• Significant changes since our most recent Annual Report on Form 10-K in the Critical Accounting Policies and Estimates as we believe it is 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 Item 1A in Part II of this Quarterly Report on Form 10-Q 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 Item 1 and our Annual Report on Form 10-K for the year ended December 31, 2008.
Effective January 1, 2009, we adopted FASB amendments to existing guidance on convertible debt. The amendments require certain issuers of convertible debt instruments to separately account for the liability and equity (conversion feature) components of the instruments. Retrospective adoption is required. As a result, interest expense related to our 2005 Notes and 2009 Notes is imputed and recognized on the Company's convertible subordinated notes based on the debt borrowing rate which would have applied to the Company in February of 2005 and August 2009, respectively. Previously interest expense on the 2005 Notes was recognized based on the 1.75 percent stated rate. In accordance with the transition provisions of the amendments, the carrying amount of the 2005 Notes was 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 asset reduction of $34.0 million See Notes 1 and 10 to Condensed Consolidated Financial Statements - Basis of Presentation and Convertible Notes, respectively, Part I, Item I.

million (2 percent) increase in revenues, our iAS segment experienced a $1.7 million (4 percent) decrease in revenues, and Sybase 365's segment revenues increased $8.4 million (19 percent).
IPG revenues benefited from a 6 percent increase in license revenue. These gains were partially offset by a 1 percent decrease in service revenue. The growth in IPG license revenues was primarily attributed to a 33 percent increase in database revenues, namely our Adaptive Server®Enterprise (ASE), IQ Analytic Server, and Risk Analytics Platform (RAP) products. The year over year decrease in service revenues primarily resulted from a 8 percent decline in professional services. Our decline in professional services revenues was consistent with general weakness we have seen in professional service revenue reported by a number of other large technology vendors. The decrease in iAS revenues was driven by a 11 percent decrease in service revenue partially offset by a 2 percent increase in license revenues. The increase in Sybase 365 messaging revenues was driven by a 38 percent increase in application messaging revenue, largely attributable to large enterprises adopting mobile messaging as a new channel for customer interaction. The Sybase 365 segment was disproportionately impacted by currency exchange (approximately 5 percent) as 66 percent of its revenues came from outside the U.S., primarily from Europe.
We reported net income of $38.5 million for the quarter ended September 30, 2009, compared to $32.1 million for the same period last year. For the quarter ended September 30, 2009 our operating income was $70.9 million and our operating margin was 24 percent compared to $52.9 million in operating income and a 19 percent operating margin for the same period in 2008. The increase in operating income was primarily attributable to the IPG segment's $13.3 million increase in operating income. The increased operating income resulted from larger deal sizes involving our enterprise database products, margin expansion generated by cost synergies between our operations, cost control measures and a favorable revenue mix shift away from lower margin business (professional services) and toward higher margin business (license and maintenance). During the three months ended September 30, 2009, we generated net cash from operating activities of $104.9 million. Our days sales outstanding in accounts receivable was 67 days for the quarter ended September 30, 2009 compared to 74 days for the quarter ended September 30, 2008.
For a discussion of certain factors that may impact our business and financial results, see "Risk Factors - Future Operating Results." Business Trends
We are encouraged by the strength of our pipeline and the general health of our business. While we believe the overall spending environment on information technology will remained constrained for the balance 2009, we are seeing signs of stabilization in North America and the Asia Pacific region. Additionally, recent weakening of the U.S. dollar against various foreign currencies, most specifically the Euro has reduced the adverse impact from foreign exchange translation on our year-over-year revenue comparisons. While these are reasons for optimism, we remain cautious on the spending environment in Europe, which we believe will be challenging in the near term, and the sustainability of the overall macroeconomic recovery.
Our customers are focused on IT projects that reduce cost and generate a quick return on investment. Within this framework we continue to see spending strength on mission critical applications where enterprise data volumes continue to grow. This has resulted in strong demand for our ASE 15.0 product, for which we added 203 new customers during the third quarter.
We also benefit from strong demand for new capabilities like business analytics and risk management. We added 39 new customers for our IQ Analytic Server product or 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.
In contrast, we believe spending on discretionary projects and solutions requiring long professional services engagements will remain weak for the balance of 2009. In the first nine months of 2009 we saw a decline of approximately 13 percent in our professional services business, and expect continued year-over-year declines in this business for the remainder of the year.
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. In the third quarter we announced an important business partnership with Verizon which will incorporate our Afaria product into Verizon's new Managed Mobility Solution. Leveraging Afaria's mobile device management and security capabilities, this hosted solution will help Verizon enterprise customers cope with the complexity of supporting a growing mobile workforce. Verizon is launching this service in the fourth quarter in the U.S. and 19 countries in Europe, followed by a rollout in Asia Pacific. We expect revenue generation from this relationship to begin in 2010. In messaging services, we expect continued growth in worldwide Short Messaging Services (SMS) and Multimedia Messaging Services (MMS) traffic and expanding demand for mobile data roaming (GRX) services. Additionally, we continue to see growth in

