INFA-2012.03.31-10Q
Table of Contents

 
 
 
 
 
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, 2012
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 30, 2012, there were approximately 108,255,000 shares of the registrant’s Common Stock outstanding.


 
 
 
 
 



INFORMATICA CORPORATION
TABLE OF CONTENTS

 
 
 Page No. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents


PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATICA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 
March 31,
2012
 
December 31,
2011
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
252,250

 
$
316,835

Short-term investments
313,774

 
285,579

Accounts receivable, net of allowances of $3,920 and $4,001, respectively
125,829

 
176,066

Deferred tax assets
20,958

 
21,591

Prepaid expenses and other current assets
29,060

 
23,206

Total current assets
741,871

 
823,277

Property and equipment, net
146,328

 
16,025

Goodwill
433,277

 
432,269

Other intangible assets, net
57,594

 
64,789

Long-term deferred tax assets
24,692

 
23,037

Other assets
5,433

 
21,351

Total assets
$
1,409,195

 
$
1,380,748

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 

 
 

Accounts payable
$
7,941

 
$
9,459

Accrued liabilities
47,625

 
58,947

Accrued compensation and related expenses
39,658

 
58,042

Income taxes payable
168

 
1,178

Accrued facilities restructuring charges

 
17,751

Deferred revenues
227,219

 
208,039

Total current liabilities
322,611

 
353,416

Accrued facilities restructuring charges, less current portion

 
5,543

Long-term deferred revenues
7,514

 
6,573

Long-term income taxes payable
17,881

 
16,709

Other liabilities
3,345

 
6,304

Total liabilities
351,351

 
388,545

Commitments and contingencies (Note 13)


 
 
Stockholders’ equity:
 

 
 

Common stock, $0.001 par value; 200,000 shares authorized; 108,128 shares and
 
 
 
106,946 shares issued and outstanding at March 31, 2012 and December 31, 2011,
 
 
 
respectively
108

 
107

Additional paid-in capital
785,155

 
751,350

Accumulated other comprehensive loss
(7,496
)
 
(12,802
)
Retained earnings
280,077

 
253,548

Total stockholders’ equity
1,057,844

 
992,203

Total liabilities and stockholders’ equity
$
1,409,195

 
$
1,380,748

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
March 31,
 
2012
 
2011
Revenues:
 
 
 
License
$
80,108

 
$
71,501

Service
115,912

 
96,531

Total revenues
196,020

 
168,032

Cost of revenues:
 

 
 

License
1,102

 
1,441

Service
30,456

 
27,314

Amortization of acquired technology
5,631

 
4,293

Total cost of revenues
37,189

 
33,048

Gross profit
158,831

 
134,984

Operating expenses:
 

 
 

Research and development
34,772

 
30,587

Sales and marketing
67,709

 
59,582

General and administrative
15,685

 
12,038

Amortization of intangible assets
1,652

 
2,081

Facilities restructuring and facility lease termination costs, net
710

 
510

Acquisitions and other charges (benefit)
286

 
(1,702
)
Total operating expenses
120,814

 
103,096

Income from operations
38,017

 
31,888

Interest income
1,175

 
1,095

Interest expense
(124
)
 
(1,780
)
Other expense, net
(353
)
 
(932
)
Income before income taxes
38,715

 
30,271

Income tax provision
12,186

 
8,362

Net income
$
26,529

 
$
21,909

Basic net income per common share
$
0.25

 
$
0.23

Diluted net income per common share
$
0.24

 
$
0.20

Shares used in computing basic net income per common share
107,576

 
96,858

Shares used in computing diluted net income per common share
112,792

 
112,318

See accompanying notes to condensed consolidated financial statements.


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INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
2012
 
2011
Net income
$
26,529

 
$
21,909

Other comprehensive income:
 
 
 
Change in foreign currency translation adjustment (net of tax effect of $138 and $175)
4,133

 
6,255

Available-for-sale investments:
 
 
 
Change in net unrealized gain (loss)
438

 
(287
)
Less: reclassification adjustment for net gain (loss) included in net income

 

Net change (net of tax effect of $173 and $176)
438

 
(287
)
Cash flow hedges:
 
 
 
Change in unrealized gain (loss)
532

 
(1,027
)
Less: reclassification adjustment for loss included in net income
203

 
325

Net change (net of tax effect of $624 and $429)
735

 
(702
)
Total other comprehensive income net of tax effect
5,306

 
5,266

Total comprehensive income, net of tax effect
$
31,835

 
$
27,175

See accompanying notes to condensed consolidated financial statements.




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Table of Contents

INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
2012
 
2011
Operating activities:
 
 
 
Net income
$
26,529

 
$
21,909

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
2,247

 
1,468

Recovery of doubtful accounts
(109
)
 
(517
)
Gain on sale of investment in equity interest
(125
)
 

Share-based compensation
10,618

 
7,512

Deferred income taxes
(1,766
)
 
(337
)
Tax benefits from share-based compensation
5,692

 
5,476

Excess tax benefits from share-based compensation
(5,190
)
 
(5,397
)
Amortization of intangible assets and acquired technology
7,283

 
6,374

Settlement of lease obligations
585

 

Non-cash facilities restructuring charges
125

 
510

Other non-cash items
286

 
(1,702
)
Changes in operating assets and liabilities:
 

 
 

Accounts receivable
50,346

 
56,416

Prepaid expenses and other assets
11,014

 
(6,076
)
Accounts payable and accrued liabilities
(32,699
)
 
(26,892
)
Income taxes payable
(1,513
)
 
(2,187
)
Accrued facilities restructuring charges
(23,977
)
 
(3,553
)
Deferred revenues
20,120

 
8,725

Net cash provided by operating activities
69,466

 
61,729

Investing activities:
 

 
 

Purchases of property and equipment
(132,178
)
 
(605
)
Purchases of investments
(80,129
)
 
(58,112
)
Purchase of investment in equity interest
(103
)
 

Sale of investment in equity interest
125

 

Maturities of investments
12,841

 
42,390

Sales of investments
40,831

 
48,503

Net cash provided by (used in) investing activities
(158,613
)
 
32,176

Financing activities:
 

 
 

Net proceeds from issuance of common stock
20,495

 
17,060

Repurchases and retirement of common stock

 
(3,181
)
Redemption of convertible senior notes

 
(4
)
Withholding taxes related to restricted stock units net share settlement
(2,997
)
 
(2,659
)
Excess tax benefits from share-based compensation
5,190

 
5,397

Net cash provided by financing activities
22,688

 
16,613

Effect of foreign exchange rate changes on cash and cash equivalents
1,874

 
4,495

Net increase (decrease) in cash and cash equivalents
(64,585
)
 
115,013

Cash and cash equivalents at beginning of period
316,835

 
208,899

Cash and cash equivalents at end of period
$
252,250

 
$
323,912

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

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, 2012 and 2011 are unaudited. The interim results presented are not necessarily indicative of results for any subsequent interim period, the year ending December 31, 2012, 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, 2011 included in the Company's Annual Report on Form 10-K filed with the SEC. The consolidated balance sheet as of December 31, 2011 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, 2011.
As discussed below, on January 1, 2012, the Company adopted Accounting Standards Update No. 2011-04, Financial Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which clarifies the application of certain existing fair value measurement guidance and expands the disclosure for fair value measurements that are estimated using significant unobservable (Level 3) inputs.
The Company also adopted Accounting Standards Update No. 2011-05 Comprehensive Income (Topic 220): Presentation of Comprehensive Income ("ASU 2011-05"). In June 2011, the FASB issued ASU 2011-05 which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. The Company adopted both standards in the first quarter of 2012.
There have been no other changes in our critical accounting policies since the end of fiscal year 2011.

