign operations
|
|
|
(9,081
|
)
|
|
|
(1,677
|
)
|
|
|
4,070
|
|
Stock-based compensation
|
|
|
2,608
|
|
|
|
2,660
|
|
|
|
3,012
|
|
Other
|
|
|
1,757
|
|
|
|
(873
|
)
|
|
|
497
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,581
|
|
|
$
|
41,102
|
|
|
$
|
66,253
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes result principally from temporary differences between years in the
recognition of certain revenue and expense items for financial and tax reporting purposes.
Significant components of the Companys net deferred tax assets were as follows at December 31 (In
thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Depreciation
|
|
$
|
10,932
|
|
|
$
|
9,960
|
|
Deferred revenue
|
|
|
2,644
|
|
|
|
1,865
|
|
Accrued expenses
|
|
|
35,550
|
|
|
|
28,039
|
|
Tax loss and tax credit carryforwards
|
|
|
116,555
|
|
|
|
128,371
|
|
|
Intangible assets
|
|
|
36,137
|
|
|
|
46,357
|
|
Stock-based compensation
|
|
|
11,012
|
|
|
|
11,450
|
|
Other assets
|
|
|
10,832
|
|
|
|
2,623
|
|
|
|
|
|
|
|
|
Gross deferred tax asset
|
|
|
223,662
|
|
|
|
228,665
|
|
|
|
|
|
|
|
|
Unremitted foreign earnings
|
|
|
(35,359
|
)
|
|
|
(29,701
|
)
|
Acquired Intangibles
|
|
|
(34,663
|
)
|
|
|
(43,590
|
)
|
Capitalized Software
|
|
|
(32,960
|
)
|
|
|
(29,711
|
)
|
|
|
|
|
|
|
|
Gross deferred tax liability
|
|
|
(102,982
|
)
|
|
|
(103,002
|
)
|
|
|
|
|
|
|
|
Total before valuation allowance
|
|
|
120,680
|
|
|
|
125,663
|
|
Valuation allowance
|
|
|
(60,580
|
)
|
|
|
(91,761
|
)
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
60,100
|
|
|
$
|
33,902
|
|
|
|
|
|
|
|
|
Recorded as:
|
|
|
|
|
|
|
|
|
Current deferred tax assets
|
|
$
|
45,524
|
|
|
$
|
37,979
|
|
Noncurrent deferred tax assets
|
|
|
26,474
|
|
|
|
10,038
|
|
Noncurrent deferred tax liabilities
|
|
|
(11,898
|
)
|
|
|
(14,115
|
)
|
|
|
|
|
|
|
|
|
|
$
|
60,100
|
|
|
$
|
33,902
|
|
|
|
|
|
|
|
|
The valuation allowance decreased by $31.2 million and by $78.4 million in 2008 and 2007
respectively, and increased by $37.4 million in 2006. This valuation allowance relates to the
deferred tax assets that the Company believes are not more likely than not to be realized. In
2008, the movement was related to the following items (In thousands):
- 94 -
|
|
|
|
|
Valuation allowances associated with deferred tax assets used during
the year
|
|
$
|
(10,021
|
)
|
Valuation allowances associated with tax loss and credit
carryforwards projected to be used in future years
|
|
|
(28,185
|
)
|
Valuation allowance associated with capital and other losses incurred
|
|
|
7,025
|
|
|
|
|
|
|
|
$
|
(31,181
|
)
|
|
|
|
|
The valuation allowance includes approximately $14 million associated with stock option activity
for which any recognized tax benefits will be credited directly to shareholders equity if and when
the related deferred tax asset is used to reduce current tax payable. The remaining valuation
allowance relates primarily to federal net operating loss carrfyorwards and State net operating
loss and tax credit carryforwards, which, if realized, will be credited to tax benefit. Realizing
the benefit of these loss and credit carryforwards depends primarily on earning sufficient future
taxable income in the United States, and in the case of state losses and credits, earning
sufficient future taxable income in the relevant states.
As of December 31, 2008, the Company had federal research and development tax credits of
approximately $22 million, which expire in years from 2012 through 2028, foreign tax credits of
approximately $27 million expiring primarily in year 2015, minimum tax credits of approximately $6
million currently not subject to expiration dates, approximately $108 million of net operating
losses which expire in years from 2019 through 2025, and approximately $8 million of federal
capital loss carryforwards expiring in years 2010 through 2013. As of December 31, 2008, the
Company had State net operating losses of $67 million expiring in years 2012 through 2021 and $34
million of State research credits, a portion of which expire in 2012 and a portion of which
currently have no expiration period. As of December 31, 2008, the Company had foreign net
operating loss carryforwards of $11 million expiring in years 2011 through 2013.
No provision has been made for income taxes and foreign withholding taxes on approximately $50
million of undistributed earnings from non-US operations as of December 31, 2008 because the
Company currently plans to permanently reinvest all such earnings. If the Company did not plan on
permanently reinvesting these earnings, the additional deferred tax liability would be
approximately $15 million. When excess cash accumulates in the Companys non-US subsidiaries, the
subsidiarys earnings are remitted if it is advantageous for business, tax and foreign exchange
reasons.
The Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, (FIN 48) on January 1, 2007. As a result
of adopting FIN 48, the Company did not record any cumulative effect adjustment to the opening
balance of retained earnings and additional paid-in-capital. Under FIN 48, the Company recognizes
the tax benefit of a tax position that the Company takes or expects to take in a tax return, when
it is more likely than not, based on the technical merits, that the position will be sustained upon
examination. For these positions, the Company recognizes an amount of tax benefit that is greater
than 50 percent likely of being realized upon ultimate settlement with the tax authority. Tax
benefits for tax positions that are not more likely than not of being sustained upon examination
are recognized, generally, when the tax position is resolved through examination or upon the
expiration of the statute of limitations. The difference between the tax benefit of tax positions
taken in tax returns and the amount of tax benefit recognized in our financial statements
represents unrecognized tax benefits. A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (In thousands):
|
|
|
|
|
Unrecognized tax benefits balance at January 1, 2007
|
|
$
|
44,447
|
|
|
|
|
|
Gross increases for tax positions of prior years
|
|
|
1,678
|
|
Gross increases for tax positions of the year 2007
|
|
|
9,608
|
|
Settlements of audits in 2007
|
|
|
0
|
|
Reductions as a result of a lapse of the applicable statute of limitations
|
|
|
(5,551
|
)
|
|
|
|
|
Unrecognized tax benefits balance at January 1, 2008
|
|
$
|
50,182
|
|
|
|
|
|
Gross increases for tax positions of prior years
|
|
|
4,623
|
|
Gross decreases for tax positions of prior years
|
|
|
(2,672
|
)
|
Gross increases for tax positions of the current year
|
|
|
18,176
|
|
Settlements of audits
|
|
|
(786
|
)
|
Reductions as a result of a lapse of the applicable statute of limitations
|
|
|
(4,843
|
)
|
|
|
|
|
Unrecognized tax benefits balance at December 31, 2008
|
|
$
|
64,680
|
|
|
|
|
|
- 95 -
The total amount of unrecognized tax benefits that would affect our effective tax rate if
recognized is $63 million as of December 31, 2008 and $45 million as of December 31, 2007.
The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. The liability for unrecognized tax benefits included accrued interest of $3.7 million and
$3.5 million and no penalties at December 31, 2008 and December 31, 2007, respectively. Tax
expense included interest of approximately $1.7 million and $1 million and no penalties for the
year ending December 31, 2008 and December 31, 2007, respectively.
