Informatica (INFA)

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Basis of Presentation

The accompanying condensed consolidated financial statements of Informatica Corporation (“Informatica,” or the “Company”) have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States of America. However, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments necessary, which are of a normal and recurring nature for the fair presentation of the results of the interim periods presented. All of the amounts included in this Report related to the condensed consolidated financial statements and notes thereto as of and for the three and six months ended June 30, 2008 and 2007 are unaudited. The interim results presented are not necessarily indicative of results for any subsequent interim period, the year ending December 31, 2008, or any future period.

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions. The Company believes that the estimates, judgments, and assumptions upon which it relies are reasonable based on information available at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates and actual results, Informatica’s financial statements would be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

These unaudited, condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2007 included in the Company’s Annual Report on Form 10-K filed with the SEC. The condensed consolidated balance sheet as of December 31, 2007 has been derived from the audited consolidated financial statements of the Company.

 

Certain reclassifications have been made to the prior year consolidated financial statements to conform to the current year presentation.

 

Revenue Recognition

The Company derives its revenues from software license fees, maintenance fees, and professional services, which consist of consulting and education services. The Company recognizes revenue in accordance with AICPA SOP 97-2, Software Revenue Recognition, as amended and modified by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions, SOP 81-1, Accounting for Performance of Construction-type and Certain Production-type Contracts, the Securities and Exchange Commission’s Staff Accounting Bulletin SAB 104, Revenue Recognition, and other authoritative accounting literature.

Under SOP 97-2, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable.

Persuasive evidence of an arrangement exists. The Company determines that persuasive evidence of an arrangement exists when it has a written contract, signed by both the customer and the Company, and written purchase authorization.

Delivery has occurred. Software is considered delivered when title to the physical software media passes to the customer or, in the case of electronic delivery, when the customer has been provided the access codes to download and operate the software.

Fee is fixed or determinable. The Company considers arrangements with extended payment terms not to be fixed or determinable. If the license fee in an arrangement is not fixed or determinable, revenue is recognized as payments become due. Revenue arrangements with resellers and distributors require evidence of sell-through, that is, persuasive evidence that the products have been sold to an identified end user. The Company’s standard agreements do not contain product return rights.

Summary of Assumptions

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses the assumptions noted in the following table. The Company is using a blend of average historical and market-based implied volatilities for calculating the expected volatilities for employee stock options and market-based implied volatilities for its Employee Stock Purchase Plan (“ESPP”). The expected term of employee stock options granted is derived from historical exercise patterns of the options while the expected term of ESPP is based on the contractual terms. The risk-free interest rate for the expected term of the option and ESPP is based on the U.S. Treasury yield curve in effect at the time of grant. Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-based Payment (“SFAS No. 123(R)”) also requires the Company to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company is using an average of the past four quarters of actual forfeited options to determine its forfeiture rate.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company estimated the fair value of its share-based payment awards with no expected dividends using the following assumptions:

	Three Months Ended          June 30,						Six Months Ended          June 30,
	2008			2007			2008			2007
Option Grants:
Expected volatility	38	%		37	%		38 – 41	%		37 – 41	%
Weighted-average volatility	38	%		37	%		38	%		39	%
Expected dividends	—			—			—			—
Expected term of options (in years)	3.3			3.3			3.3			3.3
Risk-free interest rate	2.8	%		4.7	%		2.7	%		4.7	%
ESPP: *
Expected volatility	—			—			38	%		34	%
Weighted-average volatility	—			—			38	%		34	%
Expected dividends	—			—			—			—
Expected term of ESPP (in years)	—			—			0.5			0.5
Risk-free interest rate — ESPP	—			—			2.2	%		5.2	%

____________

*	ESPP purchases are made on the last day of January and July of each year.

The allocation of share-based payments for the three and six months ended June 30, 2008 and 2007 is as follows (in thousands):

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
Cost of service revenues		$	493			$	421			$	1,039			$	890
Research and development			966				933				2,030				1,837
Sales and marketing			1,230				1,387				2,603				3,031
General and administrative			1,143				1,136				2,274				2,160
Total share-based payments		$	3,832			$	3,877			$	7,946			$	7,918
Tax benefit of share-based payments			(694	)			(832	)			(1,496	)			(1,699	)
Total share-based payments, net of tax benefit		$	3,138			$	3,045			$	6,450			$	6,219

Note 2.  Cash, Cash Equivalents and Short-Term Investments

The Company’s marketable securities are classified as available-for-sale as of the balance sheet date and are reported at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income in stockholders’ equity, net of tax. Realized gains and losses and permanent declines in value, if any, on available-for-sale securities are reported in other income or expense as incurred.

Realized gains recognized for the three and six months ended June 30, 2008 were $26,000 and $81,000, respectively. There were no realized gains or losses recognized for the three and six months ended June 30, 2007. The realized gains are included in other income of the consolidated results of operations for the respective periods. The cost of securities sold was determined based on the specific identification method.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following is a summary of the Company’s investments as of June 30, 2008 and December 31, 2007 (in thousands):

		June 30, 2008
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Cash		$	119,360			$	—			$	—			$	119,360
Cash equivalents:
Money market funds			29,743				—				—				29,743
Commercial paper			55,089				—				—				55,089
Federal agency notes and bonds			27,970				—				(5	)			27,965
U.S. government notes and bonds			2,997				—				—				2,997
Total cash equivalents			115,799				—				(5	)			115,794
Total cash and cash equivalents			235,159				—				(5	)			235,154
Short-term investments:
Commercial paper			27,152				31				—				27,183
Corporate notes and bonds			40,523				129				(46	)			40,606
Federal agency notes and bonds			129,451				405				(109	)			129,747
U.S. government notes and bonds			29,774				2				(23	)			29,753
Total short-term investments			226,900				567				(178	)			227,289
Total cash, cash equivalents, and short-term investments *		$	462,059			$	567			$	(183	)		$	462,443

___________

*	Total estimated fair value above included $343,083 comprised of cash equivalents and short-term investments at June 30, 2008.

