INFA-2015.03.31-10Q
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 March 31, 2015
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 April 24, 2015, there were approximately 104,311,000 shares of the registrant’s Common Stock outstanding.


 
 
 
 
 



INFORMATICA CORPORATION
TABLE OF CONTENTS

 
 
 Page No. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents


PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATICA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 
March 31,
2015
 
December 31,
2014
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
257,236

 
$
368,531

Short-term investments
241,478

 
353,130

Accounts receivable, net of allowances of $3,549 and $3,465, respectively
164,219

 
235,705

Deferred tax assets
44,538

 
46,867

Prepaid expenses and other current assets
32,720

 
25,447

Total current assets
740,191

 
1,029,680

Property and equipment, net
155,699

 
159,708

Goodwill
542,725

 
551,196

Other intangible assets, net
39,265

 
43,161

Long-term deferred tax assets
32,677

 
32,032

Other assets
17,247

 
13,809

Total assets
$
1,527,804

 
$
1,829,586

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 

 
 

Accounts payable
$
13,022

 
$
12,009

Accrued liabilities
56,340

 
60,404

Accrued compensation and related expenses
46,628

 
88,336

Income taxes payable
2,694

 
6,895

Deferred revenues
328,007

 
324,296

Total current liabilities
446,691

 
491,940

Long-term deferred revenues
17,392

 
14,679

Long-term income taxes payable
28,347

 
30,350

Other liabilities
3,577

 
3,666

Total liabilities
496,007

 
540,635

Commitments and contingencies (Note 11)


 


Stockholders' equity:
 

 
 

Common stock, $0.001 par value; 200,000 shares authorized; 104,212 shares and
 
 
 
108,704 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively
104

 
109

Additional paid-in capital
510,919

 
773,419

Accumulated other comprehensive loss
(47,994
)
 
(31,789
)
Retained earnings
568,768

 
547,212

Total stockholders’ equity
1,031,797

 
1,288,951

Total liabilities and stockholders' equity
$
1,527,804

 
$
1,829,586

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
March 31,
 
2015
 
2014
Revenues:
 
 
 
Software
$
103,726

 
$
103,043

Service
146,810

 
140,054

Total revenues
250,536

 
243,097

Cost of revenues:
 

 
 

Software
3,376

 
3,119

Service
40,551

 
40,229

Amortization of acquired technology
2,750

 
3,985

Total cost of revenues
46,677

 
47,333

Gross profit
203,859

 
195,764

Operating expenses:
 

 
 

Research and development
50,677

 
45,685

Sales and marketing
97,402

 
91,584

General and administrative
22,457

 
20,053

Amortization of intangible assets
1,091

 
1,536

Acquisitions and other charges

 
89

Total operating expenses
171,627

 
158,947

Income from operations
32,232

 
36,817

Interest income
871

 
1,153

Interest expense
(86
)
 
(127
)
Other income (expense), net
368

 
(84
)
Income before income taxes
33,385

 
37,759

Income tax provision
11,828

 
12,906

Net income
$
21,557

 
$
24,853

Basic net income per common share
$
0.20

 
$
0.23

Diluted net income per common share
$
0.20

 
$
0.22

Shares used in computing basic net income per common share
105,928

 
109,164

Shares used in computing diluted net income per common share
107,424

 
111,935

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
March 31,
 
2015
 
2014
Net income
$
21,557

 
$
24,853

Other comprehensive income (loss):
 
 
 
Change in foreign currency translation adjustment, net of tax benefit (expense) of $1,560 and $(161)
(17,003
)
 
569

Available-for-sale investments:
 
 
 
Change in net unrealized gain, net of tax expense of $(155) and $(57)
251

 
93

Less: reclassification adjustment for net gain included in net income, net of tax expense of $(2) and $(1)
(3
)
 
(2
)
Net change, net of tax expense of $(153) and $(56)
248

 
91

Cash flow hedges:
 
 
 
Change in unrealized gain, net of tax expense of $(476) and $(550)
771

 
898

Less: reclassification adjustment for net (gain) loss included in net income, net of tax benefit (expense) of $(137) and $185
(221
)
 
301

Net change, net of tax expense of $(339) and $(735)
550

 
1,199

Total other comprehensive (loss) income, net of tax effect
(16,205
)
 
1,859

Total comprehensive income, net of tax effect
$
5,352

 
$
26,712

See accompanying notes to condensed consolidated financial statements.




5

Table of Contents

INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
2015
 
2014
Operating activities:
 
 
 
Net income
$
21,557

 
$
24,853

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

Depreciation and amortization
4,770

 
4,300

Stock-based compensation
15,090

 
14,246

Deferred income taxes
1,169

 
(2,063
)
Tax benefits from stock-based compensation
1,527

 
284

Excess tax benefits from stock-based compensation
(1,846
)
 
(1,660
)
Amortization of intangible assets and acquired technology
3,841

 
5,521

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
71,486

 
43,360

Prepaid expenses and other assets
(7,367
)
 
(3,127
)
Accounts payable and accrued liabilities
(44,195
)
 
(27,845
)
Income taxes payable
(6,703
)
 
(9,101
)
Deferred revenues
6,911

 
13,975

Net cash provided by operating activities
66,240

 
62,743

Investing activities:
 

 
 

Purchases of property and equipment
(2,330
)
 
(6,200
)
Purchases of investments
(17,567
)
 
(104,490
)
Investment in equity interest, net
(534
)
 

Maturities of investments
29,921

 
60,180

Sales of investments
99,180

 
2,752

Net cash provided by (used in) investing activities
108,670

 
(47,758
)
Financing activities:
 

 
 

Net proceeds from issuance of common stock
25,596

 
23,303

Repurchases and retirement of common stock
(300,000
)
 
(23,323
)
Withholding taxes related to restricted stock units net share settlement
(4,719
)
 
(3,056
)
Payment of contingent consideration

 
(3,061
)
Excess tax benefits from stock-based compensation
1,846

 
1,660

Net cash used in financing activities
(277,277
)
 
(4,477
)
Effect of foreign exchange rate changes on cash and cash equivalents
(8,928
)
 
122

Net (decrease) increase in cash and cash equivalents
(111,295
)
 
10,630

Cash and cash equivalents at beginning of period
368,531

 
297,818

Cash and cash equivalents at end of period
$
257,236

 
$
308,448

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 March 31, 2015 and for the three months ended March 31, 2015 and 2014 are unaudited. The interim results presented are not necessarily indicative of results for any subsequent interim period, the year ending December 31, 2015, or any other future period. On April 6, 2015, the Company entered into a definitive agreement to be acquired by the Canada Pension Plan Investment Board and investment funds advised by Permira Advisers LLC for $48.75 in cash for each share of our common stock. For further information, see Note 14. Subsequent Events of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
The preparation of the Company's condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions. For example, the Company makes estimates, judgments, and assumptions in determining vendor-specific objective evidence ("VSOE") and, estimated selling price ("ESP") used in revenue recognition, the realizability of deferred tax assets, uncertain tax positions, fair value of acquired tangible and intangible assets and liabilities assumed during acquisitions, the number of reporting segments, the recoverability of intangible assets and their useful lives, the fair value of stock options and forfeiture estimates used in calculating stock-based compensations, number of performance-based restricted stock units that the Company expects to vest, and the collectability of accounts receivable. 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.
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, 2014 included in the Company's Annual Report on Form 10-K, as amended, filed with the SEC. The consolidated balance sheet as of December 31, 2014 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, 2014.
Certain reclassifications have been made within the condensed consolidated statement of cash flows to conform to the current year presentation. A change was made to present redemptions by issuers of debt securities held by the Company as part of net cash provided by maturities of investments to reflect that these redemptions are an acceleration of the maturity of the debt investment. Redemptions were previously presented as part of net cash provided by sales of investments. This change in presentation did not affect total net cash used in investing activities and conforming changes have been made for all prior periods presented. Net cash provided by redemptions of $14.0 million was reclassified from sales of investments to maturities of investments for the three months ended March 31, 2014.
Recent Accounting Pronouncements
In April 2015, the FASB issued Accounting Standards Update ("ASU") 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, as part of its simplification initiative and clarifies how customers in cloud computing arrangements should determine whether the arrangement includes a software license. Existing GAAP does not include explicit guidance about a customer's accounting for fees paid in a

