INFA-2015.06.30-10Q
Table of Contents

 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
___________________
 
þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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 August 3, 2015, there were approximately 104,428,000 shares of the registrant’s Common Stock outstanding.


 
 
 
 
 



INFORMATICA CORPORATION
TABLE OF CONTENTS

 
 
 Page No. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Table of Contents


PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATICA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 
June 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
536,258

 
$
368,531

Short-term investments
21,739

 
353,130

Accounts receivable, net of allowances of $3,447 and $3,465, respectively
188,509

 
235,705

Deferred tax assets
44,749

 
46,867

Prepaid expenses and other current assets
42,809

 
25,447

Total current assets
834,064

 
1,029,680

Property and equipment, net
152,507

 
159,708

Goodwill
545,668

 
551,196

Other intangible assets, net
35,662

 
43,161

Long-term deferred tax assets
29,026

 
32,032

Other assets
9,667

 
13,809

Total assets
$
1,606,594

 
$
1,829,586

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 

 
 

Accounts payable
$
18,284

 
$
12,009

Accrued liabilities
56,964

 
60,404

Accrued compensation and related expenses
67,062

 
88,336

Income taxes payable

 
6,895

Deferred revenues
331,660

 
324,296

Total current liabilities
473,970

 
491,940

Long-term deferred revenues
17,661

 
14,679

Long-term income taxes payable
29,262

 
30,350

Other liabilities
3,578

 
3,666

Total liabilities
524,471

 
540,635

Commitments and contingencies (Note 11)


 


Stockholders' equity:
 

 
 

Common stock, $0.001 par value; 200,000 shares authorized; 104,063 shares and
 
 
 
108,704 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively
104

 
109

Additional paid-in capital
535,685

 
773,419

Accumulated other comprehensive loss
(41,316
)
 
(31,789
)
Retained earnings
587,650

 
547,212

Total stockholders’ equity
1,082,123

 
1,288,951

Total liabilities and stockholders' equity
$
1,606,594

 
$
1,829,586

See accompanying notes to condensed consolidated financial statements.

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INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Software
$
110,846

 
$
103,455

 
$
214,572

 
$
206,498

Service
151,020

 
147,258

 
297,830

 
287,312

Total revenues
261,866

 
250,713

 
512,402

 
493,810

Cost of revenues:
 

 
 

 
 

 
 
Software
3,226

 
2,450

 
6,602

 
5,569

Service
41,973

 
43,343

 
82,524

 
83,572

Amortization of acquired technology
2,589

 
3,286

 
5,339

 
7,271

Total cost of revenues
47,788

 
49,079

 
94,465

 
96,412

Gross profit
214,078

 
201,634

 
417,937

 
397,398

Operating expenses:
 

 
 

 
 

 
 
Research and development
50,044

 
48,850

 
100,721

 
94,535

Sales and marketing
103,724

 
96,784

 
201,126

 
188,368

General and administrative
21,214

 
20,019

 
42,313

 
40,072

Amortization of intangible assets
1,031

 
1,384

 
2,122

 
2,920

Acquisitions and other charges
8,609

 
771

 
9,967

 
860

Total operating expenses
184,622

 
167,808

 
356,249

 
326,755

Income from operations
29,456

 
33,826

 
61,688

 
70,643

Interest income
533

 
1,179

 
1,404

 
2,332

Interest expense
(59
)
 
(166
)
 
(145
)
 
(293
)
Other income (expense), net
2,820

 
(198
)
 
3,188

 
(282
)
Income before income taxes
32,750

 
34,641

 
66,135

 
72,400

Income tax provision
13,867

 
11,812

 
25,695

 
24,718

Net income
$
18,883

 
$
22,829

 
$
40,440

 
$
47,682

Basic net income per common share
$
0.18

 
$
0.21

 
$
0.38

 
$
0.44

Diluted net income per common share
$
0.18

 
$
0.20

 
$
0.38

 
$
0.43

Shares used in computing basic net income per common share
104,574

 
109,739

 
105,247

 
109,453

Shares used in computing diluted net income per common share
106,565

 
111,601

 
106,991

 
111,770

See accompanying notes to condensed consolidated financial statements.


