INFA-2014.06.30-10Q
Table of Contents

 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
___________________
 
þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2014
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.)
 
2100 Seaport Boulevard
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.   Yes þ   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 þ   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 þ    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 ¨  No þ
As of July 31, 2014, there were approximately 110,002,000 shares of the registrant’s Common Stock outstanding.


 
 
 
 
 



INFORMATICA CORPORATION
TABLE OF CONTENTS

 
 
 Page No. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents


PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATICA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 
June 30,
2014
 
December 31,
2013
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
257,772

 
$
297,818

Short-term investments
428,399

 
379,616

Accounts receivable, net of allowances of $4,028 and $4,135, respectively
181,493

 
204,374

Deferred tax assets
46,773

 
32,898

Prepaid expenses and other current assets
46,275

 
34,541

Total current assets
960,712

 
949,247

Property and equipment, net
159,318

 
157,308

Goodwill
558,993

 
523,142

Other intangible assets, net
49,324

 
41,625

Long-term deferred tax assets
30,674

 
44,865

Other assets
6,335

 
6,834

Total assets
$
1,765,356

 
$
1,723,021

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 

 
 

Accounts payable
$
17,915

 
$
10,124

Accrued liabilities
49,967

 
63,055

Accrued compensation and related expenses
66,784

 
71,314

Income taxes payable

 
14,184

Deferred revenues
296,681

 
285,184

Total current liabilities
431,347

 
443,861

Long-term deferred revenues
14,113

 
12,938

Long-term income taxes payable
30,641

 
29,878

Other liabilities
4,190

 
594

Total liabilities
480,291

 
487,271

Commitments and contingencies (Note 11)


 


Stockholders' equity:
 

 
 

Common stock, $0.001 par value; 200,000 shares authorized; 109,829 shares and
 
 
 
108,643 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
110

 
109

Additional paid-in capital
805,452

 
805,728

Accumulated other comprehensive loss
(1,304
)
 
(3,212
)
Retained earnings
480,807

 
433,125

Total stockholders’ equity
1,285,065

 
1,235,750

Total liabilities and stockholders' equity
$
1,765,356

 
$
1,723,021

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Software
$
103,455

 
$
91,428

 
$
206,498

 
$
179,334

Service
147,258

 
131,011

 
287,312

 
257,405

Total revenues
250,713

 
222,439

 
493,810

 
436,739

Cost of revenues:
 

 
 

 
 

 
 
Software
2,450

 
2,501

 
5,569

 
4,643

Service
43,343

 
36,463

 
83,572

 
72,493

Amortization of acquired technology
3,286

 
5,621

 
7,271

 
11,345

Total cost of revenues
49,079

 
44,585

 
96,412

 
88,481

Gross profit
201,634

 
177,854

 
397,398

 
348,258

Operating expenses:
 

 
 

 
 

 
 
Research and development
48,850

 
41,668

 
94,535

 
81,191

Sales and marketing
96,784

 
89,510

 
188,368

 
173,567

General and administrative
20,019

 
19,181

 
40,072

 
37,668

Amortization of intangible assets
1,384

 
2,000

 
2,920

 
3,988

Acquisitions and other charges (benefit)
771

 
(436
)
 
860

 
1,214

Total operating expenses
167,808

 
151,923

 
326,755

 
297,628

Income from operations
33,826

 
25,931

 
70,643

 
50,630

Interest income
1,179

 
893

 
2,332

 
1,783

Interest expense
(166
)
 
(128
)
 
(293
)
 
(248
)
Other expense, net
(198
)
 
(391
)
 
(282
)
 
(459
)
Income before income taxes
34,641

 
26,305

 
72,400

 
51,706

Income tax provision
11,812

 
8,139

 
24,718

 
15,633

Net income
$
22,829

 
$
18,166

 
$
47,682

 
$
36,073

Basic net income per common share
$
0.21

 
$
0.17

 
$
0.44

 
$
0.33

Diluted net income per common share
$
0.20

 
$
0.16

 
$
0.43

 
$
0.32

Shares used in computing basic net income per common share
109,739

 
108,138

 
109,453

 
107,904

Shares used in computing diluted net income per common share
111,601

 
111,344

 
111,770

 
111,305

See accompanying notes to condensed consolidated financial statements.


4

Table of Contents

INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Net income
$
22,829

 
$
18,166

 
$
47,682

 
$
36,073

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in foreign currency translation adjustment, net of tax benefit (expense) of $(118), $(60), $(279) and $243
(312
)
 
800

 
257

 
(6,168
)
Available-for-sale investments:
 
 
 
 
 
 
 
Change in net unrealized gain (loss), net of tax benefit (expense) of $(77), $326, $(134) and $370
125

 
(533
)
 
218

 
(604
)
Less: reclassification adjustment for net (gain) loss included in net income, net of tax benefit (expense) of $(1), $7, $(2) and $10
(2
)
 
13

 
(4
)
 
17

Net change, net of tax benefit (expense) of $(76), $319, $(132) and $360
123

 
(520
)
 
214

 
(587
)
Cash flow hedges:
 
 
 
 
 
 
 
Change in unrealized gain (loss), net of tax benefit (expense) of $(250), $797, $(800) and $694
406

 
(1,300
)
 
1,304

 
(1,131
)
Less: reclassification adjustment for net (gain) loss included in net income, net of tax benefit (expense) of $(104), $51, $81 and $49
(168
)
 
83

 
133

 
80

Net change, net of tax benefit (expense) of $(146), $746, $(881) and $645
238

 
(1,217
)
 
1,437

 
(1,051
)
Total other comprehensive income (loss), net of tax effect
49

 
(937
)
 
1,908

 
(7,806
)
Total comprehensive income, net of tax effect
$
22,878

 
$
17,229

 
$
49,590

 
$
28,267

See accompanying notes to condensed consolidated financial statements.