Sybase, Inc. or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction,
and various states and foreign jurisdictions. With a few exceptions, the Company is no longer
subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for
years before 2005. The Company is under U.S. federal tax examination for the years 2006 and 2007.
Income tax returns filed in certain other foreign jurisdictions and states are under examination.
During the next 12 months, it is reasonably possible that the total amounts of unrecognized tax
benefits will decrease by between $7 million to $15 million due to tax settlement payments and the
expiration of statute of limitations. The Company believes that it has adequately provided for any
reasonably foreseeable outcomes related to its tax audits and that any settlement will not have a
material adverse effect on its consolidated financial position or results of operations. However,
if the Companys estimate of tax liabilities proves to be less than the ultimate assessment, a
further charge to expense would result.
Note Nine: Benefit Plans
401(k) Defined Contribution Retirement Plan
The Company maintains a defined contribution retirement plan pursuant to Section 401(k) of the
Internal Revenue Code (the 401(k) Plan) that allows eligible employees to contribute up to a
certain percentage of their annual compensation to the Plan, subject to the annual IRS limit. In
2008 and 2007, 401(k) Plan participants who (i) attained the age of 50 during the calendar year and
(ii) had made the maximum plan or IRS pre-tax contribution were able to make an additional
catch-up contribution up to a maximum of $5,000. In 2008, 2007 and 2006, the Company matched
employee contribution at a rate of $0.50 for each dollar up to the first $4,000 of salary
contributed by the employee, with a maximum employer match of $2,000 for the year fully vested. The
Plan also allows the Company to make discretionary contributions. There were no such discretionary
contributions made in 2008, 2007 or 2006.
Deferred Compensation Plan
The Company maintains a rabbi trust related to a deferred compensation plan established to provide
certain employees and non-employee members of the Board of Directors (Plan Participants) with the
opportunity to defer the receipt of compensation. The Plan is intended to satisfy the requirements
of IRS Code Section 409A. Under the terms of the Plan, the Plan Participants may elect to defer
the receipt of a portion of their compensation. Each election to defer compensation also requires
that the Plan Participant specify the timing of the distribution of such amounts in the future.
Each Plan Participant directs the manner in which their investments are deemed invested.
Investment options mirror those of the Companys 401(k) plan and exclude investments in Company
stock. The Company invests its own funds in amounts equal to the hypothetical investment choice of
the Plan Participant. The Company has established a Rabbi Trust for the purpose of providing for
the payment of benefits/distributions under the Plan. The trust is structured to conform to the
model approved by the IRS pursuant to Revenue Procedure 92-64 and the assets of the trust are
subject to the claims of the Companys general creditors. To the extent the deferred amounts under
the Plan are actually paid to the employee, the Company no longer has any further obligation with
respect thereto, but to the extent not paid to the employee, such
- 96 -
deferred amounts remain the
obligation of the Company. As of December 31, 2008 investments in mutual funds that are held in
the Rabbi Trust and the amount due to plan participants each totaled $8.6 million.
Note Ten: Segment and Geographical Information
In 2008, the Companys business was organized into three business segments: Infrastructure Platform
Group (IPG), which principally focuses on enterprise class database servers, integration and
development products; iAnywhere Solutions, Inc. (iAS), which provides mobile device management,
mobile middleware platforms, database, synchronization, and Bluetooth and infrared protocol
technologies; and Sybase 365 (SY365), which provides application services that allows customers to
deliver and financially settle mobile data and messages, including short message services or SMS,
and multimedia messaging services or MMS, and GPRS roaming exchange services or GRX. Until
December 31, 2007, AvantGo results were reported as part of the iAS segment. Commencing on January
1, 2008, AvantGo is a part of the SY365 segment. The Company has reclassified applicable revenue
and expense amounts for all earlier periods reported to reflect this segment change.
The Companys chief operating decision maker is the President and Chief Executive Officer (CEO).
While the CEO is apprised of a variety of financial metrics and information, the Companys business
is principally managed on a segment basis, with the CEO evaluating performance based upon segment
operating profit or loss that includes an allocation of common expenses, but excludes certain
unallocated expenses, primarily stock based compensation expense. The CEO does not view segment
results below operating profit (loss) before unallocated costs, and therefore unallocated expenses
or savings; interest income, interest expense and other, net; and the provision for income taxes
are not broken out by segment. The Company does not account for, or report to the CEO, assets or
capital expenditures by segment.
Certain common costs and expenses are allocated based on measurable drivers of expense.
Unallocated expenses or savings represent corporate activities (expenditures or cost savings) that
are not specifically allocated to the segments including stock-based compensation expenses and
reversals of restructuring expenses associated with restructuring activities undertaken prior to
2003. Unallocated costs for 2008, 2007, and 2006 consisted primarily of stock-based compensation
expenses.
Segment license and service revenues include transactions between iAS and IPG. The most common
instance relates to the sale of iAS products and services to third parties by IPG. In the case of
such a transaction, IPG records the revenue on the sale with a corresponding inter-company expense
on the transaction, with corresponding inter-company revenue recorded by iAS together with costs of
providing the product or service. The excess of revenues over inter-company expense recognized by
IPG is intended to reflect the costs incurred by IPG to complete the sales transaction. Total
transactions between the segments are captured in Eliminations.