		December 31, 2007
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Cash		$	102,939			$	—			$	—			$	102,939
Cash equivalents:
Money market funds			35,240				—				—				35,240
Commercial paper			24,448				1				—				24,449
Federal agency notes and bonds			41,037				—				(4	)			41,033
Total cash equivalents			100,725				1				(4	)			100,722
Total cash and cash equivalents			203,664				1				(4	)			203,661
Short-term investments:
Commercial paper			51,642				7				(4	)			51,645
Corporate notes and bonds			51,308				103				(25	)			51,386
Federal agency notes and bonds			150,049				371				(12	)			150,408
U.S. government notes and bonds			5,494				8				(1	)			5,501
Municipal notes and bonds			1,200				7				—				1,207
Auction rate securities			21,050				—				—				21,050
Total short-term investments			280,743				496				(42	)			281,197
Total cash, cash equivalents, and short-term investments		$	484,407			$	497			$	(46	)		$	484,858

In accordance with FASB Staff Position No. FAS 115-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments, the following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2008  (in thousands):

		Less Than 12 Months								More Than 12 Months								Total
		Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
Corporate notes and bonds		$	13,007			$	(46	)		$	—			$	—			$	13,007			$	(46	)
Federal agency notes and bonds			85,871				(114	)			—				—				85,871				(114	)
U.S. government notes and bonds			29,509				(23	)			—				—				29,509				(23	)
Total		$	128,387			$	(183	)		$	—			$	—			$	128,387			$	(183	)

 

 

 

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Informatica uses a market approach for determining the fair value of all its marketable securities and money market funds, which it has classified as Level 2 and Level 1, respectively. The declines in value of these investments are primarily related to changes in interest rates and are considered to be temporary in nature.

The following table summarizes the cost and estimated fair value of the Company’s cash equivalents and short-term investments by contractual maturity at June 30, 2008 (in thousands):

		Cost				Fair Value
Due within one year		$	317,874			$	318,289
Due one year to two years			24,825				24,794
Due after two years			—				—
		$	342,699			$	343,083

Note 3. Goodwill and Intangible Assets>

The carrying amounts of intangible assets other than goodwill as of June 30, 2008 and December 31, 2007 are as follows (in thousands):

		June 30, 2008												December 31, 2007
		Gross Carrying Amount				Accumulated Amortization				Net Amount				Gross Carrying Amount				Accumulated Amortization				Net Amount
Developed and core technology		$	32,792			$	(11,662	)		$	21,130			$	18,135			$	(10,091	)		$	8,044
Customer relationships			16,796				(2,950	)			13,846				4,175				(1,895	)			2,280
Other:
Trade names			700				(308	)			392				700				(208	)			492
Covenant not to compete			2,000				(617	)			1,383				2,000				(417	)			1,583
		$	52,288			$	(15,537	)		$	36,751			$	25,010			$	(12,611	)		$	12,399

Amortization expense of intangible assets was approximately $1.9 million and $1.1 million for the three months ended June 30, 2008 and 2007, respectively, and $2.9 million and $2.2 million for the six months ended June 30, 2008 and 2007, respectively. The weighted-average amortization period of the Company’s developed and core technology, customer relationships, trade names, and covenants not to compete are 5 years, 5 years, 3.5 years, and 5 years, respectively. The amortization expense related to identifiable intangible assets as of June 30, 2008 is expected to be $5.5 million for the remainder of 2008, $10.2 million, $7.5 million, $6.4 million, $4.4 million, and $2.8 million for the years ending December 31, 2009, 2010, 2011, 2012, and thereafter, respectively.

The increase in the gross carrying amount of developed and core technology for $14.6 million as well as customer relationships for $12.6 million is due to acquisition of Identity Systems discussed in Note 13. Acquisition, of Notes to Condensed Consolidated Financial Statements. Developed and core technology of $7.7 million and customer relationships of $0.1 million at June 30, 2008 related to the Identity Systems acquisition, were recorded in a European local currency; therefore, the gross carrying amount and accumulated amortization are subject to periodic translation adjustments.