7

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

cloud computing arrangement. This ASU eliminates the current requirement that customers analogize to the leases standard when determining the assets acquired in a software license arrangement. If a cloud computing arrangement includes a software license, then the customer should account for the software licenses element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. As a result of this ASU, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The ASU is effective for us beginning in 2016, with early adoption permitted. An entity can elect to adopt the ASU either (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively. For prospective transition, the only disclosure requirements at transition are the nature of and reason for the change in accounting principle, the transition method, and a qualitative description of the description of the financial statement line items affected by the change. For retrospective transition, the disclosure requirements at transition include the requirements for prospective transition and quantitative information about the effects of the accounting change. The Company is currently assessing its pending adoption of ASU 2015-05 on its consolidated financial statements and disclosures.
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs, that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct reduction from the debt liability, consistent with debt discounts, rather than as an asset. The recognition and measurement guidance for debt issuance costs is not affected by the amendments in this update. This ASU is part of the FASB's initiative to reduce complexity in accounting standards and is effective for the Company beginning in 2016 and early adoption is permitted. The standard requires full retrospective adoption, meaning the standard is applied to all periods presented. The Company is currently assessing its pending adoption of ASU 2015-03 on its 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 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 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 2016 with early adoption permitted. The Company does not expect its pending adoption of ASU 2014-12 to have a material impact on its consolidated financial statements and disclosures.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the Company in the first quarter of 2017 with early adoption permitted. The Company does not expect its pending adoption of ASU 2014-15 to have an impact on the consolidated financial statements and disclosures.
There have been no other changes to the Company's significant accounting policies since the end of 2014.

8

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

Fair Value Measurement of Financial Assets and Liabilities
The following table summarizes financial assets and financial liabilities that the Company measures at fair value on a recurring basis as of March 31, 2015 (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)
$
1,369

 
$
1,369

 
$

 
$

Time deposits (ii)
21,773

 
21,773

 

 

Marketable debt securities (ii)
223,705

 

 
223,705

 

Total money market funds, time deposits, and marketable debt securities
246,847

 
23,142

 
223,705

 

Foreign currency derivatives (iii)
555

 

 
555

 

Total assets
$
247,402

 
$
23,142

 
$
224,260

 
$

Liabilities:
 
 
 
 
 
 
 
Foreign currency derivatives (iv)
$
204

 
$

 
$
204

 
$

Total liabilities
$
204

 
$

 
$
204

 
$

The following table summarizes financial assets and financial liabilities that the Company measures at fair value on a recurring basis as of December 31, 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)
$
15,344

 
$
15,344

 
$

 
$

Time deposits (ii)
26,395

 
26,395

 

 

Marketable debt securities (ii)
326,735

 

 
326,735

 

Total money market funds, time deposits, and marketable debt securities
368,474

 
41,739

 
326,735

 

Foreign currency derivatives (iii)
310

 

 
310

 

Total assets
$
368,784

 
$
41,739

 
$
327,045

 
$

Liabilities:
 

 
 

 
 

 
 

Foreign currency derivatives (v)
$
915

 
$

 
$
915

 
$

Total liabilities
$
915

 
$

 
$
915

 
$

____________________
(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 consolidated balance sheets.
(v)
Included in accrued liabilities and other liabilities on the consolidated balance sheets.

9

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

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. 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 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. 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 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 months ended March 31, 2015 and 2014.
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.
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 months ended March 31, 2015 and 2014 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 March 31, 2015 (in thousands):
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
251,867

 
$

 
$

 
$
251,867

Cash equivalents:
 

 
 

 
 

 
 

Money market funds
1,369

 

 

 
1,369

Commercial Paper
4,000

 

 

 
4,000

Total cash equivalents
5,369

 

 

 
5,369

Total cash and cash equivalents
257,236

 

 

 
257,236

Short-term investments:
 

 
 

 
 

 
 

Certificates of deposit
1,920

 

 

 
1,920

Commercial paper
8,992

 

 

 
8,992

Corporate notes and bonds
114,165

 
157

 
(86
)
 
114,236

Federal agency notes and bonds
29,072

 
35

 
(6
)
 
29,101

Time deposits
21,773

 

 

 
21,773

Municipal notes and bonds
65,363

 
98

 
(5
)
 
65,456

Total short-term investments
241,285

 
290

 
(97
)
 
241,478

Total cash, cash equivalents, and short-term investments
$
498,521

 
$
290

 
$
(97
)
 
$
498,714


The following table summarizes the Company’s cash, cash equivalents, and short-term investments as of December 31, 2014 (in thousands):
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
353,187

 
$

 
$

 
$
353,187

Cash equivalents:
 

 
 

 
 

 
 

Money market funds
15,344

 

 

 
15,344

Total cash equivalents
15,344

 

 

 
15,344

Total cash and cash equivalents
368,531

 

 

 
368,531

Short-term investments:
 

 
 

 
 

 
 

Certificates of deposit
1,920

 

 

 
1,920

Commercial paper
1,996

 

 

 
1,996

Corporate notes and bonds
196,401

 
84

 
(371
)
 
196,114

Federal agency notes and bonds
51,987

 
13

 
(44
)
 
51,956

Time deposits
26,395

 

 

 
26,395

Municipal notes and bonds
74,639

 
128

 
(18
)
 
74,749

Total short-term investments
353,338

 
225

 
(433
)
 
353,130

Total cash, cash equivalents, and short-term investments
$
721,869

 
$
225

 
$
(433
)
 
$
721,661

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 March 31, 2015 (in thousands):
 
Less Than 12 months
 
 
 
 
Fair
Value
 
Gross
Unrealized
Losses
Corporate notes and bonds
$
32,411

 
$
(83
)
Federal agency notes and bonds
12,009

 
(6
)
Municipal notes and bonds
6,542

 
(5
)
Total
$
50,962

 
$
(94
)
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 March 31, 2015 (in thousands):
 
Greater Than 12 months
 
 
 
 
Fair
Value
 
Gross
Unrealized
Losses
Corporate notes and bonds
$
1,026

 
$
(3
)
Total
$
1,026

 
$
(3
)
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 March 31, 2015 (in thousands):
 
Cost
 
Fair
Value
Due within one year
$
152,265

 
$
152,363

Due in one year to two years
66,507

 
66,541

Due after two years
22,513

 
22,574

Total
$
241,285

 
$
241,478


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 March 31, 2015 and December 31, 2014 are as follows (in thousands, except years):
 
March 31, 2015
 
December 31, 2014
 
Weighted
Average
Useful Life
(Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
 
Developed and core technology
$
145,875

 
$
(114,919
)
 
$
30,956

 
$
145,929

 
$
(112,169
)
 
$
33,760

 
6
Other Intangible Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
45,177

 
(40,659
)
 
4,518

 
45,178

 
(39,766
)
 
5,412

 
5
All other (i)
19,145

 
(15,354
)
 
3,791

 
19,145

 
(15,156
)
 
3,989

 
4-9
Total other intangible assets
64,322

 
(56,013
)
 
8,309

 
64,323

 
(54,922
)
 
9,401

 
 
Total intangible assets, net
$
210,197

 
$
(170,932
)
 
$
39,265

 
$
210,252

 
$
(167,091
)
 
$
43,161

 
 
____________________
(i)
All other includes vendor relationships, trade names, covenants not to compete, and patents.

Total amortization expense related to intangible assets was $3.8 million and $5.5 million for the three months ended March 31, 2015 and 2014, respectively. Certain intangible assets were recorded in foreign currencies; and therefore, the gross carrying amount and accumulated amortization are subject to foreign currency translation adjustments.
As of March 31, 2015, the amortization expense related to identifiable intangible assets in future periods is expected to be as follows (in thousands):
 
 
 
Acquired
Technology
 
Other
Intangible
Assets (ii)
 
Total
Intangible
Assets
Remaining 2015
$
7,615

 
$
3,210

 
$
10,825

2016
8,883

 
2,449

 
11,332

2017
6,870

 
1,152

 
8,022

2018
4,756

 
729

 
5,485

2019
2,331

 
449

 
2,780

Thereafter
501

 
320

 
821

Total expected amortization expense
$
30,956

 
$
8,309

 
$
39,265

____________________
(ii)
Other Intangible Assets includes customer relationships, vendor relationships, trade names, covenants not to compete, and patents.