- 97 -
A summary of the segment financial information reported to the CEO for the year ended December 31,
2008 is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
(In thousands)
|
|
IPG
|
|
|
iAS
|
|
|
SY365
|
|
|
Elimination
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
274,937
|
|
|
$
|
353
|
|
|
$
|
214
|
|
|
$
|
|
|
|
$
|
275,504
|
|
Mobile and Embedded
|
|
|
33,066
|
|
|
|
75,069
|
|
|
|
22
|
|
|
|
|
|
|
|
108,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal license fees
|
|
|
308,003
|
|
|
|
75,422
|
|
|
|
236
|
|
|
|
|
|
|
|
383,661
|
|
Intersegment license revenues
|
|
|
508
|
|
|
|
27,566
|
|
|
|
|
|
|
|
(28,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license fees
|
|
|
308,511
|
|
|
|
102,988
|
|
|
|
236
|
|
|
|
(28,074
|
)
|
|
|
383,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct service revenue
|
|
|
527,956
|
|
|
|
42,485
|
|
|
|
1,649
|
|
|
|
|
|
|
|
572,090
|
|
Intersegment service revenues
|
|
|
185
|
|
|
|
33,250
|
|
|
|
|
|
|
|
(33,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services
|
|
|
528,141
|
|
|
|
75,735
|
|
|
|
1,649
|
|
|
|
(33,435
|
)
|
|
|
572,090
|
|
- 98 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
(In thousands)
|
|
IPG
|
|
|
iAS
|
|
|
SY365
|
|
|
Elimination
|
|
|
Total
|
|
Messaging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct messaging revenue
|
|
|
41
|
|
|
|
|
|
|
|
176,138
|
|
|
|
|
|
|
|
176,179
|
|
Intersegment messaging revenues
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total messaging
|
|
|
41
|
|
|
|
|
|
|
|
176,172
|
|
|
|
(34
|
)
|
|
|
176,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
836,693
|
|
|
|
178,723
|
|
|
|
178,057
|
|
|
|
(61,543
|
)
|
|
|
1,131,930
|
|
Total allocated costs and expenses before
amortization of other purchased intangibles,
purchased technology, cost of restructure,
and unallocated costs
|
|
|
629,642
|
|
|
|
137,526
|
|
|
|
160,216
|
|
|
|
(61,543
|
)
|
|
|
865,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before amortization of other
purchased intangibles, purchased technology,
cost of restructure, and unallocated costs
|
|
|
207,051
|
|
|
|
41,197
|
|
|
|
17,841
|
|
|
|
|
|
|
|
266,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other purchased intangibles
|
|
|
2,108
|
|
|
|
4,092
|
|
|
|
8,516
|
|
|
|
|
|
|
|
14,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased technology
|
|
|
4,645
|
|
|
|
8,948
|
|
|
|
4,042
|
|
|
|
|
|
|
|
18,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before cost of restructure and
unallocated costs
|
|
|
200,298
|
|
|
|
27,157
|
|
|
|
5,283
|
|
|
|
|
|
|
|
232,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of restructure - 2008 Activity
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before unallocated costs
|
|
|
199,983
|
|
|
|
27,157
|
|
|
|
5,283
|
|
|
|
|
|
|
|
232,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
207,152
|
|
A summary of the segment financial information reported to the CEO for the year ended December 31,
2007 is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
(In thousands)
|
|
IPG
|
|
|
iAS
|
|
|
SY365
|
|
|
Elimination
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
238,336
|
|
|
$
|
511
|
|
|
$
|
22
|
|
|
$
|
|
|
|
$
|
238,869
|
|
Mobile and Embedded
|
|
|
36,744
|
|
|
|
69,194
|
|
|
|
|
|
|
|
|
|
|
|
105,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal license fees
|
|
|
275,080
|
|
|
|
69,705
|
|
|
|
22
|
|
|
|
|
|
|
|
344,807
|
|
Intersegment license revenues
|
|
|
384
|
|
|
|
30,627
|
|
|
|
|
|
|
|
(31,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license fees
|
|
|
275,464
|
|
|
|
100,332
|
|
|
|
22
|
|
|
|
(31,011
|
)
|
|
|
344,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct service revenue
|
|
|
496,198
|
|
|
|
43,826
|
|
|
|
4,185
|
|
|
|
|
|
|
|
544,209
|
|
Intersegment service revenues
|
|
|
445
|
|
|
|
29,002
|
|
|
|
|
|
|
|
(29,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services
|
|
|
496,643
|
|
|
|
72,828
|
|
|
|
4,185
|
|
|
|
(29,447
|
)
|
|
|
544,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Messaging
|
|
|
|
|
|
|
|
|
|
|
136,514
|
|
|
|
|
|
|
|
136,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
772,107
|
|
|
|
173,160
|
|
|
|
140,721
|
|
|
|
(60,458
|
)
|
|
|
1,025,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allocated costs and expenses before
amortization of other purchased intangibles,
purchased technology, cost of restructure,
and unallocated costs
|
|
|
600,462
|
|
|
|
133,758
|
|
|
|
129,997
|
|
|
|
(60,458
|
)
|
|
|
803,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 99 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
(In thousands)
|
|
IPG
|
|
|
iAS
|
|
|
SY365
|
|
|
Elimination
|
|
|
Total
|
|
Operating income before amortization of other
purchased intangibles, purchased technology,
cost of restructure, and unallocated costs
|
|
|
171,645
|
|
|
|
39,402
|
|
|
|
10,724
|
|
|
|
|
|
|
|
221,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other purchased intangibles
|
|
|
2,108
|
|
|
|
4,168
|
|
|
|
7,507
|
|
|
|
|
|
|
|
13,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased technology
|
|
|
1,611
|
|
|
|
8,222
|
|
|
|
3,758
|
|
|
|
|
|
|
|
13,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before cost of
restructure and unallocated costs
|
|
|
167,926
|
|
|
|
27,012
|
|
|
|
(541
|
)
|
|
|
|
|
|
|
194,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of restructure - 2007 Activity
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before unallocated costs
|
|
|
167,939
|
|
|
|
27,012
|
|
|
|
(541
|
)
|
|
|
|
|
|
|
194,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
189,952
|
|
- 100 -
A summary of the segment financial information reported to the CEO for the year ended December 31,
2006 is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
(In thousands)
|
|
IPG
|
|
|
iAS
|
|
|
SY365
|
|
|
Elimination
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
$
|
229,376
|
|
|
$
|
235
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
229,611
|
|
Mobile and Embedded
|
|
|
31,621
|
|
|
|
65,519
|
|
|
|
|
|
|
|
|
|
|
|
97,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal license fees
|
|
|
260,997
|
|
|
|
65,754
|
|
|
|
|
|
|
|
|
|
|
|
326,751
|
|
Intersegment license revenues
|
|
|
86
|
|
|
|
26,333
|
|
|
|
|
|
|
|
(26,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total license fees
|
|
|
261,083
|
|
|
|
92,087
|
|
|
|
|
|
|
|
(26,419
|
)
|
|
|
326,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct service revenue
|
|
|
485,016
|
|
|
|
45,019
|
|
|
|
1,137
|
|
|
|
|
|
|
|
531,172
|
|
Intersegment service revenues
|
|
|
367
|
|
|
|
25,905
|
|
|
|
|
|
|
|
(26,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services
|
|
|
485,383
|
|
|
|
70,924
|
|
|
|
1,137
|
|
|
|
(26,272
|
)
|
|
|
531,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Messaging
|
|
|
|
|
|
|
|
|
|
|
18,240
|
|
|
|
|
|
|
|
18,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
746,466
|
|
|
|
163,011
|
|
|
|
19,377
|
|
|
|
(52,691
|
)
|
|
|
876,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allocated costs and expenses before
amortization of other purchased intangibles,
purchased technology, cost of restructure,
and unallocated costs
|
|
|
598,864
|
|
|
|
135,188
|
|
|
|
18,908
|
|
|
|
(52,691
|
)
|
|
|
700,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before amortization of other
purchased intangibles, purchased technology,
cost of restructure, and unallocated costs
|
|
|
147,602
|
|
|
|
27,823
|
|
|
|
469
|
|
|
|
|
|
|
|
175,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other purchased intangibles
|
|
|
2,060
|
|
|
|
4,184
|
|
|
|
1,087
|
|
|
|
|
|
|
|
7,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of purchased technology
|
|
|
1,654
|
|
|
|
7,883
|
|
|
|
543
|
|
|
|
|
|
|
|
10,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before cost of
restructure and unallocated costs
|
|
|
143,888
|
|
|
|
15,756
|
|
|
|
(1,161
|
)
|
|
|
|
|
|
|
158,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of restructure - 2006 Activity
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before unallocated costs
|
|
|
142,927
|
|
|
|
15,756
|
|
|
|
(1,161
|
)
|
|
|
|
|
|
|
157,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
161,317
|
|
- 101 -
Geographic Information
The Company has historically operated in one industry (the development and marketing of computer
software and related services). With the acquisition of Mobile 365 in 2006, the Company initiated
operations in the mobile messaging services industry. The company markets its products and
services internationally through both foreign subsidiaries and distributors located in the United
States, Europe, Asia, Australia, Canada, New Zealand and Latin America. Other includes operations
in Asia, Australia, Canada, New Zealand and Latin America. The following table presents a summary
of annual revenues and net long-lived assets excluding deferred tax assets by geographic region (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
533,238
|
|
|
$
|
499,815
|
|
|
$
|
442,432
|
|
Europe
|
|
|
399,477
|
|
|
|
342,029
|
|
|
|
279,306
|
|
Other
|
|
|
199,215
|
|
|
|
183,686
|
|
|
|
154,425
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,131,930
|
|
|
$
|
1,025,530
|
|
|
$
|
876,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
708,882
|
|
|
$
|
770,210
|
|
|
$
|
788,052
|
|
Europe
|
|
|
91,528
|
|
|
|
59,380
|
|
|
|
60,086
|
|
Other
|
|
|
30,643
|
|
|
|
46,129
|
|
|
|
31,782
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
831,053
|
|
|
$
|
875,719
|
|
|
$
|
879,920
|
|
|
|
|
|
|
|
|
|
|
|
Note Eleven: Business Combinations
On December 30, 2008, the Company acquired Germany-based Paybox Solutions AG (Paybox), a privately
held provider of mobile payment solutions for approximately $11.4 million in cash plus a
revenue-based earn-out. Excluding the earn-out, the purchase price exceeds the fair value of the
net tangible assets acquired by $12.2 million. Of this excess, $3.0 million was allocated to
developed technology with a useful life of five years, $0.3 million was allocated to customer
relationships with a useful life of five years, and $8.9 million was assigned to goodwill. Included
in goodwill is approximately $0.6 million which has an offsetting amount allocated to long-term
deferred tax liability for the amortization of the developed technology and customer relationships,
which is not deductible for tax purposes. If and when earn-out milestones are achieved, the Company
will adjust goodwill correspondingly. Paybox was integrated into the SY365 segment from December
30, 2008 onward. The allocation and final determination of the purchase price are subject to
change. The primary areas of the purchase price and related allocation that are not finalized
relate to deferred tax assets and liabilities.