The change in the carrying amount of goodwill for the six months ended June 30, 2008 is as follows (in thousands):

		June 30, 2008
Beginning balance as of December 31, 2007		$	166,916
Goodwill recorded in acquisition			49,316
Subsequent goodwill adjustments:
Tax benefits from exercise of non-qualified stock options granted as part of prior acquisitions			(76	)
Local currency translation adjustments			53
Ending balance as of June 30, 2008		$	216,209

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Convertible Senior Notes>

On March 8, 2006, the Company issued and sold convertible senior notes with an aggregate principal amount of $230 million due 2026 (“Notes”). The Company pays interest at 3.0% per annum to holders of the Notes, payable semi-annually on March 15 and September 15 of each year, commencing September 15, 2006. Each $1,000 principal amount of Notes is initially convertible, at the option of the holders, into 50 shares of common stock prior to the earlier of the maturity date (March 15, 2026) or the redemption of the Notes. The initial conversion price represented a premium of approximately 29.28% relative to the last reported sale price of common stock of the Company on the NASDAQ Stock Market (Global Select) of $15.47 on March 7, 2006. The conversion rate is subject to certain adjustments. The conversion rate initially represents a conversion price of $20.00 per share. After March 15, 2011, the Company may from time to time redeem the Notes, in whole or in part, for cash, at a redemption price equal to the full principal amount of the notes, plus any accrued and unpaid interest. Holders of the Notes may require the Company to repurchase all or a portion of their Notes at a purchase price in cash equal to the full principle amount of the Notes plus any accrued and unpaid interest on March 15, 2011, March 15, 2016, and March 15, 2021, or upon the occurrence of certain events including a change in control.

Pursuant to a Purchase Agreement (the “Purchase Agreement”), the Notes were sold for cash consideration in a private placement to an initial purchaser, UBS Securities LLC, an “accredited investor,” within the meaning of Rule 501 under the Securities Act of 1933, as amended (“the Securities Act”), in reliance upon the private placement exemption afforded by Section 4(2) of the Securities Act. The initial purchaser reoffered and resold the Notes to “qualified institutional buyers” under Rule 144A of the Securities Act without being registered under the Securities Act, in reliance on applicable exemptions from the registration requirements of the Securities Act. In connection with the issuance of the Notes, the Company filed a shelf registration statement with the SEC for the resale of the Notes and the common stock issuable upon conversion of the Notes. The Company also agreed to periodically update the shelf registration and to keep it effective until the earlier of the date the Notes or the common stock issuable upon conversion of the Notes is eligible to be sold to the public pursuant to Rule 144(k) of the Securities Act or the date on which there are no outstanding registrable securities. The Company has evaluated the terms of the call feature, redemption feature, and the conversion feature under applicable accounting literature, including SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and Emerging Issues Task Force (“EITF”) No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and concluded that none of these features should be separately accounted for as derivatives.

In connection with the issuance of the Notes, the Company incurred $6.2 million of issuance costs, which primarily consisted of investment banker fees and legal and other professional fees. These costs are classified within Other Assets and are being amortized as a component of interest expense using the effective interest method over the life of the Notes from issuance through March 15, 2026. If the holders require repurchase of some or all of the Notes on the first repurchase date, which is March 15, 2011, the Company would accelerate amortization of the pro rata share of the unamortized balance of the issuance costs on such date. If the holders require conversion of some or all of the Notes when the conversion requirements are met, the Company would accelerate amortization of the pro rata share of the unamortized balance of the issuance cost to additional paid-in capital on such date. Amortization expense related to the issuance costs was $78,000 for both of the three-month periods ended June 30, 2008 and 2007, and $156,000 for both of the six-month periods ended June 30, 2008 and 2007. Interest expense on the Notes was $1.7 million for both of the three-month periods ended June 30, 2008 and 2007, and $3.5 million for both of the six-month periods ended June 30, 2008 and 2007. Interest payment of $3.5 million was made in both of the six-month periods ended June 30, 2008 and 2007.

   The Company has classified its convertible debt as Level I, according to SFAS No. 157 since it has quote prices available in active markets for identical assets. Informatica has determined that the current market value of its convertible senior notes as of June 30, 2008 is $235.2 million.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 5. Other Comprehensive Income>

Other comprehensive income refers to gains and losses that are recorded as an element of stockholders’ equity under GAAP and are excluded from net income. Other comprehensive income consisted of the following items (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
Net income, as reported		$	11,503			$	10,456			$	22,727			$	19,550
Other comprehensive income:
Unrealized loss on investments *			(615	)			(190	)			(42	)			(96	)
Cumulative translation adjustment *			(775	)			611				1,288				833
Comprehensive income		$	10,113			$	10,877			$	23,973			$	20,287

_________

*	The tax benefits and losses on investments and cumulative translation adjustments were $0.3 million benefits  and $0.1 million losses for the three and six months ended June 30, 2008, respectively, and negligible for the three and six months ended June 30, 2007.

Accumulated other comprehensive income as of June 30, 2008 and December 31, 2007 consisted of the following (in thousands):

		June 30, 2008				December 31, 2007
Unrealized gain on available-for-sale investments		$	179			$	221
Cumulative translation adjustment			6,707				5,419
		$	6,886			$	5,640

Note 6. Stock Repurchases>

The purpose of Informatica’s stock repurchase program is, among other things, to help offset the dilution caused by the issuance of stock under our employee stock option and employee stock purchase plans. The number of shares acquired and the timing of the repurchases are based on several factors, including general market conditions and the trading price of our common stock. These repurchased shares are retired and reclassified as authorized and unissued shares of common stock. These purchases can be made from time to time in the open market and are funded from available working capital.

In April 2006, Informatica’s Board of Directors authorized a stock repurchase program for a one-year period for up to $30 million of our common stock. As of April 30, 2007, the Company repurchased 2,238,000 shares at a cost of $30 million.

