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| EX-31.1 - EXHIBIT 31.1 - INFORMATICA CORP | exhibit-31w1_123109.htm |
| EX-21.1 - EXHIBIT 21.1 - INFORMATICA CORP | exhibit-21w1_123109.htm |
| EX-31.2 - EXHIBIT 31.2 - INFORMATICA CORP | exhibit-31w2_123109.htm |
| EX-32.1 - EXHIBIT 32.1 - INFORMATICA CORP | exhibit-32w1_123109.htm |
| EX-23.1 - EXHIBIT 23.1 - INFORMATICA CORP | exhibit-23w1_123109.htm |
2
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
________________
FORM 10-K
________________
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þ Annual report pursuant
to Section 13
or 15(d) of the Securities Exchange Act of
1934
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For
the year ended December 31, 2009
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or
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o Transition report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934
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Commission
File Number: 0-25871
INFORMATICA
CORPORATION
(Exact
name of registrant as specified in its charter)
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Delaware
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77-0333710
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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100
Cardinal Way
Redwood
City, California 94063
(Address
of principal executive offices and zip code)
(650) 385-5000
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of exchange on which
registered
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Common
Stock, par value $0.001 per share
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The
NASDAQ Stock Market LLC
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(NASDAQ
Global Select Market)
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Securities
registered pursuant to Section 12(g) of the Act:
Preferred
Stock Purchase Rights
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. þ Yes o No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act of 1934 (the “Exchange
Act”).
o Yes þ No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 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.
þ Yes o 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 £ No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ
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 o Non-accelerated
filer o Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). o Yes þ No
The
aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 30, 2009 was approximately $1,486,699,000 (based on
the last reported sale price of $17.19 on June 30, 2009 on the NASDAQ
Global Select Market).
As of
January 29, 2010, there were approximately 90,519,000 shares of the
registrant’s Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s Proxy Statement for the registrant’s 2010 Annual Meeting of
Stockholders are incorporated by reference into Part III of this
Form 10-K to the extent stated herein. The Proxy Statement will be filed
within 120 days of the registrant’s fiscal year ended December 31,
2009.
INFORMATICA
CORPORATION
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| EXHIBIT 21.1 | ||
| EXHIBIT 23.1 | ||
| EXHIBIT 31.1 | ||
| EXHIBIT 31.2 | ||
| EXHIBIT 32.1 | ||
Overview
Informatica
Corporation (“Informatica”) is the leading independent provider of enterprise
data integration and data quality software and services. Informatica’s mission
is to enable organizations to reduce IT costs and gain a competitive advantage
in today’s global information economy by empowering them to gain value from
their information assets.
The
challenge Informatica addresses is that data is fragmented across and beyond the
enterprise and is of varying quality. During the last two decades,
companies have made significant investments in process automation resulting in
silos of data created by a variety of packaged transactional
applications such as enterprise resource planning (ERP), customer
relationship management (CRM), supply chain management (SCM), and custom
departmental operational systems. The goal was to make businesses more efficient
through automation. However, these applications have increased data
fragmentation and complexity because they generate massive volumes of data in
disparate software systems that were not designed to share data. Additionally,
data is being outsourced to cloud computing and business process outsourcing
vendors. Lastly, data is managed by trading partners including
suppliers. As these systems and the locations of data have proliferated,
the challenge of data fragmentation has intensified, leaving companies to
grapple with multiple data silos, multiple data formats, multiple data
definitions, and highly varied data quality.
Organizations
are now finding that the strategic value of information technology goes far
beyond process automation. Companies of all sizes require accurate, trustworthy
information to run their business, and most information is derived from data.
Operational activities generate a constant flow of data inside and beyond the
enterprise, but unless the various data streams can be integrated, and the
quality of that data is ensured, the amount of real and useful business
information derived from such data can be limited. Companies are realizing that
they must integrate a wide variety of structured, semi-structured and
unstructured data to support their business processes, such as providing a
single view of the customer, migrating away from legacy systems to new
technologies, having a clearer view of all of the information that resides in
multiple databases or consolidating multiple instances of an ERP system. They
are also realizing that it is imperative to implement data quality processes to
measure, monitor, track and improve the quality of data delivered to the
business.
With
Informatica’s comprehensive, unified, open and economical data integration
technology, Information Technology (IT) organizations can access, discover,
cleanse, integrate, and deliver this data, while improving its quality, to the
extended enterprise to increase operational efficiency and reduce costs. The
Informatica platform is a comprehensive set of technologies to enable a wide
variety of complex enterprise-wide data integration initiatives, including:
Enterprise Data Integration, Data Quality, Master Data Management, B2B Data
Exchange, Application Information Lifecycle Management, Complex Event
Processing, and Cloud Data Integration.
In 2009,
we continued to broaden the applicability of our technology and focused on
product innovation. Informatica added key elements to the platform,
which included Application Information Lifecycle Management through the
acquisition of Applimation, Inc. (“Applimation”) and Complex Event Processing
through the acquisition of Agent Logic, Inc. (“Agent Logic”). Application
Information Lifecycle Management enables IT to cost-effectively manage the
proliferation of data volumes through archiving, test data management and
enhanced data security. Complex Event Processing enables enterprises to rapidly
detect, correlate, analyze and respond to data-driven events. Additionally
Informatica’s acquisition of AddressDoctor GmbH (“AddressDoctor”) enhanced
Informatica’s Data Quality offering with leading international address data
validation solutions for more than 200 countries and territories.
In the
fourth quarter of 2009, we launched a version upgrade to our entire data
integration platform, Informatica 9. Informatica 9 offers enhancements to
empower business and IT collaboration, to make data quality pervasive within the
enterprise, and to enable data services based on a service-oriented-architecture
(SOA). Informatica 9 became generally available in December
2009.
We also
introduced solutions designed to meet the data needs of the
software-as-a-service (“SaaS”) or cloud market. In November, the company
unveiled an upgraded and expanded version of its Cloud offerings, Informatica
Cloud 9. The new version is a multi-tenant, enterprise-class data
integration platform-as-a-service (“PaaS”). Additionally, the cloud offerings
were expanded to include the new Informatica Address Quality Cloud Services and
Informatica offerings via Amazon Elastic Compute Cloud (EC2).
We have
more than 3,900 customers worldwide, representing a variety of industries,
ranging from energy and utilities, financial services, insurance, public sector,
healthcare, high technology, manufacturing, retail, services,
telecommunications, and transportation. We market and sell our software and
services through our sales operations in North and Latin America (including
Brazil, Canada, Mexico, and the United States), Europe and Middle East
(including Austria, Denmark, France, Germany, Ireland, Israel, Italy, the
Netherlands, Portugal, Spain, Switzerland, and the United Kingdom), and
Asia-Pacific (including Australia, China, Hong Kong, India, Japan, the
Philippines, Singapore, South Korea, and Taiwan). We maintain relationships with
a variety of strategic partners to jointly develop, market, sell, recommend,
and/or implement our solutions. We also have relationships with distributors in
various regions and industries, including Europe and Middle East, Asia-Pacific,
and Latin America, who sublicense our products and provide services and support
within their territories.
We began
selling our first products in 1996. Through December 31, 2009,
substantially all of our revenues have been derived from the sale of our data
integration products/platform (and related services): Informatica PowerCenter,
Informatica PowerExchange, Informatica Data Explorer, Informatica Data Quality,
Informatica Identity Resolution, Informatica B2B Data Exchange, Informatica B2B
Data Transformation, Informatica Data Archive, Informatica Data Subset,
Informatica Data Privacy, Informatica RulePoint, Informatica Real-Time Alert
Manager, Informatica RuleCast, and Informatica Cloud.
Informatica’s
corporate headquarters are located at 100 Cardinal Way, Redwood City, California
94063, and the telephone number at that location is (650) 385-5000. We can
also be reached at our Web site at www.informatica.com; however,
the information in, or that can be accessed through, our Web site is not part of
this Report. Informatica was incorporated in California in February 1993 and
reincorporated in Delaware in April 1999.
Copies of
annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to these reports pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) are available, free of charge, on Informatica’s Web site as
soon as reasonably practicable after such material is electronically filed with
the Securities and Exchange Commission (SEC). The SEC also maintains a Web site
that contains our SEC filings. The address of the site is www.sec.gov.
Recent
Events
On
January 28, 2010, the Company acquired Siperian, Inc., (“Siperian”) a private
company incorporated in Delaware. Siperian is a leader in the Master Data
Management (MDM) infrastructure technology category. MDM provides a holistic,
single view of foundational business entities, commonly referred to as master
data such as customers, employees, citizens, locations and products. Siperian
delivers a multidomain MDM platform to optimize business decisions across
multiple entities or considerations, and its technology expedites deployment
time with easy-to-configure capabilities. Additionally, with built-in ratings
metrics for trustworthiness, business stakeholders can have greater confidence
in their master data. The existing product integration and unified architecture,
based on the common Informatica Identity Resolution technology, will facilitate
cross-sell opportunities for the Company’s data integration and data quality
products. The combination of Siperian products and the Informatica Platform will
deliver further differentiated value to customers. The Company acquired all the
capital stock of Siperian in a cash merger transaction valued at approximately
$130 million.
Products
Informatica
products enable organizations to gain a competitive advantage in today’s global
information economy by empowering them to access, integrate, and trust their
information assets. These products comprise a comprehensive, unified, open and
economical data integration platform that addresses data integration
requirements within the enterprise and beyond.
The
following products are included in the Informatica Platform:
Informatica
PowerCenter accesses, discovers, and
integrates data from virtually any business system, in almost any format, and
delivers that data throughout the enterprise at almost any speed to improve
operational efficiency. Highly available, high-performing, and fully scalable,
Informatica PowerCenter serves as the foundation for enterprise-wide data
integration initiatives. There are four editions of Informatica
PowerCenter:
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Informatica
PowerCenter Standard Edition includes a
high-performance data integration server, a global metadata
infrastructure, visual tools for development and centralized
administration, and productivity tools to facilitate collaboration among
architects, analysts, and
developers.
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Informatica
PowerCenter Real Time Edition extends
PowerCenter Standard Edition with additional capabilities forintegrating
and provisioning transactional or operational data in real time.
PowerCenter Real Time Edition provides a foundation for developing
sophisticated data services and delivering timely information as a service
to support business needs. Key features include change data capture for
relational data sources, integration with messaging systems, built-in
support for Web services, dynamic partitioning with data smart
parallelism, and process orchestration and human workflow
capabilities.
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Informatica
PowerCenter Advanced Edition addresses
requirements for organizations that are standardizing data integration at
an enterprise level, across a number of projects and departments. It
includes all the capabilities of PowerCenter Standard Edition and features
additional capabilities that are ideal for data governance and integration
competency centers, including dynamic partitioning with data smart
parallelism and powerful capabilities in metadata analysis, team-based
development, and Web-based data profiling and
reporting.
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Informatica
PowerCenter Cloud Edition is the world’s first cloud data
integration infrastructure that combines the power and scalability of
Informatica PowerCenter, with the flexibility, ease of use, and
affordability of the latest cloud computing platform. The result is a
comprehensive data integration infrastructure-as-a-service (IaaS). IT
organizations can handle the unique challenges, such as data security and
processing speed, associated with integrating data in the cloud, over a
public Internet. It is designed to run in true virtual computing
environments, such as the Amazon Elastic Compute Cloud (Amazon
EC2).
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Additionally,
many options are available to extend Informatica PowerCenter’s core data
integration capabilities, including the: Data Masking, Enterprise Grid, High
Availability, Metadata Exchange, Partitioning, Team-Based Development, and
Unstructured Data options.
Informatica
PowerExchange is a family of data
access products that enable IT organizations to access virtually all sources of
enterprise data without having to develop custom data access programs. With the
ability to access mission-critical operational data and deliver such data
throughout the enterprise, IT organizations can optimize limited resources and
the business value of data. Dozens of different data sources and targets are
supported, including enterprise applications, databases and data warehouses,
mainframes, midrange systems, messaging systems, and technology
standards.
Informatica
Data Quality delivers pervasive data quality to stakeholders, projects,
and data domains, on premise or in the cloud, using a comprehensive and unified
platform.
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Informatica
Data Quality puts control of
data quality processes into the hands of business information owners.
Combiningpowerful data analysis, cleansing, matching, reporting, and
monitoring capabilities with an easy-to-use-interface, Informatica Data
Quality empowers business information owners to implement and manage
enterprise-wide data quality
initiatives.
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Informatica
Identity Resolution is a robust,
highly scalable identity resolution software that enables companies and
government organizations to search and match identity data from more than
60 languages, in both batch and real
time.
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● |
Informatica
Data Explorer delivers a
complete picture of the content, quality, and structure of enterprise
data. Combining powerful data profiling and mapping capabilities with an
easy-to-use-interface, Informatica Data Explorer empowers business
information owners to investigate, document, and resolve data quality
issues.
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AddressDoctor
offers technology to perform global address validation for more than 200
countries and territories. These capabilities include support for multiple
levels of addresses such as street level, delivery point validation and
geocoding.
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Informatica
B2B Data Exchange is industry-leading software for multi-enterprise data
integration. It adds secured communication, management, and monitoring
capabilities to handle data from internal and external sources.
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Informatica
B2B Data Exchange provides a
comprehensive technology infrastructure for multi-enterprise data
integration, partner management, and business event monitoring. It helps
companies collaborate efficiently and cost-effectively with their extended
networks of trading partners and customers, which helps companies to
reduce costs and protect and grow revenue
streams.
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Informatica
B2B Data Transformation is a
high-performance software that converts structured and unstructured data
to and from more broadly consumable data formats to support
business-to-business and multi-enterprise transactions. This single,
unified codeless environment supports virtually any-to-any data
transformation and is accessible to multiple business levels within the
organization: analysts, developers, and
programmers.
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Informatica
Application Information Lifecycle Management product family is
designed to help IT organizations manage every phase of the data lifecycle, from
development and testing to archiving and retirement, while ensuring privacy of
that data.
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Informatica
Data Archive is highly scalable, high-performance software that
helps IT organizations cost-effectively manage the proliferation of data
volumes in a range of enterprise business applications. The software
enables IT teams to safely and easily archive application data, including
master, reference, and transactional data, and to readily access it when
needed. Informatica Data Archive helps IT organizations manage increasing
data volumes in production environments by safely archiving application
data and data warehouses, providing seamless access to archived data, and
delivering the archived data to the business as
needed.
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Informatica
Data Subset is flexible enterprise software that automates the
process of creating smaller, targeted test databases from large, complex
databases. With referentially intact, smaller targeted copies of
production data, IT organizations can dramatically reduce the amount of
time, effort, and disk space necessary to support test
environments.
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Informatica
Data Privacy is comprehensive, flexible, and scalable software for
managing access to sensitive application data, such as credit card
information, Social Security numbers, names, addresses, and phone numbers.
The software prevents the unintended exposure of confidential information
and is designed to reduce the risk of data
breaches.
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Informatica
Complex Event Processing (CEP) enables enterprises to rapidly detect,
correlate, analyze and respond to data-driven events. The combination of CEP and
data integration enables organizations to be more responsive, adaptable and
agile.
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● |
Informatica
RulePoint is
an easy-to-use server that provides instant intelligence by combining
user-applied logic with multiple sources of data. Such
combinations enable right-time responses to threats or opportunities as
they occur.
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Informatica
Real-Time
Alert Manager provides a Web-based, persistent communications
channel for receiving alerts about critical threats and opportunities
received from RulePoint.
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Informatica
RuleCast enables developers to create
Event Stream Processing (ESP) solutions rapidly from a diverse set of data
sources such as message queues, databases, telemetry feeds, and control
systems.
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Informatica
Cloud consists of Informatica
Data Integration Cloud Services and the Informatica Data Integration Cloud
Platform. Informatica Cloud Services deliver purpose-built data integration
cloud applications to allow business users to integrate data across cloud-based
applications and on-premise systems and databases. The Informatica Cloud
Platform takes advantage of the underlying PowerCenter data integration to
enable customers and partners to build, manage, and share custom data
integration services in the cloud.
Services
We offer
a comprehensive set of services, including product-related customer support,
consulting services, and education services. Additionally, we offer certain
products as services, priced on a subscription pricing basis. Through
strategically located Support Centers in the United States, Ireland, Spain, the
Netherlands, the United Kingdom, Brazil, China, India, and Japan, we provide
technical support for Informatica software deployments, both regional
installations as well as geographically dispersed projects. Informatica’s Global
Customer Support offers a well-engineered and comprehensive set of support
programs tailored to fit customer needs. Customers and partners can access our
24x7 technical support over the phone using toll-free lines, via email, and
online through Informatica’s Web portal “my.informatica.com.”
Our
consulting services are focused on helping customers to become agile data-driven
enterprises both tactically and strategically. Our services range from
initial configuration of the Informatica platform, knowledge transfer to
customers and partners, designing and implementing custom data integration
solutions, project audit, and performance tuning, to helping customers implement
enterprise-wide integration strategies such as Integration Competency Centers or
leadership Lean Integration practices. Our consulting strategy
is to
provide specialized expertise on our products to enable our customers and
partners to successfully implement and sustain business solutions using our
integration platform.
Our
Professional Services consultants use a services methodology called Informatica
Velocity to guide the successful implementation of our software. Our services
methodology reflects the best practices that Informatica has developed and
refined through hundreds of successful projects. Informatica Velocity covers
each of the major implementation project phases, including manage, analyze,
design, build, test, deploy, and operate. Where applicable, Informatica Velocity
includes technical white papers as well as sample project documentation and even
sample implementations (mappings) of specific technical solutions.
We offer
a global comprehensive role-based curriculum of product and solution oriented
education offerings to enable our customers and strategic partners to build
proficiency in using our products. Informatica delivers education services in
more than 45 countries and over 50 course offerings through instructor led,
virtual academy, and eLearning delivery options to make training easy and cost
effective. We have established the Informatica Certification Program for both
PowerCenter and Informatica Data Quality, which has created a database of expert
professionals with verifiable skills in the design and administration of
Informatica-based systems.
We also
make available a number of products as services, priced on a subscription
licensing bases. For example, Informatica’s address validation, which allows
customer to validate addresses against a continuously updated global database of
addresses, is available as a service on a monthly subscription basis.
Additionally, a number of our Cloud Services, such as the Informatica Cloud Data
Quality Assessment service, are available via monthly subscriptions. Lastly,
Informatica PowerCenter Cloud Edition, which is available on and through Amazon
EC2, is priced on an hourly and capacity basis, and in 2009 the revenues related
to Informatica PowerCenter Cloud Edition has not been material. Products
delivered as a service allow customers to get specific, limited functionality at
an attractive entry price point.
Our
Partners
Informatica’s
partners include industry leaders in enterprise software, computer hardware, and
systems integration. We offer a comprehensive strategic partner program for
major companies in these areas so that they can provide sales and marketing
leverage, have access to required technology, and can furnish complementary
products and services to our joint customers. Our partners that resold and/or
referred more than $2,000,000 each in license orders in 2009 were Accenture,
Affecto, Cap Gemini, Carahsoft Technology, Deloitte Consulting, Hewlett-Packard,
IPI Grammtech, Infosys, SMF Systems Technology, STK Consultoria, Tata
Consultancy Services, Teradata, and Wipro. Our original equipment manufacturer
(OEM) partners that generated more than $500,000 each in license orders for us
in 2009 were ACS State Healthcare, Hewlett-Packard, Oracle, Risk Management
Solutions, and Siperian, which we acquired in January 2010.
Our
Customers
More than
3,900 companies worldwide rely on Informatica for their data integration
and data quality needs. Our customers represent a wide range of corporations and
governmental and educational institutions. Our targeted markets include energy
and utilities, financial services, government and public sector, healthcare,
high technology, insurance, manufacturing, retail, services, telecommunications,
and transportation. The top three industry contributors in 2009 were financial
services, healthcare, and public sector.
No single
customer accounted for 10% or more of our total revenues in 2009, 2008, or
2007.
Our
Market Strategy
Broader
Enterprise Data Integration: Beyond the Data Warehouse. Our
goal is to be the market leader in the enterprise data integration market, which
includes data integration, data quality, master data management,
cross-enterprise data exchange, information lifecycle management, complex event
processing, and cloud data integration. Our strategy is to grow at a rate faster
than the market by leveraging our success, knowledge, and the strength of our
proven products that have helped our customers deploy thousands of large data
warehouse and data integration initiatives. We address the growing enterprise
data integration market with a product set that we believe is well-suited to
rapidly deliver value to our customers.
Broader
Geographical Reach. Our goal is to expand our presence and sales around
the world, particularly in areas beyond our historic base in North
America. Over the past several years, we have expanded our presence
and capabilities in a number of regions. We currently have a direct sales
presence in 24 countries and an indirect presence, through distributors and
partners, in a total of 82 countries. We also have development
centers in 12 countries, professional services staff in 19 countries and
technical support centers in 10 countries, including the United States, Brazil,
the Netherlands, India and Singapore. Our goal is to leverage our
partnerships, direct sales staff and our support resources to add new customers
in regions outside North America.
Advancing Product
Leadership. Our goal is to grow in all product
categories. In August 2009, we delivered the PowerCenter Cloud Edition to enable
our customers to procure PowerCenter functionality from Amazon Web Services by
the hour. In November 2009, we announced Informatica Cloud 9. The Informatica
Cloud Platform allows our customers to leverage their investment by building and
sharing custom integration functions in the cloud. Also in the fourth quarter,
we announced that PowerCenter Cloud Edition is now in production running on
Amazon EC2. In December 2009, we delivered a version upgrade to our entire data
integration platform, Informatica 9. Informatica 9 is a comprehensive, unified,
open, and economical data integration platform. With pervasive data quality, the
Informatica 9 data integration platform delivers trusted data, at any latency,
across the entire data integration life cycle. In January 2010, the Informatica
Cloud Platform was recognized as the AppExchange Best of Data Integration 2009
products.
