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  • 10-Q (Aug 7, 2014)
  • 10-Q (May 8, 2014)
  • 10-Q (Nov 7, 2013)
  • 10-Q (Aug 8, 2013)
  • 10-Q (May 8, 2013)
  • 10-Q (Nov 7, 2012)

 
8-K

 
Other

Informatica 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1
WebFilings | EDGAR view
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
___________________
 
R Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2011 
or
£ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-25871
INFORMATICA CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
77-0333710
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
100 Cardinal Way
Redwood City, California 94063
(Address of principal executive offices and zip code)
(650) 385-5000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.  
R Yes  £ No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes R No £
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.
Large accelerated filer R    Accelerated filer £     Non-accelerated filer £     Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  £ Yes R No
As of April 29, 2011, there were approximately 105,777,000 shares of the registrant’s Common Stock outstanding.
 
 
 
 
 
 
 

INFORMATICA CORPORATION
TABLE OF CONTENTS
 
 
 
 Page No. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


 
PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
INFORMATICA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
March 31,
2011
 
December 31,
2010
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
323,912
 
 
$
208,899
 
Short-term investments
228,803
 
 
262,047
 
Accounts receivable, net of allowances of $3,618 and $4,289, respectively
91,635
 
 
147,534
 
Deferred tax assets
19,566
 
 
22,664
 
Prepaid expenses and other current assets
37,590
 
 
32,321
 
Total current assets
701,506
 
 
673,465
 
Property and equipment, net
9,259
 
 
9,866
 
Goodwill
396,514
 
 
400,726
 
Other intangible assets, net
71,712
 
 
77,927
 
Long-term deferred tax assets
27,598
 
 
18,314
 
Other assets
6,140
 
 
9,343
 
Total assets
$
1,212,729
 
 
$
1,189,641
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
5,930
 
 
$
5,948
 
Accrued liabilities
38,349
 
 
50,199
 
Accrued compensation and related expenses
36,023
 
 
56,315
 
Accrued facilities restructuring charges
18,977
 
 
18,498
 
Deferred revenues
181,846
 
 
172,559
 
Convertible senior notes
 
 
200,693
 
Total current liabilities
281,125
 
 
504,212
 
Accrued facilities restructuring charges, less current portion
16,847
 
 
20,410
 
Long-term deferred revenues
6,425
 
 
6,987
 
Long-term deferred tax liabilities
275
 
 
311
 
Long-term income taxes payable
15,070
 
 
12,739
 
Total liabilities
319,742
 
 
544,659
 
Commitments and contingencies (Note 12)
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
Common stock
106
 
 
94
 
Additional paid-in capital
735,183
 
 
514,365
 
Accumulated other comprehensive loss
(264
)
 
(5,530
)
Retained earnings
157,962
 
 
136,053
 
Total stockholders’ equity
892,987
 
 
644,982
 
Total liabilities and stockholders’ equity
$
1,212,729
 
 
$
1,189,641
 
See accompanying notes to condensed consolidated financial statements.

3


INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
March 31,
 
 
2011
 
2010
 
Revenues:
 
 
 
 
License
$
71,501
 
 
$
55,047
 
 
Service
96,531
 
 
80,083
 
 
Total revenues
168,032
 
 
135,130
 
 
Cost of revenues:
 
 
 
 
 
 
License
1,441
 
 
965
 
 
Service
27,314
 
 
23,057
 
 
Amortization of acquired technology
4,293
 
 
2,772
 
 
Total cost of revenues
33,048
 
 
26,794
 
 
Gross profit
134,984
 
 
108,336
 
 
Operating expenses:
 
 
 
 
 
 
Research and development
30,587
 
 
23,578
 
 
Sales and marketing
59,582
 
 
51,419
 
 
General and administrative
12,038
 
 
11,408
 
 
Amortization of intangible assets
2,081
 
 
2,710
 
 
Facilities restructuring charges
510
 
 
656
 
 
Acquisitions and other
(1,702
)
 
3,649
 
 
Total operating expenses
103,096
 
 
93,420
 
 
Income from operations
31,888
 
 
14,916
 
 
Interest income
1,095
 
 
951
 
 
Interest expense
(1,780
)
 
(1,580
)
 
Other income (expense), net
(932
)
 
1,980
 
 
Income before income taxes
30,271
 
 
16,267
 
 
Income tax provision
8,362
 
 
4,473
 
 
Net income
$
21,909
 
 
$
11,794
 
 
Basic net income per common share
$
0.23
 
 
$
0.13
 
 
Diluted net income per common share
$
0.20
 
 
$
0.12
 
 
Shares used in computing basic net income per common share
96,858
 
 
90,748
 
 
Shares used in computing diluted net income per common share
112,318
 
 
107,374
 
 
See accompanying notes to condensed consolidated financial statements.
 

4


INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
2011
 
2010
Operating activities:
 
 
 
Net income
$
21,909
 
 
$
11,794
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
1,468
 
 
1,829
 
Allowance for (recovery of) doubtful accounts
(517
)
 
63
 
Gain on sale of investment in equity interest
 
 
(1,824
)
Stock-based compensation
7,512
 
 
5,482
 
Deferred income taxes
(337
)
 
(632
)
Tax benefits from stock-based compensation
5,476
 
 
4,189
 
Excess tax benefits from stock-based compensation
(5,397
)
 
(3,325
)
Amortization of intangible assets and acquired technology
6,374
 
 
5,482
 
Non-cash facilities restructuring charges
510
 
 
656
 
Other non-cash items
(1,702
)
 
(6
)
Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
56,416
 
 
42,099
 
Prepaid expenses and other assets
(6,076
)
 
2,403
 
Accounts payable and accrued liabilities
(26,892
)
 
(18,924
)
Income taxes payable
(2,187
)
 
(5,276
)
Accrued facilities restructuring charges
(3,553
)
 
(3,604
)
Deferred revenues
8,725
 
 
2,776
 
Net cash provided by operating activities
61,729
 
 
43,182
 
Investing activities:
 
 
 
 
 
Purchases of property and equipment
(605
)
 
(1,300
)
Purchases of investments
(58,112
)
 
(42,569
)
Purchase of investment in equity interest
 
 
(1,500
)
Sale of investment in equity interest
 
 
4,824
 
Maturities of investments
42,390
 
 
64,318
 
Sales of investments
48,503
 
 
81,047
 
Business acquisitions, net of cash acquired
 
 
(168,777
)
Net cash provided by (used in) investing activities
32,176
 
 
(63,957
)
Financing activities:
 
 
 
 
 
Net proceeds from issuance of common stock
17,060
 
 
13,785
 
Repurchases and retirement of common stock
(3,181
)
 
 
Redemption of convertible senior notes
(4
)
 
 
Withholding taxes related to restricted stock units net share settlement
(2,659
)
 
(1,108
)
Excess tax benefits from stock-based compensation
5,397
 
 
3,325
 
Net cash provided by financing activities
16,613
 
 
16,002
 
Effect of foreign exchange rate changes on cash and cash equivalents
4,495
 
 
(2,400
)
Net increase (decrease) in cash and cash equivalents
115,013
 
 
(7,173
)
Cash and cash equivalents at beginning of period
208,899
 
 
159,197
 
Cash and cash equivalents at end of period
$
323,912
 
 
$
152,024
 
See accompanying notes to condensed consolidated financial statements.

5


INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1.  Summary of Significant Accounting Policies
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 normal and recurring adjustments that are necessary to fairly present the results of the interim periods presented. All of the amounts included in this Quarterly Report on Form 10-Q related to the condensed consolidated financial statements and notes thereto as of and for the three months ended March 31, 2011 and 2010 are unaudited. The interim results presented are not necessarily indicative of results for any subsequent interim period, the year ending December 31, 2011, or any other 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 instances that management's judgment in selecting an 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, 2010 included in the Company's Annual Report on Form 10-K filed with the SEC. The condensed consolidated balance sheet as of December 31, 2010 has been derived from the audited consolidated financial statements of the Company.
The Company's significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010. As discussed below, on January 1, 2011, the Company adopted an accounting pronouncement on multiple-deliverable revenue arrangements that are outside the scope of industry-specific revenue recognition guidance. There have been no other changes in our significant accounting policies since the end of fiscal year 2010.
Revenue Recognition
The Company's revenue recognition policy, except for the adoption of the new pronouncement, is included in Note 2 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
Multiple Element Arrangements
In October 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, which amended the accounting standards applicable to revenue recognition for multiple-deliverable revenue arrangements that are outside the scope of industry-specific software revenue recognition guidance. The new guidance amends the criteria for allocating consideration in multiple-deliverable revenue arrangements by establishing a selling price hierarchy. The selling price used for each deliverable will be based on vendor-specific objective evidence ("VSOE") if available, third-party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available. The guidance also eliminates the use of the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method.
The Company adopted this guidance on a prospective basis on January 1, 2011, and therefore, is applicable to relevant revenue arrangements entered into or materially modified on or after that date.
The Company's multiple-element arrangements are primarily software or software-related, which are excluded from the new guidance. Multiple-element arrangements that include non-software related elements and software or software-related elements,