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


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, 2012 (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)
$
34,996

 
$
34,996

 
$

 
$

Time deposits (ii)
38,394

 
38,394

 

 

Marketable debt securities (ii)
275,380

 

 
275,380

 

Total money market funds, time deposits, and marketable debt securities
348,770

 
73,390

 
275,380

 

Foreign currency derivatives (iii)
432

 

 
432

 

Total assets
$
349,202

 
$
73,390

 
$
275,812

 
$

Liabilities:
 

 
 

 
 

 
 

Foreign currency derivatives (iv)
$
843

 
$

 
$
843

 
$

Acquisition-related contingent consideration (v)
10,039

 

 

 
10,039

Total liabilities
$
10,882

 
$

 
$
843

 
$
10,039

The following table summarizes financial assets and financial liabilities that the Company measures at fair value on a recurring basis as of December 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)
$
147,635

 
$
147,635

 
$

 
$

Time deposits (ii)
38,683

 
38,683

 

 

Marketable debt securities (ii)
246,896

 

 
246,896

 

Total money market funds, time deposits, and marketable debt securities
433,214

 
186,318

 
246,896

 

Foreign currency derivatives (iii)
702

 

 
702

 

Total assets
$
433,916

 
$
186,318

 
$
247,598

 
$

Liabilities:
 

 
 

 
 

 
 

Foreign currency derivatives (iv)
$
2,496

 
$

 
$
2,496

 
$

Acquisition-related contingent consideration (v)
12,872

 

 

 
12,872

Total liabilities
$
15,368

 
$

 
$
2,496

 
$
12,872

____________________
(i)
Included in cash and cash equivalents on the condensed consolidated balance sheets.
(ii)
Included in 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.
(v)
Included in accrued and other liabilities on the condensed consolidated balance sheets.

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


Money Market Funds, Time Deposits, and Marketable Securities
The Company uses a market approach for determining the fair value of all its Level 1 and Level 2 money market funds, time deposits, and marketable securities.
To value its money market funds and time deposits, 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.
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 the Company’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.
There were no transfers between Level 1 and Level 2 categories during the three months ended March 31, 2011 and 2012.
See Note 6. Accumulated Other Comprehensive Income, Note 7. Derivative Financial Instruments, and Note 13. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.
Acquisition-related Contingent Consideration
We estimated the fair value of the acquisition-related contingent consideration using a probability-weighted discounted cash flow model. This fair value measure was based on significant inputs not observed in the market and thus represented a Level 3 instrument. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value.

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


The changes in the acquisition-related contingent consideration liability for the three months ended March 31, 2012 consisted of the following (in thousands):
 
March 31,
2012
Beginning balance at December 31, 2011
$
12,872

Change in fair value of contingent consideration
287

Payment of contingent consideration
(3,120
)
Ending balance at March 31, 2012
$
10,039


See Note 16. Acquisitions 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 gain recognized for the three months ended March 31, 2012 was negligible. Realized gain recognized for the three months ended March 31, 2011 was approximately $0.3 million. The cost of securities sold was determined based on the specific identification method.
The following table summarizes the Company’s cash, cash equivalents, and short-term investments as of March 31, 2012 (in thousands):
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
217,254

 
$

 
$

 
$
217,254

Cash equivalents:
 

 
 

 
 

 
 

Money market funds
34,996

 

 

 
34,996

Total cash equivalents
34,996

 

 

 
34,996

Total cash and cash equivalents
252,250

 

 

 
252,250

Short-term investments:
 

 
 

 
 

 
 

Certificates of deposit
2,748

 
9

 

 
2,757

Commercial paper
3,894

 

 

 
3,894

Corporate notes and bonds
140,851

 
339

 
(102
)
 
141,088

Federal agency notes and bonds
107,470

 
159

 
(54
)
 
107,575

Time deposits
38,394

 

 

 
38,394

U.S. government notes and bonds
7,179

 
18

 

 
7,197

Municipal notes and bonds
12,830

 
39

 

 
12,869

Total short-term investments
313,366

 
564

 
(156
)
 
313,774

Total cash, cash equivalents, and short-term investments (i)
$
565,616

 
$
564

 
$
(156
)
 
$
566,024

____________________
(i)
Total estimated fair value above included $348.8 million comprised of cash equivalents and short-term investments at March 31, 2012.


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Table of Contents
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, 2011 (in thousands):
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
169,200

 
$

 
$

 
$
169,200

Cash equivalents:
 

 
 

 
 

 
 

Money market funds
147,635

 

 

 
147,635

Total cash equivalents
147,635

 

 

 
147,635

Total cash and cash equivalents
316,835

 

 

 
316,835

Short-term investments:
 

 
 

 
 

 
 

Certificates of deposit
2,755

 

 

 
2,755

Commercial paper
2,998

 

 

 
2,998

Corporate notes and bonds
122,803

 
209

 
(596
)
 
122,416

Federal agency notes and bonds
103,932

 
149

 
(26
)
 
104,055

Time deposits
38,683

 

 

 
38,683

U.S. government notes and bonds
2,892

 
21

 

 
2,913

Municipal notes and bonds
11,718

 
41

 

 
11,759

Total short-term investments
285,781

 
420

 
(622
)
 
285,579

Total cash, cash equivalents, and short-term investments (i)
$
602,616

 
$
420

 
$
(622
)
 
$
602,414

____________________
(i)
Total estimated fair value above included $433.2 million comprised of cash equivalents and short-term investments at December 31, 2011.

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, 2012 (in thousands):
 
Less Than 12 months
 
 
 
 
Fair Value
 
Gross
Unrealized
Losses
Corporate notes and bonds
$
60,516

 
$
(102
)
Federal agency notes and bonds
39,577

 
(54
)
Total
$
100,093

 
$
(156
)
As of March 31, 2012, 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.

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


The following table summarizes the cost and estimated fair value of the Company’s short-term investments by contractual maturity at March 31, 2012 (in thousands):
 
Cost
 
Fair Value
Due within one year
$
184,324

 
$
184,506

Due in one year to two years
105,425

 
105,671

Due after two years
23,617

 
23,597

Total
$
313,366

 
$
313,774


Note 3.  Property and Equipment
The following table summarizes the cost of property and equipment and related accumulated depreciation at March 31, 2012 and December 31, 2011 (in thousands):
 
 
Estimated Useful Lives
 
March 31,
2012
 
December 31,
2011
Land
 
N/A
 
$
20,637

 
$

Buildings
 
25 years
 
105,725

 

Site improvements
 
15 years
 
1,162

 

Total land and buildings
 
 
 
127,524

 

Computer and equipment
 
1-5 years
 
50,943

 
51,907

Furniture and fixtures
 
3-5 years
 
6,449

 
5,391

Leasehold improvements
 
1-7 years
 
23,659

 
22,039

Capital work-in-progress
 
 
 
1,006

 
471

Total property and equipment
 
 
 
209,581

 
79,808

Less: Accumulated depreciation and amortization
 
 
 
(63,253
)
 
(63,783
)
Total property and equipment, net
 
 
 
$
146,328

 
$
16,025

On February 15, 2012, the Company purchased the property associated with its former corporate headquarters at 2000 and 2100 Seaport Boulevard in Redwood City, California. The property consists of two office buildings totaling an aggregate of 290,305 square feet and the associated 11.6 acres of land. The transaction has been accounted for as a purchase of an asset that was previously subject to an operating lease during the lease term in accordance with ASC 840 Leases. The purchase of the property totaled approximately $148.6 million in cash, which reflects a purchase price of $153.2 million less a rent credit of $4.6 million. The Company recorded a charge of approximately $21.2 million representing the cost to terminate the operating lease in the Condensed Consolidated Statement of Income during the three months ended March 31, 2012. The net purchase price of the land and buildings was $127.5 million, which represents the fair value at date of purchase. The net purchase price was allocated as $105.7 million to buildings, $20.6 million to land, and $1.2 million to site improvements. The building and site improvements will be depreciated on a straight-line basis over the estimated useful life of 25 years and 15 years, respectively. See Note 10. Facilities Restructuring Charges of Notes to Condensed Consolidated Financial Statements for a further discussion.