5

Table of Contents

INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended
June 30,
 
2014
 
2013
Operating activities:
 
 
 
Net income
$
47,682

 
$
36,073

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

Depreciation and amortization
9,066

 
7,263

Stock-based compensation
29,607

 
29,379

Deferred income taxes
(3,426
)
 
(3,663
)
Tax benefits from stock-based compensation
225

 
3,518

Excess tax benefits from stock-based compensation
(2,634
)
 
(4,810
)
Amortization of intangible assets and acquired technology
10,191

 
15,333

Other operating activities, net

 
(2,462
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
23,491

 
21,308

Prepaid expenses and other assets
(2,324
)
 
(1,298
)
Accounts payable and accrued liabilities
(6,009
)
 
(8,131
)
Income taxes payable
(14,861
)
 
(4,572
)
Deferred revenues
11,073

 
20,989

Net cash provided by operating activities
102,081

 
108,927

Investing activities:
 

 
 

Purchases of property and equipment
(8,707
)
 
(5,017
)
Purchases of investments
(165,893
)
 
(232,304
)
Investment in equity interest, net
(282
)
 

Maturities of investments
86,855

 
106,247

Sales of investments
31,045

 
58,373

Business acquisitions, net of cash acquired
(54,614
)
 
(7,464
)
Net cash used in investing activities
(111,596
)
 
(80,165
)
Financing activities:
 

 
 

Net proceeds from issuance of common stock
31,742

 
30,100

Repurchases and retirement of common stock
(55,872
)
 
(42,982
)
Withholding taxes related to restricted stock units net share settlement
(5,978
)
 
(5,570
)
Payment of contingent consideration
(3,061
)
 
(2,490
)
Excess tax benefits from stock-based compensation
2,634

 
4,810

Purchase of acquiree stock

 
(6,365
)
Net cash used in financing activities
(30,535
)
 
(22,497
)
Effect of foreign exchange rate changes on cash and cash equivalents
4

 
(3,344
)
Net increase (decrease) in cash and cash equivalents
(40,046
)
 
2,921

Cash and cash equivalents at beginning of period
297,818

 
190,127

Cash and cash equivalents at end of period
$
257,772

 
$
193,048

See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of Informatica Corporation (“Informatica,” or the “Company”) have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States of America. However, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all normal and recurring adjustments that are necessary to fairly present the results of the interim periods presented. All of the amounts included in this Quarterly Report on Form 10-Q related to the condensed consolidated financial statements and notes thereto as of and for the three and six months ended June 30, 2014 and 2013 are unaudited. The interim results presented are not necessarily indicative of results for any subsequent interim period, the year ending December 31, 2014, 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. Any material differences between these estimates and actual results will impact the Company's condensed consolidated financial statements. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result.
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 November 2012, the Company acquired a majority interest in the shares of Heiler Software AG ("Heiler Software") at the end of the initial acceptance period of the takeover offer. The squeeze-out of the remaining shareholders was effective in the second quarter of 2013, increasing the Company's ownership in Heiler Software to 100 percent. The Company consolidated the financial results of Heiler Software with its financial results beginning in November 2012. The noncontrolling interest in the Company's net income was not significant to consolidated results for the three and six months ended June 30, 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, 2013 included in the Company's Annual Report on Form 10-K filed with the SEC. The consolidated balance sheet as of December 31, 2013 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, 2013.
Recent Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company adopted ASU 2013-05 prospectively as required on January 1, 2014. Adoption of ASU 2013-05 did not impact the Company's condensed consolidated financial statements and disclosures.
In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which clarifies that an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available or the tax law of the jurisdiction does not require, and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred

7

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


tax assets. The Company adopted ASU 2013-11 prospectively as required on January 1, 2014. Adoption of ASU 2013-11 did not impact the Company's condensed consolidated financial statements and disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those good and services. The standard will be effective for the Company in the first quarter of fiscal 2017. ASU 2014-09 allows for two methods of adoption: (a) "full retrospective" adoption, meaning the standard is applied to all periods presented, or (b) "modified retrospective" adoption, meaning the cumulative effect of applying ASU 2014-09 is recognized as an adjustment to the fiscal 2017 opening retained earnings balance. Early adoption is not permitted. The Company has not yet selected a transition method and is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and disclosures.
In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU 2014-12 requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for the Company in its first quarter of fiscal 2016 with early adoption permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2014-12 on its consolidated financial statements and disclosures.
There have been no other changes to the Company's significant accounting policies since the end of 2013.
Fair Value Measurement of Financial Assets and Liabilities
The Company did not have any financial liabilities measured at fair value on a recurring basis as of June 30, 2014. The following table summarizes financial assets that the Company measures at fair value on a recurring basis as of June 30, 2014 (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)
$
16,448

 
$
16,448

 
$

 
$

Time deposits (ii)
29,029

 
29,029

 

 

Marketable debt securities (ii)
400,370

 

 
400,370

 

Total money market funds, time deposits, and marketable debt securities
445,847

 
45,477

 
400,370

 

Foreign currency derivatives (iii)
1,853

 

 
1,853

 

Total assets
$
447,700

 
$
45,477

 
$
402,223

 
$

The following table summarizes financial assets and financial liabilities that the Company measures at fair value on a recurring basis as of December 31, 2013 (in thousands):

8

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


 
 
 
 
 
 
 
 
 
 
 
 
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)
$
21,893

 
$
21,893

 
$

 
$

Time deposits (ii)
21,585

 
21,585

 

 

Marketable debt securities (ii)
370,384

 

 
370,384

 

Total money market funds, time deposits, and marketable debt securities
413,862

 
43,478

 
370,384

 

Foreign currency derivatives (iii)
284

 

 
284

 

Total assets
$
414,146

 
$
43,478

 
$
370,668

 
$

Liabilities:
 

 
 

 
 

 
 

Foreign currency derivatives (iv)
$
1,024

 
$

 
$
1,024

 
$

Acquisition-related contingent consideration (iv)
3,071

 

 

 
3,071

Total liabilities
$
4,095

 
$

 
$
1,024

 
$
3,071

____________________
(i)
Included in cash and cash equivalents on the condensed consolidated balance sheets.
(ii)
Included in either cash and cash equivalents or short-term investments on the condensed consolidated balance sheets.
(iii)
Included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
(iv)
Included in accrued liabilities on the condensed consolidated balance sheets.
Money Market Funds, Time Deposits, and Marketable Debt 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 inputs 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 derivative assets and liabilities. The Company records its derivative assets and liabilities at gross in the condensed consolidated balance sheet and uses mid-market pricing as a practical expedient for fair value measurements. Key inputs for foreign currency derivatives are the spot rates, forward rates, interest rates, and credit derivative market rates. The spot rate for each foreign 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

9

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


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 twelve 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 and six months ended June 30, 2014 and 2013.
See Note 5. Accumulated Other Comprehensive Income (Loss), Note 6. Derivative Financial Instruments, and Note 11. 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 and six months ended June 30, 2014 and 2013. The change in fair value of acquisition-related contingent consideration is included in acquisitions and other charges in the condensed consolidated statements of income.
The changes in the acquisition-related contingent consideration liability for the six months ended June 30, 2014 consisted of the following (in thousands):
 
June 30,
2014
Beginning balance as of December 31, 2013
$
3,071

Change in fair value of contingent consideration
(10
)
Payment of contingent consideration
(3,061
)
Ending balance as of June 30, 2014
$


See Note 13. Acquisitions of Notes to Condensed Consolidated Financial Statements for a further discussion.

