INFA-2013.03.31-10Q
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, 2013
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 Securities Exchange Act of 1934 (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, 2013, there were approximately 108,078,000 shares of the registrant’s Common Stock outstanding.


 
 
 
 
 



INFORMATICA CORPORATION
TABLE OF CONTENTS

 
 
 Page No. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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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,
2013
 
December 31,
2012
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
218,623

 
$
190,127

Short-term investments
374,247

 
345,478

Accounts receivable, net of allowances of $5,445 and $5,460, respectively
126,781

 
171,893

Deferred tax assets
21,798

 
23,350

Prepaid expenses and other current assets
30,620

 
29,396

Total current assets
772,069

 
760,244

Property and equipment, net
145,078

 
145,474

Goodwill
516,681

 
510,121

Other intangible assets, net
62,688

 
67,260

Long-term deferred tax assets
28,426

 
24,087

Other assets
5,015

 
5,031

Total assets
$
1,529,957

 
$
1,512,217

Liabilities and Equity
 
 
 
Current liabilities:
 

 
 

Accounts payable
$
8,171

 
$
8,885

Accrued liabilities
52,183

 
64,475

Accrued compensation and related expenses
45,700

 
55,382

Deferred revenues
259,100

 
241,968

Total current liabilities
365,154

 
370,710

Long-term deferred revenues
7,659

 
8,807

Long-term deferred tax liabilities
2,192

 
2,523

Long-term income taxes payable
22,493

 
21,195

Other liabilities
3,240

 
3,459

Total liabilities
400,738

 
406,694

Commitments and contingencies (Note 12)


 


Equity:
 

 
 

Common stock, $0.001 par value; 200,000 shares authorized; 108,004 shares and
 
 
 
107,301 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively
108

 
107

Additional paid-in capital
777,548

 
764,298

Accumulated other comprehensive loss
(14,899
)
 
(8,030
)
Retained earnings
364,637

 
346,730

Total Informatica Corporation stockholders’ equity
1,127,394

 
1,103,105

Noncontrolling interest
1,825

 
2,418

Total equity
1,129,219

 
1,105,523

Total liabilities and equity
$
1,529,957

 
$
1,512,217

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,
 
2013
 
2012
Revenues:
 
 
 
Software
$
87,906

 
$
85,891

Service
126,394

 
110,129

Total revenues
214,300

 
196,020

Cost of revenues:
 

 
 

Software
2,142

 
1,824

Service
36,030

 
29,734

Amortization of acquired technology
5,724

 
5,631

Total cost of revenues
43,896

 
37,189

Gross profit
170,404

 
158,831

Operating expenses:
 

 
 

Research and development
39,523

 
34,772

Sales and marketing
84,057

 
67,709

General and administrative
18,487

 
15,685

Amortization of intangible assets
1,988

 
1,652

Facilities restructuring and facility lease termination costs

 
710

Acquisitions and other charges
1,650

 
286

Total operating expenses
145,705

 
120,814

Income from operations
24,699

 
38,017

Interest income
890

 
1,175

Interest expense
(120
)
 
(124
)
Other expense, net
(68
)
 
(353
)
Income before income taxes
25,401

 
38,715

Income tax provision
7,494

 
12,186

Net income
$
17,907

 
$
26,529

Basic net income per common share
$
0.17

 
$
0.25

Diluted net income per common share
$
0.16

 
$
0.24

Shares used in computing basic net income per common share
107,669

 
107,576

Shares used in computing diluted net income per common share
111,263

 
112,792

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,
 
2013
 
2012
Net income
$
17,907

 
$
26,529

Other comprehensive income:
 
 
 
Change in foreign currency translation adjustment, net of tax benefit (expense) of $303 and $(84)
(6,968
)
 
4,133

Available-for-sale investments:
 
 
 
Change in net unrealized gain (loss), net of tax benefit (expense) of $44 and $(232)
(71
)
 
438

Less: reclassification adjustment for net loss included in net income, net of tax benefit of $3 and $ —
4

 

Net change, net of tax benefit (expense) of $41 and $(232)
(67
)
 
438

Cash flow hedges:
 
 
 
Change in unrealized gain, net of tax (expense) of $(103) and $(439)
169

 
717

Less: reclassification adjustment for net (gain) loss included in net income, net of tax benefit (expense) of $(2) and $77
(3
)
 
126

Net change, net of tax (expense) of $(101) and $(516)
166

 
843

Total other comprehensive income (loss), net of tax effect
(6,869
)
 
5,414

Total comprehensive income, net of tax effect
$
11,038

 
$
31,943

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,
 
2013
 
2012
Operating activities:
 
 
 
Net income
$
17,907

 
$
26,529

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

 
 

Depreciation and amortization
3,687

 
2,247

Share-based compensation
13,530

 
10,618

Deferred income taxes
(2,318
)
 
(1,766
)
Tax benefits from share-based compensation
2,692

 
5,692

Excess tax benefits from share-based compensation
(2,845
)
 
(5,190
)
Amortization of intangible assets and acquired technology
7,712

 
7,283

Other operating activities, net

 
871

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
45,584

 
50,237

Prepaid expenses and other assets
362

 
11,014

Accounts payable and accrued liabilities
(26,231
)
 
(29,579
)
Income taxes payable
338

 
(1,513
)
Accrued facilities restructuring charges

 
(23,977
)
Deferred revenues
15,162

 
20,120

Net cash provided by operating activities
75,580

 
72,586

Investing activities:
 

 
 

Purchases of property and equipment
(3,236
)
 
(132,178
)
Purchases of investments
(110,663
)
 
(80,129
)
Investment in equity interest, net

 
22

Maturities of investments
58,119

 
12,841

Sales of investments
23,273

 
40,831

Business acquisitions, net of cash acquired
(7,464
)
 

Net cash used in investing activities
(39,971
)
 
(158,613
)
Financing activities:
 

 
 

Net proceeds from issuance of common stock
22,011

 
20,495

Repurchases and retirement of common stock
(21,994
)
 

Withholding taxes related to restricted stock units net share settlement
(2,849
)
 
(2,997
)
Payment of contingent consideration
(520
)
 
(3,120
)
Excess tax benefits from share-based compensation
2,845

 
5,190

Purchase of acquiree stock
(2,667
)
 

Net cash provided by (used in) financing activities
(3,174
)
 
19,568

Effect of foreign exchange rate changes on cash and cash equivalents
(3,939
)
 
1,874

Net increase (decrease) in cash and cash equivalents
28,496

 
(64,585
)
Cash and cash equivalents at beginning of period
190,127

 
316,835

Cash and cash equivalents at end of period
$
218,623

 
$
252,250

See accompanying notes to condensed consolidated financial statements.

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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, 2013 and 2012 are unaudited. The interim results presented are not necessarily indicative of results for any subsequent interim period, the year ending December 31, 2013, 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.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
In November 2012, the Company acquired a majority interest in the shares of Heiler Software AG at the end of the initial acceptance period of the takeover offer. The Company has consolidated the financial results of Heiler Software AG with its financial results. The noncontrolling interest position is reported as a separate component of consolidated equity from the equity attributable to the Company's stockholders for all periods presented. The noncontrolling interest in the Company's net income was not significant to consolidated results for the first quarter of 2013 and therefore has been included as a component of other income (expense), net in the condensed consolidated statements of income.
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, 2012 included in the Company's Annual Report on Form 10-K filed with the SEC. The consolidated balance sheet as of December 31, 2012 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 year ended December 31, 2012.
Certain reclassifications have been made within the condensed consolidated statement of cash flows to conform to the current year presentation. In addition, during the first quarter of 2013, the Company performed a review of the presentation of certain of its revenue categories and adopted a revised presentation, which the Company believes more accurately reflects its evolving product and service offerings. A change was made to rename other revenues to subscription revenues and to present subscription revenues and license revenues as software revenues. Other revenues were previously presented in services revenues. A corresponding change was made to present cost of license revenues and cost of other revenues as cost of software revenues. This change in presentation will not affect total revenues, total cost of revenues or total gross margin. Conforming changes have been made for all prior periods presented. Subscription revenues of $5.8 million and cost of subscription revenues of $0.7 million for the three months ended March 31, 2012 were reclassified from service revenues and cost of service revenues to software revenues and cost of software revenues, respectively.
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2011-11, Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities, 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