12

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


Note 4.  Intangible Assets and Goodwill
The carrying amounts of the intangible assets other than goodwill as of March 31, 2012 and December 31, 2011 are as follows (in thousands, except years):
 
Intangible Assets, Gross
 
Accumulated Amortization
 
Intangible Assets, Net
 
Weighted
 
 
 
December 31,
2011
 
Additions
 
March 31,
2012
 
December 31,
2011
 
Expense
 
March 31,
2012
 
December 31,
2011
 
March 31,
2012
 
Average Useful Life
(Years)
Developed and core technology
$
102,492

 
$
76

 
$
102,568

 
$
(54,742
)
 
$
(5,630
)
 
$
(60,372
)
 
$
47,750

 
$
42,196

 
6
Customer relationships
34,385

 
12

 
34,397

 
(25,871
)
 
(1,059
)
 
(26,930
)
 
8,514

 
7,467

 
6
Vendor relationships
7,908

 

 
7,908

 
(4,207
)
 
(383
)
 
(4,590
)
 
3,701

 
3,318

 
5
Other:


 


 


 


 


 


 


 
 
 

Trade names
2,494

 

 
2,494

 
(1,645
)
 
(90
)
 
(1,735
)
 
849

 
759

 
5
Covenants not to compete
2,000

 

 
2,000

 
(2,000
)
 

 
(2,000
)
 

 

 
5
Patents
4,442

 

 
4,442

 
(948
)
 
(121
)
 
(1,069
)
 
3,494

 
3,373

 
10
Total intangible assets subject to amortization
153,721

 
88

 
153,809

 
(89,413
)
 
(7,283
)
 
(96,696
)
 
64,308

 
57,113

 
 
In-process research and development
481

 

 
481

 

 

 

 
481

 
481

 
N.A.
Total intangible assets, net
$
154,202

 
$
88

 
$
154,290

 
$
(89,413
)
 
$
(7,283
)
 
$
(96,696
)
 
$
64,789

 
$
57,594

 
 
Total amortization expense related to intangible assets was $7.3 million and $6.4 million for the three months ended March 31, 2012 and 2011, 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, 2012, 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 2012
$
15,617

 
$
4,401

 
$
20,018

2013
16,690

 
5,296

 
21,986

2014
6,222

 
2,572

 
8,794

2015
2,286

 
848

 
3,134

2016
1,225

 
1,511

 
2,736

Thereafter
156

 
289

 
445

Total intangible assets subject to amortization
$
42,196

 
$
14,917

 
$
57,113

In the fourth quarter of 2011, in conjunction with our acquisition of certain assets of Sand Technology, the Company recorded in-process research and development (IPR&D) of $0.5 million. The IPR&D capitalized costs were associated with software development efforts in process at the time of the business combination that had not yet achieved technological feasibility and no future alternative uses had been identified. As of March 31, 2012, the IPR&D recorded from the acquisition of certain assets of Sand Technology had not yet achieved technological feasibility, and is expected to achieve technological feasibility during the second quarter of 2012, at which time it will be transferred into developed technology and amortized over the expected useful life of the technology.

13

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


The changes in the carrying amount of goodwill for the three months ended March 31, 2012 are as follows (in thousands):
 
March 31,
2012
Beginning balance as of December 31, 2011
$
432,269

Subsequent goodwill adjustments
1,008

Ending balance as of March 31, 2012
$
433,277

Subsequent goodwill adjustments of $1.0 million for the three months ended March 31, 2012 consist primarily of foreign currency translation adjustments.

Note 5.  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 are included in the denominator for both basic and diluted net income per common share, and there is no interest or amortization of issuance costs.
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, 2012, 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.

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


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 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, 2012.

Note 6.  Accumulated Other Comprehensive Income
Accumulated other comprehensive loss, net of taxes, as of March 31, 2012 and December 31, 2011 consisted of the following (in thousands):
 
March 31,
2012
 
December 31,
2011
Net unrealized gain (loss) on available-for-sale investments
$
313

 
$
(125
)
Cumulative translation adjustments
(7,242
)
 
(11,375
)
Derivative loss
(567
)
 
(1,302
)
Accumulated other comprehensive loss, net of taxes
$
(7,496
)
 
$
(12,802
)
The Company did not have any other-than-temporary gain or loss reflected in accumulated other comprehensive income (loss) as of March 31, 2012 and December 31, 2011.
Informatica determines the basis of the cost of a security sold and the amount reclassified out of other comprehensive income into statement of income based on specific identification.
See Note 1. Summary of Significant Accounting Policies, Note 7. Derivative Financial Instruments, and Note 13. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.

Note 7.  Derivative Financial Instruments
The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company uses derivative instruments to manage its exposures to fluctuations in certain foreign currency exchange rates which exist as part of ongoing business operations. The Company and its subsidiaries do not enter into derivative contracts for speculative purposes.
Cash Flow Hedges
The Company enters into certain cash flow hedge programs in an attempt to reduce the impact of certain foreign currency fluctuations. These contracts are designated and documented as cash flow hedges. 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. The Company 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. The foreign exchange forward contracts entered into in December 2009 expired in January 2011. In December 2010, the Company entered into additional foreign exchange forward contracts with monthly expiration dates through January 2012. In October and December 2011, the Company entered into additional foreign exchange forward contracts with monthly expiration dates through January 2013.
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.
The Company has forecasted the amount of its anticipated foreign currency expenses and intercompany revenue based on its historical performance and its 2012 financial plan. As of March 31, 2012, these foreign exchange contracts, carried at fair value, have a maturity of ten months or less. Foreign exchange contracts mature monthly as the foreign currency denominated expenses are paid or intercompany revenue is received and any gain or loss is offset against expense.

15

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


The notional amount of these foreign exchange forward contracts was $21.7 million and $39.3 million as of March 31, 2012 and December 31, 2011, respectively.
Balance Sheet Hedges
Beginning in the second quarter of 2011, the Company also entered into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of its subsidiaries. These foreign exchange contracts are carried at fair value and do not qualify for hedge accounting treatment and are not designated as hedging instruments. Changes in the value of the foreign exchange contracts are recognized in other income (expense) and offset the foreign currency gain or loss on the underlying monetary assets or liabilities. The notional amounts of foreign currency contracts open at period end in US dollar equivalents were $6.6 million to buy at March 31, 2012, and $5.0 million to sell at March 31, 2012 and December 31, 2011.
The following table reflects the fair value amounts for the foreign exchange contracts designated and not designated as hedging instruments at March 31, 2012 and December 31, 2011 (in thousands):
 
March 31, 2012
 
December 31, 2011
 
Fair Value
Derivative
Assets
(i)
 
Fair Value
Derivative
Liabilities
(ii)
 
Fair Value
Derivative
Assets
(i)
 
Fair Value
Derivative
Liabilities
(ii)
Derivatives designated as hedging instruments
$
39

 
$
779

 
$

 
$
2,480

Derivatives not designated as hedging instruments
393

 
64

 
702

 
16

Total fair value of derivative instruments
$
432

 
$
843

 
$
702

 
$
2,496

____________________
(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.
As of March 31, 2012, a derivative loss of $0.6 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 twelve months.
The Company evaluates prospectively as well as retrospectively the effectiveness of its hedge programs using statistical analysis. Prospective testing is performed at the inception of the hedge relationship and quarterly thereafter. Retrospective testing is performed on a quarterly basis. Informatica uses a change in 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, 2012 and 2011 are as follows (in thousands):
 
Three Months Ended
March 31,
 
2012
 
2011
 
 
 
 
Amount of gain (loss) recognized in other comprehensive income (effective portion)
$
1,156

 
$
(1,456
)
Amount of loss reclassified from accumulated other comprehensive income to operating expenses (effective portion)
$
(203
)
 
$
(325
)
Amount of gain recognized in income on derivatives for the amount excluded from effectiveness testing located in operating expenses
$
460

 
$
248

The Company did not have any ineffective portion of the derivative recorded in the condensed consolidated statements of income.