Note 2.  Cash, Cash Equivalents, and Short-Term Investments
The Company's short-term investments 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 and six months ended June 30, 2014 and 2013 were negligible. The cost of securities sold was determined based on the specific identification method.

10

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


The following table summarizes the Company’s cash, cash equivalents, and short-term investments as of June 30, 2014 (in thousands):
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
240,324

 
$

 
$

 
$
240,324

Cash equivalents:
 

 
 

 
 

 
 

Money market funds
16,448

 

 

 
16,448

Municipal notes and bonds
1,000

 

 

 
1,000

Total cash equivalents
17,448

 

 

 
17,448

Total cash and cash equivalents
257,772

 

 

 
257,772

Short-term investments:
 

 
 

 
 

 
 

Certificates of deposit
1,920

 

 

 
1,920

Commercial paper
3,999

 

 

 
3,999

Corporate notes and bonds
214,083

 
334

 
(129
)
 
214,288

Federal agency notes and bonds
71,017

 
11

 
(41
)
 
70,987

Time deposits
29,029

 

 

 
29,029

Municipal notes and bonds
107,904

 
274

 
(2
)
 
108,176

Total short-term investments
427,952

 
619

 
(172
)
 
428,399

Total cash, cash equivalents, and short-term investments
$
685,724

 
$
619

 
$
(172
)
 
$
686,171


The following table summarizes the Company’s cash, cash equivalents, and short-term investments as of December 31, 2013 (in thousands):
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
263,572

 
$

 
$

 
$
263,572

Cash equivalents:
 

 
 

 
 

 
 

Money market funds
21,893

 

 

 
21,893

U.S. government notes and bonds
12,353

 

 

 
12,353

Total cash equivalents
34,246

 

 

 
34,246

Total cash and cash equivalents
297,818

 

 

 
297,818

Short-term investments:
 

 
 

 
 

 
 

Certificates of deposit
960

 

 

 
960

Commercial paper
12,738

 

 

 
12,738

Corporate notes and bonds
175,446

 
220

 
(220
)
 
175,446

Federal agency notes and bonds
64,863

 
31

 
(69
)
 
64,825

Time deposits
21,585

 

 

 
21,585

Municipal notes and bonds
103,923

 
153

 
(14
)
 
104,062

Total short-term investments
379,515

 
404

 
(303
)
 
379,616

Total cash, cash equivalents, and short-term investments
$
677,333

 
$
404

 
$
(303
)
 
$
677,434

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.

11

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


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 June 30, 2014 (in thousands):
 
Less Than 12 months
 
 
 
 
Fair
Value
 
Gross
Unrealized
Losses
Corporate notes and bonds
$
64,942

 
$
(129
)
Federal agency notes and bonds
48,965

 
(36
)
Municipal notes and bonds
4,789

 
(2
)
Total
$
118,696

 
$
(167
)
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 greater than twelve months, at June 30, 2014 (in thousands):
 
Greater Than 12 months
 
 
 
 
Fair
Value
 
Gross
Unrealized
Losses
Federal agency notes and bonds
$
2,494

 
$
(5
)
Total
$
2,494

 
$
(5
)
The changes in value of these investments are primarily related to changes in interest rates and are considered to be temporary in nature.
The following table summarizes the cost and estimated fair value of the Company’s short-term investments by contractual maturity at June 30, 2014 (in thousands):
 
Cost
 
Fair
Value
Due within one year
$
176,842

 
$
176,983

Due in one year to two years
171,471

 
171,781

Due after two years
79,639

 
79,635

Total
$
427,952

 
$
428,399



12

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


Note 3.  Intangible Assets and Goodwill
The carrying amounts of the intangible assets other than goodwill as of June 30, 2014 and December 31, 2013 are as follows (in thousands, except years):
 
June 30, 2014
 
December 31, 2013
 
Weighted
Average
Useful Life
(Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
 
Developed and core technology
$
144,643

 
$
(106,297
)
 
$
38,346

 
$
130,744

 
$
(99,026
)
 
$
31,718

 
6
Other Intangible Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
45,183

 
(37,083
)
 
8,100

 
41,683

 
(35,216
)
 
6,467

 
5
All other (i)
17,696

 
(14,818
)
 
2,878

 
17,205

 
(13,765
)
 
3,440

 
4-11
Total other intangible assets
62,879

 
(51,901
)
 
10,978

 
58,888

 
(48,981
)
 
9,907

 
 
Total intangible assets, net
$
207,522

 
$
(158,198
)
 
$
49,324

 
$
189,632

 
$
(148,007
)
 
$
41,625

 
 
____________________
(i)
All other includes vendor relationships, trade names, covenants not to compete, and patents.
Total amortization expense related to intangible assets was $4.7 million and $7.6 million for the three months ended June 30, 2014 and 2013, respectively, and $10.2 million and $15.3 million for the six months ended June 30, 2014 and 2013, respectively. Certain intangible assets were recorded in foreign currencies; and therefore, the gross carrying amount and accumulated amortization are subject to foreign currency translation adjustments.
As of June 30, 2014, 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
2014
$
5,861

 
$
3,023

 
$
8,884

2015
9,998

 
4,014

 
14,012

2016
8,550

 
2,160

 
10,710

2017
6,605

 
863

 
7,468

2018
4,582

 
439

 
5,021

Thereafter
2,750

 
479

 
3,229

Total expected amortization expense
$
38,346

 
$
10,978

 
$
49,324

The changes in the carrying amount of goodwill for the six months ended June 30, 2014 are as follows (in thousands):
 
June 30,
2014
Beginning balance as of December 31, 2013
$
523,142

Goodwill from acquisition
36,116

Subsequent goodwill adjustments
(265
)
Ending balance as of June 30, 2014
$
558,993

During the six months ended June 30, 2014, the Company recorded subsequent goodwill adjustments of $(0.3) million related to foreign currency translation adjustments. The goodwill is partially deductible for tax purposes. See Note 13. Acquisitions for a further discussion of goodwill from acquisitions.