6

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

which are included in the new guidance, are not material to date.
For multiple element arrangements that include software and non-software related elements, for example, on-site software licenses sold together with subscriptions for the Company's cloud and hosted address validation services, the Company allocates revenue to each software and non-software element as a group based upon the relative selling price of each. When applying the relative selling price method, the Company determines the selling price for each deliverable using VSOE of selling price, if it exists, or TPE of selling price. If neither VSOE nor TPE of selling price exist for a deliverable, the Company uses the ESP for that deliverable. Revenue allocated to each element is then recognized when the basic revenue recognition criteria is met for each element. The manner in which the Company accounts for multiple element arrangements that contain only software and software-related elements remains unchanged.
In certain limited instances, the Company is not able to establish VSOE for all deliverables in an arrangement with multiple elements. This may be due to the infrequent selling of each element separately, not pricing products or services within a narrow range, or only having a limited sales history. When VSOE cannot be established, the Company attempts to establish the selling price for each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately.
When the Company is unable to establish selling prices using VSOE or TPE, the Company uses ESP in the allocation of arrangement consideration. The Company determines ESP for a price or service by considering both market conditions and entity-specific factors. This includes, but is not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices.
Given the nature of the Company's transactions, which are primarily software or software-related, the adoption of this new accounting guidance did not have a significant impact on the timing and pattern of revenue recognition when applied to multiple-element arrangements. Total net revenue as reported during the three months ended March 31, 2011 is materially consistent with total net revenue that would have been reported if the transaction entered into or materially modified after December 31, 2010 were subject to previous accounting guidance. The new accounting guidance for revenue recognition, if applied in the same manner to the year ended December 31, 2010, would not have had a material impact on total net revenues for the fiscal year 2010.
Fair Value Measurement of Financial Assets and Liabilities
The following table summarizes financial assets and financial liabilities that the Company measures at fair value on a recurring basis as of March 31, 2011 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds (i)
$
12,049
 
 
$
12,049
 
 
$
 
 
$
 
Marketable debt securities (ii)
262,300
 
 
 
 
262,300
 
 
 
Total money market funds and marketable debt securities
274,349
 
 
12,049
 
 
262,300
 
 
 
Foreign currency derivatives (iii)
216
 
 
 
 
216
 
 
 
Total assets
$
274,565
 
 
$
12,049
 
 
$
262,516
 
 
$
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives (iv)
$
1,763
 
 
$
 
 
$
1,763
 
 
$
 
Total liabilities
$
1,763
 
 
$
 
 
$
1,763
 
 
$
 
 

7

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

The following table summarizes financial assets and financial liabilities that the Company measures at fair value on a recurring basis as of December 31, 2010 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
 
Significant
Other
Observable
Inputs
(Level 2)
 
 
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds (i)
$
2,231
 
 
$
2,231
 
 
$
 
 
$
 
Marketable debt securities (ii)
271,546
 
 
 
 
271,546
 
 
 
Total money market funds and marketable debt securities
273,777
 
 
2,231
 
 
271,546
 
 
 
Foreign currency derivatives (iii)
152
 
 
 
 
152
 
 
 
Total assets
$
273,929
 
 
$
2,231
 
 
$
271,698
 
 
$
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivatives (iv)
$
569
 
 
$
 
 
$
569
 
 
$
 
Convertible senior notes
452,663
 
 
452,663
 
 
 
 
 
Total liabilities
$
453,232
 
 
$
452,663
 
 
$
569
 
 
$
 
____________________
(i)
Included in cash and cash equivalents on the condensed consolidated balance sheets.
(ii)
Included in either cash and cash equivalents or short-term investments on the condensed consolidated balance sheets.
(iii)
Included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
(iv)
Included in accrued liabilities on the condensed consolidated balance sheets.
Money Market Funds, Marketable Debt Securities, and Convertible Senior Notes
The Company uses a market approach for determining the fair value of all its Level 1 and Level 2 money market funds, marketable securities, and Convertible Senior Notes.
To value its money market funds, the Company values the funds at $1 stable net asset value, which is the market pricing convention for identical assets that the Company has the ability to access.
The Company's marketable securities consist of certificates of deposit, commercial paper, corporate notes and bonds, municipal securities, and U.S. government and agency notes and bonds. To value its certificates of deposit and commercial paper, the Company uses mathematical calculations to arrive at fair value for these securities, which generally have short maturities and infrequent secondary market trades. For example, in the absence of any observable transactions, the Company may accrete from purchase price at purchase date to face value at maturity. In the event that a transaction is observed on the same security in the marketplace, and the price on that subsequent transaction clearly reflects the market price on that day, the Company will adjust the price in the system to the observed transaction price and follow a revised accretion schedule to determine the daily price.
To determine the fair value of its corporate notes and bonds, municipal securities, and U.S. government and agency notes and bonds, the Company uses a “consensus price” or a weighted average price for each security. Market prices for these securities are received from a variety of industry standard data providers (e.g., Bloomberg), security master files from large financial institutions, and other third-party sources. These multiple prices are used as inputs into a distribution-curve-based algorithm to determine the daily market value.
On March 18, 2011, the Company completed the redemption of its Convertible Senior Notes. The Company classified its convertible debt as Level 1 since it had quoted prices available in active markets. The estimated fair value of the Company’s Convertible Senior Notes as of December 31, 2010 was based on the Over-the-Counter market closing price of the Notes as of December 23, 2010 (the last trading day of the period), which was $452.7 million or $45.11 per share on an as converted basis.

8

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

Foreign Currency Derivatives and Hedging Instruments
The Company uses the income approach to value the derivatives using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated but not compelled to transact. Level 2 inputs are limited to quoted prices that are observable for the assets and liabilities, which include interest rates and credit risk. The Company uses mid-market pricing as a practical expedient for fair value measurements. Key inputs for currency derivatives are the spot rates, forward rates, interest rates, and credit derivative markets. The spot rate for each currency is the same spot rate used for all balance sheet translations at the measurement date and is sourced from the Federal Reserve Bulletin. The following values are interpolated from commonly quoted intervals available from Bloomberg: forward points and the London Interbank Offered Rate ("LIBOR") used to discount and determine the fair value of assets and liabilities. One-year credit default swap spreads identified per counterparty at month end in Bloomberg are used to discount derivative assets for counterparty non-performance risk, all of which have terms of ten months or less. The Company discounts derivative liabilities to reflect the Company’s own potential non-performance risk to lenders and has used the spread over LIBOR on its most recent corporate borrowing rate.
The counterparties associated with Informatica’s foreign currency forward contracts are large credit-worthy financial institutions, and the derivatives transacted with these entities are relatively short in duration; therefore, the Company does not consider counterparty concentration and non-performance to be material risks at this time. Both the Company and the counterparties are expected to perform under the contractual terms of the instruments.
See Note 5. Other Comprehensive Income, Note 6. Derivative Financial Instruments, and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.
 
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 or losses and other-than-temporary impairments, if any, on available-for-sale securities are reported in other income or expense as incurred. Realized gains recognized for the three months ended March 31, 2011 and 2010 were approximately $308,000 and $71,000, respectively. The cost of securities sold was determined based on the specific identification method.

9

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

The following table summarizes the Company’s cash, cash equivalents, and short-term investments as of March 31, 2011 (in thousands):
 
March 31, 2011
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
278,366
 
 
$
 
 
$
 
 
$
278,366
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
12,049
 
 
 
 
 
 
12,049
 
Commercial paper
8,598
 
 
 
 
 
 
8,598
 
Federal agency notes and bonds
7,399
 
 
 
 
 
 
7,399
 
U.S. government notes and bonds
17,500
 
 
 
 
 
 
17,500
 
Total cash equivalents
45,546
 
 
 
 
 
 
45,546
 
Total cash and cash equivalents
323,912
 
 
 
 
 
 
323,912
 
Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
2,948
 
 
 
 
 
 
2,948
 
Commercial paper
12,739
 
 
 
 
 
 
12,739
 
Corporate notes and bonds
83,672
 
 
135
 
 
(147
)
 
83,660
 
Federal agency notes and bonds
95,501
 
 
18
 
 
(212
)
 
95,307
 
U.S. government notes and bonds
6,151
 
 
10
 
 
(15
)
 
6,146
 
Municipal notes and bonds
28,002
 
 
27
 
 
(26
)
 
28,003
 
Total short-term investments
229,013
 
 
190
 
 
(400
)
 
228,803
 
Total cash, cash equivalents, and short-term investments*
$
552,925
 
 
$
190
 
 
$
(400
)
 
$
552,715
 
____________________
*
Total estimated fair value above included $274.3 million comprised of cash equivalents and short-term investments at March 31, 2011.
 