In April 2007, Informatica’s Board of Directors authorized a stock repurchase program for up to an additional $50 million of our common stock. In April 2008, Informatica’s Board of Directors authorized a stock repurchase program for up to an additional $75 million of our common stock. Repurchases can be made from time to time in the open market and will be funded from available working capital. As of June 30, 2008, the Company repurchased 2,795,000 shares at cost of $43.4 million (under April 2007 approval), including 576,000 shares at a cost of $9.5 million during the three months ended June 30, 2008. The Company has $6.6 million (under April 2007 approval) and $75 million (under April 2008 approval) remaining available to repurchase shares under this program.  Neither of these two repurchase programs have expiration dates.

Note 7. Facilities Restructuring Charges>

2004 Restructuring Plan

In October 2004, the Company announced a restructuring plan (“2004 Restructuring Plan”) related to the December 2004 relocation of the Company’s corporate headquarters within Redwood City, California. In 2005, the Company subleased the available space at the Pacific Shores Center under the 2004 Restructuring Plan with two subleases expiring in 2008 and 2009 with rights to extend for a period of one and four years, respectively. The Company recorded restructuring charges of approximately $103.6 million,

 

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

consisting of $21.6 million in leasehold improvement and asset write-offs and $82.0 million related to estimated facility lease losses, which consist of the present value of lease payment obligations for the remaining five-year lease term of the previous corporate headquarters, net of actual and estimated sublease income. The Company has actual and estimated sublease income, including the reimbursement of certain property costs such as common area maintenance, insurance, and property tax, net of estimated broker commissions of $2.3 million for the remainder of 2008, $2.6 million in 2009, $1.2 million in 2010, $3.8 million in 2011, $4.4 million in 2012, and $2.4 million in 2013.

Subsequent to 2004, the Company continued to record accretion on the cash obligations related to the 2004 Restructuring Plan. Accretion represents imputed interest and is the difference between our non-discounted future cash obligations and the discounted present value of these cash obligations. As of June 30, 2008, the Company will recognize approximately $9.7 million of accretion as a restructuring charge over the remaining term of the lease, or approximately five years, as follows: $1.7 million for the remainder of 2008, $3.0 million in 2009, $2.3 million in 2010, $1.6 million in 2011, $0.9 million in 2012, and $0.2 million in 2013.

2001 Restructuring Plan

During 2001, the Company announced a restructuring plan (“2001 Restructuring Plan”) and recorded restructuring charges of approximately $12.1 million, consisting of $1.5 million in leasehold improvement and asset write-offs and $10.6 million related to the consolidation of excess leased facilities in the San Francisco Bay Area and Texas.

During 2002, the Company recorded additional restructuring charges of approximately $17.0 million, consisting of $15.1 million related to estimated facility lease losses and $1.9 million in leasehold improvement and asset write-offs. The Company calculated the estimated costs for the additional restructuring charges based on current market information and trend analysis of the real estate market in the respective area.

In December 2004, the Company recorded additional restructuring charges of $9.0 million related to estimated facility lease losses. The restructuring accrual adjustments recorded in the third and fourth quarters of 2004 were the result of the relocation of its corporate headquarters within Redwood City, California in December 2004, an executed sublease for the Company’s excess facilities in Palo Alto, California during the third quarter of 2004, and an adjustment to management’s estimate of occupancy of available vacant facilities. In 2005, the Company subleased the available space at the Pacific Shores Center under the 2001 Restructuring Plan through May 2013.

A summary of the activity of the accrued restructuring charges for the six months ended June 30, 2008 is as follows (in thousands):

		Accrued Restructuring Charges at December 31,				Restructuring								Net Cash				Non-cash				Accrued Restructuring Charges at June 30,
		2007				Charges				Adjustments				Payment				Reclass				2008
2004 Restructuring Plan
Excess lease facilities		$	64,446			$	1,786			$	82			$	(5,346	)		$	(82	)		$	60,886
2001 Restructuring Plan
Excess lease facilities			9,796				—				—				(690	)			—				9,106
		$	74,242			$	1,786			$	82			$	(6,036	)		$	(82	)		$	69,992

For the six months ended June 30, 2008, the Company recorded restructuring charges of $1.8 million from accretion charges related to the 2004 Restructuring Plan. Actual future cash requirements may differ from the restructuring liability balances as of June 30, 2008 if the Company is unable to sublease the excess leased facilities after the expiration of the subleases, there are changes to the time period that facilities are vacant, or the actual sublease income is different from current estimates. If the subtenants do not extend their subleases and the Company is unable to sublease any of the related Pacific Shores facilities during the remaining lease terms through 2013, restructuring charges could increase by approximately $9.8 million.

Inherent in the estimation of the costs related to the restructuring efforts are assessments related to the most likely expected outcome of the significant actions to accomplish the restructuring. The estimates of sublease income may vary significantly depending, in part, on factors that may be beyond the Company’s control, such as the time periods required to locate and contract suitable subleases should the Company’s existing subleases elect to terminate their sublease agreements in 2008 and 2009 and the market rates at the time of entering into new sublease agreements.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8. Income Taxes>

In the quarter ended September 30, 2007, the Company released its valuation allowance for its non-stock option related deferred tax assets. The remaining valuation allowance is related to Informatica’s stock option deferred tax assets. The benefit of these deferred tax assets will be recorded in the stockholders’ equity as realized, and as such, they will not reduce the Company’s effective tax rate.  Prior to September 30, 2007, the Company’s effective tax rate was primarily based on federal alternative minimum taxes, state minimum taxes, and income and withholding taxes attributable to foreign operations. The Company’s effective tax rates were 29.8% and 15.9% for the three months ended June 30, 2008 and 2007, respectively, and 29.8% and 13.5% for the six months ended June 30, 2008 and 2007, respectively. The effective tax rates for the three and six-months period ended June 30, 2008 differed from the federal statutory rate of 35% primarily due to the non-deductibility of share-based payments, as well as the accrual of reserves related to uncertain tax positions offset by the tax rate benefits for certain earnings from Informatica’s operations in lower-tax jurisdictions throughout the world. The Company has not provided for residual U.S. taxes in any of these jurisdictions since it intends to reinvest such earnings indefinitely. As discussed above, the 15.9% and 13.5% effective tax rates for the three and six months ended June 30, 2007, respectively, represented primarily federal alternative minimum taxes, state minimum taxes, and income and withholding taxes attributable to foreign operations.