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INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
18,883

 
$
22,829

 
$
40,440

 
$
47,682

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in foreign currency translation adjustment, net of tax benefit (expense) of $(248), $(118), $1,312 and $(279)
6,952

 
(312
)
 
(10,051
)
 
257

Available-for-sale investments:
 
 
 
 
 
 
 
Change in net unrealized gain, net of tax expense of $(43), $(77), $(198) and $(134)
68

 
125

 
319

 
218

Less: reclassification adjustment for net gain included in net income, net of tax expense of $(118), $(1), $(120) and $(2)
(189
)
 
(2
)
 
(192
)
 
(4
)
Net change, net of tax (expense) benefit of $75, $(76), $(78) and $(132)
(121
)
 
123

 
127

 
214

Cash flow hedges:
 
 
 
 
 
 
 
Change in unrealized (loss) gain, net of tax benefit (expense) of $72, $(250), $(404) and $(800)
(117
)
 
406

 
654

 
1,304

Less: reclassification adjustment for net (gain) loss included in net income, net of tax (expense) benefit of $(23), $(104), $(160) and $81
(36
)
 
(168
)
 
(257
)
 
133

Net change, net of tax (expense) benefit of $95, $(146), $(244) and $(881)
(153
)
 
238

 
397

 
1,437

Total other comprehensive income (loss), net of tax effect
6,678

 
49

 
(9,527
)
 
1,908

Total comprehensive income, net of tax effect
$
25,561

 
$
22,878

 
$
30,913

 
$
49,590

See accompanying notes to condensed consolidated financial statements.




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INFORMATICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended
June 30,
 
2015
 
2014
Operating activities:
 
 
 
Net income
$
40,440

 
$
47,682

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

Depreciation and amortization
9,544

 
9,066

Stock-based compensation
30,396

 
29,607

Deferred income taxes
4,478

 
(3,426
)
Tax benefits from stock-based compensation
2,589

 
225

Excess tax benefits from stock-based compensation
(3,505
)
 
(2,634
)
Amortization of intangible assets and acquired technology
7,461

 
10,191

Gain on investment in equity interest
(1,396
)
 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
47,196

 
23,491

Prepaid expenses and other assets
(10,474
)
 
(2,324
)
Accounts payable and accrued liabilities
(18,269
)
 
(6,009
)
Income taxes payable
(10,048
)
 
(14,861
)
Deferred revenues
10,834

 
11,073

Net cash provided by operating activities
109,246

 
102,081

Investing activities:
 

 
 

Purchases of property and equipment
(3,074
)
 
(8,707
)
Purchases of investments
(49,330
)
 
(165,893
)
Investment in equity interest, net
2,612

 
(282
)
Maturities of investments
64,202

 
113,300

Sales of investments
316,342

 
4,600

Business acquisition, net of cash acquired

 
(54,614
)
Net cash provided by (used in) investing activities
330,752

 
(111,596
)
Financing activities:
 

 
 

Net proceeds from issuance of common stock
38,471

 
31,742

Repurchases and retirement of common stock
(300,000
)
 
(55,872
)
Withholding taxes related to restricted stock units net share settlement
(9,198
)
 
(5,978
)
Payment of contingent consideration

 
(3,061
)
Excess tax benefits from stock-based compensation
3,505

 
2,634

Net cash used in financing activities
(267,222
)
 
(30,535
)
Effect of foreign exchange rate changes on cash and cash equivalents
(5,049
)
 
4

Net increase (decrease) in cash and cash equivalents
167,727

 
(40,046
)
Cash and cash equivalents at beginning of period
368,531

 
297,818

Cash and cash equivalents at end of period
$
536,258

 
$
257,772

See accompanying notes to condensed consolidated financial statements.

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INFORMATICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of Informatica Corporation (“Informatica,” or the “Company”) have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States of America. However, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all normal and recurring adjustments that are necessary to fairly present the results of the interim periods presented. All of the amounts included in this Quarterly Report on Form 10-Q related to the condensed consolidated financial statements and notes thereto as of June 30, 2015 and for the three and six months ended June 30, 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.
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 statements 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 $26.4 million was reclassified from sales of investments to maturities of investments for the six months ended June 30, 2014.
Certain reclassifications have been made within the condensed consolidated statements of income. The Company previously presented $1.4 million of expenses related to the Merger (as defined below) and other stockholder matters as part of general and administrative expenses during the three months ended March 31, 2015 that have been reclassified and presented in acquisitions and other charges in the six months ended June 30, 2015. This change in presentation did not affect total operating expenses during the six months ended June 30, 2015.