13

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

The changes in the carrying amount of goodwill for the three months ended March 31, 2015 are as follows (in thousands):
 
March 31,
2015
Beginning balance as of December 31, 2014
$
551,196

Goodwill from acquisition

Subsequent goodwill adjustments
(8,471
)
Ending balance as of March 31, 2015
$
542,725

During the three months ended March 31, 2015, the Company recorded subsequent goodwill net reductions of $8.5 million primarily related to foreign currency translation adjustments. The goodwill is partially deductible for tax purposes. See Note 13. Acquisitions of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report for a further discussion of goodwill from acquisitions.
Note 4.  Borrowings
Credit Agreement
On September 26, 2014, the Company entered into a Credit Agreement (the “Credit Agreement”) that matures on September 26, 2019. 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 or to enter into tranches of term loans in an aggregate amount of up to $30.0 million, for a total credit facility of up to $250.0 million. The revolving credit facility has sublimits for swingline loans available on a same day basis of up to $10.0 million and for the issuance of standby letters of credit in a face amount up to $20.0 million. No amounts were outstanding under the Credit Agreement as of March 31, 2015, and a total of $220.0 million remained available for borrowing.
Revolving loans accrue interest at a per annum rate based on either, at the Company's election, (i) the base rate plus a margin ranging from 0.50% to 1.00% depending on the Company's consolidated leverage ratio, or (ii) the LIBO rate (based on 1-, 2-, 3-, or 6-month interest periods) plus a margin ranging from 1.50% to 2.00% 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) LIBO rate for a 1-month interest period plus a margin equal to 1.00%. Swingline loans accrue interest at a per annum rate based on the base rate plus the applicable margin for base rate loans. Revolving loans may be borrowed, repaid and reborrowed until September 26, 2019, at which time all amounts borrowed must be repaid. Swingline loans shall be repaid on the 15th day of a calendar month, or the last day of a calendar month, or September 26, 2019, whichever is earlier.
Accrued interest on the revolving loans is payable (i) quarterly in arrears with respect to base rate loans, (ii) 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 LIBO rate loans, and (iii) the day that the borrowing is required to be repaid with respect to swingline 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 0.225% to 0.35% 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 LIBO rate 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 a payment 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 to base rate loans for any other overdue amounts. The Company was in compliance with all covenants under the Credit Agreement as of March 31, 2015.
For further information, see Note 14. Subsequent Events of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

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 March 31, 2015, 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 loss as of December 31, 2014
 
$
(31,312
)
 
$
(129
)
 
$
(348
)
 
$
(31,789
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications, net of tax benefit (expense) of $1,560, $(155) and $(476)
 
(17,003
)
 
251

 
771

 
(15,981
)
Net gain reclassified from accumulated other comprehensive income (loss), net of tax expense of $ —, $(2) and $(137)
 

 
(3
)
(i) 
(221
)
(ii) 
(224
)
Total other comprehensive income (loss), net of tax effect (iii)
 
(17,003
)
 
248

 
550

 
(16,205
)
Accumulated other comprehensive income (loss) as of March 31, 2015
 
$
(48,315
)
 
$
119

 
$
202

 
$
(47,994
)
____________________
(i)
The before-tax gain of $5 was included in other expense, net on the condensed consolidated statements of income.
(ii)
The before-tax gain of $87 and $271 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 related to the net gain reclassified from accumulated other comprehensive income (loss) 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 March 31, 2014, net of taxes (in thousands):
 
 
Cumulative
Translation
Adjustments
 
Net Unrealized
Gain (Loss) on
Available-for-Sale
Investments
 
Net Unrealized
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 $(161), $(57) and $(550)
 
569

 
93

 
898

 
1,560

Net (gain) loss reclassified from accumulated other comprehensive income (loss), net of tax benefit (expense) of $ —, $(1) and $185
 

 
(2
)
(i) 
301

(ii) 
299

Total other comprehensive income (loss), net of tax effect (iii)
 
569

 
91

 
1,199

 
1,859

Accumulated other comprehensive income (loss) as of March 31, 2014
 
$
(2,310
)
 
$
154

 
$
803

 
$
(1,353
)
____________________
(i)
The before-tax loss of $3 was included in other expense, net on the condensed consolidated statements of income.
(ii)
The before-tax losses of $120 and $366 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 related to the net loss reclassified from accumulated other comprehensive income (loss) was included in income tax provision on the condensed consolidated statements of income.
Note 6.  Derivative Financial Instruments
The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company uses derivative instruments to manage its exposures to fluctuations in certain foreign currency exchange rates which exist as part of ongoing business operations. The Company and its subsidiaries do not enter into derivative contracts for speculative purposes.
Cash Flow Hedges
The Company enters into certain cash flow hedge programs in an attempt to reduce the impact of certain foreign currency fluctuations. These contracts are designated and documented as cash flow hedges. The purpose of these programs is to reduce the volatility of identified cash flow and expenses caused by movement in certain foreign currency exchange rates, in particular, the Indian rupee. The Company is currently using foreign exchange forward contracts to hedge 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 March 31, 2015, 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.

16

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

The notional amounts of these foreign exchange forward contracts in U.S. dollar equivalents were to buy $41.0 million and $45.9 million of Indian rupees as of March 31, 2015 and December 31, 2014, 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 $10.4 million and $10.6 million of Indian rupees at March 31, 2015 and December 31, 2014, respectively. The notional amounts of foreign currency contracts open at period end in U.S. dollar equivalents were to sell $6.2 million of Indian rupees and $57.1 million of Euros at March 31, 2015 and December 31, 2014, respectively.
The following table reflects the fair value amounts for the foreign exchange contracts designated and not designated as hedging instruments at March 31, 2015 and December 31, 2014 (in thousands):
 
March 31, 2015
 
December 31, 2014
 
Fair Value
Derivative
Assets(i)
 
Fair Value
Derivative
Liabilities(ii)
 
Fair Value
Derivative
Assets(i)
 
Fair Value
Derivative
Liabilities(iii)
Derivatives designated as hedging instruments
$
385

 
$
14

 
$
141

 
$
761

Derivatives not designated as hedging instruments
170

 
190

 
169

 
154

Total fair value of derivative instruments
$
555

 
$
204

 
$
310

 
$
915

____________________
(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.
(iii)
Included in accrued liabilities and other 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.


17

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

The following table sets forth the offsetting of derivative assets as of March 31, 2015 and December 31, 2014 (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
As of March 31,
 
 
 
 
 
 
 
 
 
 
 
2015:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
555

 
$

 
$
555

 
$
(78
)
 
$

 
$
477

As of December 31,
 
 
 
 
 
 
 
 
 
 
 
2014:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
310

 
$

 
$
310

 
$
(62
)
 
$

 
$
248

____________________
(i)
The balances at March 31, 2015 and December 31, 2014 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 March 31, 2015 and December 31, 2014 (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
As of March 31,
 
 
 
 
 
 
 
 
 
 
 
2015:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
204

 
$

 
$
204

 
$
(78
)
 
$

 
$
126

As of December 31,
 
 
 
 
 
 
 
 
 
 
 
2014:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
915

 
$

 
$
915

 
$
(62
)
 
$

 
$
853

____________________
(ii)
The balances at March 31, 2015 and December 31, 2014 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with the master netting agreements.

18

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

The Company evaluates prospectively as well as retrospectively the effectiveness of its hedge programs using statistical analysis. Prospective testing is performed at the inception of the hedge relationship and quarterly thereafter. Retrospective testing is performed on a quarterly basis.  
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 months ended March 31, 2015 and 2014 are as follows (in thousands):
 
Three Months Ended
March 31,
 
2015
 
2014
Amount of gain recognized in other comprehensive income (effective portion)
$
1,247

 
$
1,448

Amount of gain (loss) reclassified from accumulated other comprehensive income to cost of service revenues and operating expenses (effective portion)
$
358

 
$
(486
)
Amount of gain on derivatives due to hedge ineffectiveness recognized in cost of service revenues and operating expenses
$
116

 
$

No amounts were excluded from the assessment of hedge effectiveness during the three months ended March 31, 2015 and 2014.