10

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

The following table summarizes the Company’s cash, cash equivalents, and short-term investments as of December 31, 2010 (in thousands):
 
December 31, 2010
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
197,169
 
 
$
 
 
$
 
 
$
197,169
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
2,231
 
 
 
 
 
 
2,231
 
Federal agency notes and bonds
9,499
 
 
 
 
 
 
9,499
 
Total cash equivalents
11,730
 
 
 
 
 
 
11,730
 
Total cash and cash equivalents
208,899
 
 
 
 
 
 
208,899
 
Short-term investments:
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
14,437
 
 
 
 
 
 
14,437
 
Commercial paper
10,977
 
 
 
 
 
 
10,977
 
Corporate notes and bonds
97,899
 
 
444
 
 
(86
)
 
98,257
 
Federal agency notes and bonds
105,120
 
 
40
 
 
(140
)
 
105,020
 
U.S. government notes and bonds
10,156
 
 
19
 
 
(10
)
 
10,165
 
Municipal notes and bonds
23,205
 
 
5
 
 
(19
)
 
23,191
 
Total short-term investments
261,794
 
 
508
 
 
(255
)
 
262,047
 
Total cash, cash equivalents, and short-term investments*
$
470,693
 
 
$
508
 
 
$
(255
)
 
$
470,946
 
____________________
*
Total estimated fair value above included $273.8 million comprised of cash equivalents and short-term investments at December 31, 2010.
See Note 1. Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements for further information regarding the fair value of the Company's financial instruments.
The following table summarizes the fair value and gross unrealized losses related to available-for-sale securities, aggregated by investment category that have been in a continuous unrealized loss position for less than twelve months, at March 31, 2011 (in thousands):
 
Less Than 12 months
 
 
 
 
Fair Value
 
Gross
Unrealized
Losses
Corporate notes and bonds
$
47,109
 
 
$
(147
)
Federal agency notes and bonds
67,425
 
 
(212
)
U.S. government notes and bonds
19,474
 
 
(15
)
Municipal notes and bonds
5,742
 
 
(26
)
Total
$
139,750
 
 
$
(400
)
As of March 31, 2011, the Company did not have any investments that were in a continuous unrealized loss position for periods greater than 12 months. The changes in value of these investments are primarily related to changes in interest rates and are considered to be temporary in nature.

11

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

The following table summarizes the cost and estimated fair value of the Company’s cash equivalents and short-term investments by contractual maturity at March 31, 2011 (in thousands):
 
Cost
 
Fair Value
Due within one year
$
128,381
 
 
$
128,490
 
Due in one year to two years
90,331
 
 
90,192
 
Due after two years
55,847
 
 
55,667
 
Total
$
274,559
 
 
$
274,349
 
 
Note 3.  Intangible Assets and Goodwill
The carrying amounts of the intangible assets other than goodwill as of March 31, 2011 and December 31, 2010 are as follows (in thousands):
 
Intangible Assets, Gross
 
Accumulated Amortization
 
Intangible Assets, Net
 
Weighted
 
 
 
December 31,
2010
 
Additions
 
March 31,
2011
 
December 31,
2010
 
Expense
 
March 31,
2011
 
December 31,
2010
 
March 31,
2011
 
Average Useful Life
Developed and core technology
$
90,497
 
 
$
102
 
 
$
90,599
 
 
$
(35,254
)
 
$
(4,277
)
 
$
(39,531
)
 
$
55,243
 
 
$
51,068
 
 
6 years
Customer relationships
33,501
 
 
57
 
 
33,558
 
 
(20,811
)
 
(1,415
)
 
(22,226
)
 
12,690
 
 
11,332
 
 
5 years
Vendor relationships
7,908
 
 
 
 
7,908
 
 
(2,659
)
 
(399
)
 
(3,058
)
 
5,249
 
 
4,850
 
 
5 years
Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
2,494
 
 
 
 
2,494
 
 
(1,286
)
 
(90
)
 
(1,376
)
 
1,208
 
 
1,118
 
 
5 years
Covenants not to compete
2,000
 
 
 
 
2,000
 
 
(1,617
)
 
(100
)
 
(1,717
)
 
383
 
 
283
 
 
5 years
Patents
3,720
 
 
 
 
3,720
 
 
(566
)
 
(93
)
 
(659
)
 
3,154
 
 
3,061
 
 
10 years
Total intangible assets subject to amortization
$
140,120
 
 
$
159
 
 
$
140,279
 
 
$
(62,193
)
 
$
(6,374
)
 
$
(68,567
)
 
$
77,927
 
 
$
71,712
 
 
 
Total amortization expense related to intangible assets was $6.4 million and $5.5 million for the three months ended March 31, 2011 and 2010, respectively. Certain intangible assets were recorded in foreign currencies; and therefore, the gross carrying amount and accumulated amortization are subject to foreign currency translation adjustments.
As of March 31, 2011, the amortization expense related to identifiable intangible assets in future periods is expected to be as follows (in thousands):
 
 
 
Acquired
Technology
 
Other
Intangible
Assets
 
Total
Intangible
Assets
Remaining 2011
$
14,644
 
 
$
5,631
 
 
$
20,275
 
2012
17,177
 
 
5,735
 
 
22,912
 
2013
13,551
 
 
4,968
 
 
18,519
 
2014
4,251
 
 
2,300
 
 
6,551
 
2015
1,175
 
 
646
 
 
1,821
 
Thereafter
270
 
 
1,364
 
 
1,634
 
Total expected amortization expense
$
51,068
 
 
$
20,644
 
 
$
71,712
 
The changes in the carrying amount of goodwill for the three months ended March 31, 2011 are as follows (in thousands):
 
March 31,
2011
Beginning balance as of December 31, 2010
$
400,726
 
Subsequent goodwill adjustments
(4,212
)
Ending balance as of March 31, 2011
$
396,514
 
Subsequent goodwill adjustments of $4.2 million for the three months ended March 31, 2011 include final income tax related

12

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

balance sheet adjustments within the measurement period related to the Siperian and 29West acquisitions and foreign currency translation adjustments.
 
Note 4.  Borrowings
Convertible Senior Notes
On March 8, 2006, the Company issued and sold Convertible Senior Notes (the "Notes") with an aggregate principal amount of $230.0 million due 2026. The Company paid 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 was initially convertible, at the option of the holders, into 50 shares of the Company's common stock prior to the earlier of the maturity date (March 15, 2026) or the redemption or repurchase of the Notes. The initial conversion price represented a premium of 29.28% relative to the last reported sale price of common stock of the Company on the NASDAQ National Market of $15.47 on March 7, 2006. The conversion rate initially represented a conversion price of $20.00 per share. The balance of the Notes at December 31, 2010 was $200.7 million.
On February 14, 2011, the Company notified the holders of its Notes that it would exercise its option to redeem the principal amount outstanding on March 18, 2011. On or prior to the close of business on March 17, 2011, the holders had the option to convert their Notes into shares of the Company's common stock at a price of approximately $20 per share, or 50 shares of the Company's common stock per $1,000 principal amount of Notes. Holders of approximately $200.7 million in aggregate principal amount of the Notes converted their notes into approximately 10.0 million shares of the Company's common stock prior to the close of business on March 17, 2011. On March 18, 2011, the Company redeemed $4,000 principal amount of Notes not surrendered for conversion prior to the redemption date. As of March 31, 2011, none of the Notes were outstanding. From the second quarter of 2011 and beyond, the shares of the Company's common stock issued upon conversion will be included in the denominator for both basic and diluted net income per common share, and there will be no interest or amortization of issuance cost.
Credit Agreement
On September 29, 2010, the Company entered into a Credit Agreement (the "Credit Agreement") that matures on September 29, 2014. The Credit Agreement provides for an unsecured revolving credit facility in an amount of up to $220.0 million, with an option for the Company to request to increase the revolving loan commitments by an aggregate amount of up to $30.0 million with new or additional commitments, for a total credit facility of up to $250.0 million. No amounts were outstanding under the Credit Agreement as of March 31, 2011, and a total of $220.0 million remained available for borrowing.
Revolving loans accrue interest at a per annum rate based on either, at our election, (i) the base rate plus a margin ranging from 1.00% to 1.75% depending on the Company's consolidated leverage ratio, or (ii) LIBOR (based on 1-, 2-, 3-, or 6-month interest periods) plus a margin ranging from 2.00% to 2.75% depending on the Company's consolidated leverage ratio. The base rate is equal to the highest of (i) JPMorgan Chase Bank, N.A.'s prime rate, (ii) the federal funds rate plus a margin equal to 0.50%, and (iii) LIBOR for a 1-month interest period plus a margin equal to 1.00%. Revolving loans may be borrowed, repaid and reborrowed until September 29, 2014, at which time all amounts borrowed must be repaid. Accrued interest on the revolving loans is payable quarterly in arrears with respect to base rate loans and at the end of each interest rate period (or at each 3- month interval in the case of loans with interest periods greater than 3 months) with respect to LIBOR loans. The Company is also obligated to pay other customary closing fees, arrangement fees, administrative fees, commitment fees, and letter of credit fees. A quarterly commitment fee is applied to the average daily unborrowed amount under the credit facility at a per annum rate ranging from 0.35% to 0.50% depending on the Company's consolidated leverage ratio. The Company may prepay the loans or terminate or reduce the commitments in whole or in part at any time, without premium or penalty, subject to certain conditions including minimum amounts in the case of commitment reductions and reimbursement of certain costs in the case of prepayments of LIBOR loans.
On September 29, 2010, Siperian LLC and Identity Systems, Inc., each wholly-owned subsidiaries of the Company, entered into a Guaranty pursuant to which such parties guarantied all of the obligations of the Company under the Credit Agreement. Future material domestic subsidiaries of the Company will be required to guaranty the Company's obligations under the Credit Agreement.
The Credit Agreement contains customary representations and warranties, covenants, and events of default, including the requirement to maintain a maximum consolidated leverage ratio of 2.75 to 1.00 and a minimum consolidated interest coverage ratio of 3.50 to 1.00. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of