Customers,
Consulting Partners, and Third-Party Developers: Leveraging Installed
Base and Community to
Extend Informatica’s Presence. We have an installed customer
base that spans a wide range of industries. As of December 31, 2009, more
than 3,900 customers worldwide and 84 of the Fortune 100 companies on the
Fortune 2009 list had licensed our products. Informatica Technology Network
(formerly Informatica Developer Network), created in 2001, has grown to over
52,000 members in more than 170 countries using our products as a platform on
which to build or customize a specific data integration solution. These
developers extend Informatica’s presence and profile in the broad data
integration market and provide a network of knowledge that can be shared to
amplify our brand and its influence.
Partnerships and
Strategic Alliances: Extending the Ecosystem. We have
alliances and strategic partnerships with leading enterprise software providers,
systems integrators, and hardware system vendors. These alliances furnish sales
and marketing support and access to required technology, while also providing
complementary products and services for our joint customers. More than 195
companies help market, resell, or implement Informatica’s solution around the
world. Additionally, more than 65 companies have embedded our core products
into their own, enabling their customers to benefit from the enterprise-class
data integration we provide within their products.
Sales,
Marketing, and Distribution
We market
and sell software and services through both our direct sales force and indirect
channel partners in North America, Europe, Asia-Pacific, Latin America, and
other regions around the world. As of December 31, 2009, we employed
611 people in our sales and marketing organization worldwide.
Marketing
programs are focused on creating awareness of Informatica and its products and
services, generating interest among new customers as well as interest in new
products within existing customers, documenting compelling customer references,
and creating up-sell/cross-sell opportunities for our products. These programs
are targeted at such key executives as chief information officers, vice
presidents of IT, and vice presidents of specific functional areas such as
marketing, sales, service, finance, human resources, manufacturing,
distribution, and procurement as well as enterprise architects and other key IT
professionals focused on data integration. Our marketing personnel engage in a
variety of activities, including positioning our software products and services,
conducting public relations programs, establishing and maintaining relationships
with industry analysts, producing collateral that describes our products,
services, and solutions, and generating qualified sales leads.
Our
global sales process consists of several phases: lead generation,
opportunity qualification, needs assessment, product demonstration, proposal
generation, and contract negotiation. Although the typical sales cycle requires
three to six months, some sales cycles have lasted substantially longer. In a
number of instances, our relationships with systems integrators and other
strategic partners have reduced sales cycles by generating qualified sales
leads, making initial customer contacts, assessing needs prior to our
introduction to the customers, and endorsing our products to the customers
before their product selection. Also, partners have assisted in the creation of
presentations and demonstrations, which we believe enhances our overall value
proposition and competitive position.
In
addition to our direct sales efforts, we distribute our products through systems
integrators, resellers, distributors, and OEM partners in the United States and
internationally. Systems integrators typically have expertise in vertical or
functional markets. In some
cases,
they resell our products, bundling them with their broader service offerings. In
other cases, they refer direct sales of our products. Distributors sublicense
our products and provide service and support within their territories. OEMs
embed portions of our technology in their product offerings.
Research
and Development
As of
December 31, 2009, we employed 515 people in our research and
development organization. This team is responsible for the design, development,
release and maintenance of our products. The group is organized into four
disciplines: development, quality assurance, documentation, and product
management. Members from each discipline, along with a product-marketing
manager, form focus teams that work closely with sales, marketing, services,
customers, and prospects to better understand market needs and user
requirements. These teams utilize a well-defined agile software development
methodology that we believe enables us to deliver products that satisfy real
business needs for the global market while also meeting commercial quality
expectations.
When
appropriate, we also use third parties to expand the capacity and technical
expertise of our internal research and development team. On occasion, we have
licensed third-party technology. We believe this approach shortens time to
market without compromising competitive position or product quality, and we plan
to continue drawing on third-party resources as needed in the
future.
Approximately
40% of Informatica’s research and development team is based in the United States
and the remainder is based in Australia, Germany, India, Ireland, Israel, the
Netherlands, and the United Kingdom. The international development teams are
focused on development and quality assurance work of our data integration and
data quality technologies. Our international development effort is intended to
both increase development productivity and deliver innovative product
capabilities. Our research and development expenditures, which are expensed as
incurred, were $78.4 million in 2009, $72.5 million in 2008, and
$69.9 million in 2007.
Competition
The
market for our products is highly competitive, quickly evolving, and subject to
rapidly changing technology. Our competition consists of hand-coding,
custom-built data integration solutions developed in-house by various companies
in the industry segments that we target, as well as vendors of enterprise data
integration solutions such as IBM (which acquired Ascential Software, Cognos,
and Data Mirror and announced its plan for acquisition of Initiate Systems), and
vendors of data integrations solutions, Microsoft, Oracle (which acquired BEA
Systems, GoldenGate, Hyperion Solutions, Siebel, SilverCreek and Sunopsis), SAP
(which acquired Business Objects which had acquired FirstLogic), and certain
privately held companies. With regard to data quality, we compete against SAP
(which acquired Business Objects), Trillium (which is part of Harte-Hanks), and
SAS Institute, as well as various other privately held companies.
We
currently compete on the basis of the breadth and depth of our products’
functionality as well as on the basis of price. Additionally, we compete on the
basis of certain other factors, including neutrality, dependability, user
efficiency, quality of products, services, support, and versatility. We believe
that we currently compete favorably with respect to these factors. For a further
discussion of our competition, see “Risk Factors — If we do not compete
effectively with companies selling data integration products,
our revenues may not grow and could decline” in
Item 1A.
Seasonality
Our
business is influenced by seasonal factors, largely due to customer buying
patterns. In recent years, we have generally had weaker demand for our software
products and services in the first and third quarters of the year and seasonally
stronger demand in the fourth quarter. Our consulting and education services
have sometimes been negatively impacted in the fourth and first quarters of the
year due to the holiday season and internal meetings, which result in fewer
billable hours for our consultants and fewer education classes.
Intellectual
Property and Other Proprietary Rights
Our
success depends in part upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures, and licensing arrangements to establish and protect
our proprietary rights. As part of our confidentiality procedures, we generally
enter into non-disclosure agreements with our employees, distributors, and
corporate partners and into license agreements with respect to our software,
documentation, and other proprietary information. In addition, we have 22
patents issued in the United States, two patents issued in the European Union,
three patents issued in Canada, eight patent applications pending in the United
States, eight patent applications pending in Canada, three patent applications
pending in the European Union, two patent applications pending in Australia and
one patent application pending in New Zealand. Our issued patents are scheduled
to expire at various times through February 2024. Where appropriate, we have
also entered into patent cross-license agreements with
third
parties, thereby acquiring additional intellectual property rights which
preserve our ability to pursue normal business activity and minimize our risks
in entering new and adjacent technology markets.
Nonetheless,
our intellectual property rights may not be successfully asserted in the future
or may be invalidated, circumvented, or challenged. In addition, the laws of
various foreign countries where our products are distributed do not protect our
intellectual property rights to the same extent as U.S. laws. Our inability
to protect our proprietary information could harm our business.
Employees
As of
December 31, 2009, we had a total of 1,755 employees, including
515 people in research and development, 611 people in sales and
marketing, 429 people in consulting, customer support, and education
services, and 200 people in general and administrative services. None of
our employees is represented by a labor union. We have not experienced any work
stoppages, and we consider employee relations to be good.
In
addition to the other information contained in this Form 10-K, we have
identified the following risks and uncertainties that may have a material
adverse effect on our business, financial condition, or results of operation.
Investors should carefully consider the risks described below before making an
investment decision. The trading price of our common stock could decline due to
any of these risks, and investors may lose all or part of their
investment.
Adverse
conditions in the U.S. or global economies could negatively affect sales
of our products and
services, and could harm our operating results, which could result in a decline in
the price of our common stock.
As our
business has grown, we have become increasingly subject to the risks arising
from adverse changes in the domestic and global economies. We have experienced
the adverse effect of economic slowdowns in the past, which resulted in a
significant reduction in capital spending by our customers, as well as longer
sales cycles, and the deferral or delay of purchases of our
products.
The
recent weak macroeconomic environment and associated global economic conditions
resulted in a tightening of the credit markets, low levels of liquidity in many
financial markets, extreme volatility in credit, equity and foreign currency
markets including the Europe sovereign debt markets and volatility in various
markets including the financial services sector which typically is the largest
vertical segment that we serve. These conditions affected the buying patterns of
our customers and prospects and adversely affected our overall pipeline
conversion rate as well as our revenue growth expectations. Though the economic
conditions appear to be improving, if such conditions reoccur or if the pace of
economic recovery is slow or uneven, our results of operations could be
adversely affected and we could fail to meet the expectations of stock analysts
and investors, which could cause the price of our common stock to
decline.
We have
made incremental investments in Asia-Pacific and Latin America, and have
maintained a high level of investments in Europe, the Middle East, and Africa
(EMEA). There are significant risks with overseas investments and our growth
prospects in these regions are uncertain. In addition, we could experience
delays in the payment obligations of our worldwide reseller customers if they
experience weakness in the end-user market, which would increase our credit risk
exposure and harm our financial condition.
If we do not
compete effectively with companies selling data integration products,
our
revenues may not grow and could decline.
The
market for our products is highly competitive, quickly evolving, and subject to
rapidly changing technology. In addition, consolidation among vendors in the
software industry continues at a rapid pace with Oracle’s acquisition of Sun
Microsystems creating a large integrated supplier of enterprise software on
hardware optimized for its software products which could accelerate further
consolidation in the industry. Our competition consists of hand-coding,
custom-built data integration solutions developed in-house by various companies
in the industry segments that we target, as well as other vendors of integration
software products, including IBM (which acquired Ascential Software, Cognos,
DataMirror, and announced its plan for acquisition of Initiate Systems),
Microsoft, Oracle (which acquired BEA Systems, GoldenGate Software, Hyperion
Solutions, Siebel, SilverCreek, and Sunopsis), SAP (which acquired Business
Objects which had acquired FirstLogic), and certain privately held companies. In
the past, we have competed with business intelligence vendors that currently
offer, or may develop, products with functionalities that compete with our
products, such as Business Objects, and to a lesser degree, Cognos, and certain
privately held companies. With regard to data quality, we compete against SAP,
Trillium (which is part of Harte-Hanks), and SAS Institute, as well as various
other privately held companies. Many of these competitors have longer operating
histories, substantially greater financial, technical, marketing, and other
resources, and greater name recognition than we do and may be able to exert
greater influence on customer purchase decisions. Our competitors may be able to
respond more quickly than we can to new or emerging technologies and changes in
customer
requirements.
Our current and potential competitors may develop and market new technologies
that render our existing or future products obsolete, unmarketable, or less
competitive.
We
believe we currently compete on the basis of the breadth and depth of our
products’ functionality, as well as on the basis of price. We may have
difficulty competing on the basis of price in circumstances where our
competitors develop and market products with similar or superior functionality
and pursue an aggressive pricing strategy or bundle data integration technology
and data quality at no cost to the customer or at deeply discounted prices.
These difficulties may increase as larger companies target the data integration
and data quality markets. As a result, increased competition and bundling
strategies could seriously impede our ability to sell additional products and
services on terms favorable to us.
Our
current and potential competitors may make strategic acquisitions, consolidate
their operations, or establish cooperative relationships among themselves or
with other solution providers, thereby increasing their ability to provide a
broader suite of software products or solutions and more effectively address the
needs of our prospective customers. Such acquisitions could cause customers to
defer their purchasing decisions. Our current and potential competitors may
establish or strengthen cooperative relationships with our current or future
strategic partners, thereby limiting our ability to sell products through these
channels. If any of this were to occur, our ability to market and sell our
software products would be impaired. In addition, competitive pressures could
reduce our market share or require us to reduce our prices, either of which
could harm our business, results of operations, and financial
condition.
Our international
operations expose us to greater risks, including but not limited to those regarding
intellectual property, collections, exchange rate fluctuations, and regulations,
which could limit our future growth.
We have
significant operations outside the United States, including software development
centers in Australia, India, Ireland, Israel, the Netherlands, and the United
Kingdom, sales offices in Europe, including France, Germany, the Netherlands,
Switzerland, and the United Kingdom, as well as in countries in Asia-Pacific,
and customer support centers in India, Brazil, the Netherlands, and the United
Kingdom. Additionally, since 2005 we have opened sales offices in Brazil, China,
India, Italy, Japan, Mexico, Portugal, South Korea, Spain, and Taiwan, and we
plan to continue to expand our international operations. Our international
operations face numerous risks. For example, to sell our products in certain
foreign countries, our products must be localized, that is, customized to meet
local user needs and to meet the requirements of certain markets, particularly
some in Asia, where our product must be enabled to support Asian language
characters. Developing internationalized versions of our products for foreign
markets is difficult, requires us to incur additional expenses, and can take
longer than we anticipate. We currently have limited experience in
internationalizing products and in testing whether these internationalized
products will be accepted in the target countries. We cannot ensure that our
internationalization efforts will be successful.
In
addition, we have only a limited history of marketing, selling, and supporting
our products and services internationally. As a result, we must hire and train
experienced personnel to staff and manage our foreign operations. However, we
have experienced difficulties in recruiting, training, managing, and retaining
an international staff, in particular related to sales management and sales
personnel, which have affected our ability to increase sales productivity, and
related to turnover rates and wage inflation in India, which have increased
costs. We may continue to experience such difficulties in the
future.
We must
also be able to enter into strategic distributor relationships with companies in
certain international markets where we do not have a local presence. If we are
not able to maintain successful strategic distributor relationships
internationally or recruit additional companies to enter into strategic
distributor relationships, our future success in these international markets
could be limited.
Business
practices in the international markets that we serve may differ from those in
North America and may require us to include terms in our software license
agreements, such as extended payment or warranty terms, or performance
obligations that may require us to defer license revenues and recognize them
ratably over the warranty term or contractual period of the agreement. Although
historically we have infrequently entered into software license agreements that
require ratable recognition of license revenue, we may enter into software
license agreements in the future that may include non-standard terms related to
payment, maintenance rates, warranties, or performance obligations.
Our
software development centers in Australia, India, Ireland, Israel, the
Netherlands, and the United Kingdom also subject our business to certain risks,
including the following:
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greater
difficulty in protecting our ownership rights to intellectual property
developed in foreign countries, which may have laws that materially differ
from those in the United
States;
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communication delays between our main development
center in Redwood City, California and our development centers in
Australia, India, Ireland, Israel, the Netherlands, and the United Kingdom
as a result of time zone differences, which may delay the development,
testing, or release of new products;
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greater
difficulty in relocating existing trained development personnel and
recruiting local experienced personnel, and the costs and expenses
associated with such activities;
and
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increased
expenses incurred in establishing and maintaining office space and
equipment for the development
centers.
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Additionally,
our international operations as a whole are subject to a number of risks,
including the following:
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fluctuations
in exchange rates between the U.S. dollar and foreign currencies in
markets where we do business;
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higher
risk of unexpected changes in regulatory practices, tariffs, and tax laws
and treaties;
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greater
risk of a failure of our foreign employees to comply with both
U.S. and foreign laws, including antitrust regulations, the
U.S. Foreign Corrupt Practices Act, and any trade regulations
ensuring fair trade practices;
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potential
conflicts with our established distributors in countries in which we elect
to establish a direct sales
presence;
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our
limited experience in establishing a sales and marketing presence and the
appropriate internal systems, processes, and controls in Asia-Pacific,
especially China, Singapore, South Korea, and
Taiwan; and
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general
economic and political conditions in these foreign
markets.
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For
example, an increase in international sales would expose us to foreign currency
fluctuations where an unfavorable change in the exchange rate of foreign
currencies against the U.S. dollar would result in lower revenues when
translated into U.S. dollars although operating expenditures would be lower
as well. Historically, the effect of changes in foreign currency exchange rates
on revenues and operating expenses has been immaterial although in the fourth
quarter of 2008 and the first half of 2009, the decline in the U.S. dollar and
the increased volatility in currency markets caused a greater than historical
impact. However the sequential impact of the foreign currency exchange rate
fluctuation diminished near the end of 2009. Beginning in the fourth quarter of
2008, we have attempted to reduce the impact of certain foreign currency
fluctuations through hedging programs for the foreign subsidiaries where we do
not have a natural hedge. However, as our international operations grow, or if
the current dramatic fluctuations in foreign currency exchange rates continue or
increase or if our hedging programs become ineffective, the effect of changes in
the foreign currency exchange rates could become material to revenue, operating
expenses, and income. These factors and other factors could harm our ability to
gain future international revenues and, consequently, materially impact our
business, results of operations, and financial condition. The expansion of our
existing international operations and entry into additional international
markets will require significant management attention and financial resources.
Our failure to manage our international operations and the associated risks
effectively could limit the future growth of our business.
New product
introductions and product enhancements may impact market acceptance of
our
products and affect our results of operations.
We
believe that the introduction and market acceptance of new products and the
enhancement of existing products are important to our continued success. New
product introductions and product enhancements have inherent risks including,
but not limited to, delayed product availability, product quality and
interoperability, and customer adoption or the delay in customer purchases. In
August 2009, we delivered the PowerCenter Cloud Edition to enable customers to
procure PowerCenter functionality from Amazon Web Services by the hour. In
addition, we released Informatica 9 in December 2009. New product introductions
and/or enhancements such as these have inherent risks, including but not limited
to the following:
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delay
in completion, launch, delivery, or
availability;
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delay
in customer purchases in anticipation of new products not yet
released;
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product
quality issues, including the possibility of
defects;
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market
confusion based on changes to the product packaging and pricing as a
result of a new product release;
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interoperability
issues with third-party
technologies;
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issues
with migration or upgrade paths from previous product
versions;
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loss of existing customers that choose a
competitor’s product instead of upgrading or migrating to the new
product; and
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loss
of maintenance revenues from existing customers that do not upgrade or
migrate.
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Given the
risks associated with the introduction of new products, we cannot predict their
impact on our overall sales and revenues.
We have
experienced and could continue to experience fluctuations in our
quarterly operating
results, especially the amount of license revenues we recognize each
quarter,
and such fluctuations have caused and could cause our stock price to
decline.
Our
quarterly operating results, particularly our license revenues, have fluctuated
in the past and may do so in the future. These fluctuations have caused our
stock price to experience declines in the past and could cause our stock price
to significantly fluctuate or experience declines in the future. One of the
reasons why our operating results have fluctuated is that our license revenues,
which are primarily sold on a perpetual license basis, are not predictable with
any significant degree of certainty and are vulnerable to short-term shifts in
customer demand. Also, we could experience customer order deferrals in
anticipation of future new product introductions or product enhancements, as
well as a result of particular budgeting and purchase cycles of our customers.
The continued global economic uncertainty is also likely to cause customer order
deferrals and adversely affect budgeting and purchase cycles. By comparison, our
short-term expenses are relatively fixed and based in part on our expectations
of future revenues.
Moreover,
our backlog of license orders at the end of a given fiscal period has tended to
vary. Historically, our backlog typically decreases from the prior quarter at
the end of the first and third quarters and increases from the prior quarter at
the end of the fourth quarter, although the increase was less pronounced at the
end of 2008.
Furthermore,
we generally recognize a substantial portion of our license revenues in the last
month of each quarter and, sometimes, in the last few weeks or days of each
quarter. As a result, we cannot predict the adverse impact caused by
cancellations or delays in prospective orders until the end of each quarter.
Moreover, the likelihood of an adverse impact may be greater if we experience
increased average transaction sizes due to a mix of relatively larger deals in
our sales pipeline.
We have
expanded our international operations and have opened new sales offices in other
countries. As a result of this international expansion, as well as the increase
in our direct sales headcount in the United States, our sales and marketing
expenses have increased. We expect these investments to increase our revenues,
sales productivity, and eventually our profitability. However, if we experience
an increase in sales personnel turnover, do not achieve expected increases in
our sales pipeline, experience a decline in our sales pipeline conversion ratio,
or do not achieve increases in productivity and efficiencies from our new sales
personnel as they gain more experience, then we may not achieve our expected
increases in revenue, sales productivity, and profitability. We have experienced
some increases in revenue and sales productivity in the United States in the
past few years. While in the past two years, we have experienced increases in
revenue and sales productivity internationally, we have not yet achieved the
same level of sales productivity internationally as domestically.
Due to
the difficulty we experience in predicting our quarterly license revenues, we
believe that quarter-to-quarter comparisons of our operating results are not
necessarily a good indication of our future performance. Furthermore, our future
operating results could fail to meet the expectations of stock analysts and
investors. If this happens, the price of our common stock could
fall.
If we are unable
to accurately forecast revenues, we may fail to meet stock analysts’
and
investors’ expectations of our quarterly operating results, which could
cause our stock price
to decline.
We use a
“pipeline” system, a common industry practice, to forecast sales and trends in
our business. Our sales personnel monitor the status of all proposals, including
the date when they estimate that a customer will make a purchase decision and
the potential dollar amount of the sale. We aggregate these estimates
periodically in order to generate a sales pipeline. We assess the pipeline at
various points in time to look for trends in our business. While this pipeline
analysis may provide us with some guidance in business planning and budgeting,
these pipeline estimates are necessarily speculative and may not consistently
correlate to revenues in a particular quarter or over a longer period of time,
particularly in the recent global weak macroeconomic environment. Additionally,
because we
have
historically recognized a substantial portion of our license revenues in the
last month of each quarter and sometimes in the last few weeks of each quarter,
we may not be able to adjust our cost structure in a timely manner in response
to variations in the conversion of the sales pipeline into license revenues. Any
change in the conversion rate of the pipeline into customer sales or in the
pipeline itself could cause us to improperly budget for future expenses that are
in line with our expected future revenues, which would adversely affect our
operating margins and results of operations and could cause the price of our
common stock to decline.
We rely on our
relationships with our strategic partners. If we do not maintain and
strengthen
these relationships, our ability to generate revenue and control expenses
could be
adversely affected, which could cause a decline in the price of our
common stock.
We
believe that our ability to increase the sales of our products depends in part
upon maintaining and strengthening relationships with our current strategic
partners and any future strategic partners. In addition to our direct sales
force, we rely on established relationships with a variety of strategic
partners, such as systems integrators, resellers, and distributors, for
marketing, licensing, implementing, and supporting our products in the United
States and internationally. We also rely on relationships with strategic
technology partners, such as enterprise application providers, database vendors,
data quality vendors, and enterprise integrator vendors, for the promotion and
implementation of our products. Among others, we are partners with Cognos
(acquired by IBM), FAST (acquired by Microsoft), SAP, Oracle, Hyperion Solutions
(acquired by Oracle), salesforce.com, Hewlett Packard, and Intel.