In assessing the need for any additional non-stock valuation allowance in the quarter ended June 30, 2008, the Company considered all available evidence both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, ongoing prudent and feasible tax planning strategies and the deductibility of a capital loss, and recorded a valuation allowance to reduce its deferred tax assets to the amount it believed was more likely than not to be realized based on such available evidence.  As a result of this analysis, the Company determined that it needed to increase its valuation allowance for non-stock option related deferred tax assets by approximately $0.3 million resulting from a nondeductible capital loss.

The FIN No. 48 unrecognized tax benefits, if recognized, would impact the income tax provision by $6.8 million and $6.0 million as of June 30, 2008 and 2007, respectively. The Company has elected to include interest and penalties as a component of tax expense. Accrued interest and penalties at June 30, 2008 and 2007 were approximately $484,000 and $225,000, respectively. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months.

The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company is currently under examination by the Internal Revenue Service for fiscal years 2005 and 2006. Due to net operating loss carry-forwards, substantially all of the Company’s tax years, from 1995 through 2006, remain open to tax examination. Recently the Company has also been informed by certain state taxing authorities that it was selected for examination. Most state and foreign jurisdictions have three or four open tax years at any point in time. The field work for the state audits has commenced and is at various stages of completion as of June 30, 2008. Although the outcome of any tax audit is uncertain, the Company believes that it has adequately provided in its financial statements for any additional taxes that it may be required to pay as a result of such examinations. If the payment ultimately proves to be unnecessary, the reversal of these tax liabilities would result in tax benefits in the period that the Company had determined such liabilities were no longer necessary. However, if an ultimate tax assessment exceeds our estimate of tax liabilities, an additional tax provision might be required.

Note 9. Net Income per Common Share

Under the provisions of Statement of Financial Accounting Standard No. 128, Earnings per Share (“SFAS No. 128”), basic net income per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution of securities by adding other common stock equivalents, primarily stock options and common shares potentially issuable under the terms of the convertible senior notes, to the weighted-average number of common shares outstanding during the period, if dilutive. Potentially dilutive securities have been excluded from the computation of diluted net income per share if their inclusion is antidilutive.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The calculation of basic and diluted net income per common share is as follows (in thousands, except per share amounts):

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
Net income		$	11,503			$	10,456			$	22,727			$	19,550
Effect of convertible senior notes, net of related tax effects			1,100				1,100				2,200				2,200
Net income adjusted		$	12,603			$	11,556			$	24,927			$	21,750
Weighted-average shares outstanding			88,565				87,293				88,347				86,863
Shares used in computing basic net income per common share			88,565				87,293				88,347				86,863
Dilutive effect of employee stock options, net of related tax benefits			4,392				4,413				4,556				4,415
Dilutive effect of convertible senior notes			11,500				11,500				11,500				11,500
Shares used in computing diluted net income per common share			104,457				103,206				104,403				102,778
Basic net income per common share		$	0.13			$	0.12			$	0.26			$	0.23
Diluted net income per common share		$	0.12			$	0.11			$	0.24			$	0.21

Diluted net income per common share is calculated according to SFAS No. 128, which requires the dilutive effect of convertible securities to be reflected in the diluted net income per share by application of the “if-converted” method. This method assumes an add-back of interest and amortization of issuance cost, net of income taxes, to net income if the securities are converted. The Company determined that for the three and six months ended June 30, 2008 and 2007, the convertible senior notes had a dilutive effect on diluted net income per share, and as such, it had an add-back of $1.1 million for both three-month periods and $2.2 million for both six-month periods in interest and issuance cost amortization, net of income taxes, to net income for the diluted net income per share calculation for both periods.

Note 10. Commitments and Contingencies>

Lease Obligations

In December 2004, the Company relocated its corporate headquarters within Redwood City, California and entered into a new lease agreement. The initial lease term was from December 15, 2004 to December 31, 2007 with a three-year option to renew to December 31, 2010 at fair market value. In May 2007, the Company exercised its renewal option to extend the office lease term to December 31, 2010. The future minimum contractual lease payments are $1.9 million for the remainder of 2008, and $4.0 million and $4.2 million for the years ending December 31, 2009 and 2010, respectively.

The Company entered into two lease agreements in February 2000 for two office buildings at the Pacific Shores Center in Redwood City, California, which was used as its former corporate headquarters from August 2001 through December 2004. The leases expire in July 2013. In 2001, a financial institution issued a $12.0 million letter of credit which required us to maintain certificates of deposits as collateral until the leases expire in 2013. As of June 2008, however, we are no longer required to maintain certificates of deposits for this letter of credit, which is for our former corporate headquarters leases at the Pacific Shores Center in Redwood City, California.