13

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


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 June 30, 2014, and a total of $220.0 million remained available for borrowing.
Revolving loans accrue interest at a per annum rate based on either, at our election, (i) the base rate plus a margin ranging from 1.00% to 1.75% depending on the Company's consolidated leverage ratio, or (ii) LIBOR (based on 1-, 2-, 3-, or 6-month interest periods) plus a margin ranging from 2.00% to 2.75% depending on the Company's consolidated leverage ratio. The base rate is equal to the highest of (i) JPMorgan Chase Bank, N.A.'s prime rate, (ii) the federal funds rate plus a margin equal to 0.50%, and (iii) LIBOR for a 1-month interest period plus a margin equal to 1.00%. Revolving loans may be borrowed, repaid and reborrowed until September 29, 2014, at which time all amounts borrowed must be repaid. Accrued interest on the revolving loans is payable quarterly in arrears with respect to base rate loans and at the end of each interest rate period (or at each 3- month interval in the case of loans with interest periods greater than 3 months) with respect to LIBOR loans. The Company is also obligated to pay other customary closing fees, arrangement fees, administrative fees, commitment fees, and letter of credit fees. A quarterly commitment fee is applied to the average daily unborrowed amount under the credit facility at a per annum rate ranging from 0.35% to 0.50% depending on the Company's consolidated leverage ratio. The Company may prepay the loans or terminate or reduce the commitments in whole or in part at any time, without premium or penalty, subject to certain conditions including minimum amounts in the case of commitment reductions and reimbursement of certain costs in the case of prepayments of LIBOR loans.
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 June 30, 2014.


14

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


Note 5.  Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated balances for each component of other comprehensive income (loss) for the three months ended June 30, 2014, net of taxes (in thousands):
 
 
Cumulative
Translation
Adjustments
 
Net Unrealized
Gain on
Available-for-Sale
Investments
 
Net Unrealized
Gain on
Cash Flow Hedges
 
Total
Accumulated other comprehensive income (loss) as of March 31, 2014
 
$
(2,310
)
 
$
154

 
$
803

 
$
(1,353
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Other comprehensive income before reclassifications, net of tax expense of $(118), $(77) and $(250)
 
(312
)
 
125

 
406

 
219

Net gain reclassified from accumulated other comprehensive income (loss), net of tax expense of $ —, $(1) and $(104)
 

 
(2
)
(i) 
(168
)
(ii) 
(170
)
Total other comprehensive income (loss), net of tax effect (iii)
 
(312
)
 
123

 
238

 
49

Accumulated other comprehensive income (loss) as of June 30, 2014
 
$
(2,622
)
 
$
277

 
$
1,041

 
$
(1,304
)
____________________
(i)
The before-tax gain of $3 was included in other expense, net on the condensed consolidated statements of income.
(ii)
The before-tax gain of $66 and $206 were included in cost of service revenues and operating expenses, primarily research and development expense, respectively on the condensed consolidated statements of income.
(iii)
The tax expense was included in income tax provision on the condensed consolidated statements of income.


15

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


The following table summarizes the changes in accumulated balances for each component of other comprehensive income (loss) for the three months ended June 30, 2013, net of taxes (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 March 31, 2013
 
$
(14,980
)
 
$
175

 
$
(94
)
 
$
(14,899
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Other comprehensive income before reclassifications, net of tax benefit (expense) of $(60), $326 and $797
 
800

 
(533
)
 
(1,300
)
 
(1,033
)
Net loss reclassified from accumulated other comprehensive income (loss), net of tax benefit of $ —, $7 and $51
 

 
13

(i) 
83

(ii) 
96

Total other comprehensive income (loss), net of tax effect (iii)
 
800

 
(520
)
 
(1,217
)
 
(937
)
Accumulated other comprehensive loss as of June 30, 2013
 
$
(14,180
)
 
$
(345
)
 
$
(1,311
)
 
$
(15,836
)
____________________
(i)
The before-tax loss of $20 was included in other expense, net on the condensed consolidated statements of income.
(ii)
The before-tax losses of $31 and $103 were included in cost of service revenues and operating expenses, primarily research and development expense, respectively on the condensed consolidated statements of income.
(iii)
The tax benefit (expense) was included in income tax provision on the condensed consolidated statements of income.
The following table summarizes the changes in accumulated balances for each component of other comprehensive income (loss) for the six months ended June 30, 2014, net of taxes (in thousands):
 
 
Cumulative
Translation
Adjustments
 
Net Unrealized
Gain on
Available-for-Sale
Investments
 
Net Unrealized
Gain (Loss) on
Cash Flow Hedges
 
Total
Accumulated other comprehensive income (loss) as of December 31, 2013
 
$
(2,879
)
 
$
63

 
$
(396
)
 
$
(3,212
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Other comprehensive income before reclassifications, net of tax expense of $(279), $(134) and $(800)
 
257

 
218

 
1,304

 
1,779

Net (gain) loss reclassified from accumulated other comprehensive income (loss), net of tax benefit (expense) of $ —, $(2) and $81
 

 
(4
)
(i) 
133

(ii) 
129

Total other comprehensive income, net of tax effect (iii)
 
257

 
214

 
1,437

 
1,908

Accumulated other comprehensive income (loss) as of June 30, 2014
 
$
(2,622
)
 
$
277

 
$
1,041

 
$
(1,304
)
____________________

16

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


(i)
The before-tax gain of $6 was included in other expense, net on the condensed consolidated statements of income.
(ii)
The before-tax losses of $54 and $160 were included in cost of service revenues and operating expenses, primarily research and development expense, respectively on the condensed consolidated statements of income.
(iii)
The tax benefit (expense) was included in income tax provision on the condensed consolidated statements of income.
The following table summarizes the changes in accumulated balances for each component of other comprehensive income (loss) for the six months ended June 30, 2013, net of taxes (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 loss:
 
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications, net of tax benefit of $243, $370 and $694
 
(6,168
)
 
(604
)
 
(1,131
)
 
(7,903
)
Net loss reclassified from accumulated other comprehensive loss, net of tax benefit of $ —, $10 and $49
 

 
17

(i) 
80

(ii) 
97

Total other comprehensive loss, net of tax effect (iii)
 
(6,168
)
 
(587
)
 
(1,051
)
 
(7,806
)
Accumulated other comprehensive loss as of June 30, 2013
 
$
(14,180
)
 
$
(345
)
 
$
(1,311
)
 
$
(15,836
)
____________________
(i)
The before-tax loss of $27 was included in other expense, net on the condensed consolidated statements of income.
(ii)
The before-tax losses of $31 and $98 were included in cost of service revenues and operating expenses, primarily research and development expense, respectively on the condensed consolidated statements of income.
(iii)
The tax benefit was included in income tax provision on the condensed consolidated statements of income.
The Company did not have any other-than-temporary impairment recognized in accumulated other comprehensive income (loss) as of June 30, 2014 and December 31, 2013.
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 11. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements for a further discussion.