13

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

default under the Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate for any overdue principal and 2.00% above the rate applicable for base rate loans for any other overdue amounts. The Company was in compliance with all covenants under the Credit Agreement as of March 31, 2011.
 
 
Note 5.  Other Comprehensive Income
The components of other comprehensive income ("OCI"), net of taxes, for the three months ended March 31, 2011 and 2010 were as follows (in thousands):
 
Three Months Ended
March 31,
 
2011
 
2010
Net income, as reported
$
21,909
 
 
$
11,794
 
Other comprehensive income (loss):
 
 
 
 Unrealized loss on investments
(287
)
 
(30
)
 Cumulative translation adjustments
6,255
 
 
(4,480
)
 Derivative gain (loss)
(702
)
 
264
 
Total other comprehensive income (loss)
5,266
 
 
(4,246
)
Total comprehensive income, net of tax effects
$
27,175
 
 
$
7,548
 
Accumulated other comprehensive loss, net of tax effects, as of March 31, 2011 and December 31, 2010 consisted of the following (in thousands):
 
March 31,
2011
 
December 31,
2010
Net unrealized gain (loss) on available-for-sale investments
$
(130
)
 
$
157
 
Cumulative translation adjustments
852
 
 
(5,403
)
Derivative loss
(986
)
 
(284
)
Accumulated other comprehensive loss, net of tax effects
$
(264
)
 
$
(5,530
)
Informatica did not have any other-than-temporary gain or loss reflected in accumulated other comprehensive income (loss) as of March 31, 2011 and December 31, 2010.
See Note 1. Summary of Significant Accounting Policies, Note 6. Derivative Financial Instruments, and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.
Note 6.  Derivative Financial Instruments
The functional currency of Informatica’s foreign subsidiaries is their local currencies, except for Informatica Cayman Ltd., which uses euros as its functional currency. The Company translates all assets and liabilities of its foreign subsidiaries into U.S. dollars at current exchange rates as of the applicable balance sheet date. Revenues and expenses are translated at the average exchange rate prevailing during the period, and the gains and losses resulting from the translation of the foreign subsidiaries’ financial statements are reported in accumulated other comprehensive income (loss), as a separate component of stockholders’ equity. Net gains and losses resulting from foreign exchange transactions are included in other income or expense, net in the condensed consolidated statements of income.
Informatica’s results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, euro, Indian rupee, Israeli shekel, Japanese yen, Mexican peso, and Swiss franc. The Company enters into certain cash flow hedge programs in an attempt to reduce the impact of certain foreign currency fluctuations. The purpose of these programs is to reduce the volatility of identified cash flow and expenses caused by movement in certain foreign currency exchange rates, in particular, the euro, Indian rupee and Israeli shekel. Informatica is currently using foreign exchange forward contracts to hedge certain non-functional currency anticipated expenses and revenue reflected in the intercompany accounts between Informatica U.S. and its subsidiaries in Cayman, India, Israel, and the Netherlands. Exposures resulting from fluctuations in the foreign currency exchange rates applicable to these

14

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

foreign denominated expenses are included in the Company’s cash flow hedge programs. The foreign exchange forward contracts entered into in December 2009 for Indian rupees and Israeli shekels expired in January 2011. In December 2010, the Company entered into additional foreign exchange forward contracts with monthly expiration dates through January 17, 2012. The Company releases the amounts accumulated in other comprehensive income into earnings in the same period or periods during which the forecasted hedge transaction affects earnings.
Informatica has forecasted the amount of its anticipated foreign currency expenses and intercompany revenue based on its historical performance and its 2011 financial plan. As of March 31, 2011, these foreign exchange contracts, carried at fair value, have a maturity of ten months or less. During the first quarter of 2011, the Company did not enter into any new forward exchange contracts. The Company closes out approximately three foreign exchange contracts per month when the foreign currency denominated expenses are paid or intercompany revenue is received and any gain or loss is offset against expense.
Informatica and its subsidiaries do not enter into derivative contracts for speculative purposes.
As of March 31, 2011, a derivative loss of $1.0 million was included in accumulated other comprehensive income, net of applicable taxes. The Company expects to reflect this amount in its condensed consolidated statements of income during the next nine months.
Informatica evaluates prospectively as well as retrospectively the effectiveness of its hedge programs using statistical analysis at the inception of the hedge. Informatica uses the spot price method and excludes the time value of derivative instruments for determination of hedge effectiveness.  
The effects of derivative instruments designated as cash flow hedges on the accumulated other comprehensive income and condensed consolidated statements of income for the three months ended March 31, 2011 and 2010 are as follows (in thousands):
 
Three Months Ended March 31, 2011
 
Three Months Ended March 31, 2010
 
Gain (Loss)
Recognized
(i) 
 
Gain (Loss)
Reclassified
(ii) 
 
Gain (Loss)
Recognized
(iii) 
 
Gain (Loss)
Recognized
(i) 
 
Gain (Loss)
Reclassified
(ii) 
 
Gain (Loss)
Recognized
(iii)
 
 
 
 
 
 
 
 
 
 
 
 
Euro
$
(1,410
)
 
$
(239
)
 
$
60
 
 
$
 
 
$
 
 
$
 
Indian rupee
(13
)
 
(100
)
 
189
 
 
374
 
 
(19
)
 
14
 
Israeli shekel
(33
)
 
14
 
 
(1
)
 
44
 
 
3
 
 
(4
)
Total
$
(1,456
)
 
$
(325
)
 
$
248
 
 
$
418
 
 
$
(16
)
 
$
10
 
____________________
 
(i)
Amount of gain and loss recognized in accumulated other comprehensive income (effective portion).
(ii)
Amount of gain and loss reclassified from accumulated other comprehensive income into the operating expenses of the condensed consolidated statements of income (effective portion).
(iii)
Amount of gain and loss recognized in income on derivatives for the amount excluded from effectiveness testing located in operating expenses of the condensed consolidated statements of income. The Company did not have any ineffective portion of the derivative recorded in the condensed consolidated statements of income.
See Note 1. Summary of Significant Accounting Policies, Note 5. Other Comprehensive Income, and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.

15

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

The following tables reflect the fair value amounts for derivatives designated and not designated as hedging instruments at March 31, 2011 and December 31, 2010:
 
March 31, 2011
 
December 31, 2010
Derivatives Designated as Hedging Instruments:
Derivative
Assets
(i)
 
Derivative
Liabilities
(ii)
 
Derivative
Assets
(i)
 
Derivative
Liabilities
(ii)
Euro
$
 
 
$
1,509
 
 
$
 
 
$
384
 
Indian rupee
48
 
 
 
 
 
 
185
 
Israeli shekel
127
 
 
79
 
 
102
 
 
 
Total
$
175
 
 
$
1,588
 
 
$
102
 
 
$
569
 
 
March 31, 2011
 
December 31, 2010
Derivatives Not Designated as Hedging Instruments:
Derivative
Assets
(i)
 
Derivative
Liabilities
(ii)
 
Derivative
Assets
(i)
 
Derivative
Liabilities
(ii)
Euro
$
 
 
$
175
 
 
$
 
 
$
 
Indian rupee
18
 
 
 
 
29
 
 
 
Israeli shekel
23
 
 
 
 
21
 
 
 
Total
$
41
 
 
$
175
 
 
$
50
 
 
$
 
____________________
(i)
Included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
(ii)
Included in accrued liabilities on the condensed consolidated balance sheets.
 