On July 4, 2008, the Company acquired the Cable & Wireless international inter-operator Multimedia
Messaging Service (MMS) hubbing and Mobile Data Roaming services for a total cash consideration of
$28.7 million plus a revenue-based earn-out. The Companys purchase price allocation resulted in
the Company allocating $15.2 million to customer contracts and relationships with a useful life of
10 years, $1.0 million to developed technology with a useful life of five years and $12.5 million
to goodwill. The Companys basis for determining its allocation included consideration of a
valuation prepared by an independent third-party appraiser. The Company also considered this
independent appraisers valuation methodology in determining the appropriate useful life of the
intangible assets acquired. If and when earn-out milestones are achieved, the Company will adjust
goodwill accordingly. The mobile data roaming services and MMS hubbing service was integrated into
the SY365 segment from July 4, 2008 onward.
- 102 -
On August 13, 2007, the Company acquired Japan-based Coboplan, a privately held provider of mapping
software solutions, also known as Geographic Information System (GIS) software solutions, for
approximately $6.4 million in cash. The results of Coboplan are included in the Companys IAS
reporting segment from August 13, 2007 onward.
On November 8, 2006, the Company completed its acquisition of Mobile 365 Inc, a privately held
mobile messaging and content delivery company for approximately $418.5 million This acquisition
provided Sybase with an extensive carrier channel of approximately 700 operators. The results of
Mobile 365 are included in the Companys Sybase 365 reporting segment from November 8, 2006 onward.
The estimated excess of the purchase price over the fair value of the net tangible assets acquired
is approximately $413.8 million. Of the estimated $413.8 million excess, $25.2 million was
allocated to developed existing technology, $50.7 million was allocated to customer contracts and
relationships, and $337.9 million was allocated to goodwill. The developed existing technology and
customer contracts and relationships were assigned useful lives of seven years. The Companys basis
for determining its allocation included consideration of a valuation prepared by an independent
third-party appraiser. This independent appraiser also assisted the Company in determining the
appropriate useful life with the intangible assets acquired. Included in goodwill is approximately
$28.3 million which has an offsetting amount allocated to long-term deferred tax liability for the
amortization of the developed technology, and customer lists, which is not deductible for tax
purposes.
In connection with Mobile 365, included in other current accrued liabilities are costs due to
mobile operators and content providers totaling $36.1 million, $37.6 million, and $34.3 million at
December 31, 2008, 2007, and 2006, respectively.
Note Twelve: Litigation
On July 13, 2006, Telecommunications Systems, Inc. (TCS), a wireless services provider, filed a
complaint for patent infringement in the U.S. District Court for the Eastern District of Virginia,
alleging that Mobile 365 infringes U.S. Patent 6,985,748 (the 748 patent). The matter was tried
before a jury beginning on May 14, 2007. On May 25, 2007, the jury rendered its verdict, finding
that Mobile 365 willfully infringed the 748 patent, and awarded TCS a total amount of $12.1
million. TCS filed post-trial motions for enhanced damages and attorneys fees, for an award of
prejudgment interest, and for entry of a permanent injunction (although it requested that any
injunction be stayed pending the outcome on appeal), but subsequently withdrew its request for
enhanced damages for the time period prior to the verdict. Sybase 365 filed post-trial motions for
a judgment in its favor as a matter of law, for reduction of the jury award, and for entry of
judgment in its favor based on TCSs inequitable conduct before the Patent and Trademark Office in
obtaining the patent. The court has made the following rulings: i) granted TCSs motion for an
injunction but stayed it pending the outcome on appeal, ii) granted TCSs motion for pre-judgment
interest, at the rate of prime plus 1 percent, compounded quarterly, iii) granted Sybase 365s
motion for remittitur, reducing the pre-issuance damages portion of the jury award by $2.2 million,
iv) denied Sybase 365s motions for judgment as a matter of law, for reduction of the jury award,
and for entry of judgment based on inequitable conduct, and v) denied TCSs motion for attorneys
fees. Sybase 365 intends to appeal once the court enters judgment in the matter.
The November 2006 merger agreement between Sybase and Mobile 365 established an escrow which
provides for indemnification of Sybase by Mobile 365s former stockholders for certain losses
related to the TCS litigation. Sybase believes that the escrow established by the merger agreement
will be adequate to address the substantial majority of losses, if any, related to this litigation.
Since the jurys verdict, Sybase 365 has developed a design-around so that its service for
intercarrier wireless text messaging can operate in a way that avoids the infringement as found by
the jury. Sybase 365 continues to implement the design-around across its customer base.
Sybase is a party to various other legal disputes and proceedings arising in the ordinary course of
business. In the opinion of management, resolution of these matters, including the above mentioned
legal matters, is not expected to have a material adverse effect on our consolidated financial
position or
- 103 -
results of operations as the Company believes it has adequately accrued for these
matters at December 31, 2008. However, depending on the amount and timing of such resolution, an
unfavorable resolution of
some or all of these matters could materially affect our future results of operations or cash flows
in a particular period.
Note Thirteen: Restructuring Costs
In 2004, 2002 and 2001 the Company embarked on restructuring aimed at reducing its annual expenses.
The Company recorded restructuring charges to reflect these activities including future lease
costs, reduced by estimated sublease payments. In connection with the 2006 acquisition of Mobile
365 the Company recorded restructuring obligations primarily related to the closure or
consolidation of several existing Mobile 365 facilities.