Our
strategic partners offer products from several different companies, including,
in some cases, products that compete with our products. We have limited control,
if any, as to whether these strategic partners devote adequate resources to
promoting, selling, and implementing our products as compared to our
competitors’ products.
Although
our strategic partnership with IBM’s Business Consulting Services group has been
successful in the past, IBM’s acquisition of Ascential Software, Cognos,
DataMirror, and announcement of its plan for acquisition of Initiate Systems has
made it critical that we strengthen our relationships with our other strategic
partners. Business Objects’ acquisition of FirstLogic, a former strategic
partner, and SAP’s acquisition of Business Objects may also make such
strengthening with other strategic partners more critical. In addition, with
respect to our acquisition of AddressDoctor, we will continue to work toward
maintaining AddressDoctor’s pre-existing supplier relationships and current
partnership relationships, some of which compete with other aspects of our
business. We cannot guarantee that we will be able to strengthen our
relationships with our strategic partners or that such relationships will be
successful in generating additional revenue.
We may
not be able to maintain our strategic partnerships or attract sufficient
additional strategic partners, who have the ability to market our products
effectively, are qualified to provide timely and cost-effective customer support
and service, or have the technical expertise and personnel resources necessary
to implement our products for our customers. In particular, if our strategic
partners do not devote sufficient resources to implement our products, we may
incur substantial additional costs associated with hiring and training
additional qualified technical personnel to implement solutions for our
customers in a timely manner. Furthermore, our relationships with our strategic
partners may not generate enough revenue to offset the significant resources
used to develop these relationships. If we are unable to leverage the strength
of our strategic partnerships to generate additional revenues, our revenues and
the price of our common stock could decline.
We have
experienced reduced sales pipeline and pipeline conversion rates in prior
years,
which have adversely affected the growth of our company and the price of
our common
stock.
In the
past, we have experienced a reduced conversion rate of our overall license
pipeline, primarily as a result of general economic slowdowns, which caused the
amount of customer purchases to be reduced, deferred, or cancelled. As such, we
have experienced uncertainty regarding our sales pipeline and our ability to
convert potential sales of our products into revenue. We experienced an increase
in the size of our sales pipeline and some increases in our pipeline conversion
rate subsequent to 2005 as a result of our increased investment in sales
personnel and a gradually improving IT spending environment. However, the size
of our sales pipeline and our conversion rate are not consistent on a
quarter-to-quarter basis. Our conversion rate declined in 2008 and has remained
depressed in certain geographies in 2009. The global economic recession has had
and will likely continue to have an adverse effect on our conversion rate in the
near future. If we are unable to continue to increase the size of our sales
pipeline and our pipeline conversion rate, our results of operations could fail
to meet the expectations of stock analysts and investors, which could cause the
price of our common stock to decline.
As a result of
our products’ lengthy sales cycles, our expected revenues are susceptible to
fluctuations, which could cause us to fail to meet stock analysts’ and
investors’
expectations, resulting in a decline in the price of our common
stock.
Due to
the expense, broad functionality, and company-wide deployment of our products,
our customers’ decisions to purchase our products typically require the approval
of their executive decision makers. In addition, we frequently must educate our
potential customers about the full benefits of our products, which also can
require significant time. This trend toward greater customer executive level
involvement and customer education is likely to increase as we expand our market
focus to broader data integration initiatives. Further, our sales cycle may
lengthen, particularly in the current economic environment, as we continue to
focus our sales efforts on large corporations. As a result of these factors, the
length of time from our initial contact with a customer to the customer’s
decision to purchase our products typically ranges from three to nine months. We
are subject to a number of significant risks as a result of our lengthy sales
cycle, including:
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our
customers’ budgetary constraints and internal acceptance review
procedures;
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the
timing of our customers’ budget
cycles;
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the
seasonality of technology purchases, which historically has resulted in
stronger sales of our products in the fourth quarter of the year,
especially when compared to lighter sales in the first quarter of the
year;
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our
customers’ concerns about the introduction of our products or new products
from our competitors; or
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potential
downturns in general economic or political conditions or potential
tightening of credit markets that could occur during the sales
cycle.
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If our
sales cycles lengthen unexpectedly, they could adversely affect the timing of
our revenues or increase costs, which may independently cause fluctuations in
our revenues and results of operations. Finally, if we are unsuccessful in
closing sales of our products after spending significant funds and management
resources, our operating margins and results of operations could be adversely
impacted, and the price of our common stock could decline.
We may engage in
future acquisitions or investments that could dilute our existing stockholders or
could cause us to incur contingent liabilities, debt, or significant
expense or
could be difficult to integrate in terms of the acquired entity’s products,
personnel, and operations.
From time
to time, in the ordinary course of business, we may evaluate potential
acquisitions of, or investments in, related businesses, products, or
technologies. For example, in January 2006, we acquired Similarity Systems, in
December 2006, we acquired Itemfield, in May 2008, we acquired Identity Systems,
Inc. (“Identity Systems”), in October 2008, we acquired PowerData Iberica, S.L.
(“PowerData”), in February 2009, we acquired Applimation, in June 2009, we
acquired AddressDoctor, in September 2009, we acquired Agent Logic, and in
January 2010, we acquired Siperian. Future acquisitions and investments like
these could result in the issuance of dilutive equity securities, the incurrence
of debt or contingent liabilities, or the payment of cash to purchase equity
securities from third parties. There can be no assurance that any strategic
acquisition or investment will succeed. Risks include difficulties in the
integration of the products, personnel, and operations of the acquired entity,
disruption of the ongoing business, potential management distraction from the
ongoing business, difficulties in the retention of key partner alliances of
Informatica and the acquired companies, potential product liability issues
related to the acquired products, potential decline in the fair value of
investments, potential impairment of goodwill, and potential impairment of other
intangible assets.
We may not
successfully integrate an acquired company’s technology, employees, or business
operations with our own. As a result, we may not achieve the anticipated
benefits of
our acquisition, which could adversely affect our operating results and
cause the
price of our common stock to decline.
In
January 2010, we acquired Siperian, a leader in the Master Data Management (MDM)
infrastructure technology category. In September 2009, we acquired Agent Logic,
a leading provider of complex event processing software. In addition, in June
2009, we acquired AddressDoctor, a leading provider of global address validation
technology, and in February 2009, we acquired Applimation, a provider of
application Information Lifecycle Management (ILM) technology. The successful
integration of Siperian’s, Agent Logic’s, Applimation’s and AddressDoctor’s
technologies, employees, and business operations will place an additional burden
on our management and infrastructure. These acquisitions, and others we may make
in the future, will subject us to a number of risks, including:
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the
failure to capture the value of the business we acquired, including the
loss of any key personnel, customers, and business relationships,
including strategic partnerships;
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any
inability to generate revenue from the combined products that offsets the
associated acquisition and maintenance costs, including addressing issues
related to the availability of offerings on multiple platforms and from
cross-selling and up-selling our products to the acquired company’s
installed customer base or the acquired company’s products to our
installed customer base; and
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the
assumption of any contracts or agreements from the acquired company that
contain terms or conditions that are unfavorable to
us.
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There can
be no assurance that we will be successful in overcoming these risks or any
other problems encountered in connection with our recent acquisitions. To the
extent that we are unable to successfully manage these risks, our business,
operating results, or financial condition could be adversely affected, and the
price of our common stock could decline.
If our products
are unable to interoperate with hardware and software technologies developed and
maintained by third parties that are not within our control, our ability to
develop and sell our products to our customers could be adversely affected, which
would result in harm to our business and operating results.
Our
products are designed to interoperate with and provide access to a wide range of
third-party developed and maintained hardware and software technologies, which
are used by our customers. The future design and development plans of the third
parties that maintain these technologies are not within our control and may not
be in line with our future product development plans. We may also rely on such
third parties, particularly certain third-party developers of database and
application software products, to provide us with access to these technologies
so that we can properly test and develop our products to interoperate with the
third-party technologies. These third parties may in the future refuse or
otherwise be unable to provide us with the necessary access to their
technologies. In addition, these third parties may decide to design or develop
their technologies in a manner that would not be interoperable with our own. The
continued consolidation in the enterprise software market may heighten these
risks. Furthermore, our expanding product line, including our combination of
products delivered on a comprehensive, unified and open data integration
platform makes maintaining interoperability more difficult as various products
may have different levels of interoperability and compatibility, which may
change from version to version. If any of the situations described above were to
occur, we would not be able to continue to market our products as interoperable
with such third-party hardware and software, which could adversely affect our
ability to successfully sell our products to our customers.
The loss of our
key personnel, an increase in our sales force personnel turnover rate, or the
inability to attract and retain additional personnel could adversely
affect our
ability to grow our company successfully and may negatively impact our
results of
operations.
We
believe our success depends upon our ability to attract and retain highly
skilled personnel and key members of our management team. We continue to
experience changes in members of our senior management team. As new senior
personnel join our company and become familiar with our business strategy and
systems, their integration could result in some disruption to our ongoing
operations.
In the
past, we also experienced an increased level of turnover in our direct sales
force. Such increase in the turnover rate impacted our ability to generate
license revenues. Although we have hired replacements in our sales force and saw
the pace of voluntary turnover decrease in 2008 and 2009, we typically
experience lower productivity from newly hired sales personnel for a period of 6
to 12 months. If we are unable to effectively train such new personnel, or
if we experience an increase in the level of sales force turnover, our ability
to generate license revenues may be negatively impacted.
In
addition, we have experienced turnover in other areas of the business. As the
market becomes increasingly competitive and the hiring becomes more difficult
and costly, our personnel (including those with government security clearance
qualifications) become more attractive to other companies. Our plan for
continued growth requires us to add personnel to meet our growth objectives and
places increased importance on our ability to attract, train, and retain new
personnel. If we are unable to effectively attract and train new personnel, or
if we experience an increase in the level of turnover, our results of operations
may be negatively impacted.
We
currently do not have any key-man life insurance relating to our key personnel,
and the employment of the key personnel in the United States is at will and not
subject to employment contracts. We have relied on our ability to grant equity
awards as one mechanism for recruiting and retaining highly skilled
talent.
If the market in
which we sell our products and services does not grow as we anticipate, we
may not be able to increase our revenues at an acceptable rate of growth, and the
price of our common stock could decline.
The
market for software products, which enable more effective business decision
making by helping companies aggregate and utilize data stored throughout an
organization, continues to change. While we believe that this market is still
growing, we expect most of our growth to come from the emerging market for
broader data integration, which includes migration, data consolidation, data
synchronization, single-view projects, and data quality. The use of packaged
software solutions to address the needs of the broader data integration and data
quality markets is relatively new and is still emerging. Additionally, we expect
growth in the areas of on-demand software-as-a-service (SaaS) offerings. Our
potential customers may:
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not
fully value the benefits of using our
products;
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not
achieve favorable results using our
products;
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defer
product purchases due to the current global economic
downturn;
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experience
technical difficulties in implementing our
products; or
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use
alternative methods to solve the problems addressed by our
products.
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If this
market does not grow as we anticipate, we would not be able to sell as much of
our software products and services as we currently expect, which could result in
a decline in the price of our common stock.
We rely on the
sale of a limited number of products, and if these products do not achieve broad
market acceptance, our revenues would be adversely affected.
Historically,
a significant portion of our revenues have been derived from our data
integration products such as PowerCenter and PowerExchange and related services.
We expect sales of our data integration software and related services to
comprise a significant portion of our revenues for the foreseeable future. If
any of our products does not achieve market acceptance, our revenues and stock
price could decrease. Market acceptance for our current products could be
affected if, among other things, competition substantially increases in the
enterprise data integration market or transactional applications suppliers
integrate their products to such a degree that the utility of the data
integration functionality that our products provide is minimized or rendered
unnecessary.
Our effective tax
rate is difficult to project and changes in such tax rate or adverse results
of tax examinations could adversely affect our operating
results.
The
process of determining our anticipated tax liabilities involves many
calculations and estimates that are inherently complex and make the ultimate tax
obligation determination uncertain. As part of the process of preparing our
consolidated financial statements, we are required to estimate our income taxes
in each of the jurisdictions in which we operate prior to the completion and
filing of tax returns for such periods. This process requires estimating both
our geographic mix of income and our current tax exposures in each jurisdiction
where we operate. These estimates involve complex issues, require extended
periods of time to resolve, and require us to make judgments, such as
anticipating the outcomes of audits with tax authorities and the positions that
we will take on tax returns prior to our actually preparing the returns. We also
determine the need to record deferred tax liabilities and the recoverability of
deferred tax assets. A valuation allowance is established to the extent recovery
of deferred tax assets is not likely based on our estimation of future taxable
income and other factors in each jurisdiction.
Furthermore,
our overall effective income tax rate and tax expenses may be affected by
various factors in our business, including acquisitions, changes in our legal
structure, changes in the geographic mix of income and expenses, changes in
valuation allowances, changes in tax laws and applicable accounting
pronouncements including: Business Combination, Accounting for Uncertainty in Income
Taxes, Stock
Compensation, and variations in the estimated and actual level of annual
pre-tax income. Further, the geographic mix of income and expense is impacted by
the fluctuation in exchange rates between the U.S. dollar and the
functional currencies of our subsidiaries.
We have
been under examination by the Internal Revenue Service and state and foreign
taxing authorities for the past several years. We may receive additional
assessments from domestic and foreign tax authorities that might exceed amounts
reserved by us. In the event we are unsuccessful in reducing the amount of such
assessment, our business, financial condition, or results of operations could be
adversely affected. Specifically, if additional taxes and/or penalties are
assessed as a result of these audits, there could be a material effect on our
income tax provision, operating expenses, and net income in the period or
periods for which that determination is made.
Although we
believe we currently have adequate internal control over financial reporting, we are
required to assess our internal control over financial reporting on an annual basis,
and any future adverse results from such assessment could result in a loss of
investor confidence in our financial reports and have an adverse effect
on our stock
price.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), and the rules
and regulations promulgated by the SEC to implement SOX 404, we are required to
furnish an annual report in our Form 10-K regarding the effectiveness of
our internal control over financial reporting. The report’s assessment of our
internal control over financial reporting as of the end of our fiscal year must
include disclosure of any material weaknesses in our internal control over
financial reporting identified by management.
Management’s
assessment of internal control over financial reporting requires management to
make subjective judgments and some of our judgments will be in areas that may be
open to interpretation.
During
the past few years, our organizational structure has increased in complexity due
to compliance with tax regulations and tax accounting requirements,
acquisitions, and other regulatory and compliance requirements. Further, we have
expanded our presence in the Asia-Pacific region, where business practices can
differ from those in other regions of the world and can create internal control
risks. To address potential risks, we recognize revenue on transactions derived
in this region (except for direct sales in Japan and Australia) only when the
cash has been received and all other revenue recognition criteria have been met.
We also have provided business practices training to our sales teams. While our
organizational structure has increased in complexity as a result of our
international expansion, our capital structure has also increased in complexity
as a result of the issuance of the Convertible Senior Notes in March 2006.
Finally, our reorganization of various foreign entities in April 2006, which
required a change in some of our internal controls over financial reporting, and
the assessment of the impact for our adoption of FIN No. 48 (ASC 740),
further add to the reporting complexity and increase the potential risks of our
ability to maintain the effectiveness of our internal controls. Overall, the
combination of our increased complexity and the ever-increasing regulatory
complexity make it more critical for us to attract and retain qualified and
technically competent finance employees.
Although
we currently believe our internal control over financial reporting is effective,
the effectiveness of our internal controls in future periods is subject to the
risk that our controls may become inadequate or may not operate
effectively.
If we are
unable to assert that our internal control over financial reporting is effective
in any future period (or if our auditors are unable to provide an attestation
report regarding the effectiveness of our internal controls, or qualify such
report or fail to provide such report in a timely manner), we could lose
investor confidence in the accuracy and completeness of our financial reports,
which would have an adverse effect on our stock price.
We may not be
able to successfully manage the growth of our business if we are unable
to improve
our internal systems, processes, and controls.
We need
to continue to improve our internal systems, processes, and controls to
effectively (1) manage our operations and growth, including our
international growth into new geographies, particularly the Asia-Pacific and
Latin American markets, and (2) realign resources from time to time to more
efficiently address market or product requirements. To the extent any
realignment requires changes to our internal systems, processes, and controls or
organizational structure, we could experience disruption in customer
relationships, increases in cost, and increased employee turnover. For our
systems process and controls, we use both on-premise and cloud resources, and
any security or other flaws in such resources could have a negative impact on
such systems, processes, or controls. In addition, we may not be able to
successfully implement upgrades and improvements to these systems, processes,
and controls in an efficient or timely manner, and we may discover deficiencies
in existing systems, processes, and controls. We have licensed technology from
third parties to help us accomplish this objective. The support services
available for such third-party technology may be negatively affected by mergers
and consolidation in the software industry, and support services for such
technology may not be available to us in the future. We may experience
difficulties in managing upgrades and improvements to our systems, processes,
and controls or in connection with third-party software, which could disrupt
existing customer relationships, causing us to lose customers, limit us to
smaller deployments of our products, or increase our technical support
costs.
The price of our
common stock fluctuates as a result of factors other than our operating
results, such as volatility in the capital markets and the actions of our
competitors
and securities analysts, as well as developments in our industry and
changes in
accounting rules.
The
market price for our common stock has experienced significant fluctuations and
may continue to fluctuate significantly. The market price for our common stock
may be affected by a number of factors other than our operating results,
including:
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volatility
in the capital markets;
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the
announcement of new products or product enhancements by our
competitors;
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quarterly
variations in our competitors’ results of
operations;
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changes
in earnings estimates and recommendations by securities
analysts;
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developments
in our industry; and
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changes
in accounting rules.
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After
periods of volatility in the market price of a particular company’s securities,
securities class action litigation has often been brought against that
particular company. We and certain of our former officers have been named as
defendants in a purported class action complaint, which was filed on behalf of
certain persons who purchased our common stock between April 29, 1999 and
December 6, 2000. Such actions could cause the price of our common stock to
decline.
We rely on a
number of different distribution channels to sell and market our products. Any
conflicts that we may experience within these various distribution channels could
result in confusion for our customers and a decrease in revenue and operating
margins.
We have a
number of relationships with resellers, systems integrators, and distributors
that assist us in obtaining broad market coverage for our products and services.
Although our discount policies, sales commission structure, and reseller
licensing programs are intended to support each distribution channel with a
minimum level of channel conflicts, we may not be able to minimize these channel
conflicts in the future. Any channel conflicts that we may experience could
result in confusion for our customers and a decrease in revenue and operating
margins.
Any significant
defect in our products could cause us to lose revenue and expose us to product
liability claims.
The
software products we offer are inherently complex and, despite extensive testing
and quality control, have in the past and may in the future contain errors or
defects, especially when first introduced. These defects and errors could cause
damage to our reputation, loss of revenue, product returns, order cancellations,
or lack of market acceptance of our products. We have in the past and may in the
future need to issue corrective releases of our software products to fix these
defects or errors, which could require us to allocate significant customer
support resources to address these problems.
Our
license agreements with our customers typically contain provisions designed to
limit our exposure to potential product liability claims. However, the
limitation of liability provisions contained in our license agreements may not
be effective as a result of existing or future national, federal, state, or
local laws or ordinances or unfavorable judicial decisions. Although we have not
experienced any product liability claims to date, the sale and support of our
products entail the risk of such claims, which could be substantial in light of
the use of our products in enterprise-wide environments. In addition, our
insurance against product liability may not be adequate to cover a potential
claim.
We are currently
facing and may face future intellectual property infringement claims that could
be costly to defend and result in our
loss of significant rights.
As is
common in the software industry, we have received and may continue from time to
time to receive notices from third parties claiming infringement by our products
of third-party patent and other proprietary rights. As the number of software
products in our target markets increases and the functionality of these products
further overlaps, we may become increasingly subject to claims by
a
third
party that our technology infringes such party’s proprietary rights. In
addition, there is a growing occurrence of patent suits being brought by
organizations that use patents to generate revenue without manufacturing,
promoting, or marketing products or investing in research and development in
bringing products to market. These organizations have been increasingly active
in the enterprise software market and have targeted whole industries as
defendants. For example, in August 2007, JuxtaComm Technologies filed a
complaint in the Eastern District of Texas alleging patent infringement against
the following defendants, including us: Ascential Software Corporation, Business
Objects SA, Business Objects America, CA, Inc., Cognos, Inc., Cognos
Corporation, DataMirror, Inc., Fiorano Software, Inc., Hummingbird Ltd.,
International Business Machines Corporation, Informatica Corporation,
Information Builders, Inc., Intersystems, Inc., Iway Software Company,
Metastorm, Inc., Microsoft Corporation, Open Text Corporation, Software AG,
Software AG, Inc., Sybase, Inc., and Webmethods, Inc. Some defendants, including
Informatica, have settled with JuxtaComm. More recently, in November 2008, Data
Retrieval Technologies LLC filed a complaint in the Western District of
Washington against Sybase, Inc. and us, alleging patent
infringement.
Any
claims, with or without merit, could be time consuming, result in costly
litigation, cause product shipment delays, or require us to enter into royalty
or licensing agreements, any of which could adversely affect our business,
financial condition, and operating results. Although we do not believe that we
are currently infringing any proprietary rights of others, additional legal
action claiming patent infringement could be commenced against us. We may not
prevail in such litigation given the complex technical issues and inherent
uncertainties in patent litigation. The potential effects on our business that
may result from third-party infringement claims, including those claims brought
by Data Retrieval Technologies LLC, include the following:
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we
would be and have been obligated to incur significant legal costs and
expenses defending the patent infringement
suit;
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we
may be forced to enter into royalty or licensing agreements, which may not
be available on terms favorable to
us;
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we
may be required to indemnify our customers or obtain replacement products
or functionality for our customers;
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we
may be forced to significantly increase our development efforts and
resources to redesign our products as a result of these
claims; and
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we
may be forced to discontinue the sale of some or all of our
products.