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

Merger Agreement
On April 6, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ithaca Holdco 2 LLC, a Delaware limited liability company (formerly known as Italics Inc., “Newco”) and Ithaca Merger Sub LLC, a Delaware limited liability company formerly known as Italics Merger Sub Inc. and 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 performance restricted stock units ("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 an accelerated vesting period. For purposes of the unvested RSUs and PRSUs, each vest date underlying the applicable awards will be accelerated by 12 months. 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 Bank of America, Goldman Sachs Bank, Credit Suisse Securities, Macquarie Capital, Morgan Stanley Senior Funding, Nomura Securities International, RBC Capital Markets and Deutsche Bank Securities, 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.  The Merger 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 ("HSR Act"), antitrust regulatory approval in the European Union, Turkey, Russia and Israel, and the receipt of written notice from the Committee on Foreign Investment in the United States ("CFIUS") 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 received antitrust regulatory approval (or the required waiting periods have expired or terminated) in the European Union, Turkey, Russia, Israel, and under the HSR Act. In addition, the Company has received the required written notice from CFIUS. Furthermore, on June 23, 2015, the Company held a special meeting of stockholders, who voted on and approved the Merger.
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

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

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”).
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.
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 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 FASB decided to delay the effective date of this ASU for reporting periods beginning after December 15, 2017, with early adoption permitted as of the original effective date. As a result, the proposed new effective date for calendar year public companies will be January 1, 2018. 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. 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.

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

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.
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 June 30, 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)
$
185,710

 
$
185,710

 
$

 
$

Time deposits (ii)
20,697

 
20,697

 

 

Marketable debt securities (ii)
1,042

 

 
1,042

 

Total money market funds, time deposits, and marketable debt securities
207,449

 
206,407

 
1,042

 

Foreign currency derivatives (iii)
199

 

 
199

 

Total assets
$
207,648

 
$
206,407

 
$
1,241

 
$

Liabilities:
 
 
 
 
 
 
 
Foreign currency derivatives (iv)
$
192

 
$

 
$
192

 
$

Total liabilities
$
192

 
$

 
$
192

 
$


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

The following table summarizes financial assets and financial liabilities that the Company measures at fair value on a recurring basis as of December 31, 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 short-term investments on the condensed consolidated balance sheets.
(iii)
Included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
(iv)
Included in accrued liabilities on the condensed consolidated balance sheets.
(v)
Included in accrued liabilities and other liabilities on the consolidated balance sheets.
Money Market Funds, Time Deposits, and Marketable Debt Securities
The Company uses a market approach for determining the fair value of all its Level 1 and Level 2 money market funds, time deposits, and marketable securities. The Company's marketable securities consist of municipal securities.
To value its money market funds and time deposits, the Company values the funds at $1 stable net asset value, which is the market pricing convention for identical assets that the Company has the ability to access. 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 municipal securities, 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

11

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

identified per counterparty at month end in Bloomberg are used to discount derivative assets for counterparty non-performance risk, all of which have terms of nine 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, Level 2 and Level 3 categories during the three and six months ended June 30, 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 in Part I, Item 1 of this Report for a further discussion.
Note 2.  Cash, Cash Equivalents, and Short-Term Investments
The Company's short-term investments are classified as available-for-sale as of the balance sheet date and are reported at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income in stockholders' equity, net of tax. Realized gains or losses and other-than-temporary impairments, if any, on available-for-sale securities are reported in other income or expense as incurred. Realized gains recognized for the three and six months ended June 30, 2015 was $0.3 million. Realized gains recognized for the three and six months ended June 30, 2014 were negligible. The cost of securities sold was determined based on the specific identification method.
The following table summarizes the Company’s cash, cash equivalents, and short-term investments as of June 30, 2015 (in thousands):
 
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Cash
$
350,548

 
$

 
$

 
$
350,548

Cash equivalents:
 

 
 

 
 

 
 

Money market funds
185,710

 

 

 
185,710

Total cash equivalents
185,710

 

 

 
185,710

Total cash and cash equivalents
536,258

 

 

 
536,258

Short-term investments:
 

 
 

 
 

 
 

Time deposits
20,697

 

 

 
20,697

Municipal notes and bonds
1,046

 


 
(4
)
 
1,042

Total short-term investments
21,743

 

 
(4
)
 
21,739

Total cash, cash equivalents, and short-term investments
$
558,001

 
$

 
$
(4
)
 
$
557,997

The mix of cash, cash equivalents, and short-term investments as of June 30, 2015 shifted in anticipation of the pending Merger.