The before-tax loss recognized in other expense, net for non-designated foreign currency forward contracts for the three months ended March 31, 2015 and 2014 are as follows (in thousands):
 
Three Months Ended
March 31,
2015
 
2014
Gain (loss) recognized in other expense, net
$
(77
)
 
$
75

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 each of January, July, and October of 2014, the Board of Directors approved the repurchase of up to an additional $100 million of the Company's outstanding common stock, with such authorizations aggregating to $300 million. In January 2015, we announced that the Board of Directors approved an additional $337 million to augment its existing authorization under our stock repurchase program. Subsequently in February 2015, we entered into separate accelerated stock repurchase ("ASR") agreements with two financial institutions to repurchase an aggregate of $300 million of our common stock. Under the terms of the ASR agreements, we paid an aggregate of $300 million in cash and received an initial delivery of approximately 5.7 million shares on February 4, 2015. The final number of shares to be repurchased will be based on our volume-weighted average stock price less a discount during the term of the transactions. This final settlement of shares is expected to occur no later than the end of the second quarter of 2015.
The repurchase program authorized by the Board of Directors does not have an expiration date. Repurchased shares are retired and reclassified as authorized and unissued shares of common stock. As of March 31, 2015, $200 million of the previous authorizations remained available for future repurchases.

19

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 is the grant date closing price of our common stock. Beginning in the first quarter of 2015, the Company granted two types of PRSUs. The fair value of PRSUs, with service and performance conditions, is the grant date closing price of our common stock. The grant date fair value of the PRSUs requiring the satisfaction of service, performance, and market conditions was determined by using a Monte Carlo simulation model, which utilized multiple input variables that determined the probability of satisfying the market condition requirements. 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, with service and performance conditions, based on the probability of achieving the performance criteria, as defined in the PRSU agreements. The Company recognizes expense for PRSUs with service, performance, and market conditions based on the probability of achieving the performance conditions as long as the requisite service is rendered, even if the market conditions are not met. PRSUs are expensed using 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 stock-based awards was estimated based on the following assumptions:
 
Three Months Ended
March 31,
 
2015
 
2014
Option grants:
 
 
 
Expected volatility
31
%
 
37 - 40%

Expected dividends

 

Expected term of options (in years)
3.5

 
3.5

Risk-free interest rate
1.1
%
 
1.0
%
ESPP: (i)
 
 
 
Expected volatility
29
%
 
36
%
Expected dividends

 

Expected term of ESPP (in years)
0.5

 
0.5

Risk-free interest rate
0.1
%
 
0.1
%
PRSUs with market conditions:
 
 
 
Expected volatility
30% - 39%

 

Expected dividends

 

Risk-free interest rate
1.0
%
 

____________________
(i)
ESPP purchases are scheduled for the last day of January and July of each year.

20

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 months ended March 31, 2015 and 2014 are as follows (in thousands):
 
Three Months Ended
March 31,
 
2015
 
2014
Cost of service revenues
$
1,539

 
$
1,464

Research and development
5,060

 
4,662

Sales and marketing
4,769

 
4,706

General and administrative
3,722

 
3,414

Total stock-based compensation
15,090

 
14,246

Estimated tax benefit of stock-based compensation
(4,040
)
 
(3,862
)
Total stock-based compensation, net of estimated tax benefit
$
11,050

 
$
10,384

Stock Option Activity
A summary of stock option activity through March 31, 2015 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, 2014
7,186

 
$
35.82

 
4.25
 
$
31,514

Granted
464

 
$
42.50

 
 
 
 
Exercised
(601
)
 
$
22.96

 
 
 
 
Forfeited or expired
(208
)
 
$
36.17

 
 
 
 
Outstanding at March 31, 2015
6,841

 
$
37.40

 
4.24
 
$
48,057

Exercisable at March 31, 2015
3,950

 
$
36.99

 
3.41
 
$
30,817

Restricted Stock Unit Activity
A summary of RSU activity, excluding PRSUs, through March 31, 2015 is presented below (in thousands, except per share amounts):
 
 
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
Outstanding at December 31, 2014
2,513

 

Awarded
835

 
$
42.50

Released
(167
)
 
$
40.30

Forfeited
(129
)
 
$
37.60

Outstanding at March 31, 2015
3,052

 

Performance-Based Restricted Stock Unit Activity
During the first quarter of 2015, the Company granted approximately 237,000 target PRSUs.
Approximately 149,000 of these PRSUs have a performance period that is the 2015 fiscal year. If certain performance goals are met, PRSUs would become eligible to vest, and vest ratably over four years on the annual anniversary dates of the vesting commencement date, contingent upon the recipient’s continued service to the company. Certain participants have the ability to receive up to 125% 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 2016. The weighted-average grant date fair value of these PRSUs was $43.06 per share.

21

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

Approximately 88,000 of these PRSUs have a performance period that is the three year period beginning with January 1, 2015 through December 31, 2017 with certain revenue based performance goals and the achievement of an objective relative total stockholder return against other companies in the S&P Software & Services Select Index measured over a three-year performance period. Participants have the ability to receive up to 188% 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 2018, after which they will vest immediately in full. The weighted-average grant date fair value of 2015 PRSUs was $46.93 per share, which was determined using a Monte Carlo simulation model.
During the first quarter of 2014, the Company granted approximately 223,000 target PRSUs. The performance period for the PRSUs granted in 2014 was the 2014 fiscal year. In the first quarter of 2015, the Compensation Committee of the Board of Directors certified actual performance achievement for PRSUs granted in 2014, and as a result, 138,000 shares became eligible to vest. The achieved PRSUs 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 had the ability to receive up to 125% to 150% of the target number of shares originally granted. The weighted-average grant date fair value of PRSUs granted in 2014 was $38.25 per share.
A summary of PRSU activity based upon PRSUs granted in 2013 and 2014, certified and actually achieved through the three months ended March 31, 2015 is presented below (in thousands):
 
 Number of
Shares
Outstanding at December 31, 2014
306

Achieved
138

Released
(136
)
Forfeited
(20
)
Outstanding at March 31, 2015
288

The fair value of PRSUs released during the three months ended March 31, 2015 was approximately $5.1 million.
A summary of PRSU activity through the three months ended March 31, 2015 for awards that have not been certified by the Compensation Committee of the Board of Directors as achieved is presented below (in thousands):
 
 Number of
Shares
Outstanding at December 31, 2014

Granted
237

Forfeited
(2
)
Outstanding at March 31, 2015
235

As of March 31, 2015, there were approximately 523,000 unvested PRSUs with a fair value of $21.3 million.
Note 9.  Income Taxes
The Company's effective tax rates were 35% and 34% for the three months ended March 31, 2015 and 2014, respectively. The rates for the three months ended March 31, 2015 were similar to the federal statutory rate of 35% as the benefits of foreign earnings in lower-tax jurisdictions and the domestic manufacturing deduction were offset by nondeductible stock-based compensation, state income taxes, and the accrual of reserves related to uncertain tax positions. The tax rates for both periods do not include the federal research and development tax credit benefit as the credit was not reinstated for the respective interim periods.
The Company is a U.S.-based multinational corporation subject to tax in various U.S. and foreign tax jurisdictions. This 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 March 31, 2015, 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.