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If we are not
able to adequately protect our proprietary rights, third parties could
develop and
market products that are equivalent to our own, which would harm our
sales
efforts.
Our
success depends upon our proprietary technology. We believe that our
product development, product enhancements, name recognition, and the
technological and innovative skills of our personnel are essential to
establishing and maintaining a technology leadership position. We rely on a
combination of patent, copyright, trademark, and trade secret rights,
confidentiality procedures, and licensing arrangements to establish and protect
our proprietary rights.
However,
these legal rights and contractual agreements may provide only limited
protection. Our pending patent applications may not be allowed or our
competitors may successfully challenge the validity or scope of any of our
issued patents or any future issued patents. Our patents alone may not provide
us with any significant competitive advantage, and third parties may develop
technologies that are similar or superior to our technology or design around our
patents. Third parties could copy or otherwise obtain and use our products or
technology without authorization or develop similar technology independently. We
cannot easily monitor any unauthorized use of our products, and, although we are
unable to determine the extent to which piracy of our software products exists,
software piracy is a prevalent problem in our industry in general.
The risk
of not adequately protecting our proprietary technology and our exposure to
competitive pressures may be increased if a competitor should resort to unlawful
means in competing against us. For example, in July 2003, we settled a complaint
against Ascential Software Corporation, which was subsequently acquired by IBM,
in which a number of former Informatica employees recruited and hired by
Ascential misappropriated our trade secrets, including sensitive product and
marketing information and detailed sales information regarding existing and
potential customers, and unlawfully used that information to benefit Ascential
in gaining a competitive advantage against us. Although we were ultimately
successful in this lawsuit, there are no assurances that we will be successful
in protecting our proprietary technology from competitors in the
future.
We have
entered into agreements with many of our customers and partners that require us
to place the source code of our products into escrow. Such agreements generally
provide that such parties will have a limited, non-exclusive right to use such
code if: (1) there
is a
bankruptcy proceeding by or against us; (2) we cease to do business; or
(3) we fail to meet our support obligations. Although our agreements with
these third parties limit the scope of rights to use of the source code, we may
be unable to effectively control such third parties’ actions.
Furthermore,
effective protection of intellectual property rights is unavailable or limited
in various foreign countries. The protection of our proprietary rights may be
inadequate and our competitors could independently develop similar technology,
duplicate our products, or design around any patents or other intellectual
property rights we hold.
We may be
forced to initiate litigation to protect our proprietary rights. For example, on
July 15, 2002, we filed a patent infringement lawsuit against Acta
Technology, Inc., now known as Business Objects Data Integration, Inc. (“BODI”)
(which was subsequently acquired by SAP as part of its acquisition of Business
Objects). We received a favorable verdict in the trial against BODI in April
2007 and after a finding by the appeals court in our favor in December 2008,
BODI/SAP paid to us the full judgment amount (including pre- and post-judgment
interest and a portion of the trial costs) of $14.5 million. See
Note 16. Litigation, of Notes to
Consolidated Financial Statements in Part II, Item 8 of this Report.
Litigating claims related to the enforcement of proprietary rights is very
expensive and can be burdensome in terms of management time and resources, which
could adversely affect our business and operating results.
The conversion
provisions of our Convertible Senior Notes and the level of debt represented by
such notes will dilute the ownership interests of stockholders, could
adversely
affect our liquidity, and could impede our ability to raise additional
capital
which may also be affected by the tightening of the capital
markets.
In March
2006, we issued $230 million aggregate principal amount of Convertible
Senior Notes due 2026. As of December 31, 2009, $201 million of the Notes were
outstanding. The note holders can convert the Notes into shares of our common
stock at any time before the Notes mature or we redeem or repurchase them. Upon
certain dates (March 15, 2011, March 15, 2016, and March 15,
2021) or the occurrence of certain events including a change in control,
the note holders can require us to repurchase some or all of the Notes. Upon any
conversion of the Notes, our basic earnings per share would be expected to
decrease because such underlying shares would be included in the basic earnings
per share calculation. Given that events constituting a “change in control” can
trigger such repurchase obligations, the existence of such repurchase
obligations may delay or discourage a merger, acquisition, or other
consolidation. If Informatica’s stock price declines and the interest rates
rise, we may be required to settle the Notes in cash. Our ability to meet our
repurchase or repayment obligations of the Notes will depend upon our future
performance, which is subject to economic, competitive, financial, and other
factors affecting our industry and operations, some of which are beyond our
control. If we are unable to meet the obligations out of cash flows from
operations or other available funds, we may need to raise additional funds
through public or private debt or equity financings. We may not be able to
borrow money or sell more of our equity securities to meet our cash needs for
reasons including the tightening of the capital markets. Even if we are able to
do so, it may not be on terms that are favorable or reasonable to
us.
A
portion of our revenue is generated by sales to government entities, which are
subject to a number of challenges and risks.
Sales to
U.S. and foreign federal, state, and local governmental agency end-customers
have accounted for a portion of our revenue, and we may in the future increase
sales to government entities. Sales to government entities are subject to a
number of risks. Selling to government entities can be highly competitive,
expensive and time consuming, often requiring significant upfront time and
expense without any assurance that we will successfully sell our products to
such governmental entity. Government entities may require contract terms that
differ from our standard arrangements. Government contracts may require
the maintenance of certain security clearances for facilities and employees
which can entail administrative time and effort possibly resulting in additional
costs and delays. In addition, government demand and payment for our products
may be more volatile as they are affected by public sector budgetary cycles,
funding authorizations, and the potential for funding reductions or delays,
making the time to close such transactions more difficult to predict. This risk
is enhanced as the size of such sales to the government entities increases. As
the use of our products, including products recently acquired or developed,
expands to more sensitive, secure or mission critical uses by our government
customers, we may be subject to increased scrutiny, potential reputational risk,
or potential liability should our products fail to perform as contemplated in
such deployments.
Most of
our sales to government entities have been made indirectly through providers
that sell our products. Government entities may have contractual or other legal
rights to terminate contracts with our providers for convenience or due to a
default, and any such termination may adversely impact our future results of
operations. For example, if the provider receives a significant portion of its
revenue from sales to such governmental entity, the financial health of the
provider could be substantially harmed, which could negatively affect our future
sales to such provider. Governments routinely audit and
investigate government contractors, and we may
be
subject to such audits and investigations. If an audit or investigation
uncovers improper or illegal activities, we may be subject to civil or criminal
penalties and administrative sanctions, including termination of contracts,
forfeiture of profits, suspension of payments, fines, and suspension or
prohibition from doing business with such government entity. In addition, we
could suffer serious reputational harm if allegations of impropriety were made
against us or should our products not perform as contemplated in government
deployments.
The recognition
of share-based payments for employee stock option, RSUs, and employee
stock purchase plans
has adversely impacted our results of operations.
The
adoption of FASB’s Compensation – Stock Compensation
(ASC 718) has had a significant adverse impact on our consolidated
results of operations as it has increased our operating expenses and number of
diluted shares outstanding and reduced our operating income, and diluted
earnings per share. The effect of share-based payment on our operating income,
net income, and earnings per share is not predictable because the underlying
assumptions, including volatility, interest rate, and expected life, of the
Black-Scholes-Merton model could vary over time.
If we are unable
to successfully respond to technological advances and evolving industry
standards, we could experience a reduction in our future product sales,
which would
cause our revenues to decline.
The
market for our products is characterized by continuing technological
development, evolving industry standards, changing customer needs, and frequent
new product introductions and enhancements. The introduction of products by our
direct competitors or others embodying new technologies, the emergence of new
industry standards, or changes in customer requirements could render our
existing products obsolete, unmarketable, or less competitive. In particular, an
industry-wide adoption of uniform open standards across heterogeneous
applications could minimize the importance of the integration functionality of
our products and materially adversely affect the competitiveness and market
acceptance of our products. Our success depends upon our ability to enhance
existing products, to respond to changing customer requirements, and to develop
and introduce in a timely manner new products that keep pace with technological
and competitive developments and emerging industry standards. We have in the
past experienced delays in releasing new products and product enhancements and
may experience similar delays in the future. As a result, in the past, some of
our customers deferred purchasing our products until the next upgrade was
released. Future delays or problems in the installation or implementation of our
new releases may cause customers to forgo purchases of our products and purchase
those of our competitors instead. Additionally, even if we are able to develop
new products and product enhancements, we cannot ensure that they will achieve
market acceptance.
We recognize
revenue from specific customers at the time we receive payment for our
products,
and if these customers do not make timely payment, our revenues could
decrease.
Based on
limited credit history, we recognize revenue from direct end users, resellers,
distributors, and OEMs that have not been deemed creditworthy when we receive
payment for our products and when all other criteria for revenue recognition
have been met, rather than at the time of sale. We have seen certain customers
lengthen their payment cycles as a result of the continued difficult
macroeconomic environment. As our business grows, if these customers and
partners do not make timely payment for our products, our revenues could
decrease. If our revenues decrease, the price of our common stock may
fall.
We have
substantial real estate lease commitments that are currently subleased to
third
parties, and if subleases for this space are terminated or cancelled, our
operating
results and financial condition could be adversely affected.
We have
substantial real estate lease commitments in the United States and
internationally. However, we do not occupy some of these leases with the most
significant portion of our unoccupied leases being located in Silicon Valley.
Currently, we have substantially subleased these unoccupied properties to third
parties. The terms of most of these sublease agreements account for only a
portion of the period of our master leases and contain rights of the subtenant
to extend the term of the sublease. In addition, the current economic downturn
has negatively impacted commercial lease rates and terms in the Silicon Valley
area and makes it more difficult to enter into agreements with existing
subtenants on sublease renewals or prospective subtenants with sublease rates or
terms comparable to those contracted for in the past. To the extent that
(1) our subtenants do not renew their subleases at the end of the initial
term and we are unable to enter into new subleases with other parties at
comparable rates, or (2) our subtenants are unable to pay the sublease rent
amounts in a timely manner, our cash flow would be negatively impacted and our
operating results and financial condition could be adversely affected. See
Note 11. Facilities
Restructuring Charges, of Notes to
Consolidated Financial Statements in Part II, Item 8 of this
Report.
Delaware law and
our certificate of incorporation and bylaws contain provisions that could deter
potential acquisition bids, which may adversely affect the market price
of our
common stock, discourage merger offers, and prevent changes in our
management or Board of
Directors.
Our basic
corporate documents and Delaware law contain provisions that might discourage,
delay, or prevent a change in the control of Informatica or a change in our
management. Our bylaws provide that we have a classified Board of Directors,
with each class of directors subject to re-election every three years. This
classified Board has the effect of making it more difficult for third parties to
elect their representatives on our Board of Directors and gain control of
Informatica. These provisions could also discourage proxy contests and make it
more difficult for our stockholders to elect directors and take other corporate
actions. The existence of these provisions could limit the price that investors
might be willing to pay in the future for shares of our common
stock.
In
addition, we have adopted a stockholder rights plan. Under the plan, we issued a
dividend of one right for each outstanding share of common stock to stockholders
of record as of November 12, 2001, and such rights will become exercisable
only upon the occurrence of certain events. Because the rights may substantially
dilute the stock ownership of a person or group attempting to take us over
without the approval of our Board of Directors, the plan could make it more
difficult for a third party to acquire us or a significant percentage of our
outstanding capital stock without first negotiating with our Board of Directors
regarding such acquisition.
Business
interruptions could adversely affect our business.
Our
operations are vulnerable to interruption by fire, earthquake, power loss,
telecommunications or network failure, and other events beyond our control. We
have prepared a detailed disaster recovery plan which includes the use of
internal and external resources and will continue to expand the scope over time.
Some of our facilities in Asia experienced disruption as a result of the
December 2006 earthquake off the coast of Taiwan, which caused a major fiber
outage throughout the surrounding regions. The outage affected network
connectivity, which has been restored to acceptable levels. Such disruption can
negatively affect our operations given necessary interaction among our
international facilities. In the event such an earthquake or any other natural
disaster or man-made failure occurs, it could disrupt the operations of our
affected facilities and recovery of our resources. In addition, we do not carry
sufficient business interruption insurance to compensate us for losses that may
occur, and any losses or damages incurred by us could have a material adverse
effect on our business.
Not
applicable.
Our
corporate headquarters are located in a leased facility at the Seaport Plaza in
Redwood City, California and consist of approximately 159,000 square feet.
The initial lease term was from December 15, 2004 to December 31, 2007
with a three-year option to renew to December 31, 2010 at fair market
value. In May 2007, the Company exercised its renewal option to extend the
office lease term to December 31, 2010. In May 2009, the Company executed
the lease amendment to further extend the lease term for an additional three
years to December 31, 2013. The facility is used by our administrative, sales,
marketing, product development, customer support, and services
groups.
We also
occupy additional leased facilities in the United States, including offices
located in Alpharetta, Georgia; Austin and Plano, Texas; Boston, Massachusetts;
Chicago, Illinois; Old Greenwich, Connecticut; New York, New York; Raleigh,
North Carolina, and Reston and Vienna, Virginia, which are primarily used for
sales, marketing, services, and to a lesser degree, product development. Leased
facilities located outside of the United States and used primarily for sales,
marketing, customer support, and services include offices in Toronto, Canada;
Paris, France; Frankfurt, Germany; Nieuwegein, the Netherlands; Lisboa,
Portugal; Barcelona and Madrid, Spain; Maidenhead, the United Kingdom; Sydney,
Australia; Beijing, China; Mumbai and New Delhi, India; Seoul, South Korea;
Dublin, Ireland; Tel Aviv, Israel; Sao Paulo, Brazil; Tokyo, Japan; and
Singapore. We also lease facilities in Bangalore, India and Canberra City,
Australia where our offices are primarily used for product development. In
addition, we lease executive office space throughout the world for our local
sales and services needs. These leased facilities expire at various times
through October 2017. We are continually evaluating the adequacy of existing
facilities and additional facilities in new cities, and we believe that suitable
additional space will be available in the future on commercially reasonable
terms as needed.
We also
lease certain facilities that we no longer occupy because they exceed our
current requirements. Currently, we sublease these facilities to third parties.
See Note 11. Facilities
Restructuring Charges, and Note 15. Commitments and Contingencies, of Notes to
Consolidated Financial Statements in Part II, Item 8 of this
Report.
The
information set forth in Note 16. Litigation of Notes to
Consolidated Financial Statements in Part II, Item 8 of this Report is
incorporated herein by reference.
No
matters were submitted to a vote of security holders during the quarter ended
December 31, 2009.
|
MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Price
Range of Common Stock
Our
common stock is listed on the NASDAQ Global Select Market under the symbol
“INFA.” Our initial public offering was April 29, 1999 at $4.00 per share
(adjusted for stock splits in the form of stock dividends in February 2000 and
November 2000). The price range per share in the table below reflects the
highest and lowest sale prices for our stock as reported by the NASDAQ Global
Select Market during the last two fiscal years.
|
|
High
|
Low
|
||||||
|
Year
ended December 31, 2009:
|
||||||||
|
Fourth
quarter
|
$ | 26.68 | $ | 21.23 | ||||
|
Third
quarter
|
$ | 22.71 | $ | 16.50 | ||||
|
Second
quarter
|
$ | 17.57 | $ | 13.35 | ||||
|
First
quarter
|
$ | 14.79 | $ | 11.59 | ||||
|
Year
ended December 31, 2008:
|
||||||||
|
Fourth
quarter
|
$ | 14.38 | $ | 11.00 | ||||
|
Third
quarter
|
$ | 17.91 | $ | 12.77 | ||||
|
Second
quarter
|
$ | 18.21 | $ | 15.04 | ||||
|
First
quarter
|
$ | 19.31 | $ | 15.39 | ||||
Holders
of Record
At
January 29, 2010, there were approximately 106 stockholders of record of
our common stock, and the closing price per share of our common stock was
$23.69. Since many of our shares of common stock are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total
number of stockholders represented by these record holders.
Dividends
We have
never declared or paid cash dividends on our common stock. Because we currently
intend to retain all future earnings to finance future growth, we do not
anticipate paying any cash dividends in the near future.
Purchases of Equity Securities and
Convertible Senior Notes by the Issuer and Affiliated
Purchasers
In April
2006, our Board of Directors authorized a stock repurchase program of up to $30
million of our common stock until April 2007. In April 2007, our Board of
Directors authorized a stock repurchase program for up to an additional $50
million of our common stock. In April 2008, Informatica’s Board of Directors
authorized an additional $75 million for the stock repurchase program. In
October 2008, our Board of Directors approved expanding the repurchase program
to include the repurchase, from time to time, of a
portion
of its outstanding Convertible Senior Notes (“Notes”) due in 2026 in privately
negotiated transactions with holders of the Notes. In January 2010,
Informatica’s Board of Directors authorized a stock repurchase program for up to
an additional $50 million of its common stock. See Note 6. Convertible Senior Notes and
the subsection Stock
Repurchase Plan in Note 7. Stockholders’ Equity, of
Notes to Consolidated Financial Statements in Part II, Item 8 of this
Report.
The
repurchased shares are retired and reclassified as authorized and unissued
shares of common stock. The Company may continue to repurchase shares from time
to time, as determined by management under programs approved by the Board of
Directors.
The
following table provides information about the repurchase of our common stock
for the quarter ended December 31, 2009.
|
Period
|
(1)
Total
Number of
Shares Purchased
|
Average
Price
Paid Per
Share
|
Total
Number
of
Shares
Purchased
as
Part
of
Publicly
Announced
Plans
or
Programs
|
Approximate
Dollar
Value
of Shares
That
May Yet Be
Purchased
Under the
Plans
or
Programs
|
||||||||||||
|
October
1 — October 31
|
— | — | — | $ | 4,141 | |||||||||||
|
November
1 — November 30
|
171,600 | $ | 22.20 | 171,600 | $ | 326 | ||||||||||
|
December
1 — December 31
|
— | — | — | $ | 326 | |||||||||||
|
Total
|
171,600 | $ | 22.20 | 171,600 | ||||||||||||
____________
|
(1)
|
All shares repurchased in open-market transactions under our repurchase
program described above.
|
We will
include our performance graph that compares the five-year cumulative total
return to stockholders on our common stock for the period ended
December 31, 2009, with the cumulative total return of the NASDAQ Composite
Index and the S&P Information Technology Index in our annual report to
stockholders.
The
following selected consolidated financial data is qualified in its entirety by,
and should be read in conjunction with the consolidated financial statements and
the notes thereto included in Part II, Item 8 and Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
included in Part II, Item 7 of this Report. The selected consolidated
statements of income data and consolidated balance sheet data as of and for each
of the five years in the period ended December 31, 2009, have been derived
from the audited consolidated financial statements. All share and per share
amounts have been adjusted to give retroactive effect to stock splits that have
occurred since our inception.
|
|
Years Ended
December 31,
|
|||||||||||||||||||
|
|
2009
|
2008
|
2007 |
2006
|
2005
|
|||||||||||||||
|
(In
thousands, except per share data)
|
||||||||||||||||||||
|
Selected
Consolidated Statements of Income Data:
|
||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
License
|
$ | 214,322 | $ | 195,769 | $ | 175,318 | $ | 146,092 | $ | 120,182 | ||||||||||
|
Service
|
286,371 | 259,930 | 215,938 | 178,506 | 147,249 | |||||||||||||||
|
Total
revenues
|
500,693 | 455,699 | 391,256 | 324,598 | 267,431 | |||||||||||||||
|
Cost
of revenues:
|
||||||||||||||||||||
|
License
|
3,135 | 3,291 | 3,693 | 6,978 | 4,465 | |||||||||||||||
|
Service
|
76,549 | 80,287 | 69,174 | 58,402 | 46,801 | |||||||||||||||
|
Amortization
of acquired technology
|
7,950 | 4,125 | 2,794 | 2,118 | 922 | |||||||||||||||
|
Total
cost of revenues
|
87,634 | 87,703 | 75,661 | 67,498 | 52,188 | |||||||||||||||
|
Gross
profit
|
413,059 | 367,996 | 315,595 | 257,100 | 215,243 | |||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||
|
Research
and development
|
78,352 | 72,522 | 69,908 | 54,997 | 42,585 | |||||||||||||||
|
Sales
and marketing
|
192,747 | 177,339 | 158,298 | 138,851 | 118,770 | |||||||||||||||
|
General
and administrative
|
41,449 | 37,411 | 35,531 | 28,187 | 20,583 | |||||||||||||||
|
Amortization
of intangible assets
|
10,051 | 4,575 | 1,441 | 653 | 188 | |||||||||||||||
|
Facilities
restructuring charges
|
1,661 | 3,018 | 3,014 | 3,212 | 3,683 | |||||||||||||||
|
Acquisitions
and other
|
(570 | ) | 390 | — | 1,340 | — | ||||||||||||||
|
Patent
related litigation proceeds net of patent contingency
accruals
|
— | (11,495 | ) | — | — | — | ||||||||||||||
|
Total
operating expenses
|
323,690 | 283,760 | 268,192 | 227,240 | 185,809 | |||||||||||||||
|
Income
from operations
|
89,369 | 84,236 | 47,403 | 29,860 | 29,434 | |||||||||||||||
|
Interest
income and other, net
|
449 | 7,737 | 15,237 | 11,823 | 6,544 | |||||||||||||||
|
Income
before income taxes
|
89,818 | 91,973 | 62,640 | 41,683 | 35,978 | |||||||||||||||
|
Income
tax provision
|
25,607 | 35,993 | 8,024 | 5,477 | 2,174 | |||||||||||||||
|
Net
income (1)
|
$ | 64,211 | $ | 55,980 | $ | 54,616 | $ | 36,206 | $ | 33,804 | ||||||||||
|
Basic
net income per common share(1)
|
$ | 0.73 | $ | 0.64 | $ | 0.63 | $ | 0.42 | $ | 0.39 | ||||||||||
|
Diluted
net income per common share(1)
|
$ | 0.66 | $ | 0.58 | $ | 0.57 | $ | 0.39 | $ | 0.37 | ||||||||||
|
Shares
used in computing basic net income per common
Share
|
87,991 | 88,109 | 87,164 | 86,420 | 87,242 | |||||||||||||||
|
Shares
used in computing diluted net income per common share
|
103,312 | 103,278 | 103,252 | 92,942 | 92,083 | |||||||||||||||
|
____________
|
||||||||||||||||||||
| (1) | Net income and net income per share include the impact of share-based payments of $17.9 million, $16.3 million, $16.0 million, and $14.1 million for the years ended December 31, 2009, 2008, 2007, and 2006 respectively, which are not included in years prior to 2006. See Note 8. Share-Based Payments, of Notes to Consolidated Financial Statements in Part II, Item 8 of this Report. |
|
|
December 31,
|
|||||||||||||||||||
|
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||
|
Selected
Consolidated Balance Sheet Data:
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 159,197 | $ | 179,874 | $ | 203,661 | $ | 120,491 | $ | 76,545 | ||||||||||
|
Short-term
investments
|
305,283 | 281,055 | 281,197 | 280,149 | 185,649 | |||||||||||||||
|
Restricted
cash
|
— | — | 12,122 | 12,016 | 12,166 | |||||||||||||||
|
Working
capital
|
358,435 | 371,552 | 410,275 | 311,174 | 187,759 | |||||||||||||||
|
Total
assets
|
989,622 | 863,112 | 798,644 | 696,765 | 441,022 | |||||||||||||||
|
Long-term
debt
|
201,000 | 221,000 | 230,000 | 230,000 | — | |||||||||||||||
|
Total
stockholders’ equity
|
483,113 | 355,955 | 312,542 | 227,163 | 222,730 | |||||||||||||||
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This
Annual Report on Form 10-K includes “forward-looking statements” within the
meaning of the federal securities laws, particularly statements referencing our
expectations relating to license revenues, service revenues, international
revenues, deferred revenues, cost of license revenues, cost of service revenues,
operating expenses, amortization of acquired technology, share-based payments,
interest income or expense, and provision for income taxes; deferred taxes;
international expansion; the ability of our products to meet customer demand;
continuing impacts from our 2004 and 2001 Restructuring Plans; 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; the acquisitions of Agent
Logic, AddressDoctor, Applimation, and Siperian; 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
under Part I, Item 1A Risk Factors. All forward-looking statements and
reasons why results may differ included in this Report are made as of the date
hereof, 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 consolidated
financial statements and notes thereto appearing elsewhere in this
Report.