The following table summarizes the activity associated with the balance of the accrued
restructuring charges related to the plans through December 31, 2008 (Dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Liabilities
|
|
|
|
|
|
Amounts
|
|
Liabilities
|
|
|
at
|
|
Amounts
|
|
Accrued
|
|
at
|
|
|
12/31/07
|
|
Paid
|
|
(Reversed)
|
|
12/31/08
|
2004 Plan
|
|
|
3.1
|
|
|
|
(1.1
|
)
|
|
|
0.3
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 Plan
|
|
|
6.0
|
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Plan
|
|
|
1.3
|
|
|
|
(0.5
|
)
|
|
|
(0.1
|
)
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile 365
|
|
|
0.8
|
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
The remaining restructuring accrual for each plan primarily relates to certain lease costs the
Company is contractually required to pay on certain closed facilities, net of estimated associated
sublease amounts. Sybases payments (net of sublease income) toward the accruals relating to lease
cancellations and commitments are dependent upon market conditions and the Companys ability to
negotiate acceptable lease buy-outs or to locate suitable subtenants.
These payments will be made over various remaining lease terms or over a shorter period as the
Company may negotiate with its lessors. Such lease terms under the 2004 Plan, 2002 Plan and 2001
Plan generally expire through October 2012, May 2010 and September 2010, respectively.
During 2008, 2007 and 2006, the Company recognized additional restructuring charges under the plans
related to revisions to expected sublease and amounts reflect the difference between the discounted
amounts accrued and the actual payments.
Due to the length of some of the lease terms and the uncertainty of the real estate market, the
Company expects to make periodic adjustments to the accrual balance to reflect changes in its
estimates, and to reflect actual events as they occur.
- 104 -
Note Fourteen: Guarantees
Under its standard software license agreement (SWLA), the Company agrees to indemnify, defend and
hold harmless its licensees from and against certain losses, damages and costs arising from claims
alleging the licensees use of Company software infringes the intellectual property rights of a
third party. Historically, the Company has not been required to pay material amounts in connection
with claims asserted under these provisions and, accordingly, the Company has not recorded a
liability relating to such provisions. Under the SWLA, the Company also represents and warrants to
licensees that its software products operate substantially in accordance with published
specifications. Under its standard
consulting and development agreement, the Company warrants that the services it performs will be
undertaken by qualified personnel in a professional manner conforming to generally accepted
industry standards and practices. Historically, only minimal costs have been incurred relating to
the satisfaction of product warranty claims and, as such, no accruals for warranty claims have been
made. Other guarantees include promises to indemnify, defend and hold harmless each of the
Companys executive officers, non-employee directors and certain key employees from and against
losses, damages and costs incurred by each such individual in administrative, legal or
investigative proceedings arising from alleged wrongdoing by the individual while acting in good
faith within the scope of his or her job duties on behalf of the Company. Historically minimal
costs have been incurred relating to such indemnifications and, as such, no accruals for these
guarantees have been made.
- 105 -
Note Fifteen: Convertible Subordinated Notes
On February 22, 2005, the Company issued through a private offering to qualified institutional
buyers in the U.S. $460 million of convertible subordinated notes (Notes) pursuant to exemptions
from registration afforded by the Securities Act of 1933, as amended. These notes have an interest
rate of 1.75 percent and are subordinated to all of the Companys future senior indebtedness. The
notes mature on February 22, 2025 unless earlier redeemed by the Company at its option, or
converted or put to the Company at the option of the holders. Interest is payable semi-annually in
arrears on February 22 and August 22 of each year, commencing on August 22, 2005. In 2008, 2007,
and 2006, the Company recognized interest expense of $8.0 million, excluding amortization of debt
issuance costs totaling $2.0 million.
The Company may redeem all or a portion of the notes at par on and after March 1, 2010. The
holders may require that the Company repurchase notes at par on February 22, 2010, February 22,
2015 and February 22, 2020.
The holders may convert the notes into the right to receive the conversion value (i) when the
Companys stock price exceeds 130% of the $24.99 per share adjusted conversion price (equal to
$32.49 per share) for a specified time, (ii) in certain change in control transactions, (iii) if
the notes are redeemed by the Company, (iv) in certain specified corporate transactions, and (v)
when the trading price of the notes does not exceed a minimum price level. During the three months
ended December 31, 2008, the Companys stock price did not exceed 130% of the $24.99 per share
adjusted conversion price for the required specified time. As such, the notes did not become
convertible during this period. For each $1,000 principal amount of notes, the conversion value
represents the amount equal to 40.02 shares multiplied by the per share price of the Companys
common stock at the time of conversion. If the conversion value exceeds $1,000 per $1,000 in
principal of notes, the Company will pay $1,000 in cash and may pay the amount exceeding $1,000 in
cash, stock or a combination of cash and stock, at the Companys election.
As a result of the completion of the self tender, the Conversion Rate for the Notes has been
adjusted from 39.6511 shares of the Companys Common Stock per $1,000 principal amount of Notes to
40.02 shares of the Companys Common Stock per $1,000 principal amount of Notes.
The Company has recorded these notes as long-term debt. Offering fees and expenses associated with
the debt offering were approximately $9.8 million and are included in other assets in the
Companys consolidated balance sheets at December 31, 2008. This asset is being amortized into
interest expenses on a straight-line basis over a five-year period which corresponds to the
earliest put date. This approximates the effective interest method. Unamortized offering fees and
expenses were $2.2 million and $4.2 million at December 31, 2008 and 2007, respectively.
- 106 -
Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended (in thousands,
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
Total
|
|
except per share and stock price data)
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
78,124
|
|
|
$
|
90,515
|
|
|
$
|
92,939
|
|
|
$
|
122,083
|
|
|
$
|
383,661
|
|
Services
|
|
|
139,397
|
|
|
|
146,594
|
|
|
|
146,295
|
|
|
|
139,804
|
|
|
|
572,090
|
|
Messaging
|
|
|
42,627
|
|
|
|
45,604
|
|
|
|
44,744
|
|
|
|
43,204
|
|
|
|
176,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues:
|
|
|
260,148
|
|
|
|
282,713
|
|
|
|
283,978
|
|
|
|
305,091
|
|
|
|
1,131,930
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees
|
|
|
14,537
|
|
|
|
15,129
|
|
|
|
18,151
|
|
|
|
19,525
|
|
|
|
67,342
|
|
Cost of services
|
|
|
40,880
|
|
|
|
41,080
|
|
|
|
40,225
|
|
|
|
38,419
|
|
|
|
160,604
|
|
Cost of messaging
|
|
|
25,108
|
|
|
|
27,403
|
|
|
|
28,107
|
|
|
|
27,139
|
|
|
|
107,757
|
|
Sales and marketing
|
|
|
68,293
|
|
|
|
74,272
|
|
|
|
70,347
|
|
|
|
72,464
|
|
|
|
285,376
|
|
Product development and engineering
|
|