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


arrangements on the financial position. In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. The Company adopted both standards as required on January 1, 2013. Adoption of ASU 2011-11 and ASU 2013-01 did not impact the Company's condensed consolidated financial statements.
In July 2012, the FASB issued ASU No. 2012-02 Testing Indefinite-Lived Intangible Assets, to simplify how entities test indefinite-lived intangible assets other than goodwill for impairment. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards. ASU 2012-02 is effective for the Company's impairment test in October 2013 and early adoption is permitted. The Company does not expect its adoption of ASU 2012-02 to have an impact on the condensed consolidated financial statements and disclosures.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220) - Reporting of Amounts Reclassified Out Of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to present, either parenthetically on the face of its statement where net income is presented or in a note, the effect of significant reclassifications out of accumulated other comprehensive income by the respective income statement line items if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference to the other disclosures where additional details about the effect of the reclassifications are disclosed. The Company adopted ASU 2013-02 prospectively as required on January 1, 2013. The Company has elected to present the required information in a single footnote as this will provide a clearer presentation of the items reclassified from accumulated other comprehensive income to net income. Adoption of this new amended guidance did not have a material impact on the Company's disclosures to its financial statements.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. ASU 2013-05 clarifies that the cumulative translation adjustment (“CTA”) should be released into net income upon the occurrence of certain qualifying events. ASU 2013-05 will be effective for the Company in 2014 with early adoption permitted, which will be applied prospectively. The Company is currently evaluating the impact of its pending adoption of ASU 2013-05 on its consolidated financial statements and disclosures.
There have been no other changes in our critical accounting policies since the end of 2012.

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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, 2013 (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds (i)
$
12,948

 
$
12,948

 
$

 
$

Time deposits (ii)
18,128

 
18,128

 

 

Marketable debt securities (ii)
358,718

 

 
358,718

 

Total money market funds, time deposits, and marketable debt securities
389,794

 
31,076

 
358,718

 

Foreign currency derivatives (iii)
102

 

 
102

 

Total assets
$
389,896

 
$
31,076

 
$
358,820

 
$

Liabilities:
 

 
 

 
 

 
 

Foreign currency derivatives (iv)
$
70

 
$

 
$
70

 
$

Acquisition-related contingent consideration (v)
8,908

 

 

 
8,908

Total liabilities
$
8,978

 
$

 
$
70

 
$
8,908

The following table summarizes financial assets and financial liabilities that the Company measures at fair value on a recurring basis as of December 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)
$
18,565

 
$
18,565

 
$

 
$

Time deposits (ii)
17,437

 
17,437

 

 

Marketable debt securities (ii)
328,041

 

 
328,041

 

Total money market funds, time deposits, and marketable debt securities
364,043

 
36,002

 
328,041

 

Total assets
$
364,043

 
$
36,002

 
$
328,041

 
$

Liabilities:
 

 
 

 
 

 
 

Foreign currency derivatives (iv)
$
408

 
$

 
$
408

 
$

Acquisition-related contingent consideration (v)
9,230

 

 

 
9,230

Total liabilities
$
9,638

 
$

 
$
408

 
$
9,230

____________________
(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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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 third party pricing source for each security. If the market price is not available from the third party source, pricing from the Company's investment custodian is used.
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 include spot and forward rates, interest rates, and credit derivative market rates. 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. Credit default swap spread curves 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 thirteen 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, 2013 and 2012.
See Note 5. Accumulated Other Comprehensive Income (Loss), Note 6. Derivative Financial Instruments, and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.
Acquisition-related Contingent Consideration
The Company 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. There were no transfers into or out of the Level 3 category during the three months ended March 31, 2013 and 2012. The change in fair value of acquisition-related contingent consideration is included in acquisitions and other charges in the condensed consolidated statements of income.

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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, 2013 consisted of the following (in thousands):
 
March 31,
2013
Beginning balance as of December 31, 2012
$
9,230

Additions from new acquisition

Change in fair value of contingent consideration
198

Payment of contingent consideration
(520
)
Ending balance as of March 31, 2013
$
8,908


See Note 14. 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 gains recognized for the three months ended March 31, 2013 and 2012 were negligible. 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, 2013 (in thousands):
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
203,076

 
$

 
$

 
$
203,076

Cash equivalents:
 

 
 

 
 

 
 

Money market funds
12,948

 

 

 
12,948

Commercial paper
2,599

 

 

 
2,599

Total cash equivalents
15,547

 

 

 
15,547

Total cash and cash equivalents
218,623

 

 

 
218,623

Short-term investments:
 

 
 

 
 

 
 

Certificates of deposit
240

 

 

 
240

Commercial paper
5,291

 

 

 
5,291

Corporate notes and bonds
184,921

 
284

 
(116
)
 
185,089

Federal agency notes and bonds
94,161

 
94

 
(10
)
 
94,245

Time deposits
18,128

 

 

 
18,128

U.S. government notes and bonds
7,066

 
14

 

 
7,080

Municipal notes and bonds
64,158

 
49

 
(33
)
 
64,174

Total short-term investments
373,965

 
441

 
(159
)
 
374,247

Total cash, cash equivalents, and short-term investments (i)
$
592,588

 
$
441

 
$
(159
)
 
$
592,870

____________________
(i)
Total estimated fair value above included $389.8 million comprised of cash equivalents and short-term investments at March 31, 2013.


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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, 2012 (in thousands):
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
171,562

 
$

 
$

 
$
171,562

Cash equivalents:
 

 
 

 
 

 
 

Money market funds
18,565

 

 

 
18,565

Total cash equivalents
18,565

 

 

 
18,565

Total cash and cash equivalents
190,127

 

 

 
190,127

Short-term investments:
 

 
 

 
 

 
 

Certificates of deposit
2,246

 
3

 

 
2,249

Commercial paper
6,294

 

 

 
6,294

Corporate notes and bonds
151,133

 
322

 
(56
)
 
151,399

Federal agency notes and bonds
104,961

 
128

 
(10
)
 
105,079

Time deposits
17,437

 

 

 
17,437

U.S. government notes and bonds
7,094

 
18

 

 
7,112

Municipal notes and bonds
55,922

 
18

 
(32
)
 
55,908

Total short-term investments
345,087

 
489

 
(98
)
 
345,478

Total cash, cash equivalents, and short-term investments (i)
$
535,214

 
$
489

 
$
(98
)
 
$
535,605

____________________
(i)
Total estimated fair value above included $364.0 million comprised of cash equivalents and short-term investments at December 31, 2012.

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 the Company’s short-term investments, aggregated by investment category that have been in a continuous unrealized loss position for less than twelve months, at March 31, 2013 (in thousands):
 
Less Than 12 months
 
 
 
 
Fair Value
 
Gross
Unrealized
Losses
Corporate notes and bonds
$
67,516

 
$
(116
)
Federal agency notes and bonds
24,569

 
(10
)
Municipal notes and bonds
17,734

 
(33
)
Total
$
109,819

 
$
(159
)
As of March 31, 2013, 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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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, 2013 (in thousands):
 
Cost
 
Fair Value
Due within one year
$
197,416

 
$
197,574

Due in one year to two years
92,560

 
92,703

Due after two years
83,989

 
83,970

Total
$
373,965

 
$
374,247


Note 3.  Intangible Assets and Goodwill
The carrying amounts of the intangible assets other than goodwill as of March 31, 2013 and December 31, 2012 are as follows (in thousands, except years):
 
March 31, 2013
 
December 31, 2012
 
Weighted Average Useful Life
(Years)
 
 
 
Cost
 
Accumulated Amortization
 
Net
 
Cost
 
Accumulated Amortization
 
Net
 
Developed and core technology
$
126,226

 
$
(82,445
)
 
$
43,781

 
$
123,221

 
$
(76,721
)
 
$
46,500

 
6
Other Intangible Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
41,549

 
(31,406
)
 
10,143

 
40,952

 
(30,063
)
 
10,889

 
6
All other (i)
17,201

 
(11,832
)
 
5,369

 
17,208

 
(11,187
)
 
6,021

 
4-11
Total other intangible assets
58,750

 
(43,238
)
 
15,512

 
58,160

 
(41,250
)
 
16,910

 
 
Total intangible assets subject to amortization
184,976

 
(125,683
)
 
59,293

 
181,381

 
(117,971
)
 
63,410

 
 
In-process research and development
3,395

 

 
3,395

 
3,850

 

 
3,850

 
N.A.
Total intangible assets, net
$
188,371

 
$
(125,683
)
 
$
62,688

 
$
185,231

 
$
(117,971
)
 
$
67,260

 
 
____________________
(i)
All other includes vendor relationships, trade names, covenants not to compete, and patents.
Total amortization expense related to intangible assets was $7.7 million and $7.3 million for the three months ended March 31, 2013 and 2012, 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.