Overview
We are
the leading independent provider of enterprise data integration software. We
generate revenues from sales of software licenses for our enterprise data
integration software products, including product upgrades that are not part of
post-contract services, and from sales of services, which consist of
maintenance, consulting, and education services.
We
receive revenues from licensing our products under perpetual licenses directly
to end users and indirectly through resellers, distributors, and OEMs in the
United States and internationally. We also receive a small amount of revenues
under subscription-based licenses for cloud offerings under the SaaS model from
our customers and partners. We receive service revenues from maintenance
contracts, consulting services, and education services that we perform for
customers that license our products either directly or indirectly. Most of our
international sales have been in Europe, and revenues outside of Europe and
North America have comprised 10% or less of total consolidated revenues during
the past three years.
We
license our software and provide services to many industry sectors, including,
but not limited to, energy and utilities, financial services, government and
public agencies, healthcare, high technology, insurance, manufacturing, retail,
services, telecommunications, and transportation.
Despite
the uncertainty in the financial markets and the weak macroeconomic environment
in the United States and many foreign economies, we were able to grow our total
revenues in 2009 by 10% to $500.7 million compared to $455.7 million
in 2008. License revenues increased 9% year over year, primarily due to an
increase in both the volume of our license transactions and the average sales
price of these transactions. Services revenues increased 10% year over year due
to 16% growth in maintenance revenues partially offset by a 4% decrease in
consulting, education, and other revenues. The maintenance revenue growth is
attributable to the increased size of our installed customer base and the
decline in consulting and education service revenues reflects our customers’
trend toward deferring spending and reducing education and consulting budgets.
Our operating income as a percentage of revenues has remained consistent at 18%
for both years ended December 31, 2008 and 2009.
On
February 13, 2009, we acquired Applimation, a private company incorporated
in Delaware, providing application Information Lifecycle Management
(ILM) technology. The acquisition extends our data integration software to
include Applimation’s technology. We acquired all of the capital stock of
Applimation in a cash merger transaction valued at approximately $37.2 million
(including $1.6 million retention bonuses payable three to eighteen months
subsequent to the acquisition date). As a result of this acquisition, we also
assumed certain facility leases and certain liabilities and commitments. As part
of the merger agreement, $6.0 million of the merger
consideration
was placed into an escrow fund and held as security for losses incurred by us in
the event of certain breaches of the merger agreement by
Applimation.
On June
2, 2009, Informatica GmbH, our wholly owned subsidiary, acquired AddressDoctor,
a limited liability company duly organized and existing under the laws of the
Federal Republic of Germany. AddressDoctor is a leading provider of
international address verification and cleaning solutions which enables users to
validate and correct postal addresses and assists in the data capturing process.
We acquired all of the capital stock of AddressDoctor for $27.8 million of which
$4.5 million is held in an escrow fund as security for losses incurred by us in
the event of certain breaches of the merger agreement by AddressDoctor. The
escrow fund will remain in place for a period of eighteen months,
although 50% of the escrow funds will be paid out 12 months subsequent to
the date of acquisition.
On
September 1, 2009, we acquired Agent Logic, a privately held company
incorporated in Delaware. Agent Logic specializes in the development and
marketing of complex event processing software which supports security
initiatives in highly complex environments. We acquired all of the capital stock
of Agent Logic for $35 million of which $6.1 million is held in an escrow fund
as security for losses accrued by Informatica in the event of certain breaches
of the merger agreement by Agent Logic. The escrow fund will remain in place for
a period of eighteen months, although 50% of the escrow funds will be paid
out 12 months subsequent to the date of acquisition. In addition, we are
obligated to pay certain variable and deferred earn-out payments based on the
percentage of license revenues recognized subsequent to the
acquisition.
On
January 28, 2010, we acquired Siperian, a private company incorporated in
Delaware. Siperian provides an
integrated model-driven master data management (MDM) platform that adapts to
most business requirements. The acquisition extends our data integration
software to include Siperian’s technology. We acquired Siperian in a cash merger
transaction valued at approximately $130 million. As a result of this
acquisition, we also assumed certain facility leases and certain liabilities and
commitments. Approximately $18.3 million of the consideration otherwise payable
to former Siperian stockholders, vested option holders and participants in
Siperian’s Management Acquisition Bonus Plan was placed into an escrow fund and
held as partial security for the indemnification obligations of the former
Siperian stockholders, vested option holders, and participants in Siperian’s
Management Acquisition Bonus Plan set forth in the merger agreement and for
purposes of the working capital adjustment set forth therein. The escrow fund
will remain in place until July 28, 2011, although 50% of the escrow funds will
be distributed to former Siperian stockholders, vested option holders, and
participants in Siperian’s Management Acquisition Bonus Plan on January 28,
2011.
Due to
our dynamic market, we face both significant opportunities and challenges, and
as such, we focus on the following key factors:
|
|
●
|
Macroeconomic
Conditions: The United States and many foreign economies
continue to experience adversity driven by varying macroeconomic
conditions including the remaining uncertainty in the credit markets and
financial markets, instability of major financial institutions,
deterioration in the housing and labor markets and volatility in fuel
prices. As a result of these conditions, the United States and global
economies reflect a weak macroeconomic environment, which is expected to
continue. While we have seen improvement in the economy in the United
States and parts of Europe, the adverse conditions, which are beyond our
control, are likely to continue to have an adverse effect on our business.
As a result, we have reduced expenses in certain areas and have tempered
our hiring plans in areas that have not yet shown macroeconomic
improvement.
|
|
|
●
|
Competition: Inherent
in our industry are risks arising from competition with existing software
solutions, including solutions from IBM, Oracle, and SAP, technological
advances from other vendors, and the perception of cost savings by solving
data integration challenges through customer hand-coding development
resources. Our prospective customers may view these alternative solutions
as more attractive than our offerings. Additionally, the consolidation
activity in our industry (including Oracle’s acquisition of BEA Systems,
GoldenGate, Hyperion Solutions, Siebel, SilverCreek, and Sunopsis; IBM’s
acquisition of Cognos, DataMirror, and SPSS, and its announced plan for
acquisition of Initiate Systems; and SAP’s acquisition of Business
Objects, which had previously acquired FirstLogic) could pose challenges
as competitors market a broader suite of software products or solutions to
our prospective customers.
|
|
|
●
|
New Product
Introductions: To address the expanding data integration
and data integrity needs of our customers and prospective customers, we
continue to introduce new products and technology enhancements on a
regular basis. In August 2009, we delivered the PowerCenter Cloud Edition
to enable our customers to procure PowerCenter functionality from Amazon
Web Services by the hour. In November, 2009, we released Informatica Cloud
9. In December 2009, we delivered a version upgrade to our entire data
integration platform by delivering the generally available version of
Informatica 9. New product introductions and/or enhancements have inherent
risks including, but not limited to, product availability, product quality
and interoperability,
and customer adoption or the delay in customer purchases. Given these
risks and the recent introduction of these products, we cannot predict
their impact on our overall sales and
revenues.
|
|
|
●
|
Quarterly
and Seasonal Fluctuations: Historically, purchasing
patterns in the software industry have followed quarterly and seasonal
trends and are likely to do so in the future. Specifically, it is normal
for us to recognize a substantial portion of our new license orders in the
last month of each quarter and sometimes in the last few weeks or days of
each quarter, though such fluctuations are mitigated somewhat by
recognition of backlog orders. In recent years, the fourth quarter has had
the highest level of license revenues and order backlog, and we generally
have weaker demand for our software products and services in the first and
third quarters of the year. The current macroeconomic conditions make our
historical seasonal trends more difficult to
predict.
|
To
address these potential risks, we have focused on a number of key initiatives,
including certain cost containment measures, the strengthening of our
partnerships, the broadening of our distribution capability worldwide, and the
targeting of our sales force and distribution channel on new products, and
strategic acquisitions of complementary businesses, products, and
technologies.
We are
concentrating on maintaining and strengthening our relationships with our
existing strategic partners and building relationships with additional strategic
partners. These partners include systems integrators, resellers and
distributors, and strategic technology partners, including enterprise
application providers, database vendors, and enterprise information integration
vendors, in the United States and internationally. In September 2009, we
announced an expanded partnership with Hewlett Packard. In September 2009, we
also announced that Intel will embed Informatica B2B Data Transformation in its
Intel SOA Expressway offering. We are partners with FAST (acquired by
Microsoft), SAP, Oracle, Hyperion Solutions (acquired by Oracle), and
salesforce.com. See “Risk Factors — We rely on our relationships with
our strategic partners.
If we do not maintain and strengthen these relationships, our ability to generate revenue and
control expenses could be adversely affected, which could cause a decline in the price
of our common stock” in Part I, Item 1A.
We have
broadened our distribution efforts, and we have continued to expand our sales
both in terms of selling data warehouse products to the enterprise level and of
selling more strategic data integration solutions beyond data warehousing,
including data quality, master data management, cross-enterprise data exchange,
information lifecycle management, complex event processing, and cloud data
integration to our customers’ enterprise architects and chief information
officers. We have expanded our international sales presence in recent years by
opening new offices, increasing headcount, and through acquisitions. As a result
of this international expansion, as well as the increase in our direct sales
headcount in the United States, our sales and marketing expenses have increased.
In the long term, we expect these investments to result in increased revenues
and productivity and ultimately higher profitability, although we experienced a
tougher than expected selling environment in certain regions in 2009. If we
experience an increase in sales personnel turnover, do not achieve expected
increases in our sales pipeline, experience a decline in our sales pipeline
conversion ratio, or do not achieve increases in sales productivity and
efficiencies from our new sales personnel as they gain more experience, then it
is unlikely that we will achieve our expected increases in revenue, sales
productivity, or profitability from our international operations. We have
experienced some increases in revenues and sales productivity in the United
States in the past few years. In the second half of 2009, we experienced
increases in revenues internationally, but we have not yet achieved the same
level of sales productivity internationally as domestically.
To
address the risks of introducing new products, we have continued to invest in
programs to help train our internal sales force and our external distribution
channel on new product functionalities, key differentiations, and key business
values. These programs include user conferences for customers and partners, a
“world tour” of user days for our customers, prospects and partners for the
Informatica 9 launch, our annual sales kickoff conference for all sales and key
marketing personnel in January, “Webinars” for our direct sales force and
indirect distribution channel, in-person technical seminars for our pre-sales
consultants, the building of product demonstrations, and creation and
distribution of targeted marketing collateral. We have also invested in partner
enablement programs, including product-specific briefings to partners and the
inclusion of several partners in our beta programs.
Critical
Accounting Policies and Estimates
In
preparing our consolidated financial statements, we make assumptions, judgments,
and estimates that can have a significant impact on amounts reported in our
consolidated financial statements. We base our assumptions, judgments, and
estimates on historical experience and various other factors that we believe to
be reasonable under the circumstances. Actual results could differ materially
from these estimates under different assumptions or conditions. On a regular
basis we evaluate our assumptions, judgments, and estimates and make changes
accordingly. We also discuss our critical accounting estimates with the Audit
Committee of the Board of Directors. We believe that the assumptions, judgments,
and estimates involved in the accounting for revenue recognition,
facilities
restructuring
charges, income taxes, impairment of goodwill, acquisitions, share-based
payments, and allowance for doubtful accounts have the greatest potential impact
on our consolidated financial statements, so we consider these to be our
critical accounting policies. We discuss below the critical accounting estimates
associated with these policies. Historically, our assumptions, judgments, and
estimates relative to our critical accounting policies have not differed
materially from actual results. For further information on our significant
accounting policies, see the discussion in Note 2. Summary of Significant Accounting Policies, of Notes
to Consolidated Financial Statements in Part II, Item 8 of this
Report.
Revenue
Recognition
We
recognize revenue in accordance with generally accepted accounting principles
(“GAAP”) in the United States that have been prescribed for the software
industry. The accounting rules related to revenue recognition are complex and
are affected by interpretations of such rules. These rules and their
interpretations are often subject to change. Consequently, the revenue
recognition process requires management to make significant judgments; for
example, to determine if collectibility is probable.
We derive
revenues from software license fees, maintenance fees (which entitle the
customer to receive product support and unspecified software updates),
professional services, consisting of consulting and education services, and
other revenues, consisting of software subscription, and cloud services
revenues. We follow the appropriate revenue recognition rules for each type of
revenues. The basis for recognizing software license revenue is determined by
FASB Software Revenue Recognition (ASC
985-605-25), FASB Revenue
Recognition for Construction-Type and Production-Type Contracts (ASC
605-35), and the
Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition, which
is discussed in the subsection
Revenue Recognition in Note 2. Summary of Significant Accounting
Policies, of Notes to Consolidated Financial Statements in Part II,
Item 8 of this Report. Substantially all of our software licenses are
perpetual licenses under which the customer acquires the perpetual right to use
the software as provided and subject to the conditions of the license agreement.
We recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed or determinable, and collection is probable. In
applying these criteria to revenue transactions, we must exercise judgment and
use estimates to determine the amount of software, maintenance, and professional
services revenue to be recognized at each period.
We assess
whether fees are fixed or determinable prior to recognizing revenue. We must
make interpretations of our customer contracts and exercise judgments in
determining if the fees associated with a license arrangement are fixed or
determinable. We consider factors including extended payment terms, financing
arrangements, the category of customer (end-user customer or reseller), rights
of return or refund, and our history of enforcing the terms and conditions of
customer contracts. If the fee due from a customer is not fixed or determinable
due to extended payment terms, revenue is recognized when payment becomes due or
upon cash receipt, whichever is earlier. We require evidence of sell-through
from resellers and distributors for order acceptance. We then
recognize revenue from resellers and distributors upon shipment if all other
revenue recognition criteria are met, which in substantially all cases is upon
collection. Further, we make judgments in determining the collectibility of the
amounts due from our customers that could possibly impact the timing of revenue
recognition. We assess credit worthiness and collectibility, and when a customer
is not deemed credit worthy, revenue is recognized when payment is
received.
Our
software license arrangements include the following multiple elements: license
fees from our core software products and/or product upgrades that are not part
of post-contract services, maintenance fees, consulting, and/or education
services. We use the residual method to recognize license revenue upon delivery
when the arrangement includes elements to be delivered at a future date and
vendor-specific objective evidence (“VSOE”) of fair value exists to allocate the
fee to the undelivered elements of the arrangement. VSOE is based on the price
charged when an element is sold separately. If VSOE does not exist for any
undelivered software product element of the arrangement, all revenue is deferred
until all elements have been delivered, or VSOE is established. If VSOE does not
exist for any undelivered services elements of the arrangement, all revenue is
recognized ratably over the period that the services are expected to be
performed. We are required to exercise judgment in determining if VSOE exists
for each undelivered element.
Consulting
services, if included as part of the software arrangement, generally do not
require significant modification or customization of the software. If, in our
judgment, the software arrangement includes significant modification or
customization of the software, then software license revenue is recognized as
the consulting services revenue is recognized.
Consulting
revenues are primarily related to implementation of services and product
configurations. These services are performed on a time-and-materials basis and,
occasionally, on a fixed-fee basis. Revenue is generally recognized as these
services are performed. If uncertainty exists about our ability to complete the
project, our ability to collect the amounts due, or in the case of
fixed-fee
consulting
arrangements, our ability to estimate the remaining costs to be incurred to
complete the project, revenue is deferred until the uncertainty is
resolved.
Other
revenues, consisting of software subscription, and cloud services revenues, are
recognized as the services are performed.
Multiple
contracts with a single counterparty executed within close proximity of each
other are evaluated to determine if the contracts should be combined and
accounted for as a single arrangement.
We
recognize revenues net of applicable sales taxes, financing charges that we have
absorbed, and amounts retained by our resellers and distributors, if any. Our
agreements do not permit returns, and historically we have not had any
significant returns or refunds; therefore, we have not established a sales
return reserve at this time.
Facilities
Restructuring Charges
During
the fourth quarter of 2004, we recorded significant charges (2004 Restructuring
Plan) related to the relocation of our corporate headquarters, to take advantage
of more favorable lease terms and reduce our operating expenses. The accrued
restructuring charges represent net present value of lease obligations and
estimated commissions and other costs (principally leasehold improvements and
asset write-offs), offset by actual and estimated gross sublease income, which
is net of estimated broker commissions and tenant improvement allowances,
expected to be received over the remaining lease terms. In addition, we
significantly increased the 2001 restructuring charges (2001 Restructuring Plan)
in the third and fourth quarters of 2004 due to changes in our assumptions used
to calculate the original charges as a result of our decision to relocate our
corporate headquarters.
These
liabilities include management’s estimates pertaining to sublease activities.
Inherent in the assessment of the costs related to our restructuring efforts are
estimates related to the probability weighted outcomes of the significant
actions to accomplish the restructuring. We will continue to evaluate the
commercial real estate market conditions periodically to determine if our
estimates of the amount and timing of future sublease income are reasonable
based on current and expected commercial real estate market conditions. Our
estimates of sublease income may vary significantly depending, in part, on
factors that may be beyond our control, such as the global economic downturn,
time periods required to locate and contract suitable subleases, and market
rates at the time of subleases. Currently, we have subleased our excess
facilities in connection with our 2004 and 2001 facilities restructuring but for
durations that are generally less than the remaining lease terms.
If we
determine that there is a change in the estimated sublease rates or in the
expected time it will take us to sublease our vacant space, we may incur
additional restructuring charges in the future and our cash position could be
adversely affected. See Note 11. Facilities Restructuring Charges,
of Notes to Consolidated Financial Statements in Part II,
Item 8 of this Report. Future adjustments to the charges could result from
a change in the time period that the buildings will be vacant, expected sublease
rates, expected sublease terms, and the expected time it will take to
sublease.
Accounting
for Income Taxes
We use
the asset and liability method of accounting for income taxes in accordance with
FASB Income Taxes (ASC
740). Under this
method, income tax expenses or benefits are recognized for the amount of taxes
payable or refundable for the current year and for deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in
our consolidated financial statements or tax returns. We account for any income
tax contingencies in accordance with ASC 740. The measurement of
current and deferred tax assets and liabilities is based on provisions of
currently enacted tax laws. The effects of any future changes in tax laws or
rates have not been taken into account with the exception of revaluing deferred
taxes for California relating to 2011 and thereafter.
As part
of the process of preparing consolidated financial statements, we estimate our
income taxes and tax contingencies in each of the tax jurisdictions in which we
operate prior to the completion and filing of tax returns for such periods. This
process involves estimating actual current tax expense together with assessing
temporary differences resulting from differing treatment of items, such as
deferred revenue, for tax and accounting purposes. These differences result in
net deferred tax assets and liabilities. We must then assess the likelihood that
the deferred tax assets will be realizable, and to the extent we believe that
realizability is not likely, we must establish a valuation
allowance.
In
assessing the need for any additional valuation allowance, we considered all the
evidence available to us, 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 year ended December 31, 2009, consistent
with prior years it was considered more likely than not that our non share-based
payments related deferred tax assets would be realized. As a result, the
remaining valuation allowance is primarily related to deferred tax assets that
were created through the benefit from stock option deductions on a “with” and
“without” basis and recorded on the balance sheet with a corresponding valuation
allowance prior to our adoption of FASB Stock Compensation (ASC
718).
Accounting
for Impairment of Goodwill
We assess
goodwill for impairment in accordance with FASB Intangibles – Goodwill and Other
(ASC 350), which requires that goodwill be tested for impairment at the
“reporting unit level” (“Reporting Unit”) at least annually and more frequently
upon the occurrence of certain events, as defined by ASC 350. Consistent with
our determination that we have only one reporting segment, we have determined
that there is only one “Reporting Unit”. We test goodwill for impairment in our
annual impairment test on October 31 of each year, using the two-step process
required by ASC 350. First, we review the carrying amount of the “Reporting
Unit” compared to the “fair value” of the “Reporting Unit” based on quoted
market prices of our common stock. Second, if such comparison reflects potential
impairment, we would then perform the discounted cash flow analyses. These
analyses are based on cash flow assumptions that are consistent with the plans
and estimates that we use to manage our business. An excess of the carrying
value to fair value might indicate a potential goodwill impairment. Finally, if
we determine that goodwill might have been impaired, then we would compare the
“implied fair value” of the goodwill, as defined by ASC 350, to its carrying
amount to determine the amount of impairment loss, if any.