The gain (loss) recognized in other income, net for non-designated foreign currency forward contracts for the three months ended March 31, 2011 and 2010 is as follows (in thousands):
Gain Recognized in Other income, Net for Derivatives Not Designated as Hedging Instruments:
Three Months Ended
March 31,
2011
 
2010
Euro
$
123
 
 
$
 
Indian rupee
73
 
 
29
 
Israeli shekel
(11
)
 
(4
)
Total
$
185
 
 
$
25
 
 
Note 7.  Stock Repurchase Program
The Company has a stock repurchase program, and the primary purpose of the program is to enhance shareholder value, including to offset the dilutive impact of stock based incentive plans. The number of shares to be purchased and the timing of the purchases are based on several factors, including the price of the Company's common stock, the Company's liquidity and working capital needs, general business and market conditions, and other investment opportunities. These purchases can be made from time to time in the open market and are funded from the Company’s available working capital.
In April 2007, Informatica’s Board of Directors authorized a stock repurchase program for up to $50 million of its common stock. In April 2008, Informatica’s Board of Directors authorized an additional $75 million of its common stock for the stock repurchase program. In October 2008, Informatica’s Board of Directors approved expanding the repurchase program to include the repurchase, from time to time, of a portion of its Notes in privately negotiated transactions with holders of the Notes. In January 2010, our Board of Directors approved an additional $50 million for the stock repurchase program. In January 2011, the Board authorized the repurchase of up to an additional $50 million of our outstanding common stock and Notes under the repurchase program. This repurchase program does not have an expiration date.

16

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

These repurchased shares are retired and reclassified as authorized and unissued shares of common stock. The Company may continue to repurchase shares from time to time, as determined by management under programs approved by the Board of Directors.
From April 2007 to March 31, 2011, the Company repurchased approximately 7,297,000 shares of its common stock at a cost of $124.4 million and $29.0 million of its outstanding Notes at a cost of $27.3 million. During the three months ended March 31, 2011, the Company repurchased 64,612 shares of its common stock at a cost of $3.2 million. There were no repurchases of the Notes during the three months ended March 31, 2011. The Notes were redeemed on March 18, 2011. See Note 4. Borrowings - Convertible Senior Notes of Notes to Condensed Consolidated Financial Statements.
As of March 31, 2011, $73.4 million remained available for repurchase under this program.
 
Note 8.  Stock-Based Compensation
Informatica grants restricted stock units (“RSUs”) and stock options under its 2009 Employee Stock Incentive Plan. Informatica uses the Black-Scholes-Merton option pricing model to determine the fair value of each option award on the date of grant. The Company uses a blend of average historical and market-based implied volatilities for calculating the expected volatilities for employee stock options, and it uses 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, and the expected term of ESPP is based on the contractual terms. The risk-free interest rate for the expected term of the options and ESPP is based on the U.S. Treasury yield curve in effect at the time of grant.
 
The Company records stock-based compensation for RSUs and options granted net of estimated forfeiture rates. The Company estimates forfeiture rates at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical forfeitures to estimate its future forfeiture rates.
The fair value of the Company’s stock-based awards was estimated based on the following assumptions:
 
Three Months Ended
March 31,
 
2011
 
2010
Option grants:
 
 
 
Expected volatility
36
%
 
36
%
Weighted-average volatility
36
%
 
36
%
Expected term of options (in years)
3.8
 
 
3.7
 
Expected dividends
 
 
 
Risk-free interest rate
1.5
%
 
1.9
%
ESPP:
 
 
 
Expected volatility
35
%
 
33
%
Weighted-average volatility
35
%
 
33
%
Expected dividends
 
 
 
Expected term (in years)
0.5
 
 
0.5
 
Risk-free interest rate
0.2
%
 
0.2
%

17

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

The allocations of the stock-based compensation, net of income tax benefit, for the three months ended March 31, 2011 and 2010 are as follows (in thousands):
 
Three Months Ended
March 31,
 
2011
 
2010
Cost of service revenues
$
864
 
 
$
662
 
Research and development
2,399
 
 
1,609
 
Sales and marketing
2,409
 
 
1,773
 
General and administrative
1,840
 
 
1,438
 
Total stock-based compensation
7,512
 
 
5,482
 
Tax benefit of stock-based compensation
(1,870
)
 
(1,140
)
Total stock-based compensation, net of tax benefit
$
5,642
 
 
$
4,342
 
 
Note 9.  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. The Company recorded restructuring charges of approximately $103.6 million, 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 27 months 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 $4.8 million for the remainder of 2011, $4.2 million in 2012, and $1.9 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 the non-discounted future cash obligations and the discounted present value of these cash obligations. At March 31, 2011, the Company will recognize approximately $2.4 million of accretion as a restructuring charge over the remaining 27 months lease term as follows: $1.2 million for the remainder of 2011, $1.0 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, which was subsequently subleased until July 2013 under a December 2007 sublease agreement.

18

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

A summary of the activity of the accrued restructuring charges for the three months ended March 31, 2011 is as follows (in thousands):
 
Accrued
Restructuring
Charges at
 
 
 
 Restructuring
 
 
 
 
 
Accrued
Restructuring
Charges at
 
December 31,
2010
 
Charges
 
Adjustments
 
Net Cash
Payment
 
Non-Cash
Reclass
 
March 31,
2011
2004 Restructuring Plan
 
 
 
 
 
 
 
 
 
 
 
Excess lease facilities
$
33,791
 
 
$
469
 
 
$
41
 
 
$
(3,157
)
 
$
(41
)
 
$
31,103
 
2001 Restructuring Plan
 
 
 
 
 
 
 
 
 
 
 
 
Excess lease facilities
5,117
 
 
 
 
 
 
(396
)
 
 
 
4,721
 
Total restructuring plans
$
38,908
 
 
$
469
 
 
$
41
 
 
$
(3,553
)
 
$
(41
)
 
$
35,824
 
For the three months ended March 31, 2011, the Company recorded $0.5 million of restructuring charges related to the 2004 Restructuring Plan. These charges consist of accretion charges and amortization of tenant improvements and are included in facilities restructuring charges on the condensed consolidated statement of income. Net cash payments for the three months ended March 31, 2011 for facilities included in the 2004 and 2001 Restructuring Plans amounted to $3.2 million and $0.4 million, respectively.
Inherent in the assessment of the costs related to our restructuring efforts are estimates related to the probability weighted outcomes 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 our control, such as the global economic downturn, time periods required to locate and contract suitable subleases, and market rates at the time of subleases. Currently, we have subleased our excess facilities in connection with our 2004 and 2001 facilities restructuring for durations that comprise a majority of the remaining lease terms through 2013. 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 $1.3 million. Future adjustments to the charges could result from any default by a sublessor, which could impact the time period that the buildings will be vacant, expected sublease rates, expected sublease terms, and the expected time it will take to sublease.
Note 10.  Income Taxes
The Company's effective tax rates were 28% and 27% for the three-month periods ended March 31, 2011 and 2010, respectively. The effective tax rates differed from the federal statutory rate of 35% primarily due to benefits of certain earnings from operations in lower-tax jurisdictions throughout the world and the recognition of current year research and development credits offset by compensation expense related to non-deductible stock-based compensation, the revaluation of deferred taxes previously recorded in acquisition accounting, and the accrual of reserves related to uncertain tax positions. The Company has not provided for residual U.S. taxes in all of these lower-tax jurisdictions since it intends to indefinitely reinvest these earnings offshore.
 ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. In assessing the need for any additional valuation allowance in the quarter ended March 31, 2011, the Company considered all available evidence both positive and negative, including historical levels of income, legislative developments, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies. As a result of this analysis for the quarter ended March 31, 2011, consistent with prior quarters, it was considered more likely than not that the Company's non-stock-based payments related deferred tax assets would be realized. As a result, the remaining valuation allowance is primarily related to deferred tax assets that were created through the benefit from stock option deductions on a “with” and “without” basis and recorded on the balance sheet with a corresponding valuation allowance prior to the Company’s adoption of ASC 718, Stock Compensation. Pursuant to ASC 718-740-25-10, the benefit of these deferred tax assets will be recorded in the stockholders’ equity when they are utilized on an income tax return to reduce the Company’s taxes payable, and as such, they will not impact the Company’s effective tax rate.
The unrecognized tax benefits related to Income Taxes (ASC 740), if recognized, would impact the income tax provision by $13.8 million and $15.4 million as of March 31, 2011 and 2010, respectively. The Company has elected to include interest and penalties as a component of tax expense. Accrued interest and penalties as of March 31, 2011 and 2010 were approximately $1.8 million and $2.4 million, respectively. As of March 31, 2011, the gross uncertain tax position is approximately $14.6 million.
The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions.