The Company leases certain office facilities under various non-cancelable operating leases, including those described above, which expire at various dates through 2013 and require the Company to pay operating costs, including property taxes, insurance, and maintenance. Operating lease payments in the table below include approximately $84.4 million for operating lease commitments for facilities that are included in restructuring charges. See Note 7. Facilities Restructuring Charges, above, for a further discussion.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Future minimum lease payments as of June 30, 2008 under non-cancelable operating leases with original terms in excess of one year are summarized as follows (in thousands):

		Operating Leases				Sublease Income				Net
Remaining 2008		$	12,323			$	(1,496	)		$	10,827
2009			24,827				(1,719	)			23,108
2010			24,153				(219	)			23,934
2011			19,207				(2,094	)			17,113
2012			19,549				(2,628	)			16,921
Thereafter			12,674				(1,345	)			11,329
		$	112,733			$	(9,501	)		$	103,232

Of these future minimum lease payments, the Company has accrued $70.0 million in the facilities restructuring accrual at June 30, 2008. This accrual includes the minimum lease payments of $84.4 million and an estimate for operating expenses of $15.9 million and sublease commencement costs associated with excess facilities and is net of estimated sublease income of $20.6 million and a present value discount of $9.7 million recorded in accordance with FASB Statement No. 146 (As Amended), Accounting for Costs Associated with Exit or Disposal Activities, (“SFAS No. 146”).

In December 2005, the Company subleased 35,000 square feet of office space at the Pacific Shores Center, its former corporate headquarters in Redwood City, California through May 2013. In June 2005, the Company subleased 51,000 square feet of office space at the Pacific Shores Center, its previous corporate headquarters, in Redwood City, California through August 2008 with an option to renew through July 2013. The lessee has exercised its option and renewed this lease through August 2009. In February 2005, the Company subleased 187,000 square feet of office space at the Pacific Shores Center for the remainder of the lease term through July 2013 with a right of termination by the subtenant that is exercisable prior to October 2008 effective as of July 2009.

Warranties

The Company generally provides a warranty for its software products and services to its customers for a period of three to six months and accounts for its warranties under the SFAS No. 5, Accounting for Contingencies. The Company’s software products’ media are generally warranted to be free from defects in materials and workmanship under normal use, and the products are also generally warranted to substantially perform as described in certain Company documentation and the product specifications. The Company’s services are generally warranted to be performed in a professional manner and to materially conform to the specifications set forth in a customer’s signed contract. In the event there is a failure of such warranties, the Company generally will correct or provide a reasonable work-around or replacement product. The Company has provided a warranty accrual of $0.2 million as of June 30, 2008 and December 31, 2007. To date, the Company’s product warranty expense has not been significant.

Indemnification

The Company sells software licenses and services to its customers under contracts, which the Company refers to as the License to Use Informatica Software (“License Agreement”). Each License Agreement contains the relevant terms of the contractual arrangement with the customer and generally includes certain provisions for indemnifying the customer against losses, expenses, liabilities, and damages that may be awarded against the customer in the event the Company’s software is found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party. The License Agreement generally limits the scope of and remedies for such indemnification obligations in a variety of industry-standard respects, including but not limited to certain time and scope limitations and a right to replace an infringing product with a non-infringing product.

The Company believes its internal development processes and other policies and practices limit its exposure related to the indemnification provisions of the License Agreement. In addition, the Company requires its employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees’ development work to the Company. To date, the Company has not had to reimburse any of its customers for any losses related to these indemnification provisions, and no material claims against the Company are outstanding as of June 30, 2008. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under the License Agreement, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

In addition, we indemnify our officers and directors under the terms of indemnity agreements entered into with them, as well as pursuant to our certificate of incorporation, bylaws, and applicable Delaware law. To date, we have not incurred any costs related to these indemnifications.

The Company accrues for loss contingencies when available information indicates that it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated, in accordance with SFAS No. 5, Accounting for Contingencies.

Litigation

On November 8, 2001, a purported securities class action complaint was filed in the U.S. District Court for the Southern District of New York. The case is entitled In re Informatica Corporation Initial Public Offering Securities Litigation, Civ. No. 01-9922 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y.). Plaintiffs’ amended complaint was brought purportedly on behalf of all persons who purchased our common stock from April 29, 1999 through December 6, 2000. It names as defendants Informatica Corporation, two of our former officers (the “Informatica defendants”), and several investment banking firms that served as underwriters of our April 29, 1999 initial public offering and September 28, 2000 follow-on public offering. The complaint alleges liability as to all defendants under Sections 11 and/or 15 of the Securities Act of 1933 and Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statements for the offerings did not disclose that: (1) the underwriters had agreed to allow certain customers to purchase shares in the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The complaint also alleges that false analyst reports were issued. No specific damages are claimed.

Similar allegations were made in other lawsuits challenging over 300 other initial public offerings and follow-on offerings conducted in 1999 and 2000. The cases were consolidated for pretrial purposes. On February 19, 2003, the Court ruled on all defendants’ motions to dismiss. The Court denied the motions to dismiss the claims under the Securities Act of 1933. The Court denied the motion to dismiss the Section 10(b) claim against Informatica and 184 other issuer defendants. The Court denied the motion to dismiss the Section 10(b) and 20(a) claims against the Informatica defendants and 62 other individual defendants.