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


As of March 31, 2013, 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 2013
$
16,541

 
$
5,725

 
$
22,266

2014
12,142

 
4,676

 
16,818

2015
7,328

 
2,064

 
9,392

2016
4,065

 
1,279

 
5,344

2017
2,408

 
853

 
3,261

Thereafter
1,297

 
915

 
2,212

Total intangible assets subject to amortization
$
43,781

 
$
15,512

 
$
59,293

In the fourth quarter of 2012, the Company recorded in-process research and development (IPR&D) of $3.8 million associated with the acquisition of a majority interest in Heiler Software AG (“Heiler”). 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. Technological feasibility was achieved during the first quarter of 2013 for a portion of the IPR&D valued at $0.4 million from the acquisition of a majority interest of Heiler, which was reclassified to developed technology and will be amortized over the expected useful life of the technology. The remaining $3.4 million of the IPR&D is expected to achieve technological feasibility during the remainder of 2013, and will be transferred into developed technology at that time and amortized over the expected useful life of the technology. See Note 14. Acquisitions for further discussion of intangible assets from acquisitions.
The changes in the carrying amount of goodwill for the three months ended March 31, 2013 are as follows (in thousands):
 
March 31,
2013
Beginning balance as of December 31, 2012
$
510,121

Goodwill from acquisitions
7,121

Subsequent goodwill adjustments
(561
)
Ending balance as of March 31, 2013
$
516,681

During the three months ended March 31, 2013, the Company recorded subsequent goodwill adjustments of $0.6 million which consist of foreign currency translation adjustments of $3.0 million and income tax related balance sheet adjustments of $0.4 million within the measurement period related to prior acquisitions, partially offset by a $2.8 million measurement period adjustment related to Heiler accrued liabilities. The goodwill is partially deductible for tax purposes. See Note 14. Acquisitions for a further discussion of goodwill from acquisitions.
Note 4.  Borrowings
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, 2013, 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

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


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.
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, 2013.

Note 5.  Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) as of March 31, 2013 and December 31, 2012, and the reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2013, net of taxes, were as follows (in thousands):
 
 
Cumulative Translation Adjustments
 
Net Unrealized Gain (Loss) on Available-for-Sale Investments
 
Net Unrealized Gain (Loss) on Cash Flow Hedges
 
Total
Accumulated other comprehensive income (loss) as of December 31, 2012
 
$
(8,012
)
 
$
242

 
$
(260
)
 
$
(8,030
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications, net of tax benefit (expense) of $303, $44 and $(103)
 
(6,968
)
 
(71
)
 
169

 
(6,870
)
Net (gain) loss reclassified from accumulated other comprehensive income (loss), net of tax benefit (expense) of $ —, $3 and $(2)
 

 
4

(i) 
(3
)
(ii) 
1

Total other comprehensive income (loss), net of tax effect
 
(6,968
)
 
(67
)
 
166

 
(6,869
)
Accumulated other comprehensive income (loss) as of March 31, 2013
 
$
(14,980
)
 
$
175

 
$
(94
)
 
$
(14,899
)
____________________
(i)
Included in other income (expense), net on the condensed consolidated income statements.
(ii)
Included in operating expenses on the condensed consolidated income statements.
The Company did not have any other-than-temporary gain or loss reflected in accumulated other comprehensive income (loss) as of March 31, 2013 and December 31, 2012.
The Company 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 6. Derivative Financial Instruments, and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.


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


Note 6.  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 Indian rupee. The Company is currently using foreign exchange forward contracts to hedge certain non-functional currency anticipated expenses for its subsidiary in India.
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 based on its historical performance and its projected financial plan. As of March 31, 2013, the remaining open foreign exchange contracts, carried at fair value, are hedging Indian rupee expenses and have a maturity of thirteen months or less. These foreign exchange contracts mature monthly as the foreign currency denominated expenses are paid and any gain or loss is offset against operating expense. Once the hedged item is recognized, the cash flow hedge is de-designated and subsequent changes in value are recognized in other income (expense) to offset changes in the value of the resulting non-functional currency monetary liabilities.
The notional amounts of these foreign exchange forward contracts in U.S. dollar equivalents were $25.1 million and $23.6 million as of March 31, 2013 and December 31, 2012, respectively.
Balance Sheet Hedges
Balance Sheet hedges are cash flow hedging contracts that have been de-designated. 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 $2.4 million and $2.7 million to buy at March 31, 2013 and December 31, 2012, respectively.
The following table reflects the fair value amounts for the foreign exchange contracts designated and not designated as hedging instruments at March 31, 2013 and December 31, 2012 (in thousands):
 
March 31, 2013
 
December 31, 2012
 
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
$
68

 
$
70

 
$

 
$
224

Derivatives not designated as hedging instruments
34

 

 

 
184

Total fair value of derivative instruments
$
102

 
$
70

 
$

 
$
408

____________________
(i)
Included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
(ii)
Included in accrued liabilities on the condensed consolidated balance sheets.
The Company presents its derivative assets and derivative liabilities at gross fair values in the condensed consolidated balance sheets. However, under the master netting agreements with the respective counterparties of the foreign exchange contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same currency with a single net amount payable by one party to the other. As of March 31, 2013 and December 31, 2012, the potential effect of rights of set off associated with the above foreign exchange contracts would result in a negligible net derivative asset and a negligible net derivative liability. The Company is not required to pledge nor is entitled to receive cash collateral related to the above contracts.

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


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 loss and condensed consolidated statements of income for the three months ended March 31, 2013 and 2012 are as follows (in thousands):
 
Three Months Ended
March 31,
 
2013
 
2012
Amount of gain recognized in other comprehensive income (effective portion)
$
272

 
$
1,156

Amount of gain (loss) reclassified from accumulated other comprehensive income to operating expenses (effective portion)
$
5

 
$
(203
)
Amount of gain recognized in income on derivatives for the amount excluded from effectiveness testing located in operating expenses
$
70

 
$
460

The Company did not have any ineffective portion of the derivative recorded in the condensed consolidated statements of income.
The gain (loss) recognized in other income (expense), net for non-designated foreign currency forward contracts for the three months ended March 31, 2013 and 2012 is as follows (in thousands):
 
Three Months Ended
March 31,
2013
 
2012
Gain (loss) recognized in interest and other income (expense), net
$
21

 
$
(173
)
See Note 1. Summary of Significant Accounting Policies and Note 5. Accumulated Other Comprehensive Income (Loss) of Notes to Condensed Consolidated Financial Statements for a further discussion.

Note 7.  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. In July 2012, the Board of Directors approved the repurchase of up to an additional $100.0 million of the Company's outstanding common stock.
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, 2013, the Company repurchased approximately 609,572 shares of its common stock at a cost of $22.0 million. There were no repurchases of the common stock during the three months ended March 31, 2012.
As of March 31, 2013, $74.1 million remained available for share repurchases under this program.