We
determined in our annual impairment tests on October 31, 2009, 2008, and
2007 that the fair value of our “Reporting Unit” exceeded the carrying amount
and, accordingly, determined that goodwill had not been impaired and is not at
risk of failing. We have made assumptions and estimates about future values and
remaining useful lives which are complex and often subjective. They can be
affected by a variety of factors, including external factors such as industry
and economic trends as well as internal factors such as changes in our business
strategy and our internal forecasts. Although we believe that the assumptions
and estimates that we have made are sound and reasonable, but nevertheless the
result of our financial operations would have been materially different if we
hade made different assumptions and estimates.
Acquisitions
In
accordance with FASB Business
Combinations (ASC 805), we are required to allocate the purchase price of
acquired companies to the tangible and intangible assets acquired, liabilities
assumed, as well as to in-process research and development (IPR&D) based on
their estimated fair values at the acquisition date. The purchase price
allocation process requires management to make significant estimates and
assumptions, especially at the acquisition date with respect to intangible
assets, support obligations assumed, estimated restructuring liabilities, and
pre-acquisition contingencies.
A number
of events could potentially affect the accuracy of our assumptions and
estimates. Although we believe the assumptions and estimates that we have made
are reasonable and appropriate, nevertheless a level of uncertainty is inherent
in all such decisions. The following are some of the examples of critical
accounting estimates that we have applied in our
acquisitions:
|
●
|
future
expected cash flows from software license sales, support agreements,
consulting contracts, other customer contracts, and acquired developed
technologies and patents;
|
|
|
●
|
expected
costs to develop the in-process research and development into commercially
viable products and estimated cash flows from the projects when
completed;
|
|
|
●
|
the
acquired company’s brand and competitive position, as well as assumptions
about the period of time the acquired brand will continue to be used in
the combined company’s product portfolio; and
|
|
|
●
|
discount
rates.
|
In
connection with the purchase price allocations for our acquisitions, we estimate
the fair value of the support obligations assumed. The estimated fair value of
the support obligations is determined utilizing a cost build-up approach. The
cost build-up approach determines fair value by estimating the costs related to
fulfilling the obligations plus a normal profit margin. The
estimated
costs to
fulfill the support obligations are based on the historical direct costs related
to providing the support services and to correct any errors in the software
products acquired. The sum of these costs and operating profit approximates, in
theory, the amount that we would be required to pay a third party to assume the
support obligation. We do not include any costs associated with selling efforts
or research and development or the related fulfillment margins on these costs.
Profit associated with any selling efforts is excluded because the acquired
entities would have concluded those selling efforts on the support contracts
prior to the acquisition date. We also do not include the estimated research and
development costs to provide product upgrades on a “when and if available to”
basis in our fair value determinations, as these costs are not deemed to
represent a legal obligation at the time of acquisition.
Accounting
for business combinations has been impacted by ASC 805. Under the new accounting
pronouncement, we expense transaction costs and restructuring expenses related
to the acquisition as incurred. In contrast, we treated transaction costs and
restructuring expenses as part of the cost of the acquired business previously,
thus effectively capitalizing those amounts within the basis of the acquired
assets. Further, pursuant to ASC 805, we identify pre-acquisition contingencies
and determine their respective fair values as of the end of the purchase price
allocation period. We will adjust the amounts recorded as pre-acquisition
contingencies in our operating results in the period in which the adjustment is
determined. Furthermore, any adjustment applicable to acquisition related tax
contingencies estimates will be reflected in our operating results in the period
in which the adjustment is determined. Moreover, we identify the in-process
research and development costs and determine their respective fair values and
reflect them as part of the purchase price allocation. In-process research and
development costs, under the new guidance, meet the definition of asset, and we
classify them as an indefinite lived intangible asset until the asset is put to
use or deemed to be impaired.
Share-Based
Payments
We
account for share-based payments related to share-based transactions in
accordance with the provisions of FASB Stock Compensation (ASC 718).
Accordingly, share-based payment is estimated at the grant date based on the
fair value of the award and is recognized as an expense ratably on a straight
line basis over its requisite service period. It requires a certain amount of
judgment to select the appropriate fair value model and calculate the fair value
of share-based awards, including estimating stock price volatility and expected
life. Further, estimates of forfeiture rates could shift the share-based
payments from one period to the next.
We have
estimated the expected volatility as an input into the Black-Scholes-Merton
valuation formula when assessing the fair value of options granted. Our current
estimate of volatility was based upon a blend of average historical and
market-based implied volatilities of our stock price that we have used
consistently since the adoption of SFAS No. 123(R) Share-Based Payments (ASC
718) in 2006. Our volatility rates were 37-48%, 38-54%, and 37-41% for 2009,
2008, and 2007, respectively.
The
decrease in 2009 from 2008 was due to a decline in the implied components of our
volatility rates. The increase in 2008 from 2007 was due to fluctuations in our
stock price during the latter part of 2008. Our historical volatility in 2009
compared to 2008 and 2008 compared to 2007 remained relatively unchanged. Our
implied volatility rates in 2009 declined compared to 2008 and in 2008 increased
compared to 2007. To the extent that the volatility rate in our stock price
increases in the future, our estimates of the fair value of options granted will
increase accordingly. We do not expect that changes in the volatility rates to
impact our future share-based payments materially due to the limited amount of
recent option grants.
We
derived our expected life of the options that we granted in 2009 from the
historical option exercises, post-vesting cancellations, and estimates
concerning future exercises and cancellations for vested and unvested options
that remain outstanding. We increased our expected life estimate from 3.3 years
in 2008 to 3.6 years in 2009. The higher expected life of options was mainly due
to lower exercises in 2008. We do not expect that changes in the expected life
to impact our future share-based payments materially due to the limited amount
of recent option grants.
In
addition, we apply an expected forfeiture rate in determining the amount of
share-based payments. Our estimate of the forfeiture rate is based on an average
of actual forfeited options granted to new employees for the past four quarters.
We lowered our forfeiture rate, for the quarter ended March 31, 2009, from
10% to 8%, which increased our share-based payments in the first quarter of 2009
by approximately $177,000. The forfeiture rate for the last three quarters of
2009 remained unchanged from the first quarter of 2009.
We have
granted Restricted Stock Units (“RSUs”) to our executive officers, certain
employees, and directors in 2009. We have recorded the share-based payment for
RSUs net of the 10% forfeiture estimate. We estimate our forfeiture rate for
RSUs based on an average of actual forfeited option awards for the past four
quarters.
We
believe that the estimates that we have used for the calculation of the
variables to arrive at share-based payments are accurate. We will, however,
continue to monitor the historical performance of these variables and will
modify our methodology and assumptions in the future as needed.
Allowances
for Doubtful Accounts
We
establish allowances for doubtful accounts based on our review of credit
profiles of our customers, contractual terms and conditions, current economic
trends and historical payment, and return and discount experiences. We reassess
the allowances for doubtful accounts each quarter. However, unexpected events or
significant future changes in trends could result in a material impact to our
future statements of income and cash flows. Our allowance for doubtful accounts
at December 31, 2009 and 2008 was $3.5 million and $2.6 million,
respectively.
Results
of Operations
The
following table presents certain financial data as a percentage of total
revenues:
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Revenues:
|
||||||||||||
|
License
|
43 | % | 43 | % | 45 | % | ||||||
|
Service
|
57 | 57 | 55 | |||||||||
|
Total
revenues
|
100 | 100 | 100 | |||||||||
|
Cost
of revenues:
|
||||||||||||
|
License
|
1 | 1 | 1 | |||||||||
|
Service
|
15 | 18 | 18 | |||||||||
|
Amortization
of acquired technology
|
2 | 1 | — | |||||||||
|
Total
cost of revenues
|
18 | 20 | 19 | |||||||||
|
Gross
profit
|
82 | 80 | 81 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
16 | 16 | 18 | |||||||||
|
Sales
and marketing
|
38 | 39 | 41 | |||||||||
|
General
and administrative
|
8 | 8 | 9 | |||||||||
|
Amortization
of intangible assets
|
2 | 1 | — | |||||||||
|
Facilities
restructuring charges
|
— | 1 | 1 | |||||||||
|
Acquisitions
and other
|
— | — | — | |||||||||
|
Patent
related litigation proceeds net of patent contingency accruals
|
— | (3 | ) | — | ||||||||
|
Total
operating expenses
|
64 | 62 | 69 | |||||||||
|
Income
from operations
|
18 | 18 | 12 | |||||||||
|
Interest
income and other, net
|
— | 2 | 4 | |||||||||
|
Income
before income taxes
|
18 | 20 | 16 | |||||||||
|
Income
tax provision
|
5 | 8 | 2 | |||||||||
|
Net
income
|
13 | % | 12 | % | 14 | % | ||||||
Revenues
Our total
revenues were $500.7 million in 2009 compared to $455.7 million in
2008 and $391.3 million in 2007, representing growth of $45.0 million
(or 10%) in 2009 from 2008 and $64.4 million (or 16%) in 2008 from 2007.
The increase is due to a growing customer installed base, an increase in the
number of license transactions, the average sales price of those transactions,
and strategic acquisitions of complementary businesses and products during the
last 12 months. In 2009, less than 4% of our total revenues and less than 40% of
our growth in revenues were due to our 2009 acquisitions. See Note 20. Acquisitions of Notes to
Consolidated Financial Statements in Part II, Item 8 of this
Report.
The
following table and discussion compare our revenues by type for the three years
ended December 31, 2009:
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
License
|
$ | 214,322 | $ | 195,769 | $ | 175,318 | 9 | % | 12 | % | |||||||
|
Service
revenues:
|
|||||||||||||||||
|
Maintenance
|
215,315 | 186,212 | 151,246 | 16 | % | 23 | % | ||||||||||
|
Consulting,
education, and other
|
71,056 | 73,718 | 64,692 | (4 | )% | 14 | % | ||||||||||
|
Total
service revenues
|
286,371 | 259,930 | 215,938 | 10 | % | 20 | % | ||||||||||
|
Total
revenues
|
$ | 500,693 | $ | 455,699 | $ | 391,256 | 10 | % | 16 | % | |||||||
License
Revenues
Our
license revenues increased to $214.3 million (or 43% of total revenues) in
2009 compared to $195.8 million (or 43% of total revenues) in 2008, and
$175.3 million (or 45% of total revenues) in 2007, representing growth of
$18.6 million (or 9%) in 2009 from 2008, and $20.5 million (or 12%) in
2008 from 2007. The increase in license revenues in 2009 from 2008 was primarily
due to an increase in both the number of license transactions and the average
sales price of those transactions, resulting in growth of license revenues
primarily in North America. The increase in license revenues in 2008 from 2007
was primarily due to an increase in the volume of transactions, partially offset
by a decrease in the average size of the transactions.
The
number of transactions greater than $1.0 million increased to 28 in 2009
from 21 and 26, in 2008 and 2007, respectively. The total number of new
customers that we added in 2009, 2008, and 2007 including the number of
customers added through acquisitions was 479, 464, and 239, respectively. We had
license revenue transactions with 1,020 existing customers in 2009 compared to
927 and 855 in 2008 and 2007, respectively. Our growth in license revenues
reflects the continued market acceptance of the most recent versions of our data
integration and data quality products introduced in 2008 and 2009.
We have
two types of upgrades: (1) upgrades that are not part of the post-contract
services for which we charge customers an additional fee, and (2) upgrades
that are part of the post-contract services that we provide to our customers at
no additional charge, when and if available. The average transaction amount for
orders greater than $100,000 in 2009, including upgrades, for which we charge
customers an additional fee, increased to $360,000 from $314,000 and $339,000 in
2008 and 2007, respectively.
Service
Revenues
Maintenance
Revenues
Maintenance
revenues increased to $215.3 million (or 43% of total revenues) in 2009
from $186.2 million (or 41% of total revenues) in 2008, and
$151.2 million (or 39% of total revenues) in 2007, representing growth of
$29.1 million (or 16%) in 2009 from 2008, and $35.0 million (or 23%)
in 2008 from 2007. The increases in maintenance revenues in 2009 and 2008 were
primarily due to the increasing size of our customer installed base and recent
acquisitions.
We expect
maintenance revenues to increase in 2010 from the 2009 levels due to our growing
installed customer base.
Consulting
and Education, and Other Services Revenues
Consulting,
education, and other services revenues were $71.1 million (or 14% of total
revenues) in 2009, $73.7 million (or 16% of total revenues) in 2008, and
$64.7 million (or 16% of total revenues) in 2007. The $2.7 million (or
4%) decrease in 2009 compared to 2008 was primarily due to our customers’ trend
toward deferring spending and reducing education and consulting budgets. The
decline occurred primarily in the first half of 2009 and stabilized subsequently
during the second half as macroeconomic environment improved.
The
$9.0 million (or 14%) increase in 2008 compared to 2007 was primarily due
to a higher demand for our consulting and education services
globally.
Our
utilization rates have declined recently due to the global economic slowdowns.
As a result, we expect our revenues from consulting, education, and other
services to slightly increase or remain the same in 2010 from the 2009
levels.
International
Revenues
Our
international revenues were $178.8 million (or 36% of total revenues) in 2009,
$158.6 million (or 35% of total revenues) in 2008, and $127.1 million
(or 32% of total revenues) in 2007, representing an increase of
$20.2 million (or 13%) in 2009 from 2008 and an increase of
$31.5 million (or 25%) in 2008 from 2007. International revenues all major
geographic regions increased in 2009 compared to 2008.
The
$20.2 million (or 13%) increase in 2009 from 2008 was primarily due to an
increase in international maintenance revenue as a result of a larger and
growing installed customer base, and an increase in international license and
service revenues in Latin America and in Europe.
The
$31.5 million (or 25%) increase in 2008 from 2007 was primarily due to an
increase in international license and service revenues as a result of a larger
and growing installed customer base.
We expect
international revenues as a percentage of total revenues in 2010 to be
relatively consistent with 2009.
Potential
Future Revenues (New Orders, Backlog, and Deferred Revenue)
Our
potential future revenues include (1) backlog consisting primarily of
product license orders that have not shipped as of the end of a given quarter,
(2) orders received from certain distributors, resellers, and OEMs, not
included in deferred revenues, where revenue is recognized based on cash receipt
(collectively (1) and (2) above are referred as “aggregate backlog”),
and (3) deferred revenues. Our deferred revenues consist primarily of the
following: (1) maintenance revenues that we recognize over the term of the
contract, typically one year, (2) license product orders that have shipped
but where the terms of the license agreement contain acceptance language or
other terms that require that the license revenues be deferred until all revenue
recognition criteria are met or recognized ratably over an extended period, and
(3) consulting and education services revenues that have been prepaid but
for which services have not yet been performed.
We
typically ship products shortly after the receipt of an order, which is common
in the software industry, and historically our backlog of license orders
awaiting shipment at the end of any given quarter has varied. However, our
backlog historically decreases from the prior quarter at the end of the first
and third quarters and increases at the end of the fourth
quarter. The increase, however, was less pronounced at the end of
2008. Aggregate backlog and deferred revenues at December 31, 2009 were
approximately $171.8 million compared to $148.1 million at
December 31, 2008. This increase in 2009 was primarily due to an increase
in deferred maintenance revenues and an increase in license backlog. Backlog and
deferred revenues, as of any particular date, are not necessarily indicative of
future results.
Cost
of Revenues
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
Cost of
license revenues
|
$ | 3,135 | $ | 3,291 | $ | 3,693 | (5 | )% | (11 | )% | |||||||
|
Cost of service revenues
|
76,549 | 80,287 | 69,174 | (5 | )% | 16 | % | ||||||||||
|
Amortization of acquired technology
|
7,950 | 4,125 | 2,794 | 93 | % | 48 | % | ||||||||||
|
Total
cost of revenues
|
$ | 87,634 | $ | 87,703 | $ | 75,661 | — | % | 16 | % | |||||||
|
Cost
of license revenues, as a percentage of license revenues
|
1 | % | 2 | % | 2 | % | (1 | )% | — | % | |||||||
|
Cost
of service revenues, as a percentage of service revenues
|
27 | % | 31 | % | 32 | % | (4 | )% | (1 | )% | |||||||
Cost
of License Revenues
Our cost
of license revenues consists primarily of software royalties, product packaging,
documentation, production costs and personnel costs. Cost of license revenues
was $3.1 million (or 1% of license revenues) in 2009, $3.3 million (or
2% of license
revenues)
in 2008, and $3.7 million (or 2% of license revenues) in 2007. The
$0.2 million (or 5%) decrease in 2009 from 2008 was primarily due to the
smaller proportion of royalty based products being shipped in 2009. The
$0.4 million (or 11%) decrease in 2008 from 2007 was primarily due to the
smaller proportion of royalty based products being shipped in 2008.
We expect
that our cost of license revenues in 2010, as a percentage of license revenues,
to be consistent with or slightly higher than 2009 levels.
Cost
of Service Revenues
Our cost
of service revenues is a combination of costs of maintenance, consulting,
education, and other services revenues. Our cost of maintenance revenues
consists primarily of costs associated with customer service personnel expenses
and royalty fees for maintenance related to third-party software providers. Cost
of consulting revenues consists primarily of personnel costs and expenses
incurred in providing consulting services at customers’ facilities. Cost of
education services revenues consists primarily of the costs of providing
education classes and materials at our headquarters, sales and training offices,
and customer locations. Cost of other services revenue consists primarily of
fees paid to postal authorities and other third parties for content. Cost of
service revenues was $76.5 million (or 27% of service revenues) in 2009,
$80.3 million (or 31% of service revenues) in 2008, and $69.2 million
(or 32% of service revenues) in 2007.
The
$3.7 million (or 5%) decrease in 2009 from 2008 was primarily due to a $1.6
million reduction in reimbursable expenses, a $1.2 million reduction in
subcontractor fees, and $1.1 million reduction in personnel related costs
related to consulting and education services, offset by a $0.2 million increase
in share-based payments. The reduction in consulting and education services
costs is as a result of corresponding lower revenues in consulting and education
services in 2009 compared to 2008.
The
$11.1 million (or 16%) increase in 2008 from 2007 was proportional to the
increase in service revenues and was primarily due to higher subcontractor fees
in our consulting services group and headcount growth primarily in the customer
support group. The headcount in customer support, professional services, and
education services groups grew from 351 in 2007 to 407 in 2008.
We expect
that our cost of service revenues, in absolute dollars, to increase in 2010 from
the 2009 levels, mainly due to headcount increases associated with increased
service revenues. We expect, however, the cost of service revenues in 2010, as a
percentage of service revenues, to remain relatively consistent with 2009
levels.
Amortization
of Acquired Technology
Amortization
of acquired technology is the amortization of technologies acquired through
business acquisitions and technology licenses. Amortization of acquired
technology totaled $8.0 million, $4.1 million, and $2.8 million in
2009, 2008, and 2007, respectively. The $3.8 million (or 93%) increase in 2009
from 2008 is the result of amortization of certain technologies that we acquired
in May 2008, October 2008, February 2009, June 2009 and September 2009, in
connection with the acquisitions of Identity Systems, PowerData, Applimation,
AddressDoctor, and Agent Logic, respectively. The $1.3 million (or 48%)
increase in 2008 from 2007 was the result of amortization of certain
technologies that we acquired in May 2008 in connection with the Identity
Systems acquisition, offset by certain technologies related to the Striva
acquisition that were fully amortized as of December 31, 2007.
We expect
the amortization of acquired technology to be approximately $8.6 million in
2010 before the effect of any potential future acquisitions subsequent to
December 31, 2009.
Operating
Expenses
Research
and Development
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
Research
and development
|
$ | 78,352 | $ | 72,522 | $ | 69,908 | 8 | % | 4 | % | |||||||
Our
research and development expenses consist primarily of salaries and other
personnel-related expenses, consulting services, facilities, and related
overhead costs associated with the development of new products, enhancement and
localization of existing products, quality assurance, and development of
documentation for our products. Research and development expenses were $78.4
million (or 16% of total revenues), $72.5 million (or 16% of total
revenues), and $69.9 million (or 18% of total revenues), for 2009, 2008,
and 2007, respectively. All software and development costs have been expensed in
the period incurred since the costs incurred subsequent to the establishment of
technological feasibility have not been significant.
The
$5.8 million (or 8%) increase in 2009 from 2008 was primarily due to a $7.3
million increase in personnel related costs, partially related to recent
acquisitions, partially offset by a $1.5 million reduction in general overhead
costs. The increase in personnel-related costs includes an increase in headcount
from 439 in 2008 to 515 in 2009 and additional share-based payment
costs.
The
$2.6 million (or 4%) increase in 2008 from 2007 was primarily due to an
increase of $6.3 million in personnel-related costs including
travel-related and equipment-related expenses, as a result of headcount
increasing from 375 in 2007 to 439 in 2008 offset by a $3.6 million
reduction in consulting services and reduced legal expenses related to patent
litigation.
We expect
research and development expenses in 2010, as a percentage of total revenues, to
remain relatively consistent with 2009 levels.
Sales
and Marketing
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
Sales
and marketing
|
$ | 192,747 | $ | 177,339 | $ | 158,298 | 9 | % | 12 | % | |||||||
Our sales
and marketing expenses consist primarily of personnel costs, including
commissions and bonuses, as well as costs of public relations, seminars,
marketing programs, lead generation, travel, and trade shows. Sales and
marketing expenses were $192.7 million (or 38% of total revenues),
$177.3 million (or 39% of total revenues), and $158.3 million (or 41%
of total revenues) for 2009, 2008, and 2007, respectively. The sales and
marketing expenses as a percentage of total revenues declined by 1%, 2%, and 2%
for 2009, 2008, and 2007, respectively.
The $15.4
million (or 9%) increase from 2008 to 2009 was primarily due to a $13.0 million
increase in personnel-related costs (including sales commissions, share-based
payments, and headcount growth from 572 in 2008 to 611 in 2009).