The Company accepted a settlement proposal presented to all issuer defendants. In this settlement, plaintiffs will dismiss and release all claims against the Informatica defendants, in exchange for a contingent payment by the insurance companies collectively responsible for insuring the issuers in all of the IPO cases, and for the assignment or surrender of control of certain claims we may have against the underwriters. The Informatica defendants will not be required to make any cash payments in the settlement, unless the pro rata amount paid by the insurers in the settlement exceeds the amount of the insurance coverage, a circumstance that we do not believe will occur. Any final settlement will require approval of the Court after class members are given the opportunity to object to the settlement or opt out of the settlement.

In September 2005, the Court granted preliminary approval of the settlement. The Court held a hearing to consider final approval of the settlement on April 24, 2006, and took the matter under submission. In the interim, the Second Circuit reversed the class certification of plaintiffs’ claims against the underwriters. Miles v. Merrill Lynch & Co. (In re Initial Public Offering Securities Litigation), 471 F.3d 24 (2d Cir. 2006). On April 6, 2007, the Second Circuit denied plaintiffs’ petition for rehearing, but clarified that the plaintiffs may seek to certify a more limited class in the district court. Accordingly, the parties withdrew the prior settlement, and plaintiffs filed amended complaints in focus or test cases in an attempt to comply with the Second Circuit’s ruling. On March 26, 2008, the District Court issued an order granting in part and denying in part motions to dismiss the amended complaints in the focus cases, on substantially the same grounds as its February 2003 ruling on the prior motion to dismiss.

On July 15, 2002, the Company filed a patent infringement action in U.S. District Court in Northern California against Acta Technology, Inc. (“Acta”), now known as Business Objects Data Integration, Inc. (“BODI”), asserting that certain Acta products infringe on three of our patents: U.S. Patent `No. 6,014,670, entitled “Apparatus and Method for Performing Data Transformations in Data Warehousing,” U.S. Patent No. 6,339,775, entitled “Apparatus and Method for Performing Data Transformations in Data Warehousing” (this patent is a continuation in part of and claims the benefit of U.S. Patent No. 6,014,670), and U.S. Patent No. 6,208,990, entitled “Method and Architecture for Automated Optimization of ETL Throughput in Data Warehousing Applications.”  In the suit, we sought an injunction against future sales of the infringing Acta/BODI products, as well as damages for past sales of

 

 

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INFORMATICA CORPORATION

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the infringing products. On February 26, 2007, as stipulated by both parties, the Court dismissed the infringement claims on U.S. Patent No. 6,208,990 as well as BODI’s counterclaims on this patent.

 

The trial began on March 12, 2007 on the two remaining patents (U.S. Patent No. 6,014,670 and U.S. Patent No. 6,339,775) originally asserted in 2002 and a verdict was reached on April 2, 2007. During the trial, the judge determined that, as a matter of law, BODI and its customers’ use of the Acta/BODI products infringe on our asserted patents. The jury unanimously determined that our patents are valid, that BODI’s infringement on our patents was done willfully and that a reasonable royalty for BODI’s infringement is $25.2 million.  On May 16, 2007, the judge issued a permanent injunction preventing BODI from shipping the infringing technology now and in the future.

As a result of post-trial motions, the judge has asked the parties to brief the issue of whether the damages award should be reduced in light of the United States Supreme Court’s April 30, 2007 AT&T Corp. v. Microsoft Corp. decision (which examines the territorial reach of U.S. patents). The post-trial motions filed focused on the amount of damages awarded and did not alter the jury’s determination of validity or willful infringement or the judge’s grant of the permanent injunction. The court issued and we accepted a damage award of $12.2 million in light of AT&T Corp. v. Microsoft Corp. On October 29, 2007, the court entered final judgment on the case for that amount and on December 18, 2007, the Court awarded us an additional amount of $1.7 million for prejudgment interest.  On November 28, 2007, BODI filed its Notice of Appeal and on December 12, 2007, we filed our Notice of Cross Appeal.  The parties have filed appeal briefs, including responses and replies. Oral arguments on the appeal will likely be heard in late 2008 with a decision from the United States Circuit Court of Appeals for the Federal Circuit expected in late 2008 or early 2009. The permanent injunction remains in effect pending the appeal.

On August 21, 2007, Juxtacomm Technologies (“Juxtacomm”) filed a complaint in the Eastern District of Texas against 21 defendants, including us, alleging patent infringement. We filed an answer to the complaint on October 10, 2007. It is Informatica’s current assessment that our products do not infringe Juxtacomm’s patent and that potentially the patent itself is invalid due to significant prior art. Informatica intends to vigorously defend itself. This case is currently in the discovery phase.

The Company is also a party to various legal proceedings and claims arising from the normal course of business activities.

Based on current available information, Informatica does not expect that the ultimate outcome of these unresolved matters, individually or in the aggregate, will have a material adverse effect on its results of operations, cash flows, or financial position. However, litigation is subject to inherent uncertainties and the Company’s view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position and results of operation for the period in which the unfavorable outcome occurred, and potentially in future periods.

Note 11. Significant Customer Information and Segment Reporting>

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The method for determining the information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance.

The Company is organized and operates in a single segment: the design, development, marketing, and sales of software solutions. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance.

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

The following table presents geographic information (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Revenues:
North America		$	78,237			$	65,590			$	147,596			$	130,802
Europe			27,611				22,383				54,940				41,075
Other			7,912				6,289				14,934				9,499
		$	113,760			$	94,262			$	217,470			$	181,376

		June 30, 2008				December 31, 2007
Long-lived assets (excluding assets not allocated):
North America		$	35,507			$	19,247
Europe			9,226				1,769
Other			1,407				1,507
		$	46,140			$	22,523

No customer accounted for more than 10% of the Company’s total revenues in the three and six months ended June 30, 2008 and 2007. At June 30, 2008 and 2007, no single customer accounted for more than 10% of the accounts receivable balance.