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


Note 8.  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.
The fair value of the Company’s share-based awards was estimated based on the following assumptions:
 
Three Months Ended
March 31,
 
2013
 
2012
Option grants:

 
 
Expected volatility
41 - 43%

 
42
%
Weighted-average volatility
41
%
 
42
%
Expected dividends

 

Expected term of options (in years)
3.3

 
3.3

Risk-free interest rate
0.6
%
 
0.5
%
ESPP: (i)
 
 
 
Expected volatility
42
%
 
43
%
Weighted-average volatility
42
%
 
43
%
Expected dividends

 

Expected term of ESPP (in years)
0.5

 
0.5

Risk-free interest rate
0.1
%
 
0.1
%
____________________
(i)
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 and three months ended March 31, 2013 and 2012 are as follows (in thousands):
 
Three Months Ended
March 31,
 
2013
 
2012
Cost of service revenues
$
1,330

 
$
1,087

Research and development
4,440

 
3,485

Sales and marketing
4,689

 
3,338

General and administrative
3,071

 
2,708

Total share-based compensation
13,530

 
10,618

Tax benefit of share-based compensation
(3,640
)
 
(2,718
)
Total share-based compensation, net of tax benefit
$
9,890

 
$
7,900


Note 9.  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 had an original expiration date in July 2013. As a result of the 2004 Restructuring

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


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 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.
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.
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. 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.
For the three months ended March 31, 2012, prior to the purchase of the Company's former corporate headquarters, 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. There were no further charges after the close of the first quarter of 2012, and no accrued facilities restructuring charges recorded as of March 31, 2013.
Note 10.  Income Taxes
The Company's effective tax rates were 30% and 31% for the three months ended March 31, 2013 and 2012, respectively. The effective tax rate for the three months ended March 31, 2013 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 impact of the domestic manufacturing deduction pursuant to Section 199 of the Internal Revenue Code, and the recognition of the 2012 and 2013 federal research and development credits, partially offset by non-deductible share-based compensation, state income taxes, non-deductible acquisition related costs, and the accrual of reserves related to uncertain tax positions. The Company's effective annual tax rate will continue to be very sensitive to the geographic mix of earnings. 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 partially offset by non-deductible share-based compensation, state income taxes, and the accrual of reserves related to uncertain tax positions. As of March 31, 2013, the Company has not provided for residual U.S. taxes in any of these lower-tax jurisdictions since it intends to indefinitely reinvest the net undistributed earnings of its foreign subsidiaries offshore.
 ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. In assessing the need for any additional valuation allowance in the quarter ended March 31, 2013, the Company considered all available evidence both positive and negative, including historical levels of income, legislative developments, expectations

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


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, 2013, consistent with prior periods, it was considered more likely than not that the Company's non-share-based payments related deferred tax assets would be realized except for any increase to the deferred tax asset related to the California research and development credit. A valuation allowance has been recorded against this portion of the credit, even though this attribute has an indefinite life. 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 $19.8 million and $16.0 million as of March 31, 2013 and 2012, respectively. The Company has elected to include interest and penalties as a component of tax expense. Accrued interest and penalties as of March 31, 2013 and 2012 were approximately $2.5 million and $2.5 million, respectively. As of March 31, 2013, the gross uncertain tax position was approximately $22.1 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. Most state and foreign jurisdictions have three to six open tax years at any point in time. The field work for certain state and foreign audits has commenced and is at various stages of completion as of March 31, 2013.
Although the outcome of any tax audit is uncertain, the Company believes that it has adequately provided in its financial statements for any additional taxes that it may be required to pay as a result of such examinations. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes, and believes its current reserve to be reasonable. If tax payments ultimately prove to be unnecessary, the reversal of these tax liabilities would result in tax benefits in the period that the Company had determined such liabilities were no longer necessary. However, if an ultimate tax assessment exceeds its estimate of tax liabilities, an additional tax provision might be required.

Note 11.  Net Income per Common Share
The following table sets forth the calculation of basic and diluted net income per share for the three months ended March 31, 2013 and 2012 (in thousands, except per share amounts):
 
Three Months Ended
March 31,
 
2013
 
2012
Net income
$
17,907

 
$
26,529

Weighted-average shares of common stock used to compute basic net income per share (excluding unvested restricted stock)
107,669

 
107,576

Effect of dilutive common stock equivalents:
 
 
 
Dilutive effect of unvested restricted stock units
322

 
473

Dilutive effect of employee stock options
3,272

 
4,743

Shares used in computing diluted net income per common share
111,263

 
112,792

Basic net income per common share
$
0.17

 
$
0.25

Diluted net income per common share
$
0.16

 
$
0.24

Weighted average stock options and restricted stock units excluded from calculation due to anti-dilutive effect
5,554

 
2,442


Note 12.  Commitments and Contingencies
Lease Obligations
In December 2004, the Company relocated its corporate headquarters within Redwood City, California and entered into a new lease agreement for two buildings at 100 and 200 Cardinal Way. 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

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


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 payment is $2.7 million for the remainder of 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 majority of the vacated space. The majority of the 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 expects to receive payments from the tenants of approximately $3.4 million as the owner of the buildings, which include rental income of $1.6 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 $1.8 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 downturn, time periods required to locate and contract suitable leases, and market rates at the time of leases. Currently, the Company has leased the majority of 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, 2013 under non-cancelable operating leases with original terms in excess of one year are summarized as follows (in thousands):
 
 
Operating
Leases
Remaining 2013
$
9,825

2014
8,692

2015
7,880

2016
4,243

2017
2,361

Thereafter
3,605

Total future minimum operating lease payments
$
36,606

Warranties
The Company generally provides a warranty for its software products and services to its customers for a period of three to six months. 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, 2013 and December 31, 2012 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.

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


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, 2013. 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.
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 5. Accumulated Other Comprehensive Income (Loss), and Note 6. Derivative Financial Instruments of Notes to Condensed Consolidated Financial Statements for a further discussion.
Litigation
The Company is 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.
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 13.  Significant Customer Information and Segment Information
The Company is organized and operates in a single segment:  the design, development, marketing, and sales of software solutions. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Company markets its products and services in the United States and in foreign countries through its direct sales force and indirect distribution channels.
No customer accounted for more than 10% of revenue in the three months ended March 31, 2013 and 2012. At March 31, 2013 and December 31, 2012, 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 33% and 35% of total revenues in the first quarter of 2013 and 2012, respectively.

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


Total revenue by geographic region is summarized as follows (in thousands):
 
Three Months Ended
March 31,
 
2013
 
2012
Revenues:
 
 
 
North America
$
143,480

 
$
128,180

Europe
46,426

 
43,422

Other
24,394

 
24,418

Total revenues
$
214,300

 
$
196,020

Property and equipment, net by geographic region are summarized as follows (in thousands):
 
March 31,
2013
 
December 31,
2012
Property and equipment, net:
 
 
 
North America
$
135,839

 
$
135,388

Europe
2,812

 
3,282

Other
6,427

 
6,804

Total property and equipment, net
$
145,078

 
$
145,474


Note 14.  Acquisitions
Acquisition in the first quarter of 2013:
On February 15, 2013, the Company acquired Active Endpoints, Inc. (“Active Endpoints”), a privately-held company, for approximately $10.0 million in cash. Active Endpoints designs, markets, and supports on-premise and cloud based process automation software solutions. Total assets acquired and liabilities assumed was approximately $10.0 million of which approximately $7.1 million was allocated to goodwill, $3.8 million was allocated to identifiable intangible assets, and $0.9 million to net liabilities assumed. The goodwill is not deductible for tax purposes.
Approximately $1.5 million of the consideration otherwise payable to former Active Endpoints stockholders was placed into an escrow and held as partial security for certain indemnification obligations. The escrow fund will remain in place until May 2014.
Acquisitions in 2012:
Heiler Software AG
In November 2012, the Company acquired a majority interest in the shares of Heiler Software AG ("Heiler"), a publicly-traded German company, at the end of the initial acceptance period of the takeover offer. The Company purchased the majority interest at a price of 7.04 Euro per share in cash, or approximately $101.9 million. Heiler provides enterprise product information management, master data management and procurement solutions that enable retailers, distributors and manufacturers to manage product information across channels and data sources. The Company has consolidated the financial results of Heiler financial results with its financial results. As of December 31, 2012, the Company held approximately 97.7% of the outstanding shares of Heiler. During December 2012 and the first quarter of 2013, the Company purchased additional outstanding shares for approximately $3.1 million, for total cash consideration of $105.0 million. As of March 31, 2013, the Company held approximately 98.2% of the outstanding shares of Heiler. In April 2013, the squeeze-out of remaining shareholders was approved at Heiler's general shareholder meeting. The Company intends to take further measures under German laws in order to fully integrate Heiler's business with its business, which the Company expects will be complete in late 2013.
The fair value of the noncontrolling interest in Heiler at the acquisition date was $2.9 million. The valuation techniques and significant inputs used to measure the fair value of the noncontrolling interest included quoted market prices.