enterprise adoption of mobile messaging as a cost effective channel for real-time customer interaction. Offsetting to some extent the growth in message volume has been continued price compression. Our future plans call for offering new value added services such as hosted analytics and mobile commerce solutions. We believe these offerings will allow us to demonstrate service differentiation and provide us with the opportunity to expand margins for the messaging business.
For the balance of the year we will focus on building out our partner channels especially for our mobility products, opportunistically investing in the business and continuing to maintain cost controls to improve margins. We will continue to focus on driving synergies between our operating segments by eliminating research and development overlap, combining marketing efforts, integrating back office functions and streamlining business operations. With this focus we believe we can take advantage of the momentum Sybase has in the marketplace, improve operating results and maintain our strong cash flow in an environment that remains somewhat uncertain. 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 believe that the estimates, assumptions and judgments involved in the accounting policies described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2008 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. Except for changes to convertible debt accounting and losses from other-than-temporary impairments on debt security investments as described in Note 1 to the Condensed Consolidated Financial Statements, Part 1, Item 1 of the Form 10-Q, we believe that during the first nine months of 2009 there were no significant changes in those critical accounting policies and estimates. Senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Quarterly Report on Form 10-Q with the Audit Committee of our Board of Directors.
A discussion of each of our other critical accounting policies is included in our annual report on Form 10-K for the year ended December 31, 2008. Recent Accounting Pronouncements
In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for the Company beginning July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We are currently evaluating the potential impact of the provisions of this new guidance.

Results of Operations
Revenues
(Dollars in millions)

                                    Three Months ended September 30,                        Nine Months ended September 30,
                                                                     Percent                                                Percent
                                 2009                2008            Change             2009                2008            Change
License fees by
segment:
IPG                          $     82.0          $     77.1              6 %        $    233.4          $    212.0             10 %
IAS                                24.4                23.9              2 %              71.9                69.4              4 %
SY365                               0.3                 0.0              *                 0.7                 0.1            600 %
Eliminations                      (10.5 )              (8.1 )           30 %             (26.4 )             (20.0 )           32 %

Total license fees           $     96.2          $     92.9              3 %        $    279.6          $    261.5              7 %

Percentage of total
revenues                             33 %                33 %                               33 %                32 %
Services by segment:
IPG                          $    134.5          $    135.2             (1 %)       $    389.5          $    398.9             (2 %)
IAS                                17.2                19.3            (11 %)             51.0                57.3            (11 %)
SY365                               0.4                 0.3             33 %               1.5                 1.4              7 %
Eliminations                       (7.7 )              (8.5 )           (9 %)            (23.1 )             (25.3 )           (9 %)

Total services               $    144.4          $    146.3             (1 %)       $    418.9          $    432.3             (3 %)

Percentage of total
revenues                             49 %                51 %                               50 %                52 %

SY 365 messaging
revenue                      $     52.8          $     44.8             18 %        $    140.4          $    133.0              6 %
SY 365 messaging as
percentage of total
revenues                             18 %                16 %                               17 %                16 %
Total revenues               $    293.4          $    284.0              3 %        $    838.9          $    826.8              1 %