12

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

The following table summarizes the Company’s cash, cash equivalents, and short-term investments as of December 31, 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 in Part I, Item 1 of this Report for further information regarding the fair value of the Company's financial instruments.
The following table summarizes the fair value and gross unrealized losses related to the Company’s short-term investments, aggregated by investment category that have been in a continuous unrealized loss position for less than twelve months, at June 30, 2015 (in thousands):
 
Less Than 12 months
 
 
 
 
Fair
Value
 
Gross
Unrealized
Losses
Municipal notes and bonds
1,046

 
(4
)
Total
$
1,046

 
$
(4
)
The changes in value of these investments are primarily related to changes in interest rates and are considered to be temporary in nature. There are no short-term investments at June 30, 2015 that have been in a continuous unrealized loss position for greater than twelve months.
The following table summarizes the cost and estimated fair value of the Company’s short-term investments by contractual maturity at June 30, 2015 (in thousands):
 
Cost
 
Fair
Value
Due within one year
$
20,697

 
$
20,697

Due after two years
$
1,046

 
$
1,042

Total
$
21,743

 
$
21,739


13

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

Note 3.  Intangible Assets and Goodwill
The carrying amounts of the intangible assets other than goodwill as of June 30, 2015 and December 31, 2014 are as follows (in thousands, except years):
 
June 30, 2015
 
December 31, 2014
 
Weighted
Average
Useful Life
(Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Cost
 
Accumulated
Amortization
 
Net
 
Developed and core technology
$
145,892

 
$
(117,508
)
 
$
28,384

 
$
145,929

 
$
(112,169
)
 
$
33,760

 
6
Other Intangible Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
45,178

 
(41,477
)
 
3,701

 
45,178

 
(39,766
)
 
5,412

 
5
All other (i)
19,144

 
(15,567
)
 
3,577

 
19,145

 
(15,156
)
 
3,989

 
4-9
Total other intangible assets
64,322

 
(57,044
)
 
7,278

 
64,323

 
(54,922
)
 
9,401

 
 
Total intangible assets, net
$
210,214

 
$
(174,552
)
 
$
35,662

 
$
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 $3.6 million and $4.7 million for the three months ended June 30, 2015 and 2014, respectively and $7.5 million and $10.2 million for the six months ended June 30, 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 June 30, 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
$
5,030

 
$
2,180

 
$
7,210

2016
8,888

 
2,450

 
11,338

2017
6,874

 
1,152

 
8,026

2018
4,758

 
729

 
5,487

2019
2,332

 
449

 
2,781

Thereafter
502

 
318

 
820

Total expected amortization expense
$
28,384

 
$
7,278

 
$
35,662

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

14

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

The changes in the carrying amount of goodwill for the six months ended June 30, 2015 are as follows (in thousands):
 
June 30,
2015
Beginning balance as of December 31, 2014
$
551,196

Subsequent goodwill adjustments
(5,528
)
Ending balance as of June 30, 2015
$
545,668

During the six months ended June 30, 2015, the Company recorded subsequent goodwill net reductions of $5.5 million 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 June 30, 2015, and a total of $220.0 million remained available for borrowing.
On July 1, 2015, the Company terminated the Credit Agreement with each of the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and Bank of America, N.A., as syndication agent, and all agreements related thereto. There were no outstanding borrowings under the Credit Agreement at the time of its termination and the Company did not incur any early termination penalty in connection with the termination. The Company terminated the Credit Agreement in anticipation of the pending Merger.
Note 5.  Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated balances for each component of other comprehensive income (loss) for the three months ended June 30, 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) income as of March 31, 2015
 
$
(48,315
)
 
$
119

 
$
202

 
$
(47,994
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications, net of tax (expense) benefit of $(248), $(43), $ and $72
 
6,952

 
68

 
(117
)
 
6,903

Net gain reclassified from accumulated other comprehensive income (loss), net of tax expense of $ —, $(118) and $(23)
 

 
(189
)
(i) 
(36
)
(ii) 
(225
)
Total other comprehensive income (loss), net of tax effect (iii)
 
6,952

 
(121
)
 
(153
)
 
6,678

Accumulated other comprehensive (loss) income as of June 30, 2015
 
$
(41,363
)
 
$
(2
)
 
$
49

 
$
(41,316
)

15

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

____________________
(i)
The before-tax gain of $307 was included in other expense, net on the condensed consolidated statements of income.
(ii)
The before-tax gain of $14 and $45 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 (loss) income was included in income tax provision on the condensed consolidated statements of income.
The following table summarizes the changes in accumulated balances for each component of other comprehensive income (loss) for the three months ended June 30, 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 (loss) income as of March 31, 2014
 
$
(2,310
)
 
$
154

 
$
803

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

 
406

 
219

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

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

 
238

 
49

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

 
$
1,041

 
$
(1,304
)
____________________
(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 $66 and $206 were included in cost of service revenues and operating expenses, primarily research and development expense, respectively on the condensed consolidated statements of income.
(iii)
The tax expense related to the net gain reclassified from accumulated other comprehensive (loss) income was included in income tax provision on the condensed consolidated statements of income.