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

17

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


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 the foreign currency anticipated expenses of 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 will reclassify all amounts accumulated in other comprehensive income into earnings within the next 12 months.
The Company has forecasted the amount of its anticipated foreign currency expenses based on its historical performance and its projected financial plan. As of June 30, 2014, the remaining open foreign exchange contracts, carried at fair value, are hedging Indian rupee expenses and have a maturity of twelve 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 assets or liabilities.
The notional amounts of these foreign exchange forward contracts in U.S. dollar equivalents were to buy $25.5 million and $30.1 million of Indian rupees as of June 30, 2014 and December 31, 2013, respectively.
Balance Sheet Hedges
Balance Sheet hedges consist of cash flow hedge contracts that have been de-designated and non-designated balance sheet hedges. These foreign exchange contracts are carried at fair value and either did not or no longer 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 net monetary assets or liabilities. The notional amounts of foreign currency contracts open at period end in US dollar equivalents were to buy $2.7 million and $2.6 million of Indian rupees at June 30, 2014 and December 31, 2013, respectively.
The following table reflects the fair value amounts for the foreign exchange contracts designated and not designated as hedging instruments at June 30, 2014 and December 31, 2013 (in thousands):
 
June 30, 2014
 
December 31, 2013
 
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
$
1,658

 
$

 
$
284

 
$
830

Derivatives not designated as hedging instruments
195

 

 

 
194

Total fair value of derivative instruments
$
1,853

 
$

 
$
284

 
$
1,024

____________________
(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. The derivatives held by the Company are not subject to any credit contingent features negotiated with its counterparties. The Company is not required to pledge nor is entitled to receive cash collateral related to the above contracts.
As of June 30, 2014, there were no derivative assets or liabilities which had the right of offset associated with these foreign exchange contracts. As a result, no amounts are presented in a net derivative asset or net derivative liability position.

18

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


The following table sets forth the offsetting of derivative assets as of December 31, 2013 (in thousands):
 
 
 
 
 
 
 
Gross Amounts Not Offset
in the Condensed Consolidated
Balance Sheets
 
 
 
Gross
Amounts of
Recognized
Assets
 
Gross
Amounts Offset
in the Condensed
Consolidated
Balance Sheets
 
Net Amounts
of Assets
Presented
in the Condensed
Consolidated
Balance Sheets
 
 
Financial
Instruments(i)
 

Cash
Collateral
Pledged
 
Net
Amount
Foreign exchange contracts
$
284

 
$

 
$
284

 
$
(268
)
 
$

 
$
16

____________________
(i)
The balances at December 31, 2013 were related to derivative liabilities which are allowed to be net settled against derivative assets in accordance with the master netting agreements.
The following table sets forth the offsetting of derivative liabilities as of December 31, 2013 (in thousands):
 
 
 
 
 
 
 
Gross Amounts Not Offset
in the Condensed Consolidated
Balance Sheets
 
 
 
Gross
Amounts of
Recognized
Liabilities
 
Gross
Amounts Offset
in the Condensed
Consolidated
Balance Sheets
 
Net Amounts
of Liabilities
Presented
in the Condensed
Consolidated
Balance Sheets
 

Financial
Instruments(ii)
 

Cash
Collateral
Pledged
 
Net
Amount
Foreign exchange contracts
$
1,024

 
$

 
$
1,024

 
$
(268
)
 
$

 
$
756

____________________
(ii)
The balances at December 31, 2013 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with the master netting agreements.
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. In October 2013, the Company changed its effectiveness assessment method from the spot to spot price method to include time value in the assessment. Prospectively, the Company includes all changes in value that are effective including changes in time value to accumulated other comprehensive income. The Company no longer records amounts as an excluded component of the hedge relationship.  

19

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


The before-tax effects of derivative instruments designated as cash flow hedges on the accumulated other comprehensive income (loss) and condensed consolidated statements of income for the three and six months ended June 30, 2014 and 2013 are as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Amount of gain (loss) recognized in other comprehensive income (effective portion)
$
656

 
$
(2,097
)
 
$
2,104

 
$
(1,825
)
Amount of gain (loss) reclassified from accumulated other comprehensive income to cost of service revenues and operating expenses (effective portion)
$
272

 
$
(134
)
 
$
(214
)
 
$
(129
)
Amount of gain recognized in income on derivatives for the amount excluded from effectiveness testing located in operating expenses
$

 
$
507

 
$

 
$
577

The Company did not have any ineffective portion of the derivative recorded in the condensed consolidated statements of income.
The before-tax gain (loss) recognized in other expense, net for non-designated foreign currency forward contracts for the three and six months ended June 30, 2014 and 2013 are as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
2014
 
2013
 
2014
 
2013
Gain (loss) recognized in other expense, net
$
(6
)
 
$
(212
)
 
$
69

 
$
(191
)
See Note 1. Summary of Significant Accounting Policies, Note 5. Accumulated Other Comprehensive Income (Loss), and Note 11. Commitments and Contingencies 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 January 2014, the Board of Directors approved the repurchase of up to an additional $100.0 million of the Company's outstanding common stock. As of June 30, 2014, $48.1 million remained available for share repurchases under this program. In July 2014, the Company announced that the Board of Directors approved the repurchase of up to an additional $100.0 million of the Company's outstanding 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 and six months ended June 30, 2014, the Company repurchased approximately 896,000 shares of its common stock at a cost of $32.5 million and approximately 1,478,000 shares of its common stock at a cost of $55.9 million, respectively. During the three and six months ended June 30, 2013, the Company repurchased approximately 594,000 shares of its common stock at a cost of $21.0 million and approximately 1,204,000 shares of its common stock at a cost of $43.0 million, respectively.