* Not meaningful

For the three months ended September 30, 2009, we experienced unfavorable currency exchange rates which had a negative 3 percent impact on total revenues and a negative 5 percent impact on messaging revenue compared with the same period in 2008. For the nine months ended September 30, 2009, we experienced unfavorable currency exchange rates which had a negative 5 percent impact on total revenues and a negative 8 percent impact on messaging revenue compared with the same period in 2008.
License revenues increased $3.3 million (3 percent) for the three months ended September 30, 2009 compared to the same period last year. This increase in license revenues was primarily attributable to increases in IPG license revenues and a comparatively smaller increases in iAS license revenues. The increase in IPG license revenues was driven by a $13.2 million increase in database license revenues, namely our Adaptive Server® Enterprise (ASE), IQ Analytic Server, and Risk Analytics Platform (RAP) products partially offset by decreases in our Liquidity integration products of $7.4 million and Power Builder development tools of $0.7 million. The increase in iAS license revenues was largely attributable to a $1.8 million increase in our small-footprint database products and a $0.7 million increase in our mobile device management products, partially offset by a $1.2 million decrease in mobile device solutions.
License revenues increased $18.1 million (7 percent) for the nine months ended September 30, 2009 compared to the same period last year. The increase in license revenues during the period was primarily attributable to a $21.4 million (10 percent) increase in IPG license revenues driven by a $33.7 million increase in database license revenues and a $7.7 million increase in Mobility products, partially offset by decreases in our Liquidity integration products of $14.0 million, and Power Builder development tools of $2.6 million. 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."
Services revenues (which include technical support, professional services and education) decreased $1.9 million (1 percent) for the three months ended September 30, 2009 compared to the same period in 2008 primarily due to a $2.1 million (11 percent) decrease in iAS service revenues and a small decrease in IPG service revenues The decrease in iAS service revenues was mostly due to decreases in technical support of $0.9 million and professional services of $0.5 million. The 1 percent decrease in IPG service revenues was largely due to decreases in professional services and education of $2.2 million, partially offset by a $1.6 million increase in technical support revenue.
Services revenues decreased $13.4 million (3 percent) for the nine months ended September 30, 2009 compared to the same period in 2008 primarily due to a $9.4 million (2 percent) decrease in IPG service revenues, and a $6.3 million (11 percent) decrease in iAS service revenues. The decrease in IPG service revenues was largely due to decreases in professional services and education of $8.5 million, and technical support of $0.7 million. The decrease in iAS service revenues was mostly due to decreases in technical support of $2.3 million, and in professional services of $1.9 million.
Total technical support revenues increased $0.8 million (1 percent) and decreased $2.3 million (1 percent) for the three and nine months ended September 30, 2009 compared to the same periods in 2008. Technical support revenues comprised approximately 82 percent of total services revenues for the three and nine months ended September 30, 2009 and 80 percent for the same periods in 2008. A 5 percent unfavorable currency exchange rate impact created the decline in technical support revenues for the nine month period ended September 30, 2009 compared with the same period in 2008. Current and long-term deferred revenue balances in the balance sheet relate principally to technical support contracts and increased $8.4 million (4 percent) compared with the balance on September 30, 2008.
Services revenues other than technical support decreased $2.7 million (9 percent) and $11.1 million (13 percent) for the three and nine months ended September 30, 2009 compared to the same periods in 2008. The decrease for the three months ended September 30, 2009 was primarily related to a $1.7 million
(7 percent) decrease in professional services, and a $0.8 million (29 percent)
decrease in education revenue. The decrease for the nine months ended September 30, 2009 was primarily related to a $7.2 million (9 percent) decrease in professional services, a $2.7 million (32 percent) decrease in education revenue, and a $1.1 million (87 percent) decrease

in advertising. Professional services and education revenues are more discretionary and appear to be more sensitive to budget cuts in weak economic environments.
Messaging revenues increased $8.0 million (18 percent) and $7.4 million (6 percent) for the three month and nine month periods ended September 30, 2009, respectively, compared to the same periods in 2008. The increase for the three months ended September 30, 2009 was primarily related to a $7.6 million (38 percent) increase in application messaging revenues and a $1.4 million (563 percent) increase in mobile commerce revenues partially offset by a $0.9 million (30 percent) decrease in GRX and Multimedia Exchange (MMX) revenues. The increase for the nine months ended September 30, 2009 was primarily related to a $4.8 million (153 percent) increase in GRX and MMX revenues, a $3.1 million (886 percent) increase in mobile commerce revenues, and a $2.8 million (4 percent) increase in application messaging revenues partially offset by a $3.3 million (5 percent) decrease in person to person messaging revenues. Messaging revenues were negatively impacted by changes in currency rates. Geographical Revenues
(Dollars in millions)