The
$19.0 million (or 12%) increase from 2007 to 2008 was primarily due to a
$16.5 million increase in personnel-related costs (including sales
commissions) and headcount growth from 483 in 2007 to 572 in 2008.
We expect
sales and marketing expenses, as a percentage of total revenues in 2010, to
remain relatively consistent with or decrease slightly from 2009 levels. The
sales and marketing expenses as a percentage of total revenues may fluctuate
from one period to the next due to the timing of hiring new sales and marketing
personnel, our spending on marketing programs, and the level of the commission
expenditures, in each period.
General
and Administrative
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
General
and administrative
|
$ | 41,449 | $ | 37,411 | $ | 35,531 | 11 | % | 5 | % | |||||||
Our
general and administrative expenses consist primarily of personnel costs for
finance, human resources, legal, and general management, as well as professional
service expenses associated with recruiting, legal, and accounting services.
General and administrative expenses were $41.4 million (or 8% of total
revenues), $37.4 million (or 8% of total revenues), and $35.5 million
(or 9% of total revenues) for the years ended December 31, 2009, 2008, and
2007, respectively. The general and administrative expenses
as
percentage of total revenues declined by 1% for the year ended December 31,
2008 mainly due to benefits of scale as our revenues have increased
proportionately more than our general and administrative expenses, as well as
implementation of certain cost containment programs.
General
and administrative expenses increased by $4.0 million (or 11%) in 2009 from
2008. The increase over 2008 was driven by an increase in personnel-related
costs of $2.2 million and a $2.7 million increase in outside services
as a result of legal fees for patent litigation and acquisition related costs.
This increase was partially offset by a $0.9 million decrease in bad debt
expense. The increase in personnel-related costs of $2.2 million was due to
headcount growth from 193 in 2008 to 200 in 2009 and additional expenses related
to performance based bonuses and share-based payments.
General
and administrative expenses increased by $1.9 million (or 5%) in 2008 from
2007. The increase over 2007 was driven by an increase in personnel-related
costs of $1.9 million and a $1.1 million increase in the allowance for
doubtful accounts. The increase was offset by a $0.9 million reduction in
outside services. The increase in personnel-related costs of $1.9 million
was primarily due to headcount growth from 156 in 2007 to 193 in
2008.
We expect
general and administrative expenses in 2010, as a percentage of total revenues,
to remain relatively consistent with, or decrease slightly from 2009
levels.
Amortization
of Intangible Assets
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
Amortization
of intangible assets
|
$ | 10,051 | $ | 4,575 | $ | 1,441 | 120 | % | 217 | % | |||||||
Amortization
of intangible assets is the amortization of customer relationships and vendor
relationships acquired, trade names, and covenants not to compete through prior
business acquisitions. Amortization of intangible assets were $10.1 million,
$4.6 million, and $1.4 million for the years ended December 31,
2009, 2008, and 2007, respectively. The increase of $5.5 million in amortization
of intangible assets for the year ended December 31, 2009 compared to 2008
was the result of amortization of intangibles that we acquired in May and
October 2008, and February, June and September 2009 in connection with the
Identity Systems, PowerData, Applimation, AddressDoctor, and Agent Logic
acquisitions, respectively. The increase of $3.2 million in amortization of
intangible assets for the year ended December 31, 2008 compared to 2007 was
primarily due to certain customer relationships acquired in 2008 related to 2008
acquisitions.
We expect
amortization of the remaining intangible assets in 2010 to be approximately
$9.6 million, before the impact of any amortization for any possible
intangible assets acquired as part of the pending or any future acquisitions
subsequent to December 31, 2009.
Facilities
Restructuring Charges
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
Facilities
restructuring charges
|
$ | 1,661 | $ | 3,018 | $ | 3,014 | (45 | )% | — | % | |||||||
In 2009,
we recorded $1.7 million of restructuring charges related to the 2004 and
2001 Restructuring Plans. These charges included primarily $2.8 million of
accretion charges, offset by an adjustment of $1.3 million due to changes in our
assumed sublease income. See Note 11. Facilities Restructuring Charges,
of Notes to Consolidated Financial Statements in Part II,
Item 8 of this Report.
In 2008,
we recorded $3.0 million of restructuring charges related to the 2004 and
2001 Restructuring Plans. These charges included primarily $3.5 million of
accretion charges, offset by an adjustment of $0.6 million due to changes
in our assumed sublease income. See Note 11. Facilities Restructuring Charges,
of Notes to Consolidated Financial Statements in Part II,
Item 8 of this Report.
In 2007,
we recorded $3.0 million of restructuring charges related to the 2004 and
2001 Restructuring Plans. These charges included primarily $3.9 million of
accretion charges, offset by an adjustment of $1.0 million due to changes
in our assumed sublease income.
As of
December 31, 2009, $52.7 million of total lease termination costs, net
of actual and expected sublease income, less broker commissions and tenant
improvement costs related to facilities to be subleased, was included in accrued
restructuring charges and is expected to be paid by 2013.
2004 Restructuring
Plan. Net cash payments for facilities included in the 2004
Restructuring Plan amounted to $11.7 million in 2009, $11.1 million in
2008, and $10.8 million in 2007. Actual future cash requirements may differ
from the restructuring liability balances as of December 31, 2009, if there
are changes to the time period that facilities are vacant, or the actual
sublease income is different from current estimates.
2001 Restructuring
Plan. Net cash payments for facilities included in the 2001
Restructuring Plan amounted to $1.5 million in 2009 and $1.6 million in
both 2008 and 2007. Actual future cash requirements may differ from the
restructuring liability balances as of December 31, 2009 if we are unable
to continue subleasing the excess leased facilities, there are changes to the
time period that facilities are vacant, or the actual sublease income is
different from current estimates.
Our
results of operations have been positively affected since 2004 by a significant
decrease in rent expense and decreases to non-cash depreciation and amortization
expense for the leasehold improvements and equipment written off. These combined
savings were approximately $7 to $11 million annually compared to 2004,
after accretion charges, and we anticipate that they will continue through
2013.
In
addition, we will continue to evaluate our current facilities requirements to
identify facilities that are in excess of our current and estimated future
needs. We will also evaluate the assumptions related to estimated future
sublease income for excess facilities. Accordingly, any changes to these
estimates of excess facilities costs could result in additional charges that
could materially affect our consolidated financial position and results of
operations. See Note 11. Facilities Restructuring Charges,
of Notes to Consolidated Financial Statements in Part II,
Item 8 of this Report.
Acquisitions
and Other
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
Acquisitions
and other
|
$ | (570 | ) | $ | 390 | $ | — | (246 | )% | * | % | ||||||
____________
|
*
|
Percentage
is not meaningful
|
In 2009,
in conjunction with our acquisition of Agent Logic, we are obligated to pay
certain variable and deferred earn-out payments if certain license order targets
are achieved. We determined the fair market value of earn-out payments based on
probability analysis. The fair market value and gross amount of such earn-outs
at the time of acquisition were $2.6 million and $3.1 million, respectively. We
reflected the excess of this estimate for $0.6 million on our statement of
income in the fourth quarter of 2009 based on FASB Business Combination (ASC
805). In 2008, in conjunction with our acquisition of Identity Systems, we
recorded in-process research and development (IPR&D) charges of
$0.4 million. The IPR&D charges were associated with software
development efforts in process at the time of the business combination that had
not yet achieved technological feasibility and no future alternative uses had
been identified. We may further incur IPR&D charges if we make additional
acquisitions in the future.
Patent
Related Litigation Proceeds Net of Patent Contingency Accruals
We
recorded $11.5 million for patent litigation proceeds net of accruals for
patent litigation in 2008.
Interest
Income and Other, Net
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
Interest
income
|
$ | 5,867 | $ | 14,092 | $ | 21,820 | (58 | )% | (35 | )% | |||||||
|
Interest
expense
|
(6,602 | ) | (7,221 | ) | (7,196 | ) | (9 | )% | — | % | |||||||
|
Other
income, net
|
1,184 | 866 | 613 | 37 | % | 41 | % | ||||||||||
|
|
$ | 449 | $ | 7,737 | $ | 15,237 | (94 | )% | (49 | )% | |||||||
Interest
income and other, net consists primarily of interest income earned on our cash,
cash equivalents, short-term investments, and restricted cash balances, as well
as foreign exchange transaction gains and losses and, to a lesser degree,
interest expenses. Interest income and other, net was $0.4 million,
$7.7 million, and $15.2 million in 2009, 2008, and 2007,
respectively.
The
decrease of $7.3 million (or 94%) in 2009 from 2008 was primarily due to a $8.2
million decrease in interest income due to lower investment yields, a decrease
of $0.7 million of gain on early extinguishment of debt, offset by $0.6 million
decrease in interest expense due to the repurchase of $20.0 million Convertible
Senior Notes in the first quarter of 2009, $0.3 million increase in gain on
disposition of securities, $0.2 million increase in foreign exchange gains, $0.2
million decrease in loss related to liquidation of a branch office and $0.3
million decrease in other expenses.
The
decrease of $7.5 million (or 49%) in 2008 from 2007 was primarily due to a
$7.7 million decrease in interest income received from lower investment
yields and a $1.2 million decline in other income, which were partially
offset by an increase of $0.4 million in foreign exchange gains and
$1.0 million gain on early extinguishment of debt.
In 2003,
we made a minority equity investment in a privately held company that was
carried at a cost basis of $0.5 million and was included in other assets.
Informatica evaluated this investment in December 2004 and determined that the
carrying value of this investment was impaired. In December 2007, this privately
held company was acquired, and as a result of this acquisition, Informatica
received $122,000, $125,000, and $883,700 cash proceeds for its share in the
equity of the company in 2009, 2008, and 2007, respectively. Informatica has
recorded these amounts as other income for the years ended December 31,
2009, 2008, and 2007.
Income
Tax Provision
|
Years Ended December 31,
|
Percentage
Change
|
||||||||||||||||
|
2009
|
2008
|
2007 |
2008
to
2009
|
2007
to
2008
|
|||||||||||||
|
(In
thousands, except percentages)
|
|||||||||||||||||
|
Income
tax provision
|
$ | 25,607 | $ | 35,993 | $ | 8,024 | (29 | )% | 349 | % | |||||||
|
Effective tax rate
|
29 | % | 39 | % | 13 | % | (10 | )% | 26 | % | |||||||
Our
effective tax rates were 29%, 39%, and 13% in 2009, 2008, and 2007,
respectively. The effective tax rate of 29% for 2009 differed from the federal
statutory rate of 35% primarily due to benefits of certain earnings from
operations in lower-tax jurisdictions throughout the world, the recognition of
current year research and development credits and previously unrealized foreign
tax credits and a prior year tax return true-up offset by compensation expense
related to non-deductible share-based payments, and agreed upon audit
assessments with the Internal Revenue Service, as well as the accrual of
reserves related to uncertain tax positions. We have not provided for residual
U.S. taxes in all of these lower-tax jurisdictions since we intend to
indefinitely reinvest these earnings offshore.
The
effective tax rate of 39% for 2008 differed from the federal statutory rate of
35% primarily due to the non-deductibility of share-based payments as well as
the accrual of reserves related to uncertain tax positions offset by the tax
credits and tax rate benefits of certain earnings from our operations in
lower-tax jurisdictions throughout the world.
The
effective tax rate of 13% for 2007 differed from the federal statutory rate of
35% primarily due to non-deductible amortization of deferred share-based
payments, as well as the accrual of reserves pursuant to FIN No. 48,
Accounting for Uncertainties in
Income
Taxes — an Interpretation of
FASB Statement 109 (“FIN No. 48”), FASB ASC 740, Income Taxes, offset by a
decrease in our valuation allowance for deferred tax assets and foreign earnings
taxed at different rates.
Our
effective tax rate in 2010 will be highly dependent on the result of our
international operations, the execution of business combinations, the outcome of
various tax audits, and the possibility of changes in tax law.
Liquidity
and Capital Resources
We have
funded our operations primarily through cash flows from operations and public
offerings of our common stock in the past. As of December 31, 2009, we had
$464.5 million in available cash and cash equivalents and short-term
investments. Our primary sources of cash are the collection of accounts
receivable from our customers and proceeds from the exercise of stock options
and stock purchased under our employee stock purchase plan. Our uses of cash
include payroll and payroll-related expenses and operating expenses such as
marketing programs, travel, professional services, and facilities and related
costs. We have also used cash to purchase property and equipment, repurchase
common stock from the open market to reduce the dilutive impact of stock option
issuances, repurchase our Convertible Senior Notes, and acquire businesses and
technologies to expand our product offerings.
Operating
Activities: Cash provided by operating activities in 2009 was
$76.9 million, representing a decrease of $23.0 million from 2008.
This decrease resulted primarily from an increase in accounts receivable due to
a higher amount of billings which occurred toward the end of 2009 and a decrease
in income taxes payable, payments to reduce our accrual for excess facilities
and accrued liabilities, and excess tax benefits from share-based payments. We
recognized the excess tax benefits from share-based payments for
$8.7 million during the year ended December 31, 2009. This amount is
recorded as a use of operating activities and an offsetting amount is recorded
as a provision by financing activities. We made cash payments for taxes in
different jurisdictions for $17.2 million during the year ended
December 31, 2009. Our “days sales outstanding” in accounts receivable
increased from 64 days at December 31, 2008 to 67 days at
December 31, 2009, due to a higher amount of billings which occurred toward
the end of 2009, compared to 2008. Deferred revenues increased primarily due to
an increase in deferred maintenance revenues resulting from a larger customer
base. Our operating cash flows will also be impacted in the future by the timing
of payments to our vendors and payments for taxes.
Cash
provided by operating activities in 2008 was $99.9 million, representing an
increase of $17.9 million from 2007. This increase resulted primarily from
a $1.4 million increase in net income (adjusted for non-cash expenses), an
increase in accounts receivable cash collections, an increase in income taxes
payable, and an increase in accrued liabilities. These increases were offset by
payments to reduce our accrual for excess facilities and excess tax benefits
from share-based payments. We recognized the excess tax benefits from
share-based payments for $5.1 million during the year ended
December 31, 2008. This amount is recorded as a use of operating activities
and an offsetting amount is recorded as a provision by financing activities. We
made cash payments for taxes in different jurisdictions for $25.5 million
during the year ended December 31, 2008. Our “days sales outstanding” in
accounts receivable increased from 58 days at December 31, 2007 to
64 days at December 31, 2008, due to a higher amount of billings which
occurred toward the end of 2008, compared to 2007. Deferred revenues increased
primarily due to an increase in deferred maintenance revenues resulting from a
larger customer base.
Cash
provided by operating activities in 2007 was $82.0 million, representing an
increase of $15.1 million from 2006. This increase resulted primarily from
an increase in net income (adjusted for non-cash expenses and increases in
deferred revenue), accrued compensation and related expenses, and income taxes
payable. These increases were offset by higher balances in accounts receivable,
prepaid expense and other assets primarily for insurance and third-party
software maintenance, payments to our vendors, and payments on our lease
obligations under our facilities restructuring accrual. Our “days sales
outstanding” in accounts receivable decreased from 65 days at
December 31, 2006 to 58 days at December 31, 2007 due to
improvements in our collection program. Our deferred revenues increased
primarily due to a larger customer base and a significant license contract that
was recognized over the following 12 months.
Investing
Activities: Net cash used in investing activities were $117.0
million, $82.9 million, and $6.4 million in 2009, 2008, and 2007, respectively.
We acquire property and equipment in our normal course of business. The amount
and timing of these purchases and the related cash outflows in future periods
depend on a number of factors, including the hiring of employees, the rate of
upgrade of computer hardware and software used in our business, as well as our
business outlook.
We have
identified our investment portfolio as “available for sale” based on FASB Investments – Debt and Equity
Securities (ASC 320),
and our investment objectives are to preserve principal and provide
liquidity while maximizing yields without significantly
increasing
risk. We may sell an investment at any time if the quality rating of the
investment declines, the yield on the investment is no longer attractive, or we
need additional cash. We invest only in money market funds and short-term
marketable securities. We believe that the purchase, maturity, or sale of our
investments has no material impact on our overall liquidity. Our revised and
more conservative investment strategy has not impacted our
liquidity.
We have
used cash to acquire businesses and technologies that enhance and expand our
product offerings, and we anticipate that we will continue to do so in the
future. Due to the nature of these transactions, it is difficult to predict the
amount and timing of such cash requirements. In March 2008, we invested
$3.0 million in the preferred stock of a privately held company that we
account for on a cost basis. On May 15, 2008, we acquired all of the issued
and outstanding shares of Identity Systems, a Delaware corporation and a wholly
owned subsidiary of Intellisync Corporation, for $85.6 million in cash,
including transaction costs of $0.9 million and acquired cash of
$5.8 million. On October 1, 2008, Informatica Nederland B.V., a wholly
owned subsidiary of Informatica, purchased all of the issued and outstanding
shares of PowerData, a company organized under the laws of Spain for
$7.1 million in cash, including transaction costs of
$0.4 million.
On
February 13, 2009, we acquired all the capital stock of Applimation, a
privately held company incorporated in Delaware, in a cash merger transaction
valued at approximately $37.2 million (including $1.6 million retention bonuses
payable three to 18 months subsequent to acquisition date). Six million dollars
of the merger consideration will be placed into an escrow fund and held as
security for losses incurred by us in the event of certain breaches of the
merger agreement by Applimation. The escrow fund will remain in place until
August 13, 2010, although 50% of the escrow funds will be distributed to
the Applimation stockholders on February 13, 2010. On June 2, 2009, we
acquired all of the capital stock of AddressDoctor for $27.8 million of which
$4.5 million is held in an escrow fund as security for losses incurred by us in
the event of certain breaches of the merger agreement by AddressDoctor. The
escrow fund will remain in place for a period of 18 months, although 50% of
the escrow funds will be paid out 12 months subsequent to the date of
acquisition. As part of the acquisition purchase price, we wrote off $250,000 in
prepaid royalties to AddressDoctor. On September 1, 2009, we acquired Agent
Logic which specializes in the development and marketing of complex event
processing software which supports security initiatives in highly complex
environments. Informatica acquired all of the capital stock of Agent Logic for
$35 million of which $6.1 million is held in an escrow fund as security for
losses accrued by Informatica in the event of certain breaches of the merger
agreement by Agent Logic. The escrow fund will remain in place for a period of
18 months, although 50% of the escrow funds will be paid out 12 months
subsequent to the date of acquisition. In addition, we are obligated to pay
certain variable and deferred earn-out payments if certain license order targets
are achieved.
On
January 28, 2010, we acquired Siperian, a private company incorporated in
Delaware in a cash merger transaction valued at approximately
$130 million.
Due to
the nature of mergers and acquisitions, it is difficult to predict the amount
and timing of cash requirements to complete such transactions. We may be
required to raise additional funds to complete future
acquisitions.
As of
June 2008, we were no longer required to maintain certificates of deposits for
the $12.0 million letter of credit that a financial institution issued in
2001 for our former corporate headquarters leases at the Pacific Shores Center
in Redwood City, California. Accordingly, we classified the release of such
restricted cash associated with such certificates of deposits from investing
activities to operating activities.
Financing
Activities: We receive cash from the exercise of common stock
options and the sale of common stock under our employee stock purchase plan
(ESPP). Net cash provided by financing activities in 2009 was $18.3 million
due to the proceeds we received from the issuance of common stock to option
holders and participants of our ESPP program for $41.7 million and
$8.7 million of excess tax benefits from share-based payments. These
amounts were offset by repurchases and retirement of our Convertible Senior
Notes and our common stock for $19.2 million and $12.8 million,
respectively.
Net cash
used in financing activities in 2008 was $32.1 million due to repurchases
and retirement of our common stock for $57.0 million and our Convertible
Senior Notes for $7.8 million. These repurchases were offset by the
issuance of common stock to option holders and to participants of our ESPP
program for $27.6 million, and $5.1 million of excess tax benefits
from share-based payments.
Net cash
provided by financing activities in 2007 was $4.2 million due to the
issuance of common stock to option holders and to participants of our ESPP
program for $27.7 million, and $5.5 million of excess tax benefits
from share-based payments, which were partially offset by a $28.9 million
repurchase and retirement of common stock.
Although
we expect to continue to receive some proceeds from the issuance of common stock
to option holders and participants of ESPP in future periods, the timing and
amount of such proceeds are difficult to predict and are contingent on a number
of factors, including the price of our common stock, the number of employees
participating in our stock option plans and our employee stock purchase plan,
and overall market conditions.
In March
2006, we issued and sold Convertible Senior Notes (“Notes”) with an aggregate
principal amount of $230 million due in 2026. We used approximately
$50 million of the net proceeds from the offering to fund the purchase of
3,232,000 shares of our common stock concurrently with the offering of the
Notes. We intend to use the balance of the net proceeds for working capital and
general corporate purposes, which may include the acquisition of businesses,
products, product rights or technologies, strategic investments, or additional
purchases of common stock or Convertible Senior Notes.
In April
2006, our Board of Directors authorized a stock repurchase program of up to
$30 million of our common stock at any time until April 2007. From April
2006 to April 30, 2007, we repurchased 2,238,000 shares of our common
stock for $30 million. In April 2007, our Board of Directors authorized an
additional repurchase of $50 million of our common stock under the existing
stock repurchase program. We repurchased 3,204,000 shares of our common
stock for $50 million from May 2007 to August 2008. In April 2008, our
Board of Directors authorized an additional repurchase of $75 million of
our common stock under the stock repurchase program. In October 2008,
Informatica’s Board of Directors authorized, under the existing stock repurchase
program, the repurchase of a portion of its outstanding Notes due in 2026 in
privately negotiated transactions with holders of the Notes.
From
April 2007 to December 31, 2009, we repurchased 6,498,121 shares of our common
stock at a cost of $97 million and $29 million of our outstanding Notes at a
cost of $27 million. We have approximately $0.3 million remaining available to
repurchase shares of our common stock or Convertible Senior Notes under this
program as of December 31, 2009. In January 2010, our Board of Directors
approved an additional $50 million for the stock repurchase program. This
repurchase program does not have an expiration date.