16

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


The gain recognized in other income (expense), net for non-designated foreign currency forward contracts for the three months ended March 31, 2012 and 2011 is as follows (in thousands):
 
Three Months Ended
March 31,
2012
 
2011
Gain (loss) recognized in interest and other expense, net
$
(173
)
 
$
185

See Note 1. Summary of Significant Accounting Policies and Note 6. Accumulated Other Comprehensive Income of Notes to Condensed Consolidated Financial Statements for a further discussion.

Note 8.  Stock Repurchase Program
The Company's Board of Directors has approved a stock repurchase program for the Company to repurchase its common stock. The primary purpose of the program is to enhance shareholder value, including partially offsetting 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.
This repurchase program does not have an expiration date. 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.
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 common stock during the three months ended March 31, 2012. There were no repurchases of the Notes in the first quarter of 2011 before the Notes were redeemed on March 18, 2011. See Note 5. Borrowings - Convertible Senior Notes of Notes to Condensed Consolidated Financial Statements for a further discussion.
As of March 31, 2012, $77.1 million remained available for repurchase under this program.
Note 9.  Share-Based Compensation
The Company grants restricted stock units (“RSUs”) and stock options under its 2009 Equity Incentive Plan. The Company 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 share-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.

17

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


The fair value of the Company’s share-based awards was estimated based on the following assumptions:
 
Three Months Ended
March 31,
 
2012
 
2011
Option grants:
 
 
 
Expected volatility
42
%
 
36
%
Weighted-average volatility
42
%
 
36
%
Expected dividends

 

Expected term of options (in years)
3.3

 
3.8

Risk-free interest rate
0.5
%
 
1.5
%
ESPP:*
 
 
 
Expected volatility
43
%
 
35
%
Weighted-average volatility
43
%
 
35
%
Expected dividends

 

Expected term of ESPP (in years)
0.5

 
0.5

Risk-free interest rate
0.1
%
 
0.2
%
____________________
*
ESPP purchases are made on the last day of January and July of each year.
The allocations of the share-based compensation, net of income tax benefit, for the three months ended March 31, 2012 and 2011 are as follows (in thousands):
 
Three Months Ended
March 31,
 
2012
 
2011
Cost of service revenues
$
1,087

 
$
864

Research and development
3,485

 
2,399

Sales and marketing
3,338

 
2,409

General and administrative
2,708

 
1,840

Total share-based compensation
10,618

 
7,512

Tax benefit of share-based compensation
(2,718
)
 
(1,870
)
Total share-based compensation, net of tax benefit
$
7,900

 
$
5,642


Note 10.  Facilities Restructuring Charges
In February 2000, the Company entered into lease agreements for two office buildings located at 2000 and 2100 Seaport Boulevard in Redwood City, California, which the Company occupied from August 2001 through December 2004 as its former corporate headquarters. These lease agreements expire in July 2013. As a result of the 2004 Restructuring Plan, the Company relocated the corporate headquarters and subsequently entered into a series of sublease agreements with tenants to occupy a portion of the vacated space. These subleases expire in June and July 2013.
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.
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.

18

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


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.
In February 2012, the Company purchased the property associated with its former corporate headquarters in Redwood City, California for approximately $148.6 million in cash, which reflects a purchase price of $153.2 million less a rent credit of $4.6 million. As a result of the transaction, the Company no longer has any further commitments relating to the original lease agreements. The purchase of the buildings discharges the Company's future lease obligations that were previously accounted for under the 2001 and 2004 Restructuring Plans. The transaction has been accounted for as a purchase of an asset that was previously subject to an operating lease in accordance with ASC 840 Leases. The Company was the sole lessee of both of these buildings. During the first quarter of 2012 the Company reversed the existing accrued facilities restructuring liability of $20.6 million and recorded a corresponding facilities restructuring benefit on the Condensed Consolidated Statement of Income in accordance with ASC 420, Exit or Disposal Cost Obligations. The Company also recorded a charge of approximately $21.2 million representing the cost to terminate the operating lease included in facility lease termination costs, net in the Condensed Consolidated Statements of Income. See Note 3. Property and Equipment of Notes to Condensed Consolidated Financial Statements for a further discussion.
A summary of the activity of the accrued restructuring charges for the three months ended March 31, 2012 is as follows (in thousands):
 
Accrued
Restructuring
Charges at
 
 
 
 Restructuring
 
 
 
 
 
Reversal on Purchase of
 
Accrued
Restructuring
Charges at
 
December 31,
2011
 
Charges
 
Adjustments
 
Net Cash
Payment
 
Non-Cash
Reclass
 
Land and Buildings
 
March 31,
2012
2004 Restructuring Plan
 
 
 
 
 
 
 
 
 
 
 
 
 
Excess lease facilities
$
20,810

 
$
97

 
$
28

 
$
(2,422
)
 
$
(28
)
 
$
(18,485
)
 
$

2001 Restructuring Plan
 
 
 
 
 
 
 
 
 
 
 
 
 

Excess lease facilities
2,484

 

 

 
(327
)
 

 
(2,157
)
 

Total restructuring plans
$
23,294

 
$
97

 
$
28

 
$
(2,749
)
 
$
(28
)
 
$
(20,642
)
 
$

For the three months ended March 31, 2012, prior to the acquisition the Company recorded $0.1 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, 2012 for facilities included in the 2004 and 2001 Restructuring Plans amounted to $2.4 million and $0.3 million, respectively.


19

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



Note 11.  Income Taxes
The Company's effective tax rates were 31% and 28% for the three months ended March 31, 2012 and 2011, respectively. The effective tax rate for the three months ended March 31, 2012 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 impact of the domestic manufacturing deduction pursuant to Section 199 of the Internal Revenue Code offset by compensation expense related to non-deductible share-based compensation, state income taxes, and the accrual of reserves related to uncertain tax positions. The effective tax rate for the three months ended March 31, 2011 differed from the federal statutory rate of 35% primarily due to benefits of certain earnings from operations in lower-tax jurisdictions throughout the world, the recognition of current year research and development credits, and the impact of the domestic manufacturing deduction pursuant to Section 199 of the Internal Revenue Code offset by compensation expense related to non-deductible share-based compensation, state income taxes, acquisition related costs, and the accrual of reserves related to uncertain tax positions. The Company has not provided for residual U.S. taxes in any of these lower-tax jurisdictions since it intends to indefinitely reinvest these earnings offshore with the exception of Israel.
 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, 2012, 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, 2012, it was considered more likely than not that the Company's non-share-based payments related deferred tax assets would be realized with the exception of the deferred tax asset related to the California research and development credit generated in 2012. Even though this attribute has an indefinite life, it is unlikely that the Company will utilize any of this currently generated credit in the foreseeable future. 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 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 ASC 740, if recognized, would impact the income tax provision by $16.0 million and $13.8 million as of March 31, 2012 and 2011, respectively. The Company has elected to include interest and penalties as a component of tax expense. Accrued interest and penalties as of March 31, 2012 and 2011 were approximately $2.5 million and $1.8 million, respectively. As of March 31, 2012, the gross uncertain tax position was approximately $17.0 million.
The Company files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company has been informed by certain state and foreign taxing authorities that it was selected for examination. Additionally, the IRS has notified the Company that it will audit the final pre-acquisition federal tax return of one of its wholly owned subsidiaries. Most federal, state, and foreign jurisdictions have anywhere from three to six open tax years at any point in time. The field work for certain federal, state, and foreign audits has commenced and is at various stages of completion as of March 31, 2012.
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.