22

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

 ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. In assessing the need for any additional valuation allowance in the quarter ended March 31, 2015, the Company considered all available evidence both positive and negative, including historical levels of income, legislative developments, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies.
As a result of this analysis for the quarter ended March 31, 2015, consistent with prior periods, it was considered more likely than not that the Company's deferred tax assets would be realized except for any increase to the deferred tax assets 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 state tax credit, even though this attribute has an indefinite life. In addition, the Company recorded a valuation allowance related to the deferred tax assets 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 $27.6 million and $27.1 million as of March 31, 2015 and 2014, respectively. The Company has elected to include interest and penalties as a component of income tax expenses. Accrued interest and penalties as of March 31, 2015 and 2014 were approximately $2.1 million and $2.3 million, respectively. As of March 31, 2015, the gross unrecognized tax benefit was approximately $35.9 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 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 March 31, 2015.
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 months ended March 31, 2015 and 2014 (in thousands, except per share amounts):
 
Three Months Ended
March 31,
 
2015
 
2014
Net income
$
21,557

 
$
24,853

Weighted-average shares of common stock used to compute basic net income per share (excluding unvested restricted stock)
105,928

 
109,164

Effect of dilutive common stock equivalents:
 
 
 
Dilutive effect of unvested restricted stock units
928

 
654

Dilutive effect of employee stock options
568

 
2,117

Shares used in computing diluted net income per common share
107,424

 
111,935

Basic net income per common share
$
0.20

 
$
0.23

Diluted net income per common share
$
0.20

 
$
0.22

Weighted average stock options and restricted stock units excluded from calculation due to anti-dilutive effect
3,898

 
4,653


23

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 March 31, 2015 under non-cancelable operating leases with original terms in excess of one year are summarized as follows (in thousands):
 
 
Operating
Leases
Remaining 2015
$
8,634

2016
9,504

2017
8,102

2018
7,511

2019
6,003

Thereafter
8,034

Total future minimum operating lease payments
$
47,788

Warranties
The Company generally provides a warranty for its software products and services to its customers for a period of three to six months. The Company’s software products’ media are generally warranted to be free from defects in materials and workmanship under normal use, and the products are also generally warranted to substantially perform as described in certain Company documentation and the product specifications. The Company’s services are generally warranted to be performed in a professional manner and to materially conform to the specifications set forth in a customer’s signed contract. In the event there is a failure of such warranties, the Company generally will correct or provide a reasonable work-around or replacement product. To date, the Company’s product warranty expense has not been significant. The warranty accrual as of March 31, 2015 and December 31, 2014 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 March 31, 2015. 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.

24

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 in Part I, Item 1 of this Report 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. See Note 14. Subsequent Events of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
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 months ended March 31, 2015 and 2014. At March 31, 2015 and December 31, 2014, no customer accounted for more than 10% of the accounts receivable balance. North America revenues include the United States and Canada. Revenue from international customers (defined as those customers outside of North America) accounted for 35% and 37% of total revenues in the first quarter of 2015 and 2014, respectively.
Total revenue by geographic region is summarized as follows (in thousands):
 
Three Months Ended
March 31,
 
2015
 
2014
Revenues:
 
 
 
North America
$
163,874

 
$
153,844

Europe, the Middle East, and Africa
56,705

 
60,202

Other
29,957

 
29,051

Total revenues
$
250,536

 
$
243,097

Property and equipment, net by geographic region are summarized as follows (in thousands):
 
March 31,
2015
 
December 31,
2014
Property and equipment, net:
 
 
 
North America
$
141,803

 
$
143,482

Europe, the Middle East, and Africa
9,058

 
10,902

Other
4,838

 
5,324

Total property and equipment, net
$
155,699

 
$
159,708



25

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

Note 13.  Acquisitions
Acquisition in Fiscal Year 2014:
Proact Business Transformation Inc.
In November 2014, the Company acquired assets of Proact Business Transformation Inc. (“Proact”) for $4.0 million in cash. Proact provides enterprise architecture business transformation solutions including frameworks, methods, and industry reference models to assist with strategic planning of clients' information technology needs. The purchase was accounted for using the acquisition method. Total assets acquired were approximately $4.0 million of which approximately $2.7 million and $1.3 million was allocated to goodwill and identifiable intangible assets, respectively. The goodwill is deductible for tax purposes.
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

Note 14.  Subsequent Events
Merger Agreement
On April 6, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Italics Inc. (“Newco”) and Italics Merger Sub Inc., a wholly owned subsidiary of Newco (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Newco.
At the effective time of the Merger, each share of the Company’s common stock issued and outstanding as of immediately prior to the effective time, subject to certain exceptions, will be canceled and extinguished and automatically converted into the right to receive cash in an amount equal to $48.75, without interest thereon. Generally, all outstanding employee stock options immediately before the effective date of the transaction will be canceled and converted into a right to receive an amount in cash equal to $48.75 per stock option, without interest, less the exercise price. All stock options with an exercise price greater than $48.75 will be canceled without payment. Generally, the performance and market conditions for the PRSUs granted during 2015 will be deemed achieved at 100% of the applicable target levels unless the applicable agreements governing the PRSUs specify a greater level of achievement, in which case this greater number of PRSUs will be deemed achieved. All vested RSUs and vested PRSUs (as determined by the Merger Agreement) will be canceled and converted into a right to receive cash in an amount equal to $48.75 per RSU and PRSU, without interest. Generally, the remaining unvested RSUs and PRSUs will be assumed and converted to a right to receive cash equal to $48.75 per award subject to continued employment through the accelerated vesting period. For purposes of the unvested RSUs and PRSUs, each vest date underlying the applicable awards will be accelerated by 12 months.

26

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

The Company will terminate the current ESPP purchase period on the effective time of the Merger Agreement. The current ESPP purchase period, which is otherwise scheduled to end July 31, 2015, will continue until the earlier of July 31, 2015 or immediately before the effective date of the transaction, and each participant's accumulated payroll deductions shall be used to purchase the Company's common stock in accordance with the terms of the ESPP; such shares shall be treated the same as all other common shares. No further purchase periods will commence under the ESPP on or following April 6, 2015. See Note 8. Stock-Based Compensation of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.
Newco and Merger Sub have secured committed financing, consisting of a combination of equity to be provided by the Canada Pension Plan Investment Board (“CPPIB”) and investment funds (the “Permira Funds”) advised by Permira Advisers LLC and debt financing from BofA Merrill Lynch, Goldman Sachs, Credit Suisse, Macquarie Capital, Morgan Stanley, Nomura, RBC and Deutsche Bank, the aggregate proceeds of which, together with the Company’s available cash, cash equivalents or marketable securities will be sufficient for Newco and Merger Sub to pay the aggregate merger consideration and all related fees and expenses.  Newco and Merger Sub have committed to use their reasonable best efforts to obtain the debt financing on the terms and conditions described in the debt commitment letter entered into as of April 6, 2015. The transaction is not subject to a financing condition.
Consummation of the Merger is subject to customary closing conditions, including, without limitation, the absence of certain legal impediments, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, antitrust regulatory approval in the European Union, Turkey, Russia and Israel, the receipt of written notice from the Committee on Foreign Investment in the United States that it has concluded its review of the joint voluntary notice that will be made by the parties to the Merger Agreement pursuant to Section 721 of the Defense Production Act, as amended, with a determination that there are no unresolved national security concerns with respect to the transaction contemplated by the Merger Agreement, and approval by the Company’s stockholders.
The Company has made customary representations and warranties in the Merger Agreement and have agreed to customary covenants regarding the operation of the Company’s business prior to the effective time of the Merger. The Company is also subject to customary restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide non-public information to, and participate in discussions and engage in negotiations with, third parties regarding alternative acquisition proposals, with customary exceptions for a Superior Proposal (as such term is defined in the Merger Agreement).
The Merger Agreement contains certain termination rights for the Company and Newco. Under specified circumstances, the Company will be required to pay Newco a termination fee of $160 million. This fee will become payable by the Company, in each case subject to the terms and conditions of the Merger Agreement, if before receiving stockholder approval of the Merger the Company terminates the Merger Agreement in connection with a competing acquisition transaction or Newco terminates the Merger Agreement in connection with a breach of covenant by the Company that would cause a failure of our closing conditions to be satisfied, in each case a competing acquisition transaction has been publicly announced, and within one year of termination the Company completes a competing acquisition transaction, or enters into an agreement for a competing acquisition transaction that is subsequently consummated, the Company terminates the Merger Agreement to take a Superior Proposal, or Newco terminates the Merger Agreement in connection with the Company’s board of directors failing to make, or withdrawing, its recommendation of the Merger.
Under other specified circumstances, Newco will be required to pay the Company a termination fee of $320 million.  This fee will become payable by Newco, in each case subject to the terms and conditions of the Merger Agreement, if the Company terminates the Merger Agreement, provided that Newco is not permitted to terminate the Merger Agreement at such time, in connection with a breach by Newco that would cause a failure of Newco’s closing conditions to be satisfied, or if the Company terminates the Merger Agreement in connection with the Termination Date (as defined below), and at the time of termination we would have been entitled to terminate due to Newco’s breach such that Newco’s closing conditions would not be satisfied or due to Newco’s failure to close the Merger notwithstanding the satisfaction of our closing conditions and Newco’s obligation to close.
CPPIB and the Permira Funds have provided the Company with a fee funding agreement in favor of Informatica (the “Fee Funding Agreement”). In the aggregate, the Fee Funding Agreement guarantees the payment of the termination fee payable by Newco, any interest that may be due thereon and certain reimbursement obligations that may be owed by Newco to the Company pursuant to the Merger Agreement.  The Merger Agreement also provides that either party may specifically enforce the other party’s obligations under the Merger Agreement, provided that the Company may only cause Newco to fund the equity financing if certain conditions are satisfied, including the funding or availability of the debt financing at closing.
In addition to the foregoing termination rights, and subject to certain limitations, the Company or Newco may terminate the Merger Agreement if the Merger is not consummated on or before the first business day after October 6, 2015 (the “Termination Date”).