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


The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date (in thousands):
Net tangible assets
$
16,400

Identifiable intangible assets:
 
Developed and core technology
16,586

Customer relationships
5,339

Contract backlog
648

Trade names
298

In-process research and development
3,784

Noncontrolling interest
(2,861
)
Total identifiable net assets
40,194

Goodwill
61,660

Total cash consideration
101,854

During the first quarter of 2013, the Company recorded $2.8 million of additional accrued liabilities. The allocation of the purchase price consideration was based upon a preliminary valuation and the Company's estimates and assumptions are subject to change as the Company acquires additional outstanding shares and obtains additional information for estimates within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized are amounts for income tax assets and liabilities. The goodwill is not deductible for tax purposes.
Other Acquisitions in 2012
In addition, during 2012 the Company acquired Data Scout Solutions Group Limited and TierData, Inc., both of which were privately-held companies, for an aggregate consideration of approximately $12.0 million in cash. Total assets acquired and liabilities assumed was approximately $15.0 million of which approximately $3.9 million was allocated to identifiable intangible assets, $3.9 million to net liabilities assumed, and $15.0 million was allocated to goodwill, which is partially deductible for tax purposes. Total acquiree transaction related costs and other liabilities was approximately $1.9 million, and include legal, accounting, and consulting fees as of the date of the acquisitions.
Approximately $2.8 million of the consideration otherwise payable to former shareholders was held as partial security for certain indemnification obligations, and will be held back for payment until March 2014.
At the time of these two acquisitions, the Company was obligated to pay up to an additional $6.0 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. The fair market value and gross amount of these earn-out payments were $4.9 million and $6.0 million, respectively. The fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement, which reflect the Company's own assumptions in measuring fair value. The Company paid $0.2 million each in earn-out payments during the year ended December 31, 2012 and three months ended March 31, 2013. The fair value of the contingent consideration liability associated with these earn-outs was $4.5 million as of March 31, 2013.
The Company's business combinations completed in the first quarter of 2013 and 2012 did not have a material impact on the Company's condensed consolidated financial statements, and therefore pro forma disclosures have not been presented.


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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 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, subscription services, and from sales of services, which consist of maintenance, consulting, and education services.
We receive software 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 also receive an increasing amount of software revenues from our customers and partners under subscription-based licenses for a variety of cloud and address validation offerings. 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. Most of our international sales have been in Europe. Revenues outside of Europe and North America comprised approximately 10% of total consolidated revenues during 2012 and comprised less than 10% during 2011.
During the first quarter of 2013, we performed a review of the presentation of certain of our revenue categories and adopted a revised presentation, which we believe more accurately reflects our evolving product and service offerings. A change was made to rename other revenues to subscription revenues and present subscription revenues and license revenues as software revenues. Other revenues were previously presented in services revenues. A corresponding change was made to present cost of license revenues and cost of other revenues as cost of software revenues. This change in presentation will not affect our total revenues, total cost of revenues or total gross margin. Conforming changes have been made for all prior periods presented. Subscription revenues of $5.8 million and cost of subscription revenues of $0.7 million for the three months ended March 31, 2012 were reclassified from service revenues and cost of service revenues to software revenues and cost of software revenues, respectively.
We license our software and provide services to many industry sectors, including, but not limited to, automotive, energy and utilities, entertainment/media, financial services, healthcare, high technology, insurance, manufacturing, public sector, retail, services, telecommunications, and travel/transportation. Financial services remains our largest vertical industry sector.
Total revenues in the first quarter of 2013 increased by 9% to $214.3 million compared to $196.0 million for the same period in 2012. Software revenues increased by 2% in the first quarter of 2013 from the same period in 2012 due to a 69% increase in subscription revenues, partially offset by a decrease of 2% in license revenues, compared to the same period in 2012. The decrease in license revenues reflected a decrease in the average transaction size of license orders in the quarter ended March 31, 2013, compared to the same period in 2012. The increase in subscription revenues was due to growth in the installed customer base and higher customer demand of subscription offerings. Services revenues increased by 15% in the first quarter of 2013 from the same period in 2012 due to an 11% growth in maintenance revenues and a 27% increase in consulting and education services. The maintenance revenues growth was attributable to the increased size of our installed customer base, and the increase in consulting and education services was due to an increase in consulting revenues due to higher customer demand. Our operating income as a percentage of revenues decreased to 12% in the first quarter of 2013 from 19% in the first quarter of 2012.

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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 in Europe, continue to experience uncertainty driven by varying macroeconomic conditions. Although some of these economies have shown signs of improvement, macroeconomic recovery remains uncertain and 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 several of our vertical markets, particularly the financial services and public sectors. These conditions have also adversely affected the buying patterns of customers and our overall pipeline conversion rate, as well as our revenue growth expectations. Furthermore, we have made incremental investments in Asia-Pacific and Latin America, and have continued investing 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. Moreover, because of current macroeconomic uncertainty, there is increased competition for the allocation of customers' IT budget dollars.
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. The first and fourth quarters of 2012, and the first quarter of 2013 followed these seasonal trends. However, license revenues in the second and third quarters of 2012 were lower as compared to the first quarter of 2012. The uncertain macroeconomic conditions and recent changes in our sales organization, particularly the recent transition in our EMEA sales leadership, make our future results more difficult to predict based on historical seasonal trends.
We focus on a number of key initiatives to address these factors and other opportunities and challenges. These key initiatives include 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 both our existing products and technologies as well as new products and technologies, the alignment of our worldwide sales and field operations with company-wide initiatives and the implementation of a more rigorous sales process, 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 continue to grow our business at our historic growth rates.
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 warehousing products and more strategic data integration solutions beyond data warehousing, including enterprise data integration,

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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 or enhancements to our existing 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.
We continue to implement changes in our worldwide sales and field operations to address recent sales execution challenges and improve performance, particularly with respect to our pipeline generation and management capabilities, the reliability of our pipeline estimates and our pipeline conversion rates. In addition to the sales leadership transitions, including the recent change in our EMEA sales organization, we are also implementing pipeline generation and management initiatives and more rigorous sales planning and processes. 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. As we continue to implement further changes, we may experience increased sales force turnover and additional disruption to our ongoing operations. These changes may also take longer to implement than expected, which may adversely affect our sales force productivity. 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.
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 year ended December 31, 2012.
There have been no other changes in our critical accounting policies since the end of 2012.
Recent Accounting Pronouncements
For recent accounting pronouncements, see Note 1. Summary of Significant Accounting Policies 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 months ended March 31, 2013 and 2012 as a percentage of total revenues:
 
Three Months Ended
March 31,
 
2013
 
2012
Revenues:
 
 
 
Software
41
 %
 
44
 %
Service
59

 
56

Total revenues
100

 
100

Cost of revenues:


 


Software
1

 
1

Service
16

 
15

Amortization of acquired technology
3

 
3

Total cost of revenues
20

 
19

Gross profit
80

 
81

Operating expenses:


 


Research and development
18

 
18

Sales and marketing
39

 
35

General and administrative
9

 
8

Amortization of intangible assets
1

 
1

Facilities restructuring and facility lease termination costs

 

Acquisitions and other charges
1

 

Total operating expenses
68

 
62

Income from operations
12

 
19

Interest income

 
1

Interest expense

 

Other expense, net

 

Income before income taxes
12

 
20

Income tax provision
4

 
6

Net income
8
 %
 
14
 %

Revenues
Our total revenues increased to $214.3 million for the three months ended March 31, 2013 compared to $196.0 million for the three months ended March 31, 2012, representing an increase of $18.3 million (or 9%), primarily due to increases in maintenance, consulting and education service revenues as a result of growth in our customer installed base and higher customer demand.