|
35,562
|
|
|
|
36,046
|
|
|
|
37,451
|
|
|
|
37,873
|
|
|
|
146,932
|
|
General and administrative
|
|
|
36,061
|
|
|
|
34,077
|
|
|
|
32,831
|
|
|
|
36,011
|
|
|
|
138,980
|
|
Amortization of other purchased
intangibles
|
|
|
3,516
|
|
|
|
3,573
|
|
|
|
3,920
|
|
|
|
3,707
|
|
|
|
14,716
|
|
Cost (reversal) of restructure
|
|
|
27
|
|
|
|
(8
|
)
|
|
|
39
|
|
|
|
109
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
223,984
|
|
|
|
231,572
|
|
|
|
231,071
|
|
|
|
235,247
|
|
|
|
921,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
36,164
|
|
|
|
51,141
|
|
|
|
52,907
|
|
|
|
69,844
|
|
|
|
210,056
|
|
Interest income, expense, and other, net
|
|
|
3,515
|
|
|
|
(876
|
)
|
|
|
(285
|
)
|
|
|
(5,309
|
)
|
|
|
(2,955
|
)
|
Minority interest
|
|
|
(9
|
)
|
|
|
37
|
|
|
|
(21
|
)
|
|
|
44
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
39,670
|
|
|
|
50,302
|
|
|
|
52,601
|
|
|
|
64,579
|
|
|
|
207,152
|
|
Provision for income taxes
|
|
|
15,480
|
|
|
|
17,948
|
|
|
|
17,864
|
|
|
|
17,289
|
(a)
|
|
|
68,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,190
|
|
|
$
|
32,354
|
|
|
$
|
34,737
|
|
|
$
|
47,290
|
|
|
$
|
138,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.28
|
|
|
$
|
0.40
|
|
|
$
|
0.44
|
|
|
$
|
0.59
|
|
|
$
|
1.69
|
|
Diluted net income per share
|
|
$
|
0.27
|
|
|
$
|
0.37
|
|
|
$
|
0.40
|
|
|
$
|
0.58
|
|
|
$
|
1.64
|
|
|
|
|
[a]
|
|
In connection with re-evaluating our valuation allowances for our deferred tax assets, we
recorded a $6.7 million tax benefit in the fourth quarter of 2008. For further information, see
Note Eight: Income Taxes in the Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended (in thousands,
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
Total
|
|
except per share and stock price data)
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees
|
|
$
|
69,365
|
|
|
$
|
77,435
|
|
|
$
|
85,141
|
|
|
$
|
112,866
|
|
|
$
|
344,807
|
|
Services
|
|
|
129,651
|
|
|
|
135,230
|
|
|
|
135,838
|
|
|
|
143,490
|
|
|
|
544,209
|
|
Messaging
|
|
|
31,021
|
|
|
|
32,358
|
|
|
|
34,287
|
|
|
|
38,848
|
|
|
|
136,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues:
|
|
|
230,037
|
|
|
|
245,023
|
|
|
|
255,266
|
|
|
|
295,204
|
|
|
|
1,025,530
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license fees
|
|
|
12,753
|
|
|
|
13,083
|
|
|
|
12,667
|
|
|
|
14,611
|
|
|
|
53,114
|
|
Cost of services
|
|
|
38,742
|
|
|
|
39,539
|
|
|
|
38,684
|
|
|
|
40,825
|
|
|
|
157,790
|
|
Cost of messaging
|
|
|
18,889
|
|
|
|
18,906
|
|
|
|
21,428
|
|
|
|
23,375
|
|
|
|
82,598
|
|
Sales and marketing
|
|
|
64,575
|
|
|
|
64,916
|
|
|
|
64,415
|
|
|
|
73,089
|
|
|
|
266,995
|
|
Product development and engineering
|
|
|
38,753
|
|
|
|
36,920
|
|
|
|
38,739
|
|
|
|
38,159
|
|
|
|
152,571
|
|
General and administrative
|
|
|
31,496
|
|
|
|
32,680
|
|
|
|
31,231
|
|
|
|
33,912
|
|
|
|
129,319
|
|
Amortization of other purchased
intangibles
|
|
|
3,410
|
|
|
|
3,436
|
|
|
|
3,445
|
|
|
|
3,492
|
|
|
|
13,783
|
|
Cost (reversal) of restructure
|
|
|
4
|
|
|
|
(51
|
)
|
|
|
17
|
|
|
|
827
|
|
|
|
797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
208,622
|
|
|
|
209,429
|
|
|
|
210,626
|
|
|
|
228,290
|
|
|
|
856,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
21,415
|
|
|
|
35,594
|
|
|
|
44,640
|
|
|
|
66,914
|
|
|
|
168,563
|
|
Interest income, expense, and other, net
|
|
|
5,005
|
|
|
|
5,142
|
|
|
|
5,710
|
|
|
|
5,520
|
|
|
|
21,377
|
|
Minority interest
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
26,400
|
|
|
|
40,736
|
|
|
|
50,350
|
|
|
|
72,466
|
|
|
|
189,952
|
|
Provision for income taxes
|
|
|
11,252
|
|
|
|
14,708
|
|
|
|
16,220
|
|
|
|
(1,078
|
)(b)
|
|
|
41,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15,148
|
|
|
$
|
26,028
|
|
|
$
|
34,130
|
|
|
$
|
73,544
|
|
|
$
|
148,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.17
|
|
|
$
|
0.29
|
|
|
$
|
0.38
|
|
|
$
|
0.83
|
|
|
$
|
1.65
|
|
Diluted net income per share
|
|
$
|
0.16
|
|
|
$
|
0.28
|
|
|
$
|
0.37
|
|
|
$
|
0.81
|
|
|
$
|
1.61
|
|
|
|
|
[b]
|
|
In connection with re-evaluating our foreign cash needs and valuation allowances for our
deferred tax assets, we recorded a $13 million net tax benefit in the fourth quarter of 2007. For
further information, see Note Eight: Income Taxes in the Notes to Consolidated Financial
Statements.
|
- 107 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Report of Management on Internal Controls over Financial Reporting
See Financial Statements and Supplementary Data Report of Management on Internal Controls over
Financial Reporting. Part II, Item 8.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the design and operation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on
that evaluation, our CEO and CFO concluded that our disclosure controls and procedures at December
31, 2008 were effective to ensure that information required to be disclosed by us in reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in reports we file or submit under the Exchange Act is
accumulated and communicated to our management, including our CEO and CFO as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our fourth quarter of
2008 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF REGISTRANT AND CORPORATE GOVERNANCE
Current Executive Officers
Our executive officers are identified in our definitive Proxy Statement for the Annual Meeting of
Stockholders to be held April 14, 2009 (Proxy Statement), to be filed with the SEC within 120 days
after our fiscal year ended December 31, 2008.
- 108 -
Identification of Directors
Our directors are identified under the section entitled Election of Directors in our Proxy
Statement.
Compliance with Section 16(a) of the Exchange Act
The information required under Item 405 of Regulation S-K is incorporated here by reference to
Section 16(a) Beneficial Ownership Reporting Compliance in the Proxy Statement.
Audit Committee Financial Expert
Our Board of Directors has determined that Audit Committee members Robert P. Wayman and Jack E. Sum
are both audit committee financial experts as defined in Item 407(d)(5) of Regulation S-K, and are
independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act.
Standing Audit Committee
The information required under Item 407 of Regulation S-K and Item 7(d)(1) of Schedule 14A of the
Exchange Act pertaining to the standing Audit Committee of the Board of Directors is incorporated
by reference to Election of Directors in the Proxy Statement.
Corporate Governance Guidelines
We have adopted Corporate Governance Guidelines that are available on our website at
www.sybase.com
under Investor Relations. Stockholders may request a free copy of the guidelines by contacting
Investor Relations at the same address set forth under Code of Ethics, below.
Certifications
Pursuant to NYSE Rule 303A.12 (a), in 2006 the Company submitted a CEO certification to the NYSE
regarding compliance with NYSE Corporate Governance Listing Standards. No qualifications were
included in this report. Exhibits 31.1 and 31.2 to this Form 10-K contain certifications of the
Companys CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32 to this
Form 10-K contains certifications of the Companys CEO and CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Code of Ethics
Our code of ethics, entitled Statement of Values and Business Ethics, applies to all of our
employees, directors and officers (including the chief executive officer, chief financial officer
and principal accounting officer), and is available by clicking on the Code of Ethics link at the
bottom of any page at our website at
www.sybase.com
. Stockholders may request a free copy of the
Statement of Values and Business Ethics from:
Sybase, Inc.