27

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

The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of such agreement attached as an exhibit to the Current Report on Form 8-K filed with the SEC on April 7, 2015.
The terms of the Credit Agreement entered into on September 26, 2014 define a change in control as an event of default. At the effective time of the Merger, the lenders are allowed to terminate their commitments under the agreement and declare any then outstanding loans along with the accrued interest and fees to be due and payable immediately in whole or in part. See Note 4. Borrowings of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report for a further discussion of our Credit Agreement.
Stockholder Lawsuits
On April 16, 2015, two stockholder class action complaints were filed in the Court of Chancery of the State of Delaware on behalf of a putative class of the Company’s stockholders: Luciano Scotto v. Sohaib Abbasi et al., Case No. 10913 (filed April 16, 2015) and Janice Ridgeway v. Informatica Corporation et al., Case No. 10917 (filed April 16, 2015).   The complaints generally allege that, in connection with the proposed acquisition of the Company by Newco, the Informatica directors breached their fiduciary duties owed to the Company’s stockholders by agreeing to sell the company for purportedly inadequate consideration, engaging in a flawed sales process, and agreeing to a number of purportedly preclusive deal protection devices.  The complaints further allege that Newco, Merger Sub, the Permira Funds, CPPIB, and the Company aided and abetted the Board of Directors in the alleged breaches of fiduciary duties.  The complaints seek, among other things, an order enjoining the close of the proposed transaction or, in the event that the proposed transaction is consummated, an award of rescission and/or rescissory damages.
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 new product introductions, software revenues, service revenues, international revenues, potential future revenues, cost of software revenues, cost of service revenues, amortization of acquired technology, operating expenses, amortization of intangible assets, 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 believe data is one of an organization’s most strategic assets, and our solutions enable a wide variety of complex, enterprise-wide data integration initiatives. Our diverse product portfolio centers on data: we offer a variety of solutions, both on-premise and in the cloud, for data integration, data quality, big data, master data management (MDM), data security, data exchange, and data preparation, among others.
We generate revenues from the sale of software and services. We receive software revenues from licensing our products under perpetual licenses directly to end users and indirectly through our partners. We also receive an increasing amount of software revenues from our customers and partners under subscription-based licenses for a variety of our cloud and data-as-a-service offerings. We receive service revenues from maintenance and support services, and professional services, consisting of consulting and education services, that we perform for customers that license our products either directly or indirectly. Historically, purchasing patterns in the software industry have followed quarterly and seasonal trends that we expect to continue. We typically receive 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. Moreover, demand for our software products and services is generally highest in the fourth quarter and lowest in the first quarter of each year.

28

Table of Contents

We license our software and provide services to end-user customers in a wide variety of industries located in over 80 countries, including automotive, energy and utilities, entertainment/media, financial services, healthcare, insurance, manufacturing, public sector, retail, services, technology, telecommunications, and travel/transportation. In the first quarter of 2015, our largest vertical industry sectors for new license orders were financial services, healthcare and manufacturing. Approximately 65% and 63% of our total revenue in the first quarter of 2015 and 2014, respectively, was from North America, which includes the U.S. and Canada. Historically, most of our international revenue has been generated in Europe, the Middle East and Africa (EMEA). No customer accounted for more than 5% of total revenue in the first quarter of 2015 or the full year 2014, 2013, and 2012. On occasion, foreign currency exchange rates have been particularly volatile and have affected our financial results. Recent fluctuations in foreign currency exchange rates may negatively affect our revenues in the near term, and we expect current exchange rate conditions to continue to adversely impact our revenue growth for the full year of 2015. Our strategic partners include systems integrators, resellers and distributors, original equipment manufacturers (OEMs), and strategic technology partners, including enterprise application providers, database vendors, and enterprise information integration vendors.
Total revenues in the first quarter of 2015 increased by 3% to $250.5 million compared to $243.1 million for the same period in 2014. Our software revenues slightly increased by 1% in the first quarter of 2015 from the same period in 2014 due to a 47% increase in subscription revenues, partially offset by a 7% decline in license revenues. Service revenues increased by 5% in the first quarter of 2015 from the same period in 2014 due to a 6% growth in maintenance revenues and a 2% increase in consulting and education services.
For the first quarter of 2015 and 2014, our income from operations calculated in accordance with U.S. generally accepted accounting principles (GAAP) was $32.2 million and $36.8 million, respectively. Our non-GAAP income from operations was $52.5 million and $56.7 million in the first quarter of 2015 and 2014, respectively. For the first quarter of 2015 and 2014, our GAAP net income was $21.6 million and $24.9 million, respectively. Our non-GAAP net income was $36.9 million and $39.5 million in the first quarter of 2015 and 2014, respectively. See Non-GAAP Financial Measures below for a reconciliation of GAAP to non-GAAP financial measures.
We believe that recent trends in technology are enhancing our growth opportunities. In particular, the continued adoption of cloud services, the diversity of customer, social and mobile interaction data, the richness of big data and the vulnerabilities in securing data are redefining business computing. We are focused on four distinct market opportunities for long-term growth aligned with these trends: cloud integration, MDM, data integration for next-generation analytics and data security. Our growth strategies include expanding to more cloud ecosystems and delivering more types of cloud services; offering more MDM solutions for critical business priorities, the cloud and big data; delivering more productivity tools for big data for IT developers and more data preparation capabilities for business users; and securing more types of data and offering innovative security intelligence capabilities. Recently, we launched Informatica Rev to empower business users to be self-sufficient in data integration and preparation for analytics, and in the second quarter of 2015, we plan to release Secure@Source, a new product that enables customers to discover and classify sensitive data and assess risks associated with data proliferation.
We are continuing to evolve our business model to increase subscription revenue and aggressively investing in our go-to-market strategies for our newer products, while remaining committed to delivering innovative solutions. We will offer our newer products, such as Informatica Rev and Secure@Source, as well as innovations in Informatica Cloud, on a subscription basis. We will continue to offer our established on-premise products as licensed software. In addition, we intend to significantly expand our subscription sales force and increase sales specialist staffing and marketing efforts.
While we believe that these recent technological trends and growth strategies will present significant opportunities, they also pose significant challenges and risks. Key factors that we believe affect our ability to achieve our strategic plans and grow our business include, among others:
competing 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;
introducing new products and services and enhancements to existing products and services on a regular basis, including integrating acquired products and services, to address the needs of our customers and to respond to rapid technological changes;
accurately forecasting sales and trends in our business, including the quality and timing of sales pipeline generation, the size of our sales pipeline and the conversion of the sales pipeline into actual sales, and the length of our sales cycle;
attracting, training and retaining our key personnel, especially our sales force, as well as maintaining appropriate levels of sales force productivity and turnover rates; and
continuing to evolve our strategy and business model for our subscription offerings.