19

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

The Company has been informed by certain state and foreign 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 certain state audits has commenced and is at various stages of completion as of March 31, 2011.
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. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes, and believes its current reserve to be reasonable. If tax payments ultimately prove 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 its estimate of tax liabilities, an additional tax provision might be required.
Note 11.  Net Income per Common Share
The following table sets forth the calculation of basic and diluted net income per share for the three months ended March 31, 2011 and 2010 (in thousands, except per share amounts):
 
Three Months Ended
March 31,
 
2011
 
2010
Net income
$
21,909
 
 
$
11,794
 
Effect of convertible senior notes, net of related tax effects
811
 
 
961
 
Net income adjusted
$
22,720
 
 
$
12,755
 
Weighted-average shares of common stock used to compute basic net income per share (excluding unvested restricted stock)
96,858
 
 
90,748
 
Effect of dilutive common stock equivalents:
 
 
 
Dilutive effect of unvested restricted stock units
605
 
 
384
 
Dilutive effect of employee stock options
6,613
 
 
6,192
 
Dilutive effect of convertible senior notes
8,242
 
 
10,050
 
Shares used in computing diluted net income per common share
112,318
 
 
107,374
 
Basic net income per common share
$
0.23
 
 
$
0.13
 
Diluted net income per common share
$
0.20
 
 
$
0.12
 
The diluted net income per common share calculation 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 months ended March 31, 2011 and 2010, the Notes had a dilutive effect on diluted net income per share. As such, the Company had an add-back of $0.8 million and $1.0 million, respectively, in interest and issuance cost amortization, net of income taxes, to net income for the diluted net income per share calculation. The impact of the Notes for the three months ended March 31, 2011 represents interest and issuance cost amortization until the redemption of the Notes on March 18, 2011. See Note 4. Borrowings - Convertible Senior Notes of Notes to Condensed Consolidated Financial Statements.
In calculating its diluted net income per common share, the Company excluded approximately 752,000 and 18,000 of its options for the three months ended March 31, 2011 and 2010, respectively, since the inclusion of these options would have been anti-dilutive.
Note 12.  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. In May 2009, the Company executed the lease amendment to further extend the lease term for another three years to December 31, 2013. The future minimum contractual lease payments are $2.6 million for the remainder of 2011, and $3.5 million and $3.6 million for the years ending December 31, 2012 and 2013, respectively.

20

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

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 will expire in July 2013.
The Company leases certain office facilities under various non-cancelable operating leases, including those described above, which expire at various dates through 2021 and require the Company to pay operating costs, including property taxes, insurance, and maintenance. Operating lease payments in the table below include approximately $40.8 million for operating lease commitments for facilities that are included in restructuring charges. See Note 9. Facilities Restructuring Charges of Notes to Condensed Consolidated Financial Statements for a further discussion.
Future minimum lease payments as of March 31, 2011 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 2011
$
21,770
 
 
$
2,570
 
 
$
19,200
 
2012
31,073
 
 
3,009
 
 
28,064
 
2013
22,016
 
 
1,507
 
 
20,509
 
2014
5,648
 
 
 
 
5,648
 
2015
4,594
 
 
 
 
4,594
 
Thereafter
1,996
 
 
 
 
1,996
 
Total future minimum operating lease payments
$
87,097
 
 
$
7,086
 
 
$
80,011
 
Of these future minimum lease payments, the Company has accrued $35.8 million in the facilities restructuring accrual at March 31, 2011. This accrual, in addition to minimum lease payments of $40.8 million, includes estimated operating expenses of $10.6 million and sublease commencement costs associated with excess facilities and is net of estimated sublease income of $13.2 million and a present value discount of $2.4 million recorded in accordance with ASC 420, Exit or Disposal Cost Obligations.
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. 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 March 31, 2011 and December 31, 2010. 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 March 31, 2011. 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.

21

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

As permitted under Delaware law, the Company has agreements whereby the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was serving, at our request, in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has director and officer insurance coverage that reduces the Company's exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
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 ASC 450, Contingencies.
Derivative Financial Instruments
Informatica uses foreign exchange forward contracts to hedge certain operational (“cash flow”) exposures resulting from changes in foreign currency exchange rates. Such cash flow exposures result from portions of its forecasted expenditures denominated in currencies other than U.S. dollar, primarily the Indian rupee and Israeli shekel and forecasted intercompany revenue denominated in euros. As of March 31, 2011, these foreign exchange forward contracts, carried at fair value, have a maturity of ten months or less. Informatica enters into these foreign exchange forward contracts to hedge forecasted operating expenditures in the normal course of business, and accordingly, they are not speculative in nature.
As of March 31, 2011, the notional amounts of the foreign exchange forward contracts that the Company committed to purchase in the fourth quarter of 2010 for the euro, Indian rupees, and Israeli shekels were $21.9 million, $16.1 million, and $3.6 million, respectively.
See Note 1. Summary of Significant Accounting Policies, Note 5. Other Comprehensive Income, and Note 6. Derivative Financial Instruments of Notes to Condensed Consolidated Financial Statements for a further discussion.
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 (together with the Company, the "Informatica defendants"), and several investment banking firms that served as underwriters of our April 29, 1999 initial public offering (IPO) 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 more than 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. 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.
All parties in all lawsuits have reached a settlement, which, as noted above, will not require the Company to contribute cash unless the pro rata amount paid by the insurers in the settlement exceeds the amount of the insurance coverage. The Court gave preliminary approval to the settlement on June 10, 2009 and gave final approval on October 6, 2009. Several objectors have filed notices of appeals of the final judgment dismissing the cases upon the settlement.

22

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

On November 24, 2008, Data Retrieval Technologies LLC ("Data Retrieval") filed a complaint in the Western District of Washington against the Company and Sybase, Inc. ("Sybase"), alleging patent infringement of U.S. Patent Nos. 6,026,392 (the "‘392 patent") and 6,631,382 (the "‘382 patent"). On December 5, 2008, the Company and Sybase filed an action in the Northern District of California against Data Retrieval, Timeline, Inc. ("Timeline") and TMLN Royalty, LLC ("TMLN Royalty"), asserting declaratory relief claims for non-infringement and invalidity of the ‘392 and ‘382 patents. On January 15, 2009, we filed an answer to the complaint in the Western District of Washington and asserted declaratory relief counterclaims for non-infringement and invalidity of the ‘392 and ‘382 patents. In addition, on January 15, 2009, Informatica and Sybase filed a voluntary dismissal without prejudice of Timeline and TMLN Royalty in the Northern District of California action. On April 1, 2009, in the Northern District of California action, Data Retrieval filed an answer and asserted counterclaims for patent infringement of the ‘382 and ‘392 patents. On April 8, 2009, the Court in the Western District of Washington transferred that action to the Northern District of California. On April 21, 2009, the Company filed its reply to Data Retrieval's counterclaims in the Northern District of California. Following Data Retrieval's service of its Disclosure of Asserted Claims and Preliminary Infringement Contentions on June 8, 2009, on June 18, 2009, the Company filed a motion for partial summary judgment of the following claims and issues: (1) non-infringement of the ‘382 patent; (2) non-infringement of the unasserted claims (claims 2-25) of the ‘392 patent; and (3) no infringement of either patent-in-suit by the Informatica PowerCenter product. On September 11, 2009, the Court granted the Company's motion for partial summary judgment on all of the claims and issues requested by the Company. On June 23, 2010, the Court granted in part and denied in part an additional motion for summary judgment filed by the Company. The Court ruled that the Company was entitled to summary judgment on the issue of inducement to infringe and contributory infringement, but denied the motion as to Data Retrieval's claim of direct infringement. On November 8, 2010, the Court granted the Company's further motion for summary judgment for invalidity of the sole remaining asserted claim of the ‘392 patent.
On January 12, 2010, Data Retrieval initiated another action (the Data Retrieval II Action) for patent infringement against the Company in the United States District Court for the Northern District of California, Case No. C 09-05360-VRW, asserting two patents, U.S. Patent Nos. 5,802,511 (the "‘511 patent") and 6,625,617 B2 (the "‘617 patent") (collectively, the "Data Retrieval II patents-in-suit"). Sybase is also named as a defendant in the Data Retrieval II Action. The Data Retrieval II Action is related to the Data Retrieval I Actions and has been assigned to the same Judge. In the Data Retrieval II Action, Data Retrieval alleges that a "suite of data warehousing systems and/or material components thereof," including PowerCenter, Data Explorer and PowerExchange, infringe the Data Retrieval II patents-in-suit. Data Retrieval accuses the Company of infringing at least claims 1, 2 and 14 of the ‘511 patent and at least claims 25 and 26 of the ‘617 patent. On February 25, 2010, the Company filed its answer to the complaint in the Data Retrieval II Action and asserted declaratory relief counterclaims for non-infringement and invalidity. The case is currently in the discovery phase, and no trial date has been set. The Company intends to vigorously defend itself.
The Company is also a party to various legal proceedings and claims arising from the normal course of its business activities.
Litigation is subject to inherent uncertainties. Given such uncertainties, the Company has from time to time discussed settlement in the context of litigation and has accrued, based on Contingencies (ASC 450), for estimates of settlement. 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 13.  Significant Customer Information and Segment Information
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. The Company markets its products and services in the United States and in foreign countries through its direct sales force and indirect distribution channels.
No customer accounted for more than 10% of revenue in the three months ended March 31, 2011 and 2010. At March 31, 2011 and 2010, no customer accounted for more than 10% of the accounts receivable balance. North America revenues include the United States and Canada. Revenue from international customers (defined as those customers outside of North America) accounted for 34% and 35% of total revenues in the first quarter of 2011 and 2010, respectively.