16

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 six months ended June 30, 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) income as of December 31, 2014
 
$
(31,312
)
 
$
(129
)
 
$
(348
)
 
$
(31,789
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Other comprehensive (loss) income before reclassifications, net of tax benefit (expense) of $1,312, $(198) and $(404)
 
(10,051
)
 
319

 
654

 
(9,078
)
Net gain reclassified from accumulated other comprehensive (loss) income , net of tax expense of $ —, $(120) and $(160)
 

 
(192
)
(i) 
(257
)
(ii) 
(449
)
Total other comprehensive (loss) income, net of tax effect (iii)
 
(10,051
)
 
127

 
397

 
(9,527
)
Accumulated other comprehensive (loss) income as of June 30, 2015
 
$
(41,363
)
 
$
(2
)
 
$
49

 
$
(41,316
)
____________________
(i)
The before-tax gain of $312 was included in other expense, net on the condensed consolidated statements of income.
(ii)
The before-tax gain of $102 and $315 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 (loss) income was included in income tax provision on the condensed consolidated statements of income.
The following table summarizes the changes in accumulated balances for each component of other comprehensive income (loss) for the six months ended June 30, 2014, net of taxes (in thousands):
 
 
Cumulative
Translation
Adjustments
 
Net Unrealized
Gain (Loss) on
Available-for-Sale
Investments
 
Net Unrealized
Loss on
Cash Flow Hedges
 
Total
Accumulated other comprehensive (loss) income as of December 31, 2013
 
$
(2,879
)
 
$
63

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

 
218

 
1,304

 
1,779

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

 
(4
)
(i) 
133

(ii) 
129

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

 
214

 
1,437

 
1,908

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

 
$
1,041

 
$
(1,304
)

17

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

____________________
(i)
The before-tax gain of $6 was included in other expense, net on the condensed consolidated statements of income.
(ii)
The before-tax losses of $54 and $160 were included in cost of service revenues and operating expenses, primarily research and development expense, respectively on the condensed consolidated statements of income.
(iii)
The tax (expense) benefit related to the net (gain) loss reclassified from accumulated other comprehensive income (loss) was included in income tax provision on the condensed consolidated statements of income.
The Company did not have any other-than-temporary impairment recognized in accumulated other comprehensive income (loss) as of June 30, 2015 and December 31, 2014.
The Company determines the basis of the cost of a security sold and the amount reclassified out of other comprehensive income into statement of income based on specific identification.
See Note 1. Summary of Significant Accounting Policies, Note 6. Derivative Financial Instruments, and Note 11. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report for a further discussion.
Note 6.  Derivative Financial Instruments
The Company’s earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. The Company uses derivative instruments to manage its exposures to fluctuations in certain foreign currency exchange rates which exist as part of ongoing business operations. The Company and its subsidiaries do not enter into derivative contracts for speculative purposes.
Cash Flow Hedges
The Company enters into certain cash flow hedge programs in an attempt to reduce the impact of certain foreign currency fluctuations. These contracts are designated and documented as cash flow hedges. The purpose of these programs is to reduce the volatility of identified cash flow and expenses caused by movement in certain foreign currency exchange rates, in particular, the Indian rupee. The Company is currently using foreign exchange forward contracts to hedge the foreign currency anticipated expenses of its subsidiary in India.
The Company releases the amounts accumulated in other comprehensive income into earnings in the same period or periods during which the forecasted hedge transaction affects earnings. The Company will reclassify all amounts accumulated in other comprehensive income into earnings within the next 12 months.
The Company has forecasted the amount of its anticipated foreign currency expenses based on its historical performance and its projected financial plan. As of June 30, 2015, the remaining open foreign exchange contracts, carried at fair value, are hedging Indian rupee expenses and have a maturity of nine months or less. These foreign exchange contracts mature monthly as the foreign currency denominated expenses are paid and any gain or loss is offset against operating expense. Once the hedged item is recognized, the cash flow hedge is de-designated and subsequent changes in value are recognized in other income (expense) to offset changes in the value of the resulting non-functional currency monetary assets or liabilities.
The notional amounts of these foreign exchange forward contracts in U.S. dollar equivalents were to buy $26.1 million and $45.9 million of Indian rupees as of June 30, 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 $16.0 million and $10.6 million of Indian rupees at June 30, 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 $3.7 million of Indian rupees and $57.1 million of Euros at June 30, 2015 and December 31, 2014, respectively.

18

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

The following table reflects the fair value amounts for the foreign exchange contracts designated and not designated as hedging instruments at June 30, 2015 and December 31, 2014 (in thousands):
 
June 30, 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
$
116

 
$
74

 
$
141

 
$
761

Derivatives not designated as hedging instruments
83

 
118

 
169

 
154

Total fair value of derivative instruments
$
199

 
$
192

 
$
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 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.