29

Table of Contents

Furthermore, we continue to invest in our international operations, which involve significant financial and operational risks including exposure to foreign currency exchange rate fluctuations and macroeconomic or geopolitical conditions.
To address these key factors, and other challenges and risks, we focus on a number of actions, including devoting significant resources to the research and development of products and services; broadening our distribution capability worldwide; enabling our sales force and distribution channel, including by investing in training programs and new product functionalities, key differentiators, and key business values; aligning our worldwide field and marketing operations with company-wide initiatives; implementing pipeline generation and pipeline management initiatives and more rigorous sales planning and processes; strengthening our strategic partnerships; and strategic acquisitions of complementary businesses, products, and technologies. If we are unable to execute these actions or otherwise successfully address any significant challenges and risks, we may not be able to continue to grow our business or achieve our long-term growth plans.
For further discussion regarding these and related risks, see Risk Factors in Part II, Item 1A of this Report.
Proposed Merger
On April 6, 2015, we entered into a definitive agreement to be acquired by the Canada Pension Plan Investment Board and investment funds advised by Permira Advisers LLC for $48.75 in cash for each share of our common stock. Consummation of the Merger is subject to customary closing conditions, including, without limitation, the absence of certain legal impediments, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, antitrust regulatory approval in the European Union, Turkey, Russia and Israel, the receipt of written notice from the Committee on Foreign Investment in the United States that it has concluded its review of the joint voluntary notice that will be made by the parties to the Merger Agreement pursuant to Section 721 of the Defense Production Act, as amended, with a determination that there are no unresolved national security concerns with respect to the transaction contemplated by the Merger Agreement, and approval by Informatica’s stockholders.
See Note 14 - Subsequent Events of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report for additional details.
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, 2014.
There have been no changes to our critical accounting policies since the end of 2014.
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.

30

Table of Contents

Results of Operations
The following table presents certain financial data for the three months ended March 31, 2015 and 2014 as a percentage of total revenues:
 
Three Months Ended
March 31,
 
2015
 
2014
Revenues:
 
 
 
Software
41
 %
 
42
 %
Service
59

 
58

Total revenues
100

 
100

Cost of revenues:


 


Software
1

 
1

Service
17

 
16

Amortization of acquired technology
1

 
2

Total cost of revenues
19

 
19

Gross profit
81

 
81

Operating expenses:


 


Research and development
20

 
19

Sales and marketing
39

 
38

General and administrative
9

 
8

Amortization of intangible assets

 
1

Acquisitions and other charges

 

Total operating expenses
68

 
66

Income from operations
13

 
15

Interest income

 

Interest expense

 

Other income (expense), net

 

Income before income taxes
13

 
15

Income tax provision
4

 
5

Net income
9
 %
 
10
 %
Revenues
Total revenues in the first quarter of 2015 increased by 3% to $250.5 million compared to $243.1 million for the same period in 2014. Our software revenues slightly increased by 1% in the first quarter of 2015 from the same period in 2014 due to a 47% increase in subscription revenues, partially offset by a 7% decline in license revenues. The increase in subscription revenues was due to growth in the installed customer base and higher customer demand for our subscription offerings. The decrease in license revenues was primarily due to a decrease in the number of transactions and foreign currency fluctuations partially offset by an increase in the average transaction price of license transactions. Service revenues increased by 5% in the first quarter of 2015 from the same period in 2014 due to a 6% growth in maintenance revenues and a 2% 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 slight decrease in education services revenue.

The average transaction amount for license orders greater than $100,000 in the first quarter of 2015, including upgrades for which we charge customers an additional fee, increased to $558,000 from $411,000 in the first quarter of 2014. The number of software transactions greater than $1.0 million increased to 17 in the first quarter of 2015 from 13 in the same period of 2014. We offer two types of upgrades: (1) upgrades that are not part of the post-contract services for which we charge customers an additional fee, and (2) upgrades that are part of the post-contract services that we provide to our customers at no additional charge, when and if available.

31

Table of Contents

The following table and discussion compare our revenues for the three months ended March 31, 2015 and 2014 (in thousands, except percentages):
 
Three Months Ended March 31,
 
2015
 
2014
 
Percentage
Change
Software revenues:
 
 
 
 
 
License
$
82,379

 
$
88,511

 
(7
)%
Subscription
21,347

 
14,532

 
47
 %
Total software revenues
103,726

 
103,043

 
1
 %
Service revenues:
 
 
 
 
 
Maintenance
115,351

 
109,271

 
6
 %
Consulting and education
31,459

 
30,783

 
2
 %
Total service revenues
146,810

 
140,054

 
5
 %
Total revenues
$
250,536

 
$
243,097

 
3
 %
Software Revenues
Our software revenues were $103.7 million (or 41% of total revenues) for the three months ended March 31, 2015 compared to $103.0 million (or 42% of total revenues) for the three months ended March 31, 2014, representing an increase of $0.7 million (or 1%).
License Revenues
Our license revenues decreased to $82.4 million (or 33% of total revenues) for the three months ended March 31, 2015 from $88.5 million (or 36% of total revenues) for the three months ended March 31, 2014. The decrease in license revenues of $6.1 million (or 7%) for the three months ended March 31, 2015 compared to the same period in 2014 was primarily due to a decrease in the number of transactions and foreign currency fluctuations partially offset by an increase in the average transaction price of license transactions.
Subscription Revenues
Subscription revenues, which primarily represent revenues from customers and partners under subscription-based licenses for a variety of cloud and data-as-a-service offerings, increased to $21.3 million (or 9% of total revenues) for the three months ended March 31, 2015 compared to $14.5 million (or 6% of total revenues) for the three months ended March 31, 2014. The increase of $6.8 million (or 47%) in subscription revenues for the three months ended March 31, 2015, compared to the same period in 2014 was primarily due to an increase in the installed base of subscription customers and higher customer demand.
Service Revenues
Maintenance Revenues
Maintenance revenues increased to $115.4 million (or 46% of total revenues) for the three months ended March 31, 2015 compared to $109.3 million (or 45% of total revenues) for the three months ended March 31, 2014. The increase of $6.1 million (or 6%) in maintenance revenues for the three months ended March 31, 2015 compared to the same period in 2014 was primarily due to the increasing size of our installed customer base.
Consulting and Education Revenues
Consulting and education revenues increased to $31.5 million (or 13% of total revenues) for the three months ended March 31, 2015 compared to $30.8 million (or 13% of total revenues) for the three months ended March 31, 2014. The increase of $0.7 million (or 2%) in consulting and education revenues for the three months ended March 31, 2015 compared to the same period in 2014 was primarily due to higher customer demand for consulting services, partially offset by a slight decrease in education services revenue.
International Revenues
Our international revenues were $86.7 million (or 35% of total revenues) and $89.3 million (or 37% of total revenues) for the three months ended March 31, 2015 and 2014, respectively. The decrease of $2.6 million (or 3%) in international revenues for the

32

Table of Contents

three months ended March 31, 2015 compared to the same period in 2014 was due to a decrease in software revenues in Latin America and EMEA and a decrease in service revenues in EMEA. The decrease in software revenues in Latin America was driven by a decline in license revenues due primarily to the deferral of revenue for certain deals. The decrease in service revenues in EMEA was primarily driven by a decrease in maintenance revenues principally due to foreign currency fluctuations offset by an increase in our installed customer base. The decreases in software and service revenues were offset by an increase in Asia-Pacific due to broader adoption of our software products and increase in our installed customer base.
Potential Future Revenues (New Orders, Backlog, and Deferred Revenues)
Our potential future revenues include backlog consisting primarily of (1) product orders (primarily perpetual licenses) that have not shipped as of the end of a given quarter, (2) product orders received from certain distributors, resellers, OEMs, and end users not included in deferred revenues, where revenue is recognized after cash receipt (collectively (1) and (2) above are referred as “aggregate backlog”), and (3) deferred revenues. Our deferred revenues consist primarily of the following: (1) maintenance revenues that we recognize over the term of the contract, typically one year, (2) subscription offerings that are recognized over the period of performance as services are provided, (3) license product orders that have shipped but where the terms of the license agreement contain acceptance language or other terms that require that the license revenues be deferred until all revenue recognition criteria are met or recognized ratably over an extended period, and (4) consulting and education services revenues that have been prepaid but for which services have not yet been performed.
We typically ship products shortly after the receipt of an order, which is common in the software industry, and historically our backlog of license orders awaiting shipment at the end of any given quarter has varied. Aggregate backlog and deferred revenues at March 31, 2015 were approximately $365.5 million compared to $339.3 million at March 31, 2014 and $374.9 million at December 31, 2014. The change in the first quarter of 2015 from the comparable period of 2014 was primarily due to increases in deferred software and service revenues, partially offset by a decrease in aggregate backlog. The international portion of aggregate backlog and deferred revenues may fluctuate with changes in foreign currency exchange rates. Aggregate backlog and deferred revenues as of any particular date are not necessarily indicative of future results.
Cost of Revenues
The following table sets forth, for the periods indicated, our cost of revenues (in thousands, except percentages):
 