Attention: Investor Relations
One Sybase Drive
Dublin, CA 94568
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to Executive Compensation in
the Proxy Statement.
- 109 -
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference to Stock Ownership of
Management and Beneficial Owners in the Proxy Statement.
Information required under Item 201(d) of Regulation S-K regarding our equity compensation plans
(both stockholder and non-stockholder approved plans) is incorporated by reference to Equity
Compensation Plan Information in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to Employment and Change of
Control Agreements and Policies and Procedures for Related Party Transactions in the Proxy
Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to Ratification of Appointment
of Independent Registered Public Accounting Firm in the Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report on Form 10-K:
1.
Financial Statements
. See financial statements listed in the table of contents at
the beginning of Part II, Item 8.
2.
Financial Statement Schedules
. The following financial statement schedules of
Sybase, Inc. for the years ended December 31, 2008, 2007, and 2006 are filed as part of this Report
on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and
related notes in Part II, Item 8.
3.
Exhibits
. See the response under Item 15(c) below. All management contracts and
compensatory plans filed as exhibits are indicated as such in Item 15(c).
(b)
Exhibits
. The exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index to this Report on Form 10-K.
(c) Schedules.
|
|
|
|
|
Form 10-K
Page
|
|
|
|
II Valuation and Qualifying Accounts
|
|
111
|
Schedules not listed above have been omitted because they are either (i) not applicable or are not
required, or (ii) the information is included in the Consolidated Financial Statements and related
Notes, Part II, Item 8.
- 110 -
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
SYBASE, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
|
|
|
|
Beginning
|
|
|
Charged to
|
|
|
|
|
|
|
Adjustments and
|
|
|
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Operations (A)
|
|
|
Write-offs (B)
|
|
|
Other
|
|
|
Ending Balance
|
|
Year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
3,735
|
|
|
$
|
2,307
|
|
|
$
|
(1,989
|
)
|
|
$
|
(165
|
)
|
|
$
|
3,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
3,998
|
|
|
$
|
1,343
|
|
|
$
|
(1,951
|
)
|
|
$
|
345
|
|
|
$
|
3,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,651
|
|
|
$
|
2,330
|
|
|
$
|
(1,277
|
)
|
|
$
|
294
|
|
|
$
|
3,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A Sales returns and credit memos allowances
B Uncollectible accounts written off and recoveries
The required information regarding the valuation allowance for deferred tax assets is included in Note Eight to the Consolidated Financial
Statements.
- 111 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this Report on Form 10-K to be signed on its behalf of the undersigned, thereunto duly
authorized.
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SYBASE, INC.
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February 27, 2009
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By:
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/S/ JOHN S. CHEN
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John S. Chen
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Chairman of the Board, Chief
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Executive Officer and President
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints John S. Chen, Jeffrey Ross and Daniel Cohen, jointly and severally, his or her
attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities,
to sign any amendment to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes,
may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report on Form 10-K has been signed by the following persons in the
capacities and as of the dates indicated:
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Signature
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Title
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Date
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/S/ JOHN S. CHEN
(John S. Chen)
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Chairman of the Board, Chief
Executive Officer (Principal Executive
Officer), President and Director
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February 27, 2009
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/S/ JEFFREY G ROSS
(Jeffrey G. Ross)
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Senior Vice President and
Chief Financial Officer (Principal
Financial Officer)
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February 27, 2009
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/S/ KEITH JENSEN
(Keith Jensen)
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Vice President and Corporate
Controller (Principal Accounting
Officer)
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February 27, 2009
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/S/ RICHARD C. ALBERDING
(Richard C. Alberding)
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Director
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February 27, 2009
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/S/ CECILIA CLAUDIO
(Cecilia Claudio)
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Director
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February 27, 2009
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/S/ MICHAEL A. DANIELS
(Michael A. Daniels)
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Director
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February 27, 2009
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/S/ L. WILLIAM KRAUSE
(L. William Krause)
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Director
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February 27, 2009
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/S/ ALAN B. SALISBURY
(Alan B. Salisbury)
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Director
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February 27, 2009
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/S/ JACK E. SUM
(Jack E. Sum)
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Director
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February 27, 2009
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/S/ ROBERT P. WAYMAN
(Robert P. Wayman)
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Director
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February 27, 2009
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/S/ LINDA K. YATES
(Linda K. Yates)
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Director
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February 27, 2009
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- 112 -
EXHIBIT INDEX
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Exhibit No.
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Description
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2.1 (1)
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Agreement and Plan of Reorganization dated as of November
29, 1999, among the Company, On-Line Financial Services, Inc., and Home
Financial Network, Inc.
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2.2 (2)
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Agreement and Plan of Merger dated as of February 20,
2001, among the Company, New Era of Networks, Inc., and Neel Acquisition Corp.
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2.3 (3)
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Agreement and Plan of Merger dated as of December 19,
2002, by and among the Company, Seurat Acquisition Corporation and AvantGo,
Inc.
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2.4 (12)
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Agreement and Plan of Merger dated as of July
28, 2005, by and among the Company, Ernst Acquisition Corporation and Extended
Systems Incorporated.
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2.5 (19)
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Agreement and Plan of Merger dated as of September 5,
2006, by and among Sybase, Inc., Monaco Acquisition Corporation, Mobile 365,
Inc., and with respect to Section 6.16(e), Article VIII and Article X only,
John Backus.
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3.1 (4)
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Amended and Restated Certificate of Incorporation of the
Company and Amended and Restated Certificate of Rights, Preferences &
Privileges of Series A Participating Preferred Stock of Sybase, Inc.
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3.2 (11)
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Amended and Restated Bylaws of the Company as of July 31, 2008.
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4.1 (6)
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Preferred Share Rights Agreement dated as of July 31, 2002
between the Company and American Stock Transfer and Trust Co.
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4.2 (7)
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Amendment No. 1 dated as of February 14, 2005 to the
Preferred Share Rights Agreement dated as of July 31, 2002 between the Company
and American Stock Transfer and Trust Co.
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4.3 (8)
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Indenture dated as of February 22, 2005 between the
Company and U.S. Bank National Association, as Trustee (including form of
1.75% Convertible Subordinated Notes due 2025).
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4.4 (8)
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Registration Rights Agreement dated as of February 22,
2005 between the Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Lehman Brothers Inc.
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10.1 (9)*
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New Era of Networks, Inc. Amended and Restated 1995 Stock
Option Plan.
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10.2 (9)*
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New Era of Networks, Inc. 1998 Nonstatutory Stock Option Plan.
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10.3 (9)*
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Convoy Corporation 1997 Stock Option Plan.
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10.4 (9)*
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Microscript, Inc. 1997 Stock Option Plan.
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10.5 (10)*
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1988 Stock Option Plan and Forms of Incentive Stock
Option Agreements and Nonstatutory Stock Option Agreements, as amended.
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10.6 (26)*
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Form of Notice of Stock Option Grant and Agreement.
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10.7 (22)*
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Sybase, Inc. 401(k) Plan, as amended.
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10.8 (22)*
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Amendment No. 2 to the Sybase, Inc. 401(k) Plan dated
December 22, 2005.