Note 12. Recent Accounting Pronouncements>

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the Board decided to issue Staff Position (“FSP FAS No. 157-2”) that (1) partially deferred the effective date of SFAS No. 157, for one year for certain nonfinancial assets and nonfinancial liabilities, and (2) removed certain leasing transactions from the scope of FAS 157. This FSP effectively delays the implementation of this pronouncement for certain nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted SFAS No. 157, except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP FAS No. 157-2. The partial adoption of SFAS No. 157 did not have a material impact on our consolidated financial position, results of operations or cash flows. The Company is currently evaluating the accounting and disclosure requirements of SFAS No. 157 for its nonfinancial assets and liabilities.

 

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”), including an amendment of FASB Statement No. 115, which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities under an instrument-by-instrument election. Subsequent measurements for the financial assets and liabilities an entity elects to fair value will be recognized in earnings. Statement No. 159 also establishes additional disclosure requirements. Statement No. 159 is effective for fiscal years beginning after November 15, 2007, and its adoption is not expected to have an impact on the consolidated financial statements since the Company has not elected to use fair value to measure any of its existing financial assets and liabilities.

In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations (“SFAS No. 141(R)”), which addresses the accounting and reporting standards for the business combinations. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company will adopt this statement as required, and is currently evaluating the related accounting and disclosure requirements.

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS No. 160”), which addresses accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This pronouncement also amends certain elements of ARB No. 51’s consolidation procedures for consistency with requirements of FASB No. 141 (revised 2007). This statement is effective for fiscal

 

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company will adopt this consensus as required, and its adoption is not expected to have an impact on the consolidated financial statements.

  In March 2008, the FASB issued FASB Statement No. 161 (“SFAS No. 161”), Disclosures about Derivative Instruments and Hedging Activities. SFAS 161 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company will adopt this consensus as required, and its adoption is not expected to have an impact on the consolidated financial statements.

In April 2008, the FASB issued FSAB Staff Position No. 142-3 (“FSP No. 142-3”), Determination of the Useful Life of Intangible Assets. FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. This FSP shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company will adopt this FSP as required, and is currently evaluating the related accounting and disclosure requirements.

In May 2008, the FASB issued Staff Position No. APB No. 14-1 (“FSP No. 14-1”), Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement). This FSP clarifies that (1) convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, are not considered debt instruments within the scope of APB Opinion No. 14, Accounting for Convertible Debt and Debt and Debt Issued with Stock Purchase Warrants (“APBO No. 14”), and (2) issuers of such instruments should separately account for the liability and equity components of those instruments by allocating the proceeds from issuance of the instrument between the liability component and the embedded conversion option (i.e., equity component). This FSP shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company will adopt this FSP as required, and its adoption is not expected to have an impact on the consolidated financial statements.

In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles used in preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP. This statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity with GAAP. The Company will adopt this consensus as required, and its adoption is not expected to have an impact on the consolidated financial statements.

Note 13. Acquisition

On May 15, 2008, Informatica Corporation acquired all of the issued and outstanding shares of Identity Systems, Inc., a Delaware corporation and a wholly-owned subsidiary of Intellisync Corporation, for $85.6 million in cash, including transaction costs of $0.9 million. The preliminary allocation of the purchase price is based upon a preliminary valuation and our estimates and assumptions are subject to change.

 The allocation of the purchase price for this acquisition, as of the date of the acquisition, is as follows (in thousands):

Developed and core technology		$	14,570
Customer relationships			12,620
In-process research and development			390
Goodwill			49,316
Assumed assets, net of liabilities			8,735
Total purchase price		$	85,631

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INFORMATICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

The identified intangible assets acquired were assigned fair values in accordance with the guidelines established in Statement of Financial Accounting Standards No. 141, Business Combinations, Financial Accounting Standards Board Interpretations No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method, and other relevant guidance. The excess of the purchase price over the identified tangible and intangible assets was recorded as goodwill. The Company believes that none of the identified intangible assets has any residual value. Further, management believes that the investment value of the synergy created as a result of this acquisition, due to future product offerings, has principally contributed to a purchase price that resulted in the recognition of goodwill for $49.3 million. The developed and core technology is amortized over 5.5 years on a straight line basis and customer relationships over 5 years on an accelerated basis consistent with expected benefits.

 In connection with the purchase price allocations, Informatica estimated the fair value of the support obligations assumed in connection with acquisitions. The estimated fair value of the support obligations is determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin. The estimated costs to fulfill the support obligations are based on the historical direct costs related to providing the support services and to correct any errors in the software products that the Company has acquired.

Unaudited Pro Forma Financial Information

 

The unaudited financial information in the table below summarizes the combined results of operations of Identity Systems, acquired during the second quarter of 2008, on a pro forma basis, as though it had been combined as of the beginning of each of the periods presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of each of the periods presented.

The unaudited pro forma financial information for the three and six months ended June 30, 2008 and 2007 combines the historical results of Informatica and Identity Systems for the three and six months ended June 30, 2008 and 2007.

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
Revenues		$	115,397			$	98,200			$	222,916