20

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


Note 8.  Stock-Based Compensation
The Company grants stock options, restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”) under its 2009 Equity Incentive Plan. Eligible employees may elect to purchase shares of common stock through the Employee Stock Purchase Plan ("ESPP"). The fair value of each option award and ESPP share is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses the assumptions in the following table. The Company has consistently used a blend of average historical and market-based implied volatilities for calculating the expected volatilities for employee stock options, and uses market-based implied volatilities for its 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 expected term of options granted to employees is derived from the historical option exercises, post-vesting cancellations, and estimates concerning future exercises and cancellations for vested and unvested options that remain outstanding. The risk-free interest rate for the expected term of the option and ESPP is based on the U.S. Treasury yield curve in effect at the time of grant. The Company recognizes its stock-based compensation related to options using a straight-line method over the vesting term of the awards. The Company recognizes its stock-based compensation related to ESPP using a straight-line method over the offering period, which is six months.
The fair value of RSUs and PRSUs is the grant date closing price of our common stock. The Company recognizes expense related to RSUs using a straight-line method over the vesting term of the awards. The Company recognizes expense for PRSUs based on the probability of achieving certain performance criteria, as defined in the PRSU agreements, and uses the graded vesting attribution method over the requisite service period.

The Company records stock-based compensation for options, RSUs and PRSUs granted net of estimated forfeiture rates. ASC 718, Stock Compensation, requires the Company to estimate forfeiture rates at the time of grant and revise 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
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Option grants:
 
 
 
 
 
 
 
Expected volatility
37
%
 
42
%
 
37 - 40%

 
41 - 43%

Expected dividends

 

 

 

Expected term of options (in years)
3.5

 
3.3

 
3.5

 
3.3

Risk-free interest rate
1.3
%
 
0.6
%
 
1.1
%
 
0.6
%
ESPP: (i)
 
 
 
 
 
 
 
Expected volatility
%
 
%
 
36
%
 
42
%
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.

21

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


The allocations of the stock-based compensation, net of estimated income tax benefit, for the three and six months ended June 30, 2014 and 2013 are as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Cost of service revenues
$
1,454

 
$
1,433

 
$
2,918

 
$
2,763

Research and development
5,214

 
4,978

 
9,876

 
9,418

Sales and marketing
5,137

 
5,686

 
9,843

 
10,375

General and administrative
3,556

 
3,752

 
6,970

 
6,823

Total stock-based compensation
15,361

 
15,849

 
29,607

 
29,379

Estimated tax benefit of stock-based compensation
(4,189
)
 
(4,312
)
 
(8,051
)
 
(7,952
)
Total stock-based compensation, net of estimated tax benefit
$
11,172

 
$
11,537

 
$
21,556

 
$
21,427

Stock Option Activity
A summary of stock option activity through June 30, 2014 is presented below (in thousands, except per share amounts):
 
 
 
 
 
 
 
Number of
Shares
 
Weighted-
Average
Exercise Price
Per Share
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2013
9,424

 
$
29.05

 
3.48
 
$
127,697

Granted
1,298

 
$
38.14

 
 
 
 
Exercised
(1,955
)
 
$
10.52

 
 
 
 
Forfeited or expired
(572
)
 
$
43.20

 
 
 
 
Outstanding at June 30, 2014
8,195

 
$
33.93

 
4.31
 
$
41,010

Exercisable at June 30, 2014
4,586

 
$
30.86

 
3.19
 
$
37,566

Restricted Stock Unit Activity
A summary of RSU activity, excluding PRSUs, through June 30, 2014 is presented below (in thousands, except per share amounts):
 
 
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
Outstanding at December 31, 2013
1,793

 

Awarded
1,251

 
$
36.77

Released
(411
)
 
$
36.00

Forfeited
(123
)
 
$
39.85

Outstanding at June 30, 2014
2,510

 

Performance-Based Restricted Stock Unit Activity
During the first quarter of 2014, the Company granted approximately 224,000 target PRSUs. The performance period for the PRSUs granted in 2014 is the 2014 fiscal year. If certain performance goals are met, PRSUs would become eligible to vest, and vest ratably over two or four years on the annual anniversary dates of the grant, contingent upon the recipient’s continued service to the company. Certain participants have the ability to receive up to 125% to 150% of the target number of shares originally granted. The Compensation Committee of the Board of Directors will certify actual performance achievement for these PRSUs in the first quarter of 2015. The weighted-average grant date fair value of 2014 PRSUs was $38.25 per share.

22

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


The performance period for the 649,900 target number of PRSUs granted in 2013 was the 2013 fiscal year. In the first quarter of 2014, the Compensation Committee of the Board of Directors certified actual performance achievement for PRSUs granted in 2013, and as a result, 507,000 shares became eligible to vest. The achieved PRSUs vest ratably over four years on the annual anniversary dates of the grant, contingent upon the recipient's continued service to the Company. The weighted-average grant date fair value of 2013 PRSUs was $37.42 per share.
A summary of PRSU activity based upon PRSUs granted in 2013, certified and actually achieved through June 30, 2014 is presented below (in thousands):
 