                                        Three Months ended September 30,                         Nine Months ended September 30,
                                                                         Percent                                                 Percent
                                   2009                 2008              Change             2009                2008            Change
North American                 $     147.5          $     142.8               3 %        $    434.7          $    410.6              6 %
Percentage of total
revenues                                50 %                 50 %                                52 %                50 %
Total Outside North
America                        $     145.9          $     141.2               3 %        $    404.2          $    416.2             (3 %)
Percentage of total
revenues                                50 %                 50 %                                48 %                50 %
International: EMEA
(Europe, Middle East and
Africa)                        $     101.5          $      96.8               5 %        $    279.7          $    292.2             (4 %)
Percentage of total
revenues                                35 %                 34 %                                33 %                35 %
Intercontinental: (Asia
Pacific and Latin
America)                       $      44.4          $      44.4               *          $    124.5          $    124.0              *
Percentage of total
revenues                                15 %                 16 %                                15 %                15 %
Total revenues                 $     293.4          $     284.0               3 %        $    838.9          $    826.8              1 %

* Not meaningful

North American revenues (United States, Canada and Mexico) increased $4.7 million (3 percent) for the three months ended September 30, 2009 compared to the same period last year. The increase was primarily due to a $4.4 million
(32 percent) increase in messaging revenues and a $3.0 million (4 percent)
increase in service revenues, partially offset by a $2.5 million (5 percent) decrease in license revenue compared to the same period in 2008. For the nine months ended September 30, 2009 North American revenues increased $24.3 million (6 percent) compared to the same period last year. The increase was primarily due to a $12.3 million (10 percent) increase in license revenues, $7.6 million
(17 percent) increase in messaging revenues, and a $4.5 million (2 percent)
increase in service revenues compared to the same period in 2008.
Total revenues outside North America comprised 50 percent of total revenues for both the three months ended September 30, 2009 and 2008. Total revenues outside North America comprised 48 percent and 50 percent of total revenues for the nine months ended September 30, 2009 and 2008, respectively.
EMEA (Europe, Middle East and Africa) revenues for the three months ended September 30, 2009 increased $4.7 million (5 percent) compared to the same period last year. The increase was due primarily to a $4.7 million (18 percent) increase in messaging revenue and a $3.9 million (16 percent) increase in license revenues, partially offset by a $3.9 million (9 percent) decrease in service revenues. The increase in messaging revenue revenues were primarily driven by increases in Spain ($5.7 million), Germany ($3.1 million), partially offset by decreases in France ($2.9 million). The increase in license revenues primarily resulted from increases in Germany ($4.4 million). Decreases in services revenues were primarily driven by decreases in the UK ($1.2 million), France ($0.6 million), Switzerland ($0.5 million) and Germany ($0.5 million). For the nine months ended September 30, 2009, EMEA revenues decreased $12.5 million (4 percent) compared to the same period last year. The decrease was due primarily to a $15.2 million (11 percent) decrease in service revenues and a $0.8 million (1 percent) decrease in license revenues, partially offset by a $3.6 million (5 percent) increase in messaging revenues. Decreases in services were primarily driven by decreases in the UK ($5.2 million), France ($2.5 million), Germany ($1.9 million), Switzerland ($1.5 million), Spain ($1.3 million) and Sweden ($1.0 million). The decrease in license revenues primarily resulted from a decline in the UK ($5.1 million) and most other European countries, partially offset by a $6.2 million increase in Germany. Increases in messaging revenues were primarily driven by increases in Germany . . .