The following table sets forth the offsetting of derivative assets as of June 30, 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 June 30,
 
 
 
 
 
 
 
 
 
 
 
2015:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
199

 
$

 
$
199

 
$
(42
)
 
$

 
$
157

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

 
$

 
$
310

 
$
(62
)
 
$

 
$
248

____________________
(i)
The balances at June 30, 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.

19

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

The following table sets forth the offsetting of derivative liabilities as of June 30, 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 June 30,
 
 
 
 
 
 
 
 
 
 
 
2015:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
192

 
$

 
$
192

 
$
(42
)
 
$

 
$
150

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

 
$

 
$
915

 
$
(62
)
 
$

 
$
853

____________________
(ii)
The balances at June 30, 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.
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 (loss) income and condensed consolidated statements of income for the three and six months ended June 30, 2015 and 2014 are as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Amount of (loss) gain recognized in other comprehensive income (effective portion)
$
(189
)
 
$
656

 
$
1,058

 
$
2,104

Amount of gain (loss) reclassified from accumulated other comprehensive income to cost of service revenues and operating expenses (effective portion)
$
59

 
$
272

 
$
417

 
$
(214
)
Amount of (loss) gain on derivatives due to hedge ineffectiveness recognized in cost of service revenues and operating expenses
$
(21
)
 
$

 
$
95

 
$

No amounts were excluded from the assessment of hedge effectiveness during the three and six months ended June 30, 2015 and 2014.


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

The before-tax gain (loss) recognized in other income (expense), net for non-designated foreign currency forward contracts for the three and six months ended June 30, 2015 and 2014 are as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
2015
 
2014
 
2015
 
2014
Gain (loss) recognized in other income (expense), net
$
109

 
$
(6
)
 
$
32

 
$
69

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 in Part I, Item 1 of this Report 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 5,725,000 shares on February 4, 2015. In June 2015, the ASR agreements were settled and the Company received an additional 773,000 shares, which were retired. In total, 6,498,000 shares were delivered under the ASR agreements at an average repurchase price of $46.17 per share.
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 June 30, 2015, $200 million of the previous authorizations remained available for future repurchases.
During the three and six months ended June 30, 2014, the Company repurchased approximately 896,000 shares of its common stock at a cost of $32.5 million and approximately 1,478,000 shares of its common stock at a cost of $55.9 million, respectively.
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. 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

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

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. The Company estimates 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
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Option grants:
 
 
 
 
 
 
 
Expected volatility
21
%
 
37
%
 
21% -31%

 
37 - 40%

Expected dividends

 

 

 

Expected term of options (in years)
3.5

 
3.5

 
3.5

 
3.5

Risk-free interest rate
1.2
%
 
1.3
%
 
1.1
%
 
1.1
%
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.
The allocations of the stock-based compensation, net of estimated income tax benefit, for the three and six months ended June 30, 2015 and 2014 are as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Cost of service revenues
$
1,480

 
$
1,454

 
$
3,018

 
$
2,918

Research and development
5,228

 
5,214

 
10,288

 
9,876

Sales and marketing
5,143

 
5,137

 
9,912

 
9,843

General and administrative
3,455

 
3,556

 
7,178

 
6,970

Total stock-based compensation
15,306

 
15,361

 
30,396

 
29,607

Estimated tax benefit of stock-based compensation
(4,059
)
 
(4,189
)
 
(8,099
)
 
(8,051
)
Total stock-based compensation, net of estimated tax benefit
$
11,247

 
$
11,172

 
$
22,297

 
$
21,556


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

Stock Option Activity
A summary of stock option activity through June 30, 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
471

 
$
42.59

 
 
 
 
Exercised
(957
)
 
$
27.87

 
 
 
 
Forfeited or expired
(366
)
 
$
37.62

 
 
 
 
Outstanding at June 30, 2015
6,334

 
$
37.43

 
4.25
 
$
70,928

Exercisable at June 30, 2015
3,884

 
$
37.12

 
3.50
 
$
45,050

Restricted Stock Unit Activity
A summary of RSU activity, excluding PRSUs, through June 30, 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
930

 
$
43.07

Released
(528
)
 
$
39.95

Forfeited
(191
)
 
$
38.05

Outstanding at June 30, 2015
2,724

 

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.
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.