20

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


Note 12.  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, 2012 and 2011 (in thousands, except per share amounts):
 
Three Months Ended
March 31,
 
2012
 
2011
Net income
$
26,529

 
$
21,909

Effect of convertible senior notes, net of related tax effects

 
811

Net income adjusted
$
26,529

 
$
22,720

Weighted-average shares of common stock used to compute basic net income per share (excluding unvested restricted stock)
107,576

 
96,858

Effect of dilutive common stock equivalents:
 
 
 
Dilutive effect of unvested restricted stock units
473

 
605

Dilutive effect of employee stock options
4,743

 
6,613

Dilutive effect of convertible senior notes

 
8,242

Shares used in computing diluted net income per common share
112,792

 
112,318

Basic net income per common share
$
0.25

 
$
0.23

Diluted net income per common share
$
0.24

 
$
0.20

Weighted average stock options and restricted stock units excluded from calculation due to anti-dilutive effect
2,442

 
752

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 the Notes had a dilutive effect on diluted net income per share for the three months ended March 31, 2011. As such, the Company had an add-back of $0.8 million for the three months ended March 31, 2011, in interest and issuance cost amortization, net of income taxes, to net income for the diluted net income per share calculation. The Notes were redeemed on March 18, 2011; therefore, there was no dilutive effect of the notes for the three months ended March 31, 2012. See Note 5. Borrowings - Convertible Senior Notes of Notes to Condensed Consolidated Financial Statements for a further discussion.
Note 13.  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 $2.7 million for the remainder of 2012 and $3.6 million for the year ending December 31, 2013.
In February 2000, the Company entered into lease agreements for two office buildings located at 2000 and 2100 Seaport Boulevard in Redwood City, California, which the Company occupied from August 2001 through December 2004 as its former corporate headquarters. These lease agreements expire in July 2013. As a result of the 2004 Restructuring Plan, the Company relocated the corporate headquarters and subsequently entered into a series of sublease agreements with tenants to occupy a portion of the vacated space. These subleases expire in June and July 2013.
In February 2012, the Company purchased the property associated with its former corporate headquarters in Redwood City, California for approximately $148.6 million in cash, which reflects a purchase price of $153.2 million less a rent credit of $4.6 million. As a result of the transaction, the Company no longer has any further commitments relating to the original lease agreements. The Company will continue to receive payments from the tenants of approximately $6.1 million as the owner of the buildings, which include rental income of $4.4 million and reimbursement of certain property costs such as common area maintenance, insurance, and property taxes, through the remainder of their respective lease terms of $1.7 million. The estimates of lease income may vary significantly depending, in part, on factors that may be beyond the Company's control, such as the global economic

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


downturn, time periods required to locate and contract suitable leases, and market rates at the time of leases. Currently, the Company has leased its former corporate headquarters through July 2013. Future adjustments to the expected lease income could result from any default by a lessor, which could impact the time period that the buildings will be vacant, expected lease rates, and expected lease terms.
The Company leases certain office facilities under various non-cancelable operating leases, which expire at various dates through 2021 and require the Company to pay operating costs, including property taxes, insurance, and maintenance.
Future minimum lease payments as of March 31, 2012 under non-cancelable operating leases with original terms in excess of one year are summarized as follows (in thousands):
 
 
Operating
Leases
Remaining 2012
$
9,505

2013
11,850

2014
6,768

2015
6,076

2016
3,214

Thereafter
3,973

Total future minimum operating lease payments
$
41,386

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. To date, the Company’s product warranty expense has not been significant. The warranty accrual as of March 31, 2012 and December 31, 2011 was not material.
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, 2012. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under the License Agreement, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.

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


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
The Company uses derivative instruments to manage its exposure to fluctuations in certain foreign currency exchange rates which exist as part of ongoing business operations. See Note 1. Summary of Significant Accounting Policies, Note 6. Accumulated Other Comprehensive Income, and Note 7. Derivative Financial Instruments of Notes to Condensed Consolidated Financial Statements for a further discussion.
Litigation
IPO Class Action. 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 filed notices of appeals of the final judgment dismissing the cases upon the settlement. The final objector's appeal was dismissed in January 2012, and the litigation has concluded.
General. The Company is also a party to various legal proceedings and claims arising from the normal course of its business activities, including proceedings and claims related to patents and other intellectual property related matters. The Company reviews the status of each matter and records a provision for a liability when it is considered both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed quarterly and adjusted as additional information becomes available. If both of the criteria are not met, the Company assesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a material loss may be incurred, the Company discloses the estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made.

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


Litigation is subject to inherent uncertainties. 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 14.  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, 2012 and 2011. At March 31, 2012 and December 31, 2011, 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 35% and 34% of total revenues in the first quarter of 2012 and 2011, respectively.
Total revenue by geographic region is summarized as follows (in thousands):
 
Three Months Ended
March 31,
 
2012
 
2011
Revenues:
 
 
 
North America
$
128,180

 
$
110,921

Europe
43,422

 
41,136

Other
24,418

 
15,975

Total revenues
$
196,020

 
$
168,032

Long-lived assets by geographic region are summarized as follows (in thousands):
 
March 31,
2012
 
December 31,
2011
Long-lived assets, net (excluding assets not allocated):
 
 
 
North America
$
191,337

 
$
69,867

Europe
3,437

 
3,224

Other
9,148

 
7,723

Total long-lived assets
$
203,922

 
$
80,814


Note 15.  Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-04, Financial Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU 2011-04"). ASU 2011-04 provides a consistent definition of fair value and aligns the fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards ("IFRS"). ASU 2011-04 clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The Company has adopted ASU 2011-04 prospectively as required in the first quarter of 2012. The adoption of this ASU did not have any material impact to the condensed consolidated financial statements and disclosures.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present other comprehensive income as part of the statement of stockholders' equity. In December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income

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


statement. The Company has adopted both standards as required in the first quarter of 2012. The adoption of this ASU did not have an impact to the condensed consolidated financial statements.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 allows an entity to use a qualitative approach to test goodwill for impairment. This ASU permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU 2011-08 is effective for the Company's impairment test in October 2012 and early adoption is permitted. The Company does not expect its adoption of ASU 2011-08 to have an impact to the condensed consolidated financial statements.
In December 2011, the Financial Accounting Standards Board issued Accounting Standard Update (ASU) No. 2011-11, Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities (ASU 2011-11), that requires an entity to disclose additional information about offsetting and related arrangements to enable users of the financial statements to understand the effect of those arrangements on the financial position. ASU 2011-11 will be effective for us in fiscal 2013 and any related disclosures required will be applied retrospectively. The adoption of ASU 2011-11 may impact future disclosures but will not impact the consolidated financial statements.
Note 16.  Acquisitions
Sand Technology
On October 4, 2011, the Company acquired certain assets of Sand Technology Inc., (“Sand”), a publicly-held company, relating to Sand's Information Lifecycle Management for SAP product line for approximately $6.0 million. Of the $6.0 million consideration paid to Sand, $0.8 million was placed into an escrow fund and held as partial security for indemnification obligations and $1.0 million was held back and payable upon the achievement of certain customer-related conditions. We paid approximately $0.8 million of the $1.0 million hold back in December 2011 and paid the remaining $0.2 million in the first quarter of 2012. The escrow fund will remain in place until October 4, 2013.
The Company is obligated to pay up to an additional $2.0 million in 2012 for certain deferred earn-out payments based upon the achievement of certain performance targets. The Company determined the fair market value of these earn-outs based on probability analysis. At the time of acquisition, the fair market value and gross amount of these earn-out payments were approximately $1.9 million and $2.0 million, respectively. The fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value. The Company paid $1.0 million in earn-out payments during the three months ended March 31, 2012.
The following table summarizes the fair value of assets acquired and liabilities assumed of $7.9 million (in thousands):
Goodwill
$
5,144

Developed and core technology
1,510

Customer relationships
250

Patents and applications
690

In-process research and development
460

Assumed liabilities, net of assets
(187
)
Total
$
7,867

The assumed liabilities consisted of certain employee related compensation as of the date of the acquisition. The goodwill is partially deductible for tax purposes.
ActiveBase
On July 13, 2011, the Company acquired all of the outstanding securities of ActiveBase Ltd. (“ActiveBase”), a privately-held company, for approximately $6.0 million in cash. ActiveBase provides dynamic data masking technology. As a result of this acquisition, the Company also assumed certain liabilities and commitments. Approximately $1.2 million of the consideration otherwise payable to former ActiveBase stockholders was placed into an escrow fund and held as partial security for the indemnification obligations of the former ActiveBase stockholders. The escrow fund will remain in place until July 14, 2013.