 Number of
Shares
Outstanding at December 31, 2013

Achieved
507

Released
(122
)
Forfeited
(41
)
Outstanding at June 30, 2014
344


Note 9.  Income Taxes
The Company's effective tax rates were 34% and 31% for the three months ended June 30, 2014 and 2013, respectively, and 34% and 30% for the six months ended June 30, 2014 and 2013, respectively. The rates were lower than the federal statutory rate of 35% primarily due to the benefits of foreign earnings in lower-tax jurisdictions and the domestic manufacturing deduction, partially offset by nondeductible stock-based compensation, state income taxes, and the accrual of reserves related to uncertain tax positions. The higher tax rate for the three months ended June 30, 2014 as compared to the same period in 2013 was primarily due to the facts that the Company did not recognize any benefit from the federal research and development credit in 2014 and the Company recognized tax benefits from adjustments to tax reserves in the second quarter of 2013. In addition, the higher tax rate for the six months ended June 30, 2014 as compared to the same period in 2013 was primarily due to the facts that the Company recognized the entire 2012 research and development credit in the first quarter of 2013 and this credit expired on December 31, 2013.
The Company is a U.S.-based multinational corporation subject to tax in various U.S. and foreign tax jurisdictions. This fact causes the Company's effective tax rate to be sensitive to its geographic mix of earnings. The geographic mix of earnings is impacted by the fluctuation in currency exchange rates between the U.S. dollar and the functional currencies of the Company's foreign subsidiaries. The Company's results of operations will continue to be adversely affected to the extent that its geographic mix of earnings 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. As of June 30, 2014, 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 June 30, 2014, the Company considered all available evidence both positive and negative, including historical levels of income, legislative developments, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies.
As a result of this analysis for the quarter ended June 30, 2014, consistent with prior periods, it was considered more likely than not that the Company's non-stock-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 and certain operating losses incurred outside of the United States. A valuation allowance has been recorded against this portion of the credit, even though this attribute has an indefinite life. In addition, the Company recorded a valuation allowance related to the deferred tax asset that is attributable to certain operating losses incurred outside of the United States.
The unrecognized tax benefits related to ASC 740, if recognized, would impact the income tax provision by $26.6 million and $19.2 million as of June 30, 2014 and 2013, respectively. The Company has elected to include interest and penalties as a component of income tax expenses. Accrued interest and penalties as of June 30, 2014 and 2013 were approximately $3.7 million and $2.6 million, respectively. As of June 30, 2014, the gross unrecognized tax benefit was approximately $29.9 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

23

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


and foreign jurisdictions have three to six open tax years at any point in time. The field work for certain state and foreign audits have commenced and are at various stages of completion as of June 30, 2014.
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 these 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 10.  Net Income per Common Share
The following table sets forth the calculation of basic and diluted net income per share for the three and six months ended June 30, 2014 and 2013 (in thousands, except per share amounts):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Net income
$
22,829

 
$
18,166

 
$
47,682

 
$
36,073

Weighted-average shares of common stock used to compute basic net income per share (excluding unvested restricted stock)
109,739

 
108,138

 
109,453

 
107,904

Effect of dilutive common stock equivalents:
 
 
 
 
 
 
 
Dilutive effect of unvested restricted stock units
559

 
280

 
606

 
301

Dilutive effect of employee stock options
1,303

 
2,926

 
1,711

 
3,100

Shares used in computing diluted net income per common share
111,601

 
111,344

 
111,770

 
111,305

Basic net income per common share
$
0.21

 
$
0.17

 
$
0.44

 
$
0.33

Diluted net income per common share
$
0.20

 
$
0.16

 
$
0.43

 
$
0.32

Weighted average stock options and restricted stock units excluded from calculation due to anti-dilutive effect
5,147

 
6,268

 
4,900

 
5,911



24

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


Note 11.  Commitments and Contingencies
Lease Obligations
The Company leases certain office facilities under various non-cancelable operating leases, which expire at various dates through 2024 and require the Company to pay operating costs, including property taxes, insurance, and maintenance.
Future minimum lease payments as of June 30, 2014 under non-cancelable operating leases with original terms in excess of one year are summarized as follows (in thousands):
 
 
Operating
Leases
Remaining 2014
$
5,719

2015
12,104

2016
8,983

2017
6,317

2018
4,988

Thereafter
12,128

Total future minimum operating lease payments
$
50,239

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 June 30, 2014 and December 31, 2013 was not material.
Indemnification
The Company's software license agreements generally include 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 agreements generally limit the scope of and remedies for such indemnification obligations in a variety of industry-standard respects, including but not limited to certain time and scope limitations and a right to replace an infringing product with a non-infringing product.
The Company believes its internal development processes and other policies and practices limit its exposure related to these indemnification provisions. In addition, the Company requires its employees to sign a proprietary information and inventions agreement, which assigns the rights to its employees’ development work to the Company. To date, the Company has not had to reimburse any of its customers for any losses related to these indemnification provisions, and no material claims against the Company are outstanding as of June 30, 2014. The Company cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions due to the limited and infrequent history of prior indemnification claims.
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.

25

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


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 12.  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 and six months ended June 30, 2014 and 2013. At June 30, 2014 and December 31, 2013, 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 36% and 35% of total revenues in the second quarter of 2014 and 2013, respectively, and 36% and 34% of total revenues for the six months ended June 30, 2014 and 2013, respectively.
Total revenue by geographic region is summarized as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
North America
$
159,973

 
$
145,456

 
$
313,817

 
$
288,936

Europe, the Middle East, and Africa
60,581

 
53,716

 
120,783

 
100,142

Other
30,159

 
23,267

 
59,210

 
47,661

Total revenues
$
250,713

 
$
222,439

 
$
493,810

 
$
436,739

Property and equipment, net by geographic region are summarized as follows (in thousands):
 
June 30,
2014
 
December 31,
2013
Property and equipment, net:
 
 
 
North America
$
146,721

 
$
147,460

Europe, the Middle East, and Africa
7,159

 
4,907

Other
5,438

 
4,941

Total property and equipment, net
$
159,318

 
$
157,308


26

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


Note 13.  Acquisitions
Acquisition in Fiscal Year 2014:
StrikeIron
In June 2014, the Company acquired all outstanding shares of StrikeIron, Inc. (“StrikeIron”), for aggregate consideration of approximately $54.6 million. StrikeIron provides cloud-based data-as-a-service for email and contact validation, and will enable the Company to enhance its cloud-based product portfolio. The goodwill is not deductible for tax purposes.
Approximately $8.3 million of the consideration otherwise payable to former StrikeIron stockholders was placed into an escrow fund and held as partial security for the indemnification obligations of the former StrikeIron stockholders. The escrow fund will remain in place until September 2015.
The following table summarizes the fair value of assets acquired and liabilities assumed of $50.5 million and the acquiree's transaction related costs and debt settlement of $4.1 million, which were paid by the Company (in thousands):
Assumed liabilities, net of assets
$
(3,499
)
Identifiable intangible assets:
 
Developed and core technology
13,900

Customer relationships
3,500

Covenants not to compete
450

Trade names
40

Total identifiable net assets
14,391

Goodwill
36,116

Total assets acquired and liabilities assumed
50,507

Acquiree's transaction related costs and debt settlement
4,138

Total
$
54,645

Acquisitions in Fiscal Year 2013:
Active Endpoints
In February 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 were 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 entire escrow fund was released in the second quarter of 2014.
Heiler Software AG
In November 2012, the Company acquired a majority interest in the shares of Heiler Software, 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 Software 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. As of December 31, 2012, the Company held approximately 97.7% of the outstanding shares of Heiler Software. During December 2012 and the first half of 2013, the Company acquired other shareholders' interest in Heiler Software for approximately $6.8 million, which extinguished recorded liabilities to noncontrolling shareholders. Total cash consideration was approximately $108.7 million. The squeeze-out of the remaining shareholders was effective in the second quarter of 2013, increasing the Company's ownership in Heiler to 100 percent.
The fair value of the noncontrolling interest in Heiler Software 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.