23

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

Total revenue by geographic region is summarized as follows (in thousands):
 
Three Months Ended
March 31,
 
2011
 
2010
Revenues:
 
 
 
North America
$
110,921
 
 
$
87,690
 
Europe
41,136
 
 
33,370
 
Other
15,975
 
 
14,070
 
Total revenues
$
168,032
 
 
$
135,130
 
Long-lived assets by geographic region are summarized as follows (in thousands):
 
March 31,
2011
 
December 31,
2010
Long-lived assets, net (excluding assets not allocated):
 
 
 
North America
$
75,321
 
 
$
81,762
 
Europe
3,926
 
 
4,145
 
Other
1,724
 
 
1,886
 
Total long-lived assets
$
80,971
 
 
$
87,793
 
 
Note 14.  Recent Accounting Pronouncements
There have been no new accounting pronouncements relevant to the Company during the three months ended March 31, 2011 as compared to the recent accounting pronouncements described in Note 2 to the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
 
Note 15.  Acquisitions
Siperian, Inc.
On January 28, 2010, the Company acquired Siperian, Inc. (“Siperian”), a privately-held company. Siperian provides an integrated model-driven master data management (“MDM”) platform that adapts to most business requirements. The Company acquired Siperian in a cash merger transaction valued at approximately $130.0 million. As a result of this acquisition, the Company also assumed certain facility leases and certain liabilities and commitments. Approximately $18.3 million of the consideration otherwise payable to former Siperian stockholders, vested option holders, and participants in Siperian's Management Acquisition Bonus Plan was placed into an escrow fund and held as partial security for the indemnification obligations of the former Siperian stockholders, vested option holders, and participants in Siperian's Management Acquisition Bonus Plan set forth in the merger agreement and for purposes of the working capital adjustment stated in the contract. The escrow fund will remain in place until July 28, 2011, although a portion of the escrow funds were paid out in February 2011 and March 2011.
The following table presents the purchase price allocation of $102.9 million and the acquiree's transaction related costs and debt settlement of $27.1 million, which were paid by the Company on January 28, 2010 or shortly thereafter (in thousands):
Goodwill
$
78,360
 
Developed and core technology
21,340
 
Customer relationships
1,630
 
In-process research and development
1,920
 
Assumed liabilities, net of assets
(333
)
Total purchase price allocation
102,917
 
Acquiree's transaction related costs and debt settlement
27,083
 
Total
$
130,000
 

24

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

 
The acquiree's transaction related costs consist of investment banker, legal and accounting fees, and certain employee related compensation as of the date of this acquisition. The goodwill is not deductible for tax purposes.
At the time of acquisition, the Company finalized plans to terminate certain employees and vacate certain facilities of Siperian. The cost associated with such exit activities, which are reflected in Acquisitions and other on the condensed consolidated statement of income, is as follows (in thousands):
Termination of certain employees
$
326
 
Vacating certain facilities of Siperian
1,121
 
Total
$
1,447
 
 
Informatica does not expect to incur any additional expenses related to these exit activities in the future.
The following table presents the unaudited pro forma results of Informatica (including Siperian) for the three months ended March 31, 2010 (in thousands, except per share amounts). The unaudited pro forma financial information combines the results of operations of Informatica and Siperian as though the companies had been combined as of the beginning of the fiscal period presented. The unaudited 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 fiscal 2010. The unaudited pro forma results presented include amortization charges for acquired intangible assets, eliminations of intercompany transactions, adjustments to interest expense and interest income, adjustment of deferred revenues to its estimated fair values, and tax adjustments and tax benefits related to the acquisition.
 
Three Months Ended
March 31,
 
2010
Pro forma total revenues
$
136,049
 
Pro forma net income
$
5,568
 
Pro forma net income per share - basic
$
0.06
 
Pro forma net income per share - diluted
$
0.06
 
Pro forma weighted-average basic shares
90,748
 
Pro forma weighted-average diluted shares
97,324
 
See Note 11. Net Income per Common Share of Notes to Condensed Consolidated Financial Statements for a discussion of the calculation of basic and diluted net income per share.
In the first quarter of 2011, the Company recorded a benefit of $1.7 million for the difference between estimates of liabilities and assets recorded at the time of acquisition and the actual amounts. This change in estimate is included in Acquisition and Other on the condensed consolidated statement of income.
29West Inc.
On March 22, 2010, the Company acquired 29West Inc. (“29West”), a privately-held company. 29West develops high-speed messaging software, known as Ultra Messaging. This software is used for distribution of data, streaming market data, and proprietary trading and market making, and is sold to banks, hedge funds, exchanges, and software application vendors worldwide. The Company acquired 29West in a stock purchase transaction valued at approximately $50.0 million. As a result of this acquisition, the Company also assumed certain facility leases, liabilities, and commitments. Approximately $7.0 million of the consideration otherwise payable to former 29West stockholders and vested option holders was placed into an escrow fund and held as partial security for the indemnification obligations of the former 29West stockholders and vested option holders. The escrow fund will remain in place until September 22, 2011.

25

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
 

The following table presents the purchase price allocation of $47.0 million and the acquiree's transaction related costs of $3.0 million. This amount consists of investment banker, legal and accounting fees, and certain employee related compensation as of the date of this acquisition (in thousands):
Goodwill
$
36,397
 
Developed and core technology
9,750
 
Customer relationships
590
 
Assumed assets, net of liabilities
262
 
Total purchase price allocation
46,999
 
Acquiree's transaction related costs and debt settlement
3,001
 
Total
$
50,000
 
The goodwill is not deductible for tax purposes.
 
 