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


The Company is obligated to pay up to an additional $4.0 million for certain variable and deferred earn-out payments based upon the achievement of certain performance targets. The Company determined the fair market value of these earn-outs based on probability analysis. At the time of acquisition, the fair market value and gross amount of these earn-out payments were $3.3 million and $4.0 million, respectively. The fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value. The Company paid $0.1 million in earn-out payments during the three months ended March 31, 2012.
The following table summarizes the fair value of assets acquired and liabilities assumed of $8.3 million and the acquiree's transaction related costs and debt settlement of $1.0 million (in thousands):
Goodwill
$
7,042

Developed and core technology
2,080

Customer relationships
120

Assumed liabilities, net of assets
(968
)
Total purchase price allocation
8,274

Acquiree's transaction related costs and debt settlement
974

Total
$
9,248

The acquiree's transaction related costs consist of legal and accounting fees and certain employee related compensation as of the date of this acquisition. The goodwill is not deductible for tax purposes.
WisdomForce Technologies, Inc.
On June 28, 2011, the Company acquired all of the outstanding securities of WisdomForce Technologies, Inc. (“WisdomForce”), a privately-held company, and certain assets of its two affiliated companies for approximately $25.0 million in cash. WisdomForce develops and markets software that helps improve the quality, availability and continuity of data within information technology systems. As a result of this acquisition, the Company also assumed certain liabilities and commitments. Approximately $5.0 million of the consideration otherwise payable to former WisdomForce stockholders was placed into an escrow fund and held as partial security for the indemnification obligations of the former WisdomForce stockholders. The escrow fund will remain in place until December 28, 2012.
Informatica is obligated to pay up to an additional $10.0 million for certain variable and deferred earn-out payments based upon the achievement of certain performance targets. The Company determined the fair market value of these earn-outs based on probability analysis. At the time of acquisition, the fair market value and gross amount of these earn-out payments were $7.3 million and $10.0 million, respectively. The fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value. The Company paid $2.0 million in earn-out payments during the three months ended March 31, 2012.

The following table summarizes the fair value of assets acquired and liabilities assumed of $32.1 million and the acquiree's transaction related costs of $0.2 million (in thousands):
Goodwill
$
26,188

Developed and core technology
6,910

Customer relationships
500

In-process research and development
1,632

Assumed liabilities, net of assets
(3,180
)
Total purchase price allocation
32,050

Acquiree's transaction related costs
231

Total
$
32,281

The acquiree's transaction related costs consist of legal, accounting, and consulting fees as of the date of this acquisition. The goodwill is not deductible for tax purposes.

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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 the productivity of our sales force, license revenues, service revenues, international revenues, deferred revenues, cost of license revenues, cost of service revenues, operating expenses, amortization of acquired technology, share-based compensation, and provision for income taxes; the growth of our customer base and customer demand for our products and services; the purchase of the property associated with our former corporate headquarters; 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 in this Report 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 of the filing of this Report, 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 in Part I, Item 1 of 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 less than 10% 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, healthcare, high technology, insurance, manufacturing, public sector, retail, services, telecommunications, and transportation.
We grew our total revenues in the first quarter of 2012 by 17% to $196.0 million compared to $168.0 million for the same period in 2011. License revenues grew by 12% to $80.1 million in the first quarter of 2012 compared to $71.5 million for the same period in 2011. Our growth in license revenues reflected the continued market acceptance of our products for broader data integration projects. Services revenues increased by 20% in the first quarter of 2012 from the same period in 2011 due to a 22% growth in maintenance revenues and a 14% increase in consulting, education, and subscription services. The maintenance revenue growth was 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 was 19% in the first quarter of both 2011 and 2012.
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, particularly Europe, 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, particularly with respect to the European sovereign debt markets and potential ramifications of U.S. debt issues, income tax and budget concerns, and future delays in approving the U.S. budget. Such uncertainty and associated conditions have also resulted in volatility in various vertical markets, particularly the financial services and public sectors, which are typically

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two of the larger vertical segments 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.
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 pose challenges as competitors market a broader suite of software products or solutions and bundled pricing arrangements 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. 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 license orders, and we generally have weaker demand for our software products and services in the first and third quarters of the year. Each quarter of 2011 and the first quarter of 2012 followed these seasonal trends. The continued uncertain macroeconomic conditions make our historical seasonal trends more difficult to predict.
To address these factors, we focus on a number of key initiatives, including certain cost containment measures, the strengthening of our partnerships, the broadening of our distribution capability worldwide, the enablement of our sales force and distribution channel to sell new products and technologies, 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.
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, we are partners with Cloudera, Dun & Bradstreet, EMC, Hewlett-Packard, Intel, Microsoft, MicroStrategy, NetSuite, Oracle, salesforce.com, SAP, and Symantec, 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 traditional data warehouse products and 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. We also operate the Informatica Marketplace, which allows buyers and sellers to share and leverage data integration solutions. 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 differentiators, 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” and other informational seminars and materials 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.
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 unlikely that we will achieve our expected increases in revenue, sales productivity, or profitability from our international operations.

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For further discussion regarding these and related risks, see Risk Factors in Part II, Item 1A of this Report.
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, income taxes, impairment of goodwill and intangible assets, business combinations, share-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, 2011. On January 1, 2012, we adopted an accounting pronouncement on fair value measurements that are estimated using significant unobservable (Level 3) inputs. As discussed below, on January 1, 2012, we also adopted an accounting pronouncement on the presentation of other comprehensive income. There have been no other changes in our critical accounting policies since the end of fiscal year 2011.
Other Comprehensive Income
In June 2011, the FASB issued an amendment to an existing accounting standard which requires companies to present net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. In addition, in December 2011, the FASB issued an amendment to an existing accounting standard which defers the requirement to present components of reclassifications of other comprehensive income on the face of the income statement. We adopted both standards in the first quarter of 2012.
Recent Accounting Pronouncements
For recent accounting pronouncements, see Note 15. Recent Accounting Pronouncements of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

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Results of Operations
The following table presents certain financial data for the three and nine months ended March 31, 2012 and 2011 as a percentage of total revenues:
 
Three Months Ended
March 31,
 
2012
 
2011
Revenues:
 
 
 
License
41
 %
 
43
 %
Service
59

 
57

Total revenues
100

 
100

Cost of revenues:


 


License
1

 
1

Service
15

 
16

Amortization of acquired technology
3

 
3

Total cost of revenues
19

 
20

Gross profit
81

 
80

Operating expenses:


 


Research and development
18

 
18

Sales and marketing
35

 
36

General and administrative
8

 
7

Amortization of intangible assets
1

 
1

Facilities restructuring and facility lease termination costs, net

 

Acquisitions and other charges (benefit)

 
(1
)
Total operating expenses
62

 
61

Income from operations
19

 
19

Interest income
1

 
1

Interest expense

 
(1
)
Other expense, net

 
(1
)
Income before income taxes
20

 
18

Income tax provision
6

 
5

Net income
14
 %
 
13
 %

Revenues
Our total revenues increased to $196.0 million for the three months ended March 31, 2012 compared to $168.0 million for the three months ended March 31, 2011, representing a growth of $28.0 million (or 17%). The increase was due to an increase in the average transaction size of license orders and growth in our customer installed base.