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The following table and discussion compare our revenues by type for the three months ended March 31, 2013 and 2012 (in thousands, except percentages):
 
Three Months Ended March 31,
 
2013
 
2012
 
Percentage
Change
Software revenues:
 
 
 
 
 
License
$
78,133

 
$
80,108

 
(2
)%
Subscription
9,773

 
5,783

 
69
 %
Total software revenues
87,906

 
85,891

 
2
 %
Service revenues:
 
 
 
 
 
Maintenance
95,903

 
86,038

 
11
 %
Consulting and education
30,491

 
24,091

 
27
 %
Total service revenues
126,394

 
110,129

 
15
 %
Total revenues
$
214,300

 
$
196,020

 
9
 %
Software Revenues
License Revenues
Our license revenues decreased slightly to $78.1 million (or 36% of total revenues) for the three months ended March 31, 2013 from $80.1 million (or 41% of total revenues) for the three months ended March 31, 2012. The decrease in license revenues of $2.0 million (or 2%) for the three months ended March 31, 2013 compared to the same period in 2012 was primarily due to a decrease in the average transaction size of license orders in the quarter ended March 31, 2013, compared to the same period in 2012. The average transaction amount for orders greater than $100,000 in the first quarter of 2013, including upgrades for which we charge customers an additional fee, decreased to $409,000 from $485,000 in the first quarter of 2012.
The number of transactions greater than $1.0 million increased to 19 in the first quarter of 2013 compared to 11 in the first quarter of 2012. The total number of new customers that we added in the first quarters of 2013 and 2012, including the number of customers added through acquisitions, was 126 and 47, respectively. We had license transactions with 247 existing customers in first quarter of 2013 compared to 250 for the same period in 2012.
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.
Subscription Revenues
Subscription revenues, which primarily represent revenues from customers and partners under subscription-based licenses for a variety of cloud and address validation offerings, increased to $9.8 million (or 5% of total revenues) for the three months ended March 31, 2013 compared to $5.8 million (or 3% of total revenues) for the three months ended March 31, 2012. The increase of $4.0 million (or 69%) in subscription revenues for the three months ended March 31, 2013, compared to the same period in 2012 was primarily due to an increase in the installed base of subscription customers and higher customer demand.
For the remainder of 2013, we expect our revenues from subscription revenues to increase from the comparable 2012 levels primarily due to our growing installed customer base and an anticipated increase in demand for subscription offerings.
Service Revenues
Maintenance Revenues
Maintenance revenues increased to $95.9 million (or 45% of total revenues) for the three months ended March 31, 2013 compared to $86.0 million (or 44% of total revenues) for the three months ended March 31, 2012. The increase of $9.9 million (or 11%) in maintenance revenues for the three months ended March 31, 2013, compared to the same period in 2012 was primarily due to the increasing size of our installed customer base, including those customers acquired through our recent acquisitions. See Note 14. Acquisitions of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
For the remainder of 2013, we expect maintenance revenues to increase from the comparable 2012 levels due to our growing installed customer base.

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Consulting and Education Revenues
Consulting and education revenues increased to $30.5 million (or 14% of total revenues) for the three months ended March 31, 2013 compared to $24.1 million (or 12% of total revenues) for the three months ended March 31, 2012. The increase of $6.4 million (or 27%) in consulting and education revenues for the three months ended March 31, 2013, compared to the same period in 2012 was primarily due to an increase in consulting revenues as a result of higher customer demand.
For the remainder of 2013, we expect our revenues from consulting and education revenues to increase from the comparable 2012 levels primarily due to an anticipated increase in demand for consulting services.
International Revenues
Our international revenues were $70.8 million (or 33% of total revenues) and $67.8 million (or 35% of total revenues) for the three months ended March 31, 2013 and 2012, respectively. The increase of $3.0 million (or 4%) in international revenues for the three months ended March 31, 2013 compared to the same period in 2012 was primarily due to increases in maintenance and consulting revenues in Europe, partially offset by a decline in software revenues in Europe, Latin America and Asia.
For the remainder of 2013, we expect our international revenues as a percentage of total revenues to be relatively consistent with the comparable 2012 levels, subject to the continued macroeconomic uncertainty in Europe.
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, (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, 2013 were approximately $297.1 million compared to $251.9 million at March 31, 2012 and $297.1 million at December 31, 2012. The change in the first quarter of 2013 from the comparable period of 2012 was primarily due to increases in deferred service revenues. 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,
 
2013
 
2012
 
Percentage
Change
Cost of software revenues
$
2,142

 
$
1,824

 
17
%
Cost of service revenues
36,030

 
29,734

 
21
%
Amortization of acquired technology
5,724

 
5,631

 
2
%
Total cost of revenues
$
43,896

 
$
37,189

 
18
%
Cost of software revenues, as a percentage of software revenues
2
%
 
2
%
 
%
Cost of service revenues, as a percentage of service revenues
29
%
 
27
%
 
2
%

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Cost of Software Revenues
Our cost of software revenues is a combination of costs of license and subscription revenues. Cost of license revenues consists primarily of software royalties, product packaging, documentation, and production costs. Cost of subscription revenues 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 software revenues slightly increased to $2.1 million (or 2% of software revenues) for the three months ended March 31, 2013 compared to $1.8 million (or 2% of software revenues) in the same period of 2012. The increase of $0.3 million (or 17%) in cost of software revenues for the three months ended March 31, 2013, compared to the same period in 2012, was primarily due to higher subscription revenues for the three months ended March 31, 2013.
For the remainder of 2013, we expect that our cost of software revenues as a percentage of software revenues to be relatively consistent with the first quarter of 2013.
Cost of Service Revenues
Our cost of service revenues is a combination of costs of maintenance, consulting and education 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 service revenues was $36.0 million (or 29% of service revenues) in the first quarter of 2013 compared to $29.7 million (or 27% of service revenues) in the same period of 2012. The $6.3 million (or 21%) increase in the first quarter of 2013 compared to the same period of 2012 was primarily due to a $4.7 million increase in personnel related costs (including share-based compensation), a $1.2 million increase in subcontractor fees, and a $1.0 million increase in general overhead costs, which were partially offset by a $0.6 million decrease in reimbursable expenses.
For the remainder of 2013, we expect that our cost of service revenues, in absolute dollars, to increase from the 2012 levels, mainly due to headcount increases to support and deliver increased service revenues. We expect the cost of service revenues as a percentage of service revenues for the remainder of 2013 to remain relatively consistent with the first quarter of 2013.
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,
 
2013
 
2012
 
Percentage
Change
Amortization of acquired technology
$
5,724

 
$
5,631

 
2
%
Amortization of acquired technology is the amortization of technologies acquired through business acquisitions and technology licenses. Amortization of acquired technology slightly increased to $5.7 million for the three months ended March 31, 2013 compared to $5.6 million in the same period of 2012.
For the remainder of 2013, we expect the amortization of acquired technology to be approximately $16.5 million before the effect of any potential future acquisitions subsequent to March 31, 2013.
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,
 
2013
 
2012
 
Percentage
Change
Research and development
$
39,523

 
$
34,772

 
14
%

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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 $39.5 million (or 18% of total revenues) for the three months ended March 31, 2013 from $34.8 million (or 18% of total revenues) for the three months ended March 31, 2012. 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 $4.8 million (or 14%) increase in first quarter of 2013 compared to the same period of 2012 was primarily due to a $3.5 million increase in personnel-related costs (including share-based compensation) as a result of increased headcount and a $1.3 million increase in general overhead costs.
For the remainder of 2013, we expect research and development expenses as a percentage of total revenues to be relatively consistent with or slightly decrease from the first quarter of 2013.
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,
 
2013
 
2012
 
Percentage
Change
Sales and marketing
$
84,057

 
$
67,709

 
24
%
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 $84.1 million (or 39% of total revenues) for the three months ended March 31, 2013, compared to $67.7 million (or 35% of total revenues) for the three months ended March 31, 2012.
The $16.3 million (or 24%) increase for the three months ended March 31, 2013 compared to the same period in 2012 was primarily due to a $14.8 million increase in personnel-related costs, a $1.1 million increase in general overhead costs, and a $0.4 million increase in marketing programs. Personnel-related costs include salaries, employee benefits, sales commissions, and share-based compensation. Sales and marketing headcount increased from 872 in March 2012 to 996 in March 2013. The sales and marketing expenses as a percentage of total revenues increased by 4 percentage points in the first quarter of 2013 compared to the same period in 2012 primarily due to an increase in headcount and personnel costs.     
For the remainder of 2013, we expect sales and marketing expenses as a percentage of total revenues to be relatively consistent with the first quarter of 2013. 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,
 
2013
 
2012
 
Percentage
Change
General and administrative
$
18,487

 
$
15,685

 
18
%
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, tax and accounting services. General and administrative expenses increased to $18.5 million (or 9% of total revenues) for the three months ended March 31, 2013 compared to $15.7 million (or 8% of total revenues) for the three months ended March 31, 2012.
The $2.8 million (or 18%) increase for the three months ended March 31, 2013 compared to the same period in 2012 was primarily due to a $1.6 million increase in personnel-related costs (including share-based compensation) as a result of increased headcount and a $1.2 million increase in general overhead costs.