26


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the federal securities laws, particularly statements referencing our expectations relating to license revenues, service revenues, international revenues, deferred revenues, cost of license revenues, cost of service revenues, operating expenses, amortization of acquired technology, stock-based compensation, and provision for income taxes; the growth of our customer base and customer demand for our products and services, continuing impacts from our 2004 and 2001 Restructuring Plans; the sufficiency of our cash balances and cash flows for the next 12 months; our stock repurchase programs; investment and potential investments of cash or stock to acquire or invest in complementary businesses, products, or technologies; the impact of recent changes in accounting standards; market risk sensitive instruments, contractual obligations; and assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “intends,” “plans,” “anticipates,” “estimates,” “potential,” or “continue,” or the negative thereof, or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including but not limited to the factors set forth under Part II, Item 1A. Risk Factors. All forward-looking statements and reasons why results may differ included in this Report are made as of the date hereof, and we assume no obligation to update any such forward-looking statements or reasons why actual results may differ.
The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this Report.
Overview
We are the leading independent provider of enterprise data integration and data quality software and services. We generate revenues from sales of software licenses for our enterprise data integration software products, including product upgrades that are not part of post-contract services, and from sales of services, which consist of maintenance, consulting, education, and subscription services.
We receive revenues from licensing our products under perpetual licenses directly to end users and indirectly through resellers, distributors, and OEMs in the United States and internationally. We receive service revenues from maintenance contracts, consulting services, and education services that we perform for customers that license our products either directly or indirectly. We also receive a small but increasing amount of revenues from our customers and partners under subscription-based licenses for a variety of cloud and address validation offerings. Most of our international sales have been in Europe, and revenues outside of Europe and North America have comprised 10% or less of total consolidated revenues during the past three years.
We license our software and provide services to many industry sectors, including, but not limited to, energy and utilities, financial services, government and public agencies, healthcare, high technology, insurance, manufacturing, retail, services, telecommunications, and transportation.
We grew our total revenues in the first quarter of 2011 by 24% to $168.0 million compared to $135.1 million from the same period in 2010. License revenues grew 30% to $71.5 million in the first quarter of 2011 compared to $55.0 million for the same period in 2010 primarily due to continued market acceptance of our products for broader data integration projects. Services revenues increased by 21% quarter over quarter due to a 22% growth in maintenance revenues and a 17% increase in consulting, education, and subscription services. The maintenance revenue growth is attributable to the increased size of our installed customer base, and the increase in consulting, education, and subscription services was due to higher customer demand and increased subscriptions. Our operating income as a percentage of revenues has increased to 19% in the first quarter of 2011 from 11% in the same period of 2010.
Due to our dynamic market, we face both significant opportunities and challenges, and as such, we focus on the following key factors:
Macroeconomic Conditions:  The United States and many foreign economies continue to experience uncertainty driven by varying macroeconomic conditions. Although some of these economies have shown signs of improvement, macroeconomic recovery remains uneven. Uncertainty in the macroeconomic environment and associated global economic conditions have resulted in extreme volatility in credit, equity, and foreign currency markets, including the European sovereign debt markets and volatility in various markets including the financial services sector, which typically is the largest vertical segment that we serve. Furthermore, we have made incremental investments in Asia-Pacific and Latin America, and have maintained a high level of investments in Europe, the Middle East, and Africa ("EMEA"). There are significant risks with overseas investments, and our growth prospects in these regions are uncertain.

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Competition:  Inherent in our industry are risks arising from competition with existing software solutions, including solutions from IBM, Oracle, and SAP, technological advances from other vendors, and the perception of cost savings by solving data integration challenges through customer hand-coding development resources. Our prospective customers may view these alternative solutions as more attractive than our offerings. Additionally, the consolidation activity in our industry (including Oracle’s acquisition of BEA Systems, GoldenGate, Hyperion Solutions, Siebel, SilverCreek, Sun Microsystems, and Sunopsis; IBM’s acquisition of Ascential Software, Cast Iron Systems, Cognos, DataMirror, Initiate Systems, and SPSS; and SAP’s acquisition of Business Objects, which had previously acquired FirstLogic, and Sybase; and Tibco Software's acquisition of Netrics) pose challenges as competitors market a broader suite of software products or solutions to our existing or prospective customers.
Product Introductions and Enhancements:  To address the expanding data integration and data quality needs of our customers and prospective customers, we introduce new products and technology enhancements on a regular basis, including products we acquire. For example, in January 2010, we extended our existing MDM offering through the acquisition of Siperian. In February 2010, we launched Informatica Data Cloud Store, an Infrastructure-as-a-Service offering to archive database and enterprise application data to the cloud in a cost-effective and secure manner. In March 2010, we acquired 29West and their family of Ultra Messaging products. In June 2010, we delivered the Informatica Cloud Summer 2010 Release. In January 2011, we delivered Informatica Cloud Express, a cloud data integration service with usage-based pricing. The introduction of new products, integration of acquired products and enhancement of existing products, is a complex process involving inherent risks, and to which we devote significant resources. We cannot predict the impact of new or enhanced products on our overall sales and we may not generate sufficient revenues to justify their costs.
Quarterly and Seasonal Fluctuations:  Historically, purchasing patterns in the software industry have followed quarterly and seasonal trends and are likely to do so in the future. Specifically, it is normal for us to recognize a substantial portion of our new license orders in the last month of each quarter and sometimes in the last few weeks or days of each quarter, though such fluctuations are mitigated somewhat by recognition of backlog orders. In recent years, the fourth quarter has had the highest level of license revenues and order backlog, and we generally have weaker demand for our software products and services in the first and third quarters of the year. The first quarter of 2011 and the first, second, and fourth quarters of 2010 followed these seasonal trends. However, license revenues in the third quarter of 2010 were essentially flat with the second quarter. The continued uncertain macroeconomic conditions make our historical seasonal trends more difficult to predict.
To address these potential risks, we have focused on a number of key initiatives, including certain cost containment measures, the strengthening of our partnerships, the broadening of our distribution capability worldwide, the targeting of our sales force and distribution channel on new products, and strategic acquisitions of complementary businesses, products, and technologies. If we are unable to execute these key initiatives successfully, we may not be able to sustain the growth rates we have experienced recently. As a result of improvements in our business prospects and with the expectation of uneven yet continued progress towards macroeconomic recovery, we have increased our hiring and expect to continue hiring through the remainder of 2011.
We concentrate on maintaining and strengthening our relationships with our existing strategic partners and building relationships with additional strategic partners. These partners include systems integrators, resellers and distributors, and strategic technology partners, including enterprise application providers, database vendors, and enterprise information integration vendors, in the United States and internationally. For example, in March 2011, we announced a partnership with NetSuite to provide a cloud computing-based solution for deploying two-tier ERP systems. In addition, we are partners with Cloudera, Dun & Bradstreet, EMC, Hewlett-Packard, Intel, Microsoft, Oracle, salesforce.com, and SAP, among others. See “Risk Factors — We rely on our relationships with our strategic partners. If we do not maintain and strengthen these relationships, our ability to generate revenue and control expenses could be adversely affected, which could cause a decline in the price of our common stock” in Part II, Item 1A of this Report.
We have broadened our distribution efforts, and we have continued to expand our sales both in terms of selling data warehouse products to the enterprise level and of selling more strategic data integration solutions beyond data warehousing, including enterprise data integration, data quality, master data management, B2B data exchange, application information lifecycle management, complex event processing, ultra messaging, and cloud data integration to our customers’ enterprise architects and chief information officers. We also have opened the Informatica Marketplace, which allows buyers and sellers to share and leverage data integration solutions. Additionally, we have expanded our international sales presence in recent years by opening new offices, increasing headcount, and through acquisitions. As a result of this international expansion, as well as the increase in our direct sales headcount in the United States, our sales and marketing expenses have increased. In the long term, we expect these investments to result in increased revenues and productivity and ultimately higher profitability. If we experience an increase in sales personnel turnover, do not achieve expected increases in our sales pipeline, experience a decline in our sales pipeline conversion ratio, or do not achieve increases in sales productivity and efficiencies from our new sales personnel as they gain more experience, then it is

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unlikely that we will achieve our expected increases in revenue, sales productivity, or profitability from our international operations. We have experienced some increases in revenues and sales productivity in the United States in the past few years. We experienced a continued increase in sales productivity in the United States in 2010. While we have not yet achieved the same level of sales productivity internationally as we have in the United States, we did experience a slight increase in international sales productivity in 2010 and the first quarter of 2011.
To address the risks of introducing new products, we have continued to invest in programs to help train our internal sales force and our external distribution channel on new product functionalities, key differentiations, and key business values. These programs include user conferences for customers and partners, our annual sales kickoff conference for all sales and key marketing personnel, “webinars” for our direct sales force and indirect distribution channel, in-person technical seminars for our pre-sales consultants, the building of product demonstrations, and creation and distribution of targeted marketing collateral.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States, which require us to make estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these assumptions, judgments, and estimates 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. Any material differences between these estimates and actual results will impact our consolidated financial statements. On a regular basis, we evaluate our estimates, judgments, and assumptions and make changes accordingly. We also discuss our critical accounting estimates with the Audit Committee of the Board of Directors. We believe that the estimates, judgments, and assumptions involved in the accounting for revenue recognition, facilities restructuring charges, income taxes, impairment of goodwill and intangible assets, business combinations, stock-based compensation, and allowance for doubtful accounts have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. The critical accounting estimates associated with these policies are discussed in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. As discussed below, on January 1, 2011, we adopted an accounting pronouncement on multiple-deliverable revenue arrangements that are outside the scope of industry-specific revenue recognition guidance. There have been no other changes in our critical accounting policies since the end of fiscal year 2010.
Revenue Recognition
Our revenue recognition policy, except for the adoption of the new pronouncement, is included in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
Multiple Element Arrangements
In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, which amended the accounting standards applicable to revenue recognition for multiple-deliverable revenue arrangements that are outside the scope of industry-specific software revenue recognition guidance. The new guidance amends the criteria for allocating consideration in multiple-deliverable revenue arrangements by establishing a selling price hierarchy. The selling price used for each deliverable will be based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE nor TPE is available. The guidance also eliminates the use of the residual method of allocation and requires that arrangeme