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The following table and discussion compare our revenues by type for the three months ended March 31, 2012 and 2011 (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
License
$
80,108

 
$
71,501

 
12
%
Service revenues:
 
 
 
 
 
Maintenance
86,038

 
70,435

 
22
%
Consulting, education, and other
29,874

 
26,096

 
14
%
Total service revenues
115,912

 
96,531

 
20
%
Total revenues
$
196,020

 
$
168,032

 
17
%
License Revenues
Our license revenues increased to $80.1 million (or 41% of total revenues) for the three months ended March 31, 2012 from $71.5 million (or 43% of total revenues) for the three months ended March 31, 2011. The increase in license revenues of $8.6 million (or 12%) for the three months ended March 31, 2012 compared to the same period in 2011 was primarily due to an increase in the average transaction size of license orders, resulting in growth of license revenues across all major geographic regions except Europe. Our growth in license revenues reflected the continued market acceptance of our products beyond data warehousing and the adoption of new technologies.
The number of transactions greater than $1.0 million decreased to 11 in the first quarter of 2012 compared to 13 in the first quarter of 2011.
We offer two types of upgrades: (1) upgrades that are not part of the post-contract services for which we charge customers an additional fee, and (2) upgrades that are part of the post-contract services that we provide to our customers at no additional charge, when and if available. The average transaction amount for orders greater than $100,000 in the first quarter of 2012, including upgrades for which we charge customers an additional fee, increased to $485,000 from $399,000 in the first quarter of 2011.
Service Revenues
Maintenance Revenues
Maintenance revenues increased to $86.0 million (or 44% of total revenues) for the three months ended March 31, 2012 compared to $70.4 million (or 42% of total revenues) for the three months ended March 31, 2011. The increase of $15.6 million (or 22%) in maintenance revenues for the three months ended March 31, 2012, compared to the same period in 2011 was primarily due to the increasing size of our installed customer base, including those acquired through our acquisitions in 2011. See Note 16. Acquisitions of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
For the remainder of 2012, we expect maintenance revenues to increase from the comparable 2011 levels due to our growing installed customer base.
Consulting and Education, and Other Services Revenues
Consulting, education, and other services revenues increased to $29.9 million (or 15% of total revenues) for the three months ended March 31, 2012 compared to $26.1 million (or 15% of total revenues) for the three months ended March 31, 2011. The increase of $3.8 million (or 14%) in consulting, education, and other services revenues for the three months ended March 31, 2012 compared to the same period in 2011 was primarily due to an increase in subscription revenues and higher demand for our consulting services.
For the remainder of 2012, we expect our revenues from consulting and education, and other services revenues to increase from the comparable 2011 levels due to an increase in demand for consulting services and subscriptions offerings.
International Revenues
Our international revenues were $67.8 million (or 35% of total revenues) and $57.1 million (or 34% of total revenues) for the three months ended March 31, 2012 and 2011, respectively. The increase of $10.7 million (or 19%) in international revenues for the three months ended March 31, 2012, compared to the same period in 2011 was primarily due to an increase in license revenues in Latin America and Asia and an increase in maintenance revenues in Europe, partially offset by a decline in license revenues in Europe.

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For the remainder of 2012, we expect our international revenues as a percentage of total revenues to be relatively consistent with or increase slightly from the comparable 2011 levels.
Potential Future Revenues (New Orders, Backlog, and Deferred Revenues)
Our potential future revenues include backlog consisting primarily of (1) product orders (both on a perpetual and subscription basis) that have not shipped as of the end of a given quarter, (2) product orders received from certain distributors, resellers, OEMs, and end users not included in deferred revenues, where revenue is recognized after cash receipt (collectively (1) and (2) above are referred as “aggregate backlog”), and (3) deferred revenues. Our deferred revenues consist primarily of the following: (1) maintenance revenues that we recognize over the term of the contract, typically one year, (2) license product orders that have shipped but where the terms of the license agreement contain acceptance language or other terms that require that the license revenues be deferred until all revenue recognition criteria are met or recognized ratably over an extended period, and (3) subscription offerings that are recognized over the period of performance as services are provided, and (4) consulting and education services revenues that have been prepaid but for which services have not yet been performed.
We typically ship products shortly after the receipt of an order, which is common in the software industry, and historically our backlog of license orders awaiting shipment at the end of any given quarter has varied. However, our backlog historically decreases from the prior quarter at the end of the first and third quarters and increases at the end of the fourth quarter. Aggregate backlog and deferred revenues at March 31, 2012 were approximately $251.9 million compared to $215.4 million at March 31, 2011 and $251.3 million at December 31, 2011. The change in the first quarter of 2012 from the comparable period of 2011 was primarily due to increases in deferred perpetual license, deferred subscription license, and deferred maintenance revenues, partially offset by a decrease in license backlog. The international portion of aggregate backlog and deferred revenues may fluctuate with changes in foreign currency exchange rates. Aggregate backlog and deferred revenues as of any particular date are not necessarily indicative of future results.
Cost of Revenues
The following table sets forth, for the periods indicated, our cost of revenues (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
Cost of license revenues
$
1,102

 
$
1,441

 
(24
)%
Cost of service revenues
30,456

 
27,314

 
12
 %
Amortization of acquired technology
5,631

 
4,293

 
31
 %
Total cost of revenues
$
37,189

 
$
33,048

 
13
 %
Cost of license revenues, as a percentage of license revenues
1
%
 
2
%
 
(1
)%
Cost of service revenues, as a percentage of service revenues
26
%
 
28
%
 
(2
)%
Cost of License Revenues
Our cost of license revenues consists primarily of software royalties, product packaging, documentation, production costs and personnel costs. Cost of license revenues slightly decreased to $1.1 million (or 1% of license revenues) for the three months ended March 31, 2012 compared to $1.4 million (or 2% of license revenues) in the same period of 2011. The decrease of $0.3 million (or 24%) in cost of license revenues for the three months ended March 31, 2012, compared to the same period in 2011, was primarily due to a proportional increase in license revenues and a slightly lower mix of royalty bearing products for the three months ended March 31, 2012.
For the remainder of 2012, we expect that our cost of license revenues as a percentage of license revenues to be relatively consistent with the first quarter of 2012.

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Cost of Service Revenues
Our cost of service revenues is a combination of costs of maintenance, consulting, education, and other services revenues. Our cost of maintenance revenues consists primarily of costs associated with customer service personnel expenses and royalty fees for maintenance related to third-party software providers. Cost of consulting revenues consists primarily of personnel costs and expenses incurred in providing consulting services at customers’ facilities. Cost of education services revenues consists primarily of the costs of providing education classes and materials at our headquarters, sales and training offices, and customer locations. Cost of other services revenue consists primarily of fees paid to third party vendors for hosting services related to our subscription services and royalties paid to postal authorities.
Cost of service revenues was $30.5 million (or 26% of service revenues) in the first quarter of 2012 compared to $27.3 million (or 28% of service revenues) in the same period of 2011. The $3.2 million (or 12%) increase in the first quarter of 2012 compared to the same period of 2011 was primarily due to a $1.7 million increase in personnel related costs, a $0.6 million increase in subcontractor fees, and a $0.9 million increase in general overhead costs. The majority of these increases were driven by increased demand for our consulting and education services in the first quarter of 2012 compared to the same period of 2011.
For the remainder of 2012, we expect that our cost of service revenues, in absolute dollars, to increase from the 2011 levels, mainly due to headcount increases to support and deliver increased service revenues. We expect, however, the cost of service revenues as a percentage of service revenues in 2012 to remain relatively consistent with 2011 levels.
Amortization of Acquired Technology
The following table sets forth, for the periods indicated, our amortization of acquired technology (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
Amortization of acquired technology
$
5,631