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For the remainder of 2013, we expect general and administrative expenses as a percentage of total revenues to be relatively consistent with or slightly decrease from the first quarter of 2013.
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,
 
2013
 
2012
 
Percentage
Change
Amortization of intangible assets
$
1,988

 
$
1,652

 
20
%
Amortization of intangible assets is the amortization of customer relationships, vendor relationships, trade names, and covenants not to compete acquired through prior business acquisitions, and patents acquired. Amortization of intangible assets increased to $2.0 million (or 1% of total revenues) for the three months ended March 31, 2013 compared to $1.7 million (or 1% of total revenues) for the three months ended March 31, 2012.
The increase of $0.3 million (or 20%) in amortization of intangible assets for the three months ended March 31, 2013, compared to the same period in 2012 was primarily due to a $0.6 million increase of amortization of intangible assets from the acquisitions of Data Scout Solutions, TierData and Heiler in the second half of 2012, and Active Endpoints in the first quarter of 2013, partially offset by a $0.3 million decrease in amortization of customer relationships acquired before 2012.
For the remainder of 2013, we expect amortization of the remaining intangible assets to be approximately $5.7 million, before the impact of any amortization for any possible intangible assets acquired as part of any potential future acquisitions subsequent to March 31, 2013.
Facilities Restructuring and Facility Lease Termination Costs
The following table sets forth, for the periods indicated, our facilities restructuring and facility lease termination costs (in thousands, except percentages):
 
Three Months Ended March 31,
 
2013
 
2012
 
Percentage
Change
Facilities restructuring and facility lease termination costs
$

 
$
710

 
(100
)%
In February 2012, we purchased the property associated with our former corporate headquarters in Redwood City, California. 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. 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 9. 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, partially offset by a benefit as a result of the reversal of the existing accrued facilities restructuring liability of $20.6 million. There were no further activities after the first quarter of 2012.
2004 Restructuring Plan.  Net cash payments for facilities included in the 2004 Restructuring Plan amounted to $2.4 million for the three months ended March 31, 2012.
2001 Restructuring Plan.  Net cash payments for facilities included in the 2001 Restructuring Plan amounted to $0.3 million for the three months ended March 31, 2012.

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Acquisitions and Other Charges
The following table sets forth, for the periods indicated, our acquisitions and other charges (in thousands, except percentages):
 
Three Months Ended March 31,
 
2013
 
2012
 
Percentage
Change
Acquisitions and other charges
$
1,650

 
$
286

 
477
%
For the three months ended March 31, 2013, acquisition and other charges of $1.7 million primarily consisted of $1.4 million legal, accounting, tax, bankers' and other professional services fees, $0.1 million severance payments to former employees of an acquiree, and $0.2 million accretion related charges for earn-outs and holdbacks associated with prior acquisitions. For the three months ended March 31, 2012, acquisition and other charges of $0.3 million primarily consisted of legal fees and earn-out accretion.
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,
 
2013
 
2012
 
Percentage
Change
Interest income 
$
890

 
$
1,175

 
(24
)%
Interest expense 
(120
)
 
(124
)
 
(3
)%
Other expense, net
(68
)
 
(353
)
 
81
 %
Interest and other expense, net
$
702

 
$
698

 
1
 %
Interest and other expense, net consists primarily of interest income earned on our cash, cash equivalents, and short-term investments, as well as foreign exchange transaction gains and losses, and interest expenses. Interest and other expense, net remained flat at $0.7 million for both the three-months ended March 31, 2013 and 2012.
Income Tax Provision
The following table sets forth, for the periods indicated, our provision for income taxes (in thousands, except percentages):
 
Three Months Ended March 31,
 
2013
 
2012
 
Percentage
Change
Income tax provision
$
7,494

 
$
12,186

 
(39
)%
Effective tax rate
30
%
 
31
%
 
(1
)%
Our effective tax rates were 30% and 31% for the three months ended March 31, 2013 and 2012, respectively. The effective tax rate for the three months ended March 31, 2013 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 impact of the domestic manufacturing deduction pursuant to Section 199 of the Internal Revenue Code, and the recognition of the 2012 and 2013 federal research and development credits, partially offset by non-deductible share-based compensation, state income taxes, nondeductible acquisition related costs, and the accrual of reserves related to uncertain tax positions. 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 partially offset by non-deductible share-based compensation, state income taxes, and the accrual of reserves related to uncertain tax positions. As of March 31, 2013, we have not provided for residual U.S. taxes in any of these lower-tax jurisdictions since we intend to indefinitely reinvest the net undistributed earnings of our foreign subsidiaries offshore.
We are a United States-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. This fact causes our tax rate to be very sensitive to the geographic mix of business. A significant portion of our foreign earnings for the current fiscal year were earned by our Netherlands and other European subsidiaries. Our results of operations will continue to be

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adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and will be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Any further change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.
Our effective tax rate in 2013 continues to be highly dependent on the result of our international operations, the execution of business combinations, the outcome of various tax audits, and the possibility of changes in tax law. For example, our effective tax rate has historically benefited from a U.S. research and development tax credit. Due to the expiration of this credit in 2012, we were unable to recognize any benefit during 2012. In January of 2013, the U.S. research and development tax credit was reinstated retroactively. Due to the timing of the enactment, we recognized the entire benefit of the 2012 credit in the quarter ended March 31, 2013. The 2013 U.S. research and development credit has been restored on a prospective basis and will be recognized through our overall effective tax rate over the entire year.
 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, 2013, we 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, 2013, consistent with prior periods, it was considered more likely than not that our non-share-based payments related deferred tax assets would be realized except for any increase to the deferred tax asset related to the California research and development credit. A valuation allowance has been recorded against this portion of the credit, even though this attribute has an indefinite life. 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 our 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 our taxes payable, and as such, they will not impact our effective tax rate.
The unrecognized tax benefits related to ASC 740, if recognized, would impact the income tax provision by $19.8 million and $16.0 million as of March 31, 2013 and 2012, respectively. We have elected to include interest and penalties as a component of tax expense. Accrued interest and penalties as of March 31, 2013 and 2012 were approximately $2.5 million and $2.5 million, respectively. As of March 31, 2013, the gross uncertain tax position was approximately $22.1 million.
Liquidity and Capital Resources
We have funded our operations primarily through cash flows from operations and equity and debt offerings in the past. As of March 31, 2013, we had $592.9 million in available cash and cash equivalents and short-term investments. Our primary sources of cash are the collection of accounts receivable from our customers and proceeds from the exercise of stock options and stock purchased under our employee stock purchase plan. In addition, as of March 31, 2013, we had $220.0 million available for borrowing under the credit agreement discussed below. Our uses of cash include payroll and payroll-related expenses and operating expenses such as marketing programs, travel, professional services, and facilities and related costs. We have also used cash to purchase property and equipment, repurchase common stock from the open market to reduce the dilutive impact of stock option issuances, and acquire businesses and technologies to expand our product offerings. In February 2012, we purchased the property associated with our former corporate headquarters located in Redwood City, California, for approximately $148.6 million in cash.
The following table summarizes our cash flows for the three months ended March 31, 2013 and 2012 (in thousands):
 
 
Three Months Ended March 31,
 
 
2013
 
2012
Cash provided by operating activities
 
$
75,580

 
$
72,586

Cash used in investing activities
 
$
(39,971
)
 
$
(158,613
)
Cash provided by (used in) financing activities
 
$
(3,174
)
 
$
19,568

Operating Activities:  Cash provided by operating activities for the three months ended March 31, 2013 was $75.6 million, representing an increase of $3.0 million from the three months ended March 31, 2012. This increase resulted primarily from a $2.8 million increase in adjustments for non-cash expenses, a $3.3 million increase in accounts payable and accrued liabilities, a $1.9 million increase in income taxes payable, and a $24.0 million change in accrued facilities restructuring charges related to the purchase of our former corporate headquarters in the first quarter of 2012, which were partially offset by a $8.6 million decrease in net income, a $10.7 million increase in prepaid expenses and other assets, a $5.0 million decrease in deferred revenues, and a $4.8 million increase in accounts receivable. We recognized excess tax benefits from share-based compensation of $2.8 million during the three months ended March 31, 2013. This amount is recorded as a use of cash from operating activities and an offsetting