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10.9 (14)*
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Sybase, Inc. 1992 Director Stock Option Plan, as amended.
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- 113 -
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Exhibit No.
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Description
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10.10 (9)*
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Sybase, Inc. 2001 Director Stock Option Plan.
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10.11 (5)*
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Executive Deferred Compensation Plan, as amended December 5, 2003.
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10.12 (22)*
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Amendment No. 1 to the Executive Deferred Compensation
Plan, dated November 3, 2005.
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10.13 (9)*
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Sybase, Inc. 1996 Stock Plan, as amended.
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10.14 (21) *
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Form of Indemnification Agreement
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10.15 (13)*
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Form of Amended and Restated Change of Control
Agreement (standard version).
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10.16 (13)*
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Form of Amended and Restated Change of Control
Agreement (enhanced version).
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10. 17(20) *
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Amended and Restated 1991 Employee Stock Purchase
Plan, as amended February 2, 2005 and Amended and Restated 1991 Foreign
Subsidiary Employee Stock Purchase Plan, as amended February 2, 2005.
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10.18 (13)*
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Second Amended and Restated Employment Agreement
between the Company and John S. Chen dated as of December 18, 2007.
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10.19 (13)*
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Amended and Restated Change of Control Agreement
between the Company and John Chen dated December 18, 2007.
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10.20 (18)*
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Amended and Restated Sybase, Inc. 1999 Nonstatutory
Stock Plan.
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10.21 (16)*
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InphoMatch, Inc. 2000 Equity Incentive Plan, Mobile
365, Inc. 2004 Equity Incentive Plan and MobileWay, Inc. 2000 Stock Option
Plan.
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10.22 (17)
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Corporate Headquarters Lease, dated January 28, 2000,
between the Company and WDS-Dublin, LLC, as amended on November 29, 2000, and
December 13, 2001.
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10.23 (14)
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Amendment to Corporate Headquarters Lease, dated December
13, 2001, between the Company and WDS-Dublin, LLC.
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10.24 (17)
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Trust Agreement dated May 1, 2000 between Fidelity
Management Trust Company and the Company for administration of the Sybase
Executive Deferred Compensation Plan.
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10.25 (5)
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First Amendment to Trust Agreement between Fidelity
Management Trust Company and the Company for administration of Sybase
Executive Deferred Compensation Plan.
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- 114 -
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Exhibit No.
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Description
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10.26 (22)
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Second Amendment to May 1, 2000 Trust Agreement between
Fidelity Management Trust Company and the Company for administration of Sybase
Executive Deferred Compensation Plan, dated as of February 11, 2005.
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10.27 (5)
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November 17, 2003 Letter Agreement between Fidelity
Management Trust Company and Sybase, Inc. for administration of the Sybase
Executive Deferred Compensation Plan.
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10.28 (17)*
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Financial Fusion, Inc. 2000 Stock Option Plan.
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10.29 (14)*
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Financial Fusion, Inc. 2001 Stock Option Plan.
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10.30 (14)*
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iAnywhere Solutions, Inc. Stock Option Plan.
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10.31 (26)*
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Form of Notice of Grant and Restricted Stock Purchase Agreement.
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10.32 (23)*
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Letter dated February 5, 2009 to John S. Chen regarding
2009 compensation.
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10.33 (26)*
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Executive Tax Preparation, Financial Planning and Legal
Services Program for Section 16 Officers, effective as of February 20, 2008.
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10.34 (5)*
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Summary Plan Description for Sabbatical Leave Plan of
Sybase, Inc., as Amended and Restated as of May 1, 2003.
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10.35 (16)*
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Amended and Restated Sybase, Inc. 2003 Stock Plan.
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10.36 (23)*
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Letter dated February 5, 2009 to Jeffrey Ross regarding
2009 compensation.
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10.37 (23)*
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Letter dated February 5, 2009 to Marty Beard regarding
2009 compensation.
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10.38 (23)*
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Letter dated February 5, 2009 to Raj Nathan regarding
2009 compensation.
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10.39 (23)*
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Letter dated February 5, 2009 to Steve Capelli
regarding 2009 compensation.
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10.40 (23)*
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Summary of Vesting Terms for 2008 Grants to Chen, Ross,
Beard, Nathan and Capelli.
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10.41 (21)
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Purchase Agreement, dated February 15, 2005 between the
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lehman
Brothers Inc.
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10.42 (25)
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Agreement, dated February 25, 2008, between the Company
and Sandell Asset Management Corp. and its affiliated entities.
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12
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Computation of Ratio of Earnings to Fixed Charges
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21
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Subsidiaries of the Company
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23.1
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Consent of Independent Registered Public Accounting Firm
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24 (24)
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Powers of Attorney
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31.1
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Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rule 13a-14 or 15d-14, as adopted pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rule 13a-14 or 15d-14, as adopted pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002.
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- 115 -
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Exhibit No.
|
|
Description
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32
|
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Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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*
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Indicates Management Contract or Compensatory Plan.
|
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(1)
|
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Incorporated by reference to Exhibit 2.1 to the Companys Registration Statement on Form S-3
filed on January 31, 2000.
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(2)
|
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Incorporated by reference to Exhibit 2(a) to the Companys Registration Statement on Form S-4
filed March 15, 2001.
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(3)
|
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Incorporated by reference to Exhibit 1 to the Companys Schedule 13D filed with the
Securities and Exchange Commission on December 30, 2002.
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(4)
|
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Incorporated by reference to the Exhibits filed with the Companys Quarterly Report on Form
10-Q for the quarter ended June 30, 2007.
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(5)
|
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Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2003.
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(6)
|
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Incorporated by reference to Exhibit 4.1 to the Companys Report on Form 8-K filed on August
5, 2002.
|
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(7)
|
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Incorporated by reference to Exhibit 4.2 to the Companys Report on Form 8-K filed on
February 17, 2005.
|
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(8)
|
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Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on February 22, 2005.
|
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(9)
|
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Incorporated by reference to the Companys Registration Statement on Form S-8 filed June 19,
2001.
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(10)
|
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Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 1997.
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(11)
|
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Incorporated by reference to the Companys Report on Form 8-K filed on August 6, 2008.
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(12)
|
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Incorporated by reference to the Exhibits filed with the Schedule 13D the Company filed
August 8, 2005.
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(13)
|
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Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on December 20, 2007.
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(14)
|
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Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2001.
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(15)
|
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Incorporated by reference to the Companys Registration Statement on Form S-8 filed August
20, 1999.
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(16)
|
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Incorporated by reference to the Companys Registration Statement on Form S-8 filed on August
9, 2007.
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(17)
|
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Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2000.
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(18)
|
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Incorporated by reference to the Exhibits filed with the Companys Registration Statement on
Form S-8 filed on August 25, 2004.
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(19)
|
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Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on September 9, 2006.
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(20)
|
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Incorporated by reference to the Exhibits filed with the Companys Registration Statement on
Form S-8 filed on July 29, 2005.
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(21)
|
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Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2004.
|
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(22)
|
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Incorporated by reference to the Exhibits filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2005.
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(23)
|
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Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on February 10, 2009.
|
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(24)
|
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Incorporated by reference to the signature page of this Report on Form 10-K.
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- 116 -
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(25)
|
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Incorporated by reference to the Exhibits filed with the Companys Report on Form 8-K filed
on February 26, 2008.
|
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(26)
|
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Incorporated by reference to the Exhibits filed with the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2008
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- 117 -