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

A summary of PRSU activity based upon PRSUs granted in 2013 and 2014, certified and actually achieved through June 30, 2015 is presented below (in thousands):
 
 Number of
Shares
Outstanding at December 31, 2014
306

Achieved
138

Released
(136
)
Forfeited
(32
)
Outstanding at June 30, 2015
276

The grant date fair value of PRSUs released during the six months ended June 30, 2015 was approximately $5.1 million.
A summary of PRSU activity during the six months ended June 30, 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
(5
)
Outstanding at June 30, 2015
232

As of June 30, 2015, there were approximately 508,000 unvested PRSUs with a grant date fair value of $20.8 million.
Note 9.  Income Taxes
The Company's effective tax rates were 42% and 34% for the three months ended June 30, 2015 and 2014, respectively, and 39% and 34% for the six months ended June 30, 2015 and 2014, respectively. The rates for the three and six months ended June 30, 2015 were higher than the federal statutory rate of 35% mainly due to a change in management assertion with respect to our foreign undistributed earnings. The rates for the three and six months ended June 30, 2014 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 unrecognized tax benefits. The tax rates for three and six months ended June 30, 2015 and 2014 do not include the federal research and development tax credit benefit as the credit was not reinstated for the respective interim periods.
As of December 31, 2014, the Company had approximately $128.2 million of undistributed earnings from its foreign subsidiaries for which the Company had not provided U.S. income or applicable foreign withholding taxes. During the three months ended June 30, 2015, the Company changed its assertion for undistributed foreign earnings and expects to use its available cash that the Company holds in foreign jurisdictions as part of the acquisition consideration for the pending Merger. Consequently, the Company provided for U.S. income taxes (after the consideration of foreign tax credit) and applicable foreign withholding taxes on all foreign undistributed earnings as these earnings will be repatriated to the U.S.
The repatriation is expected to generate a total of $5.6 million of additional U.S. income tax expense in 2015.  This includes $7.4 million of U.S. income tax expense for the current year earnings generated by foreign subsidiaries and $1.8 million of net discrete tax benefit recorded for prior year cumulative undistributed earnings in the three months ended June 30, 2015.  The current and prior year income tax benefit from corresponding foreign tax credits are included in the computation of the U.S. income tax expenses provided on undistributed foreign earnings because the Company believes it is more-likely-than-not that it will realize the benefit from these foreign tax credits before they expire.
 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 for the three months ended June 30, 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 three months ended June 30, 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

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

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 $28.2 million and $26.6 million as of June 30, 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 June 30, 2015 and 2014 were approximately $2.7 million and $3.7 million, respectively. As of June 30, 2015, the gross unrecognized tax benefit was approximately $34.3 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 June 30, 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 June 30, 2015 and 2014 (in thousands, except per share amounts):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
18,883

 
$
22,829

 
$
40,440

 
$
47,682

Weighted-average shares of common stock used to compute basic net income per share (excluding unvested restricted stock)
104,574

 
109,739

 
105,247

 
109,453

Effect of dilutive common stock equivalents:
 
 
 
 
 
 
 
Dilutive effect of unvested restricted stock units
1,088

 
559

 
1,013

 
606

Dilutive effect of employee stock options
903

 
1,303

 
731

 
1,711

Shares used in computing diluted net income per common share
106,565

 
111,601

 
106,991

 
111,770

Basic net income per common share
$
0.18

 
$
0.21

 
$
0.38

 
$
0.44

Diluted net income per common share
$
0.18

 
$
0.20

 
$
0.38

 
$
0.43

Weighted average stock options and restricted stock units excluded from calculation due to anti-dilutive effect
611

 
5,147

 
2,254

 
4,900


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

Note 11.  Commitments and Contingencies
Lease Obligations
The Company leases certain office facilities under various non-cancelable operating leases, which expire at various dates through 2024 and require the Company to pay operating costs, including property taxes, insurance, and maintenance.
Future minimum lease payments as of June 30, 2015 under non-cancelable operating leases with original terms in excess of one year are summarized as follows (in thousands):
 
 
Operating
Leases
Remaining 2015
$
6,212

2016
10,420

2017
8,946

2018
7,774

2019
6,324

Thereafter
8,126

Total future minimum operating lease payments
$
47,802

Warranties
The Company generally provides a warranty for its software products and services to its customers for a period of three to six months. The Company’s software products’ media are generally warranted to be free from defects in materials and workmanship under normal use, and the products are also generally warranted to substantially perform as described in certain Company documentation and the product specifications. The Company’s services are generally warranted to be performed in a professional manner and to materially conform to the specifications set forth in a customer’s signed contract. In the event there is a failure of such warranties, the Company generally will correct or provide a reasonable work-around or replacement product. To date, the Company’s product warranty expense has not been significant. The warranty accrual as of June 30, 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 June 30, 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.