Three Months Ended March 31,
 
2015
 
2014
 
Percentage
Change
Cost of software revenues
$
3,376

 
$
3,119

 
8
 %
Cost of service revenues
40,551

 
40,229

 
1
 %
Amortization of acquired technology
2,750

 
3,985

 
(31
)%
Total cost of revenues
$
46,677

 
$
47,333

 
(1
)%
Cost of software revenues, as a percentage of software revenues
3
%
 
3
%
 
 %
Cost of service revenues, as a percentage of service revenues
28
%
 
29
%
 
(1
)%
Cost of Software Revenues
Our cost of software revenues is a combination of costs of license and subscription revenues. Cost of license revenues consists primarily of software royalties, product packaging, documentation, and production costs. Cost of subscription revenues consists primarily of fees paid to third party vendors for hosting services related to our subscription services and royalties paid to postal authorities and other vendors that provide content for our data-as-a-service offerings. Cost of software revenues increased to $3.4 million (or 3% of software revenues) for the three months ended March 31, 2015 compared to $3.1 million (or 3% of software revenues) in the same period of 2014. The $0.3 million (or 8%) increase for the three months ended March 31, 2015 compared to the same period in 2014, was primarily due to a $0.6 million increase in software royalties, partially offset by a $0.3 million decrease in fees paid to third party vendors for hosting services and documentation costs.

33

Table of Contents

Cost of Service Revenues
Our cost of service revenues is a combination of costs of maintenance, consulting and education services revenues. Our cost of maintenance revenues consists primarily of costs associated with customer service personnel expenses and royalty fees for maintenance related to third-party software providers. Cost of consulting revenues consists primarily of personnel costs and expenses incurred in providing consulting services at customers’ facilities. Cost of education services revenues consists primarily of the costs of providing education classes and materials at our headquarters, sales and training offices, and customer locations.
Cost of service revenues increased to $40.6 million (or 28% of service revenues) in the first quarter of 2015 compared to $40.2 million (or 29% of service revenues) in the same period of 2014. The $0.3 million (or 1%) increase in the first quarter of 2015 compared to the same period of 2014 was primarily due to a $1.5 million increase in personnel related costs (including stock-based compensation) and a $0.6 million increase in general overhead costs, which were offset by a $1.8 million decrease in subcontractor fees.
Amortization of Acquired Technology
The following table sets forth, for the periods indicated, our amortization of acquired technology (in thousands, except percentages):
 
Three Months Ended March 31,
 
2015
 
2014
 
Percentage
Change
Amortization of acquired technology
$
2,750

 
$
3,985

 
(31
)%
Amortization of acquired technology is the amortization of technologies acquired through business acquisitions and technology licenses. Amortization of acquired technology decreased to $2.8 million for the three months ended March 31, 2015 from $4.0 million in the same period of 2014. The decrease of $1.2 million (or 31%) for the three months ended March 31, 2015, compared to the same period of 2014 was primarily due to a $0.9 million decrease in amortization of certain technologies that were fully amortized after March 31, 2014, and a $0.8 million net decrease in amortization of certain acquired technologies which are amortized using a method based on expected cash flows. Generally cash flows decline over time after an initial ramp up when the technology is first acquired. These decreases were offset by a $0.5 million increase in amortization relating to technologies acquired from StrikeIron and Proact after March 31, 2014. See Note 13. Acquisitions of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report for information regarding our acquisitions.
Operating Expenses
Research and Development
The following table sets forth, for the periods indicated, our research and development expenses (in thousands, except percentages):
 
Three Months Ended March 31,
 
2015
 
2014
 
Percentage
Change
Research and development
$
50,677

 
$
45,685

 
11
%
Our research and development expenses consist primarily of salaries and other personnel-related expenses, consulting services, facilities, and related overhead costs associated with the development of new products, enhancement and localization of existing products, quality assurance, and development of documentation for our products. Research and development expenses increased to $50.7 million (or 20% of total revenues) for the three months ended March 31, 2015 compared to $45.7 million (or 19% of total revenues) for the three months ended March 31, 2014. All software development costs for software intended to be marketed to customers have been expensed in the period incurred since the costs incurred subsequent to the establishment of technological feasibility have not been significant.
The $5.0 million (or 11%) increase in the first quarter of 2015 compared to the same period of 2014 was primarily due to a $5.5 million increase in personnel-related costs (including stock-based compensation) as a result of increased headcount offset by a $0.5 million decrease in outside services. A portion of the $5.5 million increase is related to investments in our new products.

34

Table of Contents

Sales and Marketing
The following table sets forth, for the periods indicated, our sales and marketing expenses (in thousands, except percentages):
 
Three Months Ended March 31,
 
2015
 
2014
 
Percentage
Change
Sales and marketing
$
97,402

 
$
91,584

 
6
%
Our sales and marketing expenses consist primarily of personnel costs, including commissions and bonuses, as well as costs of public relations, seminars, marketing programs, lead generation, travel, and trade shows. Sales and marketing expenses increased to $97.4 million (or 39% of total revenues) for the three months ended March 31, 2015 compared to $91.6 million (or 38% of total revenues) for the three months ended March 31, 2014.
The $5.8 million (or 6%) increase for the three months ended March 31, 2015 compared to the same period in 2014 was primarily due to a $4.2 million increase in personnel-related costs (including stock-based compensation), a $0.9 million increase in outside services and marketing programs, and a $0.7 million increase in general overhead costs.
General and Administrative
The following table sets forth, for the periods indicated, our general and administrative expenses (in thousands, except percentages):
 
Three Months Ended March 31,
 
2015
 
2014
 
Percentage
Change
General and administrative
$
22,457

 
$
20,053

 
12
%
Our general and administrative expenses consist primarily of personnel costs for finance, human resources, legal, and general management, as well as professional service expenses associated with recruiting, legal, tax and accounting services. General and administrative expenses increased to $22.5 million (or 9% of total revenues) for the three months ended March 31, 2015 compared to $20.1 million (or 8% of total revenues) for the three months ended March 31, 2014.
The $2.4 million (or 12%) increase for the three months ended March 31, 2015 compared to the same period in 2014 was primarily due to a $1.4 million increase for professional fees related to non-routine corporate governance and stockholder matters, a $0.8 million increase in personnel-related costs (including stock-based compensation) as a result of increased headcount, and a $0.2 million increase in general overhead costs.
Amortization of Intangible Assets
The following table sets forth, for the periods indicated, our amortization of intangible assets (in thousands, except percentages):
 
Three Months Ended March 31,
 
2015
 
2014
 
Percentage
Change
Amortization of intangible assets
$
1,091

 
$
1,536

 
(29
)%
Amortization of intangible assets is the amortization of customer relationships, vendor relationships, trade names, and covenants not to compete acquired through prior business acquisitions, and patents acquired. Amortization of intangible assets decreased to $1.1 million (or 0% of total revenues) for the three months ended March 31, 2015 from $1.5 million (or 1% of total revenues) for the three months ended March 31, 2014. .
The decrease of $0.4 million (or 29%) in amortization of intangible assets for the three months ended March 31, 2015 compared to the same period in 2014 was primarily due to a $0.5 million decrease in amortization of certain intangibles that were fully amortized after March 31, 2014 and a $0.4 million decrease in amortization of certain intangibles which are amortized using a method based on expected cash flows. Generally cash flows decline over time after an initial ramp up when the technology is first acquired. These decreases were offset by a $0.5 million increase in amortization of intangibles acquired from StrikeIron and Proact after March 31, 2014. See Note 13. Acquisitions of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report for information regarding our acquisitions.

35

Table of Contents

Acquisitions and Other Charges
The following table sets forth, for the periods indicated, our acquisitions and other charges (in thousands, except percentages):
 
Three Months Ended March 31,
 
2015
 
2014
 
Percentage
Change
Acquisitions and other charges
$

 
$
89

 
(100
)%
For the three months ended March 31, 2014, acquisition and other charges of $0.1 million primarily consisted of legal, accounting, tax, bankers' and other professional service fees.
Interest and Other Income, Net
The following table sets forth, for the periods indicated, our interest and other income, net (in thousands, except percentages):
 
Three Months Ended March 31,
 
2015
 
2014
 
Percentage
Change
Interest income 
$
871