 
$
4,293

 
31
%
Amortization of acquired technology is the amortization of technologies acquired through business acquisitions and technology licenses. Amortization of acquired technology increased to $5.6 million for the three months ended March 31, 2012 compared to $4.3 million in the same period of 2011. The increase of $1.3 million (or 31%) for the three months ended March 31, 2012, compared to the same period of 2011 was primarily due to amortization of certain technologies from the acquisitions of WisdomForce, ActiveBase and Sand Technology in 2011.
For the remainder of 2012, we expect the amortization of acquired technology to be approximately $15.6 million before the effect of any potential future acquisitions subsequent to March 31, 2012.
Operating Expenses
Research and Development
The following table sets forth, for the periods indicated, our research and development expenses (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
Research and development
$
34,772

 
$
30,587

 
14
%
Our research and development expenses consist primarily of salaries and other personnel-related expenses, consulting services, facilities, and related overhead costs associated with the development of new products, enhancement and localization of existing products, quality assurance, and development of documentation for our products. Research and development expenses increased to $34.8 million (or 18% of total revenues) for the three months ended March 31, 2012 from $30.6 million (or 18% of total revenues) for the three months ended March 31, 2011. All software development costs for software intended to be marketed to customers have been expensed in the period incurred since the costs incurred subsequent to the establishment of technological feasibility have not been significant.
The $4.2 million (or 14%) increase in first quarter of 2012 compared to the same period of 2011 was primarily due to a $3.7

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million increase in personnel-related costs (including share-based compensation) as a result of increased headcount and a $0.5 million increase in general overhead costs.
For the remainder of 2012, we expect research and development expenses as a percentage of total revenues to be relatively consistent with the first quarter of 2012.
Sales and Marketing
The following table sets forth, for the periods indicated, our sales and marketing expenses (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
Sales and marketing
$
67,709

 
$
59,582

 
14
%
Our sales and marketing expenses consist primarily of personnel costs, including commissions and bonuses, as well as costs of public relations, seminars, marketing programs, lead generation, travel, and trade shows. Sales and marketing expenses were $67.7 million (or 35% of total revenues) for the three months ended March 31, 2012 compared to $59.6 million (or 36% of total revenues) for the three months ended March 31, 2011.
The $8.1 million (or 14%) increase for the three months ended March 31, 2012 compared to the same period in 2011 was primarily due to a $5.5 million increase in personnel-related costs, a $0.8 million increase in marketing programs, a $0.9 million increase in outside services, and a $0.9 million increase in general overhead costs. Personnel-related costs include sales commissions, share-based compensation, and headcount growth. Headcount increased from 776 in March 2011 to 872 in March 2012.     
For the remainder of 2012, we expect sales and marketing expenses as a percentage of total revenues to be relatively consistent with the first quarter of 2012. The sales and marketing expenses as a percentage of total revenues may fluctuate from one period to the next due to the timing of hiring new sales and marketing personnel, our spending on marketing programs, and the level of the commission expenditures, in each period.
General and Administrative
The following table sets forth, for the periods indicated, our general and administrative expenses (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
General and administrative
$
15,685

 
$
12,038

 
30
%
Our general and administrative expenses consist primarily of personnel costs for finance, human resources, legal, and general management, as well as professional service expenses associated with recruiting, legal, and accounting services. General and administrative expenses increased to $15.7 million (or 8% of total revenues) for the three months ended March 31, 2012 compared to $12.0 million (or 7% of total revenues) for the three months ended March 31, 2011.
The $3.7 million (or 30%) increase for the three months ended March 31, 2012 compared to the same period in 2011 was primarily due to a $2.5 million increase in personnel-related costs (including share-based compensation) as a result of increased headcount and a $0.8 million increase in outside services.
For the remainder of 2012, we expect general and administrative expenses as a percentage of total revenues to be relatively consistent with the first quarter of 2012.
Amortization of Intangible Assets
The following table sets forth, for the periods indicated, our amortization of intangible assets (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
Amortization of intangible assets
$
1,652

 
$
2,081

 
(21
)%

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Amortization of intangible assets is the amortization of customer relationships and vendor relationships acquired, trade names, and covenants not to compete through prior business acquisitions. Amortization of intangible assets decreased to $1.7 million (or 1% of total revenues) for the three months ended March 31, 2012 compared to $2.1 million (or 1% of total revenues) for the three months ended March 31, 2011.
The decreases of $0.4 million (or 21%) in amortization of intangible assets for the three months ended March 31, 2012, compared to the same period in 2011 was primarily due to decreasing amortization for customer relationships, which are amortized using a method based on expected cash flows.
For the remainder of 2012, we expect amortization of the remaining intangible assets to be approximately $4.4 million, before the impact of any amortization for any possible intangible assets acquired as part of any potential future acquisitions subsequent to March 31, 2012.
Facilities Restructuring and Facility Lease Termination Costs, Net
The following table sets forth, for the periods indicated, our facilities restructuring and facility lease termination costs, net (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
Facilities restructuring and facility lease termination costs, net
$
710

 
$
510

 
39
%
In February 2012, we purchased the property associated with our former corporate headquarters in Redwood City, California for approximately $148.6 million in cash, which reflects a purchase price of $153.2 million less a rent credit of $4.6 million. As a result of the transaction, we no longer have any further commitments relating to the original lease agreements. The purchase of the buildings discharges our future lease obligations that were previously accounted for under the 2001 and 2004 Restructuring Plans. The transaction has been accounted for as a purchase of an asset that was previously subject to an operating lease during the lease term in accordance with ASC 840 Leases. We were the sole lessee of the buildings at the time of the acquisition. During the first quarter of 2012 we reversed the existing accrued facilities restructuring liability of $20.6 million and recorded a corresponding facilities restructuring benefit on the Condensed Consolidated Statement of Income in accordance with ASC 420 Exit or Disposal Cost Obligations. We also recorded a charge of approximately $21.2 million representing the cost to terminate the operating lease included in facility lease termination costs, net in the Condensed Consolidated Statements of Income. See Note 10. Facilities Restructuring Charges of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
For the three months ended March 31, 2012, we recorded a net facilities restructuring and facility lease termination costs of $0.7 million, for accretion charges related to the 2004 Restructuring Plan of $0.1 million and an expense of $21.2 million related to the net cost to settle an existing lease obligation, offset by a benefit as a result of the reversal of the existing accrued facilities restructuring liability of $20.6 million. Comparatively, for the three months ended March 31, 2011, we recorded restructuring charges of $0.5 million for accretion charges related to the 2004 Restructuring Plan.
2004 Restructuring Plan.  Net cash payments for facilities included in the 2004 Restructuring Plan amounted to $2.4 million and $3.2 million for the three months ended March 31, 2012 and 2011, respectively.
2001 Restructuring Plan.  Net cash payments for facilities included in the 2001 Restructuring Plan amounted to $0.3 million and $0.4 million for the three months ended March 31, 2012 and 2011, respectively.
Acquisitions and Other Charges (Benefit)
The following table sets forth, for the periods indicated, our acquisitions and other (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
Acquisitions and other charges (benefit)
$
286

 
$
(1,702
)
 
(117
)%
For the three months ended March 31, 2012, acquisition and other of $0.3 million primarily consisted of legal fees and earn-

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out accretion. For the three months ended March 31, 2011, acquisition and other consisted of a $1.7 million benefit for the difference between estimates of liabilities and assets recorded at the time of acquisition and the actual amounts.
Interest and Other Expense, Net
The following table sets forth, for the periods indicated, our interest and other expense, net (in thousands, except percentages):
 
Three Months Ended March 31,
 
2012
 
2011
 
Percentage
Change
Interest income 
$
1,175

 
$
1,095

 
7
 %
Interest expense 
(124
)
 
(1,780
)