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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.
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 two complaints were then consolidated by court order on May 5, 2015 and re-captioned as In re Informatica Corporation Shareholder Litigation, Consolidated C.A. No. 10913-VCL (the “Consolidated Complaint”). On May 13, 2015, a third complaint, Janet Daniels v. Informatica Corp., et al., Case No. 11016, was filed in the Court of Chancery of the State of Delaware (the “Daniels Complaint”) The complaints generally allege that, in connection with the 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 Consolidated Complaint and the Daniels Complaint also allege that the Informatica directors breached their fiduciary duties by omitting material information necessary for stockholders to make an informed vote. The complaints seek, among other things, an order enjoining the close of the transaction or, in the event that the transaction is consummated, an award of rescission and/or rescissory damages.
The Company reviews the status of each matter and records a provision for a liability when it is considered both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed quarterly and adjusted as additional information becomes available. If both of the criteria are not met, the Company assesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a material loss may be incurred, the Company discloses the estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made.
Litigation is subject to inherent uncertainties. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company's financial position and results of operation for the period in which the unfavorable outcome occurred, and potentially in future periods.
Note 12.  Significant Customer Information and Segment Information
The Company is organized and operates in a single segment:  the design, development, marketing, and sales of software solutions. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The Company markets its products and services in the United States and in foreign countries through its direct sales force and indirect distribution channels.
No customer accounted for more than 10% of revenue in the three and six months ended June 30, 2015 and 2014. At June 30, 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 32% and 36% of total revenues during the three months ended June 30, 2015 and 2014, respectively, and 33% and 36% of total revenues for the six months ended June 30, 2015 and 2014, respectively.


27

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

Total revenue by geographic region is summarized as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
North America
$
179,222

 
$
159,973

 
$
343,095

 
$
313,817

Europe, the Middle East, and Africa
56,762

 
60,581

 
113,467

 
120,783

Other
25,882

 
30,159

 
55,840

 
59,210

Total revenues
$
261,866

 
$
250,713

 
$
512,402

 
$
493,810

Property and equipment, net by geographic region are summarized as follows (in thousands):
 
June 30,
2015
 
December 31,
2014
Property and equipment, net:
 
 
 
North America
$
139,567

 
$
143,482

Europe, the Middle East, and Africa
8,973

 
10,902

Other
3,967

 
5,324

Total property and equipment, net
$
152,507

 
$
159,708


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.

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

The following table summarizes the fair value of assets acquired and liabilities assumed 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

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.
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

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sector, retail, services, technology, telecommunications, and travel/transportation. During the three months ended June 30, 2015, our largest vertical industry sectors for new license orders were financial services, healthcare and telecommunications. Approximately 68% and 64% of our total revenue during the three months ended June 30, 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 two quarters 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 increased by 4% in the three months ended June 30, 2015 to $261.9 million from $250.7 million in the comparable period a year ago. Our software revenues increased by 7% in the three months ended June 30, 2015 from the same period in 2014 due to a 39% increase in subscription revenues and a 1% increase in license revenues. Service revenues increased by 3% in the three months ended June 30, 2015 from the same period in 2014 due to a 6% growth in maintenance revenues offset by an 8% decrease in consulting and education services.
Total revenues increased by 4% in the six months ended June 30, 2015 to $512.4 million from $493.8 million in the comparable period a year ago. Software revenues increased by 4% in the six months ended June 30, 2015 from the same period in 2014 due to a 43% increase in subscription revenues offset by a 3% decrease in license revenues. Service revenues increased by 4% in the six months ended June 30, 2015 from the same period in 2014 due to a 6% growth in maintenance revenues offset by a 3% decrease in consulting and education services.
For the three months ended June 30, 2015 and 2014, our income from operations calculated in accordance with U.S. generally accepted accounting principles (GAAP) was $29.5 million and $33.8 million, respectively. Our non-GAAP income from operations was $57.0 million and $54.6 million in the three months ended June 30, 2015 and 2014, respectively. For the three months ended June 30, 2015 and 2014, our GAAP net income was $18.9 million and $22.8 million, respectively. Our non-GAAP net income was $39.8 million and $38.5 million in the three months ended June 30, 2015 and 2014, respectively. See Non-GAAP Financial Measures below for a reconciliation of GAAP to non-GAAP financial measures.
For the six months ended June 30, 2015 and 2014, our income from operations calculated in accordance with GAAP was $61.7 million and $70.6 million, respectively. Our non-GAAP income from operations was $109.5 million and $111.3 million in the six months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014, our GAAP net income was $40.4 million and $47.7 million, respectively. Our non-GAAP net income was $76.7 million and $78.1 million in the six months ended June 30, 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 Secure@Source, a new product that enables customers to discover and classify sensitive data and assess risks associated with