27

Table of Contents
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 during the measurement period. The goodwill is not deductible for tax purposes.
The Company's business combinations completed in 2014 and 2013, either individually or in aggregate, did not have a material impact on the Company's condensed consolidated financial statements, and therefore pro forma disclosures have not been presented. The Company included the financial results of these companies in the condensed consolidated financial statements from their respective acquisition dates.

28

Table of Contents

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, software revenues, service revenues, international revenues, potential future revenues, cost of software revenues, cost of service revenues, operating expenses, amortization of acquired technology, stock-based compensation, and provision for income taxes; the growth of our customer base and customer demand for our products and services; our credit agreement; 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 software and services. We generate revenues from sales of software licenses, subscription-based licenses, maintenance and support services, and professional services, consisting of 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, the Middle East, and Africa (“EMEA”). Revenues outside of EMEA and North America comprised approximately 12% of total consolidated revenues during the first half of 2014 and 10% of total consolidated revenues during 2013 and 2012.
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 second quarter of 2014 increased by 13% to $250.7 million compared to $222.4 million for the same period in 2013. Our software revenues increased by 13% in the second quarter of 2014 from the same period in 2013 due to a 9% increase in license revenues and a 43% increase in subscription revenues. The increase in license revenues reflected increases in the average transaction size of license orders and number of transactions in the quarter ended June 30, 2014, compared to the same period in 2013. The increase in subscription revenues was due to growth in the installed customer base and higher customer demand for our subscription offerings. Service revenues increased by 12% in the second quarter of 2014 from the same period in 2013 due to a 13% growth in maintenance revenues and an 11% 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 revenues was primarily due to higher customer demand for consulting services, partially offset by a decrease in education classes offered.

In the first half of 2014, total revenues increased by 13% to $493.8 million from $436.7 million in the comparable period a year ago. Software revenues increased by 15% in the first half of 2014 from the same period in 2013 due to an increase of 11% in license revenues and a 45% increase in subscription revenues. The increase in license revenues reflected increases in the average transaction size of license orders and number of transactions in the first half of 2014, compared to the same period in 2013. The increase in subscription revenues was due to growth in the installed customer base and higher customer demand of subscription offerings. Service revenues increased by 12% in the first half of 2014 from the same period in 2013 due to a 13% growth in maintenance revenues and a 6% increase in consulting and education services. The maintenance revenues growth was attributable

29

Table of Contents

to the increased size of our installed customer base, and the increase in consulting and education services revenues was primarily due to an increase in consulting revenues due to higher customer demand, partially offset by a decrease in education classes offered.
Due to our dynamic market, we face both significant opportunities and challenges, and as such, we focus on the following key factors:
Competition:  The market for our products is highly competitive, quickly evolving and subject to rapidly changing technology, which may expand the alternatives available to our customers for their data integration requirements. Our competitors may be able to respond more quickly to new or emerging technologies, technological trends, changes in customer requirements and industry consolidation. Moreover, competition from new and emerging technologies and changes in technological trends, particularly the shift to cloud-based solutions, has increased market confusion about the benefits of our products compared to other solutions. We must compete effectively, particularly on the basis of functionality and price, against a variety of different vendors offering existing data integration software products, vendors of new and emerging technologies, and hand-coded, custom-built data integration solutions.
Product Introductions and Enhancements:  To address the expanding data integration needs of our customers and prospective customers and to respond to rapid technological changes and customer concerns, 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 that are likely to continue 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 had weaker demand for our software products and services in the first and third quarters of the year. The first, second and fourth quarters of 2013 followed these seasonal trends. However, license revenues in the second quarter of 2014 were lower as compared to the first quarter of 2014, and license revenues in the third quarter of 2013 were higher as compared to the first and second quarters of 2013. The uncertain macroeconomic conditions and recent changes in our worldwide sales organization make our future results more difficult to predict based on historical seasonal trends.
Macroeconomic and Geopolitical Conditions:  The United States and many foreign economies, particularly in Europe, continue to experience uncertainty driven by varying macroeconomic and geopolitical conditions. Although some of these economies have shown signs of improvement, including in the United States, the macroeconomic environment remains uncertain and uneven. Uncertainty in the macroeconomic environment and associated global economic conditions as well as geopolitical conditions have resulted in extreme volatility in credit, equity, and foreign currency markets. In particular, economic concerns continue with respect to the European sovereign debt markets and potential ramifications of any U.S. debt, income tax and budget issues, including future delays in approving the U.S. budget or reductions in government spending. 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 continue to invest in our international operations. There are significant risks with overseas investments, and our growth prospects in these regions are uncertain. Increased volatility, further declines in credit, equity and foreign currency markets, and geopolitical conditions could cause delays or cancellations in international orders.
We focus on a number of key initiatives to address these factors and other opportunities and challenges. These key initiatives include 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, the strengthening of our partnerships, 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. See “Risk Factors — We rely on our relationships with our strategic partners. If we do not establish, 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.

30

Table of Contents

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 cloud data integration, data quality, information lifecycle management, data exchange, and master data management, among others. 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, marketing 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 various leadership transitions in our worldwide sales organization and continued investment in our sales specialists and domain experts, we have also implemented 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 these changes and our international expansion, as well as the increase in our direct sales headcount in the United States, our sales and marketing expenses have increased. As our products become more complex and we target new customers for our software and services, we expect to broaden our go-to-market initiatives and, as a result, our expenses may increase. 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, profitability and revenues. 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, business combinations, impairment of goodwill and intangible assets, stock-based compensation, and allowance for doubtful accounts have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. The critical accounting estimates associated with these policies are discussed in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2013.
There have been no changes to our critical accounting policies since the end of 2013.
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.

31

Table of Contents

Results of Operations
The following table presents certain financial data for the three and six months ended June 30, 2014 and 2013 as a percentage of total revenues:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Software
41
 %
 
41
 %
 
42
 %
 
41
 %
Service
59

 
59

 
58

 
59

Total revenues
100

 
100