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amount is recorded as a source of cash provided by financing activities. We made net cash payments for taxes in different jurisdictions of $6.8 million during the three months ended March 31, 2013. Our “days sales outstanding” in accounts receivable decreased from 58 days at March 31, 2012 to 54 days at March 31, 2013 due to a lower amount of billings which occurred toward the end of the first quarter of 2013 compared to end of the first quarter of 2012. Deferred revenues decreased primarily due to a decrease in deferred maintenance revenues. While growth of deferred maintenance revenues remains positive, the decline in the growth rate reflects slower growth in the customer base.
Investing Activities:  Net cash used in investing activities was $40.0 million and $158.6 million for the three months ended March 31, 2013 and 2012, respectively. In February 2012, we purchased the property associated with our former corporate headquarters located in Redwood City, California, for approximately $148.6 million in cash, of which $127.7 million was capitalized under Property and Equipment in the Condensed Consolidated Balance Sheet, and approximately $21.2 million was recorded in our Condensed Consolidated Statement of Income as the net cost to terminate the facility lease.
We acquire property and equipment in our normal course of business. The amount and timing of these purchases and the related cash outflows in future periods depend on a number of factors, including the hiring of employees, the rate of upgrade of computer hardware and software used in our business, as well as our business outlook.
We have identified our investment portfolio as “available-for-sale,” and our investment objectives are to preserve principal and provide liquidity while maximizing yields without significantly increasing risk. We may sell an investment at any time if the credit rating of the investment declines, the yield on the investment is no longer attractive, or we need additional cash. We invest only in money market funds, time deposits, and marketable debt securities. We believe that the purchase, maturity, or sale of our investments has no material impact on our overall liquidity.
We have used cash to acquire businesses and technologies that enhance and expand our product offerings, and we anticipate that we will continue to do so in the future. Due to the nature of these transactions, it is difficult to predict the amount and timing of such cash requirements to complete such transactions. We may be required to raise additional funds to complete future acquisitions. In addition, we may be obligated to pay certain variable and deferred earn-out payments based upon achievement of certain performance targets.
In February 2013, we acquired Active Endpoints, Inc. (“Active Endpoints”) for approximately $10.0 million in cash. Approximately $1.5 million of the consideration otherwise payable to former Active Endpoints stockholders was placed into an escrow and held as partial security for certain indemnification obligations. The escrow will remain in place until May 2014.
Financing Activities:  Net cash used in financing activities for the three months ended March 31, 2013 was $3.2 million due to repurchases and retirement of our common stock of $22.0 million, withholding taxes for restricted stock units net share settlement of $2.8 million, purchase of Heiler Software AG securities of $2.7 million, and payment of contingent consideration of $0.5 million. These amounts were partially offset by proceeds received from the issuance of common stock to option holders and participants of our ESPP program of $22.0 million and excess tax benefits from share-based compensation of $2.8 million.
Net cash used in financing activities for the three months ended March 31, 2012 was $19.6 million due to $20.5 million of proceeds we received from the issuance of common stock to option holders and participants of our ESPP program and $5.2 million of excess tax benefits from share-based compensation. These amounts were partially offset by the withholding taxes for restricted stock units net share settlement of $3.0 million and payment of contingent consideration of $3.1 million.
We receive cash from the exercise of common stock options and the sale of common stock under our employee stock purchase plan ("ESPP"). Although we expect to continue to receive some proceeds from the issuance of common stock to option holders and participants of ESPP in future periods, the timing and amount of such proceeds are difficult to predict and are contingent on a number of factors, including the price of our common stock, the number of employees participating in our stock option plans and our employee stock purchase plan, and overall market conditions.
Our Board of Directors has approved a stock repurchase program for the repurchase of our common stock. Purchases can be made from time to time in the open market and will be funded from our available cash. The primary purpose of this 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 purchases are based on several factors, including the price of our common stock, our liquidity and working capital needs, general business and market conditions, and other investment opportunities. The repurchased shares are retired and reclassified as authorized and unissued shares of common stock. We may continue to repurchase shares from time to time, as determined by management as authorized by the Board of Directors. We had $74.1 million available to repurchase additional shares of our common stock under this program as of March 31, 2013. See Part II, Item 2 of this Report for information regarding the number of shares purchased under the stock repurchase program.

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In connection with our acquisitions, we are obligated to pay up to an additional $11.7 million for certain variable and deferred earn-out payments based upon the achievement of certain performance targets.
We believe that our cash balances and the cash flows generated by operations will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months, including with respect to our data center and corporate headquarters relocations. However, we may be required to raise or desire additional funds for selective purposes, such as acquisitions or other investments in complementary businesses, products, or technologies, and may raise such additional funds through public or private equity or debt financing or from other sources.
Less than 25% of our cash, cash equivalents, and short-term investments are held by our foreign subsidiaries. Our intent is to permanently reinvest our earnings from foreign operations and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event funds from foreign operations are needed to fund operations in the United States and if U.S. tax has not already been previously provided, we would be required to accrue and pay additional U.S. taxes in order to repatriate these funds.
Credit Agreement
In September 2010, we entered into a Credit Agreement (the "Credit Agreement") that matures in September 2014. The Credit Agreement provides for an unsecured revolving credit facility in an amount of up to $220.0 million, with an option for us 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 borrowed during the three months ended March 31, 2013. No amounts were outstanding under the Credit Agreement as of March 31, 2013, and a total of $220.0 million remained available for borrowing. 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. We were in compliance with all covenants under the Credit Agreement as of March 31, 2013. For further information, see Note 4. Borrowings of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
Contractual Obligations and Operating Leases
The following table summarizes our significant contractual obligations, including future minimum lease payments at March 31, 2013, under non-cancelable operating leases with original terms in excess of one year, and the effect of such obligations on our liquidity and cash flows in the future periods (in thousands):
 
Payment Due by Period
 
 
 
 
Total
 
Remaining 2013
 
2014
and
2015
 
2016
and
2017
 
2018
and
Beyond
Operating lease payments
$
36,606

 
$
9,825

 
$
16,572

 
$
6,604

 
$
3,605

Other obligations*
3,590

 
1,345

 
2,033

 
212

 

Total
$
40,196

 
$
11,170

 
$
18,605

 
$
6,816

 
$
3,605

____________
*
Other purchase obligations and commitments include minimum royalty payments under license agreements and do not include purchase obligations discussed below.
The above commitment table does not include approximately $22.5 million of long-term income tax liabilities recorded in accordance with ASC 740, Income Taxes. We are unable to make a reasonably reliable estimate of the timing of these potential future payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. For further information, see Note 10. Income Taxes of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
Contractual Obligations
Purchase orders or contracts for the purchase of certain goods and services are not included in the preceding table. We cannot determine the aggregate amount of such purchase orders that represent contractual obligations because purchase orders may represent authorizations to purchase rather than binding agreements. For the purposes of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current needs and are fulfilled by our vendors within short time horizons. We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant

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and the contracts generally contain clauses allowing for cancellation without significant penalty. Contractual obligations that are contingent upon the achievement of certain milestones are not included in the table above.
We estimate the expected timing of payment of the obligations discussed above based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.
Operating Leases
We lease certain office facilities and equipment under non-cancelable operating leases. Our contractual obligations at March 31, 2013 include the lease for our headquarters office in Redwood City, California, which is from December 15, 2004 to December 31, 2013. Minimum contractual lease payment is $2.7 million for the remainder of 2013.
In February 2000, we entered into lease agreements for two office buildings located at 2000 and 2100 Seaport Boulevard in Redwood City, California, which we occupied from August 2001 through December 2004 as our former corporate headquarters. These lease agreements were originally due to expire in July 2013. As a result of the 2004 Restructuring Plan, we relocated the corporate headquarters and subsequently entered into a series of sublease agreements with tenants to occupy a majority of the vacated space. These majority of the subleases expire in June and July 2013.
In February 2012, we purchased the property associated with its former corporate headquarters in Redwood City, California for approximately $148.6 million in cash. 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. See Note 9. Facilities Restructuring Charges and Note 12. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements, transactions, or relationships with “special purpose entities.”

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended March 31, 2013, there were no significant changes to our quantitative and qualitative disclosures about market risk. Please refer to Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for our year ended December 31, 2012 for a more complete discussion of the market risks we encounter.

ITEM 4.  CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.  Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (1) is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to Informatica’s management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matt