Purchases
can be made from time to time in the open market and will be funded from our
available cash. The primary purpose of these programs is to enhance shareholder
value by partially offsetting the dilutive impact of stock based incentive
plans. The number of shares to be purchased and the timing of purchases are
based on several factors, including the price of our common stock, our liquidity
and working capital needs, general business and market conditions, and other
investment opportunities. The repurchased shares are retired and reclassified as
authorized and unissued shares of common stock. See Part II, Item 5 of
this Report for more information regarding the stock repurchase program. We may
continue to repurchase shares and Convertible Senior Notes from time to time, as
determined by management as authorized by the Board of Directors.
We
believe that our cash balances and the cash flows generated by operations will
be sufficient to satisfy our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months. However, we may be
required to raise or desire additional funds for selective purposes, such as
acquisitions, and may raise such additional funds through public or private
equity or debt financing or from other sources. After March 15, 2011, we
may from time to time redeem the Notes, in whole or in part, for cash, at a
redemption price equal to the full principal amount of the Notes, plus any
accrued and unpaid interest. Further, on March 15, 2011 and then upon
March 15, 2016, and March 15, 2021, or upon the occurrence of certain
events including a change in control, holders of the Notes may require the
Company to repurchase all or a portion of their Notes at a purchase price in
cash equal to the full principal amount of the Notes plus any accrued and unpaid
interest as of the relevant date. If the holders of the Notes require us to
repurchase all or a portion of their Notes or if they decide to redeem the
Notes, we may need to raise additional financing to complete future
acquisitions. The balance of the Notes will be classified as current liabilities
as of March 15, 2011.
Contractual
Obligations and Operating Leases
The
following table summarizes our significant contractual obligations, including
future minimum lease payments at December 31, 2009, under non-cancelable
operating leases with original terms in excess of one year, and the effect of
such obligations on our liquidity and cash flows in the future periods (in
thousands):
|
|
Payment Due by Period
|
|||||||||||||||||||
|
|
Total
|
2010
|
2011
and
2012
|
2013
and
2014
|
2015
and
Beyond
|
|||||||||||||||
|
Operating
lease obligations:
|
||||||||||||||||||||
|
Operating
lease
payments
|
$ | 94,395 | $ | 25,043 | $ | 48,993 | $ | 18,400 | $ | 1,959 | ||||||||||
|
Future
sublease
income
|
(8,826 | ) | (2,459 | ) | (5,053 | ) | (1,314 | ) | — | |||||||||||
|
Net
operating lease obligations
|
85,569 | 22,584 | 43,940 | 17,086 | 1,959 | |||||||||||||||
|
Debt
obligations:
|
||||||||||||||||||||
|
Principal
payments*
|
201,000 | — | — | — | 201,000 | |||||||||||||||
|
Interest
payments
|
99,495 | 6,030 | 12,060 | 12,060 | 69,345 | |||||||||||||||
|
Other
obligations**
|
2,623 | 887 | 1,736 | — | — | |||||||||||||||
| $ | 388,687 | $ | 29,501 | $ | 57,736 | $ | 29,146 | $ | 272,304 | |||||||||||
____________
|
*
|
Holders
of the Notes may require us to repurchase all or a portion of their Notes
at a purchase price in cash equal to the full principle amount of the
Notes plus any accrued and unpaid interest on March 15, 2011,
March 15, 2016, and March 15, 2021, or upon the occurrence of
certain events including a change in control. We have the right to redeem
some or all of the Notes after March 15, 2011.
|
|
**
|
Other
purchase obligations and commitments include minimum royalty payments
under license agreements and do not include purchase obligations discussed
below.
|
Our
contractual obligations at December 31, 2009 include the lease term for our
headquarters office in Redwood City, California, which is from December 15,
2004 to December 31, 2013. Minimum contractual lease payments are $2.6
million, $3.4 million, $3.5 million, and $3.6 million for the years ending
December 31, 2010, 2011, 2012, and 2013, respectively.
The above
commitment table does not include approximately $12.0 million of long-term
income tax liabilities recorded in accordance with FASB Income Taxes (ASC 740). We
adopted FIN No. 48 (ASC 740) effective January 1, 2007. We are
unable to make a reasonably reliable estimate of the timing of these potential
future payments in individual years beyond 12 months due to uncertainties
in the timing of tax audit outcomes. As a result, this amount is not included in
the table above. For further information, see Note 13. Income Taxes, of Notes to
Consolidated Financial Statements in Part II, Item 8 of this
Report.
Contractual
Obligations
Purchase
orders or contracts for the purchase of certain goods and services are not
included in the preceding table. We cannot determine the aggregate amount of
such purchase orders that represent contractual obligations because purchase
orders may represent authorizations to purchase rather than binding agreements.
For the purposes of this table, contractual obligations for purchase of goods or
services are defined as agreements that are enforceable and legally binding and
that specify all significant terms, including fixed or minimum quantities to be
purchased; fixed, minimum, or variable price provisions; and the approximate
timing of the transaction. Our purchase orders are based on our current needs
and are fulfilled by our vendors within short time horizons. We also enter into
contracts for outsourced services; however, the obligations under these
contracts were not significant and the contracts generally contain clauses
allowing for cancellation without significant penalty. Contractual obligations
that are contingent upon the achievement of certain milestones are not included
in the table above.
We
estimate the expected timing of payment of the obligations discussed above based
on current information. Timing of payments and actual amounts paid may be
different depending on the time of receipt of goods or services or changes to
agreed-upon amounts for some obligations.
Operating
Leases
We lease
certain office facilities and equipment under non-cancelable operating leases.
During 2004, we recorded facilities restructuring charges related to the
consolidation of excess leased facilities in Redwood City, California. Operating
lease payments in the table above include approximately $61.0 million, net
of actual sublease income, for operating lease commitments for those facilities
that are included in accrued facilities restructuring charges. See Note 11.
Facilities Restructuring Charges and
Note 15. Commitments and
Contingencies, of Notes to Consolidated Financial Statements in
Part II, Item 8 of this Report.
Of these
future minimum lease payments, we have $52.7 million recorded in accrued
facilities restructuring charges at December 31, 2009. This accrual, in
addition to minimum lease payments of $61.0 million, includes estimated
operating expenses of $18.5 million, is net of estimated sublease income of
$21.7 million, and is net of the present value impact of $5.1 million
recorded in accordance with FASB Accounting for Costs Associated with
Exit or Disposal Activities (ASC 420-10). We estimated sublease income
and the related timing thereof based on existing sublease agreements and current
market conditions, among other factors. Our estimates of sublease income may
vary significantly from actual amounts realized depending, in part, on factors
that may be beyond our control, such as the time periods required to locate and
contract suitable subleases and the market rates at the time of such
subleases.
In
relation to our excess facilities, we may decide to negotiate and enter into
lease termination agreements, if and when the circumstances are appropriate.
These lease termination agreements would likely require that a significant
amount of the remaining future lease payments be paid at the time of execution
of the agreement, but would release us from future lease payment obligations for
the abandoned facility. The timing of a lease termination agreement and the
corresponding payment could materially affect our cash flows in the period of
payment.
The
expected timing of payment of the obligations discussed above is estimated based
on current information. Timing of payments and actual amounts paid may be
different.
We have
sublease agreements for leased office space at the Pacific Shores Center in
Redwood City, California. In the event the sublessees are unable to fulfill
their obligations, we would be responsible for rent due under the leases. We
expect at this time that the sublessees will fulfill their obligations under the
terms of the current lease agreements.
In
February 2000, we entered into two lease agreements for two buildings at the
Pacific Shores Center in Redwood City, California (our former corporate
headquarters), which we occupied from August 2001 through December 2004. These
two lease agreements will expire in July 2013.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet financing arrangements, transactions, or
relationships with “special purpose entities.”
Recent
Accounting Pronouncements
For
recent accounting pronouncements, see Note 2. Summary of Significant Accounting Policies, of Notes
to Consolidated Financial Statements in Part II, Item 8 of this
Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Foreign
Currency Exchange Rate Risk
We market
and sell our software and services through our direct sales force and indirect
channel partners in North America, Europe, Asia-Pacific, and Latin America.
Accordingly, we are subject to exposure from adverse movements in foreign
currency exchange rates. The functional currency of our foreign subsidiaries is
their local currency, except for Informatica Cayman Ltd., which is in euros. Our
exposure to foreign exchange risk is related to the magnitude of foreign net
profits and losses denominated in foreign currencies, in particular the euro and
British pound sterling, as well as our net position of monetary assets and
monetary liabilities in those foreign currencies. These exposures have the
potential to produce either gains or losses within our consolidated results. Our
foreign operations, however, in most instances act as a natural hedge since both
operating expenses as well as revenues are generally denominated in their
respective local currency. In these instances, although an unfavorable change in
the exchange rate of foreign
currencies
against the U.S. dollar will result in lower revenues when translated into
U.S. dollars, the operating expenditures will be lower as
well.
Our results of operations and cash
flows are subject to fluctuations due to changes in foreign currency exchange
rates, particularly changes in the Indian rupee, Israeli shekel, euro, British pound sterling, Canadian
dollar, Japanese yen, Brazilian real, and Australian dollar.
Cash
Flow Hedge Activities
We have
attempted to minimize the impact of certain foreign currency fluctuations
through initiation of certain cash flow hedge programs starting in the fourth
quarter of 2008. The purpose of these programs is to reduce volatility in cash
flows and expenses caused by movement in certain foreign currency exchange
rates, in particular the Indian rupee and Israeli shekel. Under these programs,
the effective portion of the gain or loss on the derivative instrument is
reported as a component of other comprehensive income (loss) and is reclassified
into earnings in the same period or periods during which the hedged forecasted
transaction affects earnings.
The
foreign exchange contracts initiated in the fourth quarter of 2008 expired in
November 2009, and the Company entered into additional foreign exchange
contracts in December 2009 under the Company’s hedging programs.
The table
below presents the notional amounts of the foreign exchange forward contracts
that Informatica committed to purchase in the fourth quarter of 2009 for Indian
rupees and Israeli shekels, which were outstanding as of December 31, 2009 (in
thousands):
|
Functional currency
|
Foreign
Amount
|
USD
Equivalent
|
Weighted
Average
Rate
|
|||||||||
|
Indian
rupee
|
533,200 | $ | 11,469 | 46.49 | ||||||||
|
Israeli
shekel
|
12,654 | 3,349 | 3.78 | |||||||||
| $ | 14,818 | |||||||||||
See Note
2. Summary of Significant
Accounting Policies, Note 9. Accumulated Other Comprehensive
Income, Note 10. Derivative Financial
Instruments, and Note 15. Commitments and
Contingencies, of Notes to Consolidated Financial Statements for a
further discussion.
We record
the effective portion of changes in fair value of these cash flow hedges in
accumulated other comprehensive income (loss). When the forecasted transaction
occurs, we reclassify the effective portion related gain or loss on the cash
flow hedge to operating expenditures. If the hedge program becomes ineffective
or if the underlying forecasted transaction does not occur for any reason, or it
becomes probable that it will not occur, we reclassify the gain or loss on the
related cash flow hedge from accumulated other comprehensive income (loss) to
other income (expense) in the consolidated statements of
operations.
Interest
Rate Risk
Our
exposure to market risk for changes in interest rates relates primarily to our
investment portfolio. We do not use derivative financial instruments in our
investment portfolio. The primary objective of our investment activities is to
preserve principal while maximizing yields without significantly increasing
risk. Our investment policy specifies credit quality standards for our
investments and limits the amount of credit exposure to any single issue,
issuer, or type of investment. Our investments consist primarily of
U.S. government notes and bonds, corporate bonds, commercial paper and
municipal securities. All investments are carried at market value, which
approximates cost. See Note 3. Cash, Cash Equivalents, and
Short-Term Investments,
of Notes to Consolidated Financial Statements in Part II,
Item 8 of this Report.
The
following table presents the fair value of cash equivalents and short-term
investments that are subject to interest rate risk and the average interest rate
as of December 31, 2009 and 2008 (dollars in thousands):
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
Cash
and short-term
investments
|
$ | 317,178 | $ | 348,338 | ||||
|
Average
rate of
return
|
1.4 | % | 3.0 | % | ||||
Our cash
equivalents and short-term investments are subject to interest rate risk and
will decline in value if market interest rates increase. As of December 31,
2009, we had net unrealized gains of $0.4 million associated with these
securities. If market interest rates were to change immediately and uniformly by
100 basis points from levels as of December 31, 2009, the fair market
value of the portfolio would change by approximately $2.2 million.
Additionally, we have the ability to hold our investments until maturity and,
therefore, we would not necessarily expect to realize an adverse impact on
income or cash flows. At this time, we do not expect a significant change in our
average rate of return in 2010.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The
following consolidated financial statements, and the related notes thereto, of
Informatica Corporation and the Reports of Independent Registered Public
Accounting Firm are filed as a part of this Form 10-K.
REPORT
OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of Informatica is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934. Informatica’s internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes those
policies and procedures that:
|
|
●
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
|
|
|
●
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and
directors of the company; and
|
|
|
●
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements due to human error, or the improper
circumvention or overriding of internal controls. In addition, projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions and that the
degree of compliance with the policies or procedures may change over
time.
Management
assessed the effectiveness of Informatica’s internal control over financial
reporting as of December 31, 2009. In making this assessment, management
used the criteria set forth in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”).
Based on
its assessment of internal control over financial reporting, management has
concluded that, as of December 31, 2009, Informatica’s internal control
over financial reporting was effective to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles.
Informatica’s
independent registered public accounting firm, Ernst & Young LLP, has
issued an attestation report on the effectiveness of Informatica’s internal
control over financial reporting. Its report appears immediately after this
report.
|
|
/s/ SOHAIB ABBASI | |
| Sohaib Abbasi | ||
| Chief Executive Officer | ||
| February 26, 2010 | ||
| /s/ EARL FRY | ||
| Earl Fry | ||
| Chief Financial Officer | ||
| February 26, 2010 |
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders of Informatica Corporation
We have
audited Informatica Corporation’s internal control over financial reporting as
of December 31, 2009, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Informatica
Corporation’s management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Report of
Management on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the company’s internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Informatica Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Informatica
Corporation as of December 31, 2009 and 2008, and the related consolidated
statements of income, stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2009 of Informatica Corporation and
our report dated February 26, 2010 expressed an unqualified opinion
thereon.
/s/ ERNST & YOUNG
LLP
San Jose,
California
February 26,
2010
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders of Informatica Corporation
We have
audited the accompanying consolidated balance sheets of Informatica Corporation
as of December 31, 2009 and 2008, and the related consolidated statements
of income, stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2009. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Informatica
Corporation at December 31, 2009 and 2008, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2009, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As
discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for uncertain tax positions as of
January 1, 2007 and its method of accounting for business combinations in
2009.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Informatica Corporation’s internal control over
financial reporting as of December 31, 2009, based on criteria established
in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated
February 26, 2010 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG
LLP
San Jose,
California
February 26,
2010
INFORMATICA
CORPORATION
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except par value)
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 159,197 | $ | 179,874 | ||||
|
Short-term
investments
|
305,283 | 281,055 | ||||||
|
Accounts
receivable, net of allowances of $3,454 in 2009 and $2,558 in 2008
|
110,653 | 87,492 | ||||||
|
Deferred
tax assets
|
23,673 | 22,336 | ||||||
|
Prepaid
expenses and other current assets
|
15,251 | 12,498 | ||||||
|
Total
current assets
|
614,057 | 583,255 | ||||||
|
Property
and equipment, net
|
7,928 | 9,063 | ||||||
|
Goodwill
|
287,068 | 219,063 | ||||||
|
Other
intangible assets, net
|
63,586 | 35,529 | ||||||
|
Long-term
deferred tax assets
|
8,259 | 7,294 | ||||||
|
Other
assets
|
8,724 | 8,908 | ||||||
|
Total
assets
|
$ | 989,622 | $ | 863,112 | ||||
|
Liabilities
and Stockholders’ Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 4,274 | $ | 7,376 | ||||
|
Accrued
liabilities
|
37,367 | 34,541 | ||||||
|
Accrued
compensation and related expenses
|
41,523 | 29,365 | ||||||
|
Income
taxes payable
|
12,949 | — | ||||||
|
Accrued
facilities restructuring charges
|
19,880 | 19,529 | ||||||
|
Deferred
revenues
|
139,629 | 120,892 | ||||||
|
Total
current liabilities
|
255,622 | 211,703 | ||||||
|
Convertible
senior notes
|
201,000 | 221,000 | ||||||
|
Accrued
facilities restructuring charges, less current portion
|
32,845 | 44,939 | ||||||
|
Long-term
deferred revenues
|
4,531 | 8,847 | ||||||
|
Long-term
deferred tax liabilities
|
516 | — | ||||||
|
Long-term
income taxes payable
|
11,995 | 20,668 | ||||||
|
Total
liabilities
|
506,509 | 507,157 | ||||||
|
Commitments
and contingencies (Note 15)
|
||||||||
|
Stockholders’
equity:
|
||||||||
|
Common
stock, $0.001 par value; 200,000 shares authorized;
90,092 shares and 86,660 shares issued and outstanding at
December 31, 2009 and 2008, respectively
|
90 | 87 | ||||||
|
Additional
paid-in capital
|
434,262 | 374,091 | ||||||
|
Accumulated
other comprehensive (loss)
|
(968 | ) | (3,741 | ) | ||||
|
Retained
earnings (accumulated deficit)
|
49,729 | (14,482 | ) | |||||
|
Total
stockholders’ equity
|
483,113 | 355,955 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 989,622 | $ | 863,112 | ||||
See
accompanying notes to consolidated financial statements.
INFORMATICA
CORPORATION
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except per share data)
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Revenues:
|
||||||||||||
|
License
|
$ | 214,322 | $ | 195,769 | $ | 175,318 | ||||||
|
Service
|
286,371 | 259,930 | 215,938 | |||||||||
|
Total
revenues
|
500,693 | 455,699 | 391,256 | |||||||||
|
Cost
of revenues:
|
||||||||||||
|
License
|
3,135 | 3,291 | 3,693 | |||||||||
|
Service
|
76,549 | 80,287 | 69,174 | |||||||||
|
Amortization
of acquired technology
|
7,950 | 4,125 | 2,794 | |||||||||
|
Total
cost of revenues
|
87,634 | 87,703 | 75,661 | |||||||||
|
Gross
profit
|
413,059 | 367,996 | 315,595 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
78,352 | 72,522 | 69,908 | |||||||||
|
Sales
and marketing
|
192,747 | 177,339 | 158,298 | |||||||||
|
General
and administrative
|
41,449 | 37,411 | 35,531 | |||||||||
|
Amortization
of intangible assets
|
10,051 | 4,575 | 1,441 | |||||||||
|
Facilities
restructuring charges
|
1,661 | 3,018 | 3,014 | |||||||||
|
Acquisitions
and other
|
(570 | ) | 390 | — | ||||||||
|
Patent
related litigation proceeds net of patent contingency accruals
|
— | (11,495 | ) | — | ||||||||
|
Total
operating expenses
|
323,690 | 283,760 | 268,192 | |||||||||
|
Income
from operations
|
89,369 | 84,236 | 47,403 | |||||||||
|
Interest
income
|
5,867 | 14,092 | 21,820 | |||||||||
|
Interest
expense
|
(6,602 | ) | (7,221 | ) | (7,196 | ) | ||||||
|
Other
income, net
|
1,184 | 866 | 613 | |||||||||
|
Income
before income taxes
|
89,818 | 91,973 | 62,640 | |||||||||
|
Income
tax provision
|
25,607 | 35,993 | 8,024 | |||||||||
|
Net
income
|
$ | 64,211 | $ | 55,980 | $ | 54,616 | ||||||
|
Basic
net income per common share
|
$ | 0.73 | $ | 0.64 | $ | 0.63 | ||||||
|
Diluted
net income per common share
|
$ | 0.66 | $ | 0.58 | $ | 0.57 | ||||||
|
Shares
used in computing basic net income per common share
|
87,991 | 88,109 | 87,164 | |||||||||
|
Shares
used in computing diluted net income per common share
|
103,312 | 103,278 | 103,252 | |||||||||
See
accompanying notes to consolidated financial statements.
INFORMATICA
CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(In
thousands)
|
Common Stock
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Retained
Earnings
(Accumulated
Deficit)
|
Total
Stockholders’
Equity
|
|||||||||||||||||||
|
Balances,
December 31, 2006
|
85,933 | $ | 86 | $ | 350,359 | $ | 1,796 | $ | (125,078 | ) | $ | 227,163 | ||||||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||||||
|
Net
income
|
— | — | — | — | 54,616 | 54,616 | ||||||||||||||||||
|
Foreign
currency translation adjustment
|
— | — | — | 3,480 | — | 3,480 | ||||||||||||||||||
|
Unrealized
gain on investments
|
— | — | — | 364 | — | 364 | ||||||||||||||||||
|
Comprehensive
income
|
58,460 | |||||||||||||||||||||||
|
Common
stock options exercised
|
2,782 | 3 | 20,239 | — | — | 20,242 | ||||||||||||||||||
|
Common
stock issued under employee stock purchase plan
|
734 | 1 | 7,457 | — | — | 7,458 | ||||||||||||||||||
|
Share-based
payments
|
— | — | 15,947 | — | — | 15,947 | ||||||||||||||||||
|
Tax
benefit of share-based payments
|
— | — | 12,215 | — | — | 12,215 | ||||||||||||||||||
|
Repurchase
and retirement of common stock
|
(1,974 | ) | (3 | ) | (28,940 | ) | — | — | (28,943 | ) | ||||||||||||||
|
Balances,
December 31, 2007
|
87,475 | 87 | 377,277 | 5,640 | (70,462 | ) | 312,542 | |||||||||||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||||||
|
Net
income
|
— | — | — | — | 55,980 | 55,980 | ||||||||||||||||||
|
Foreign
currency translation adjustment
|
— | — | — | (10,090 | ) | — | (10,090 | ) | ||||||||||||||||
|
Unrealized
gain on investments
|
— | — | — | 658 | — | 658 | ||||||||||||||||||
|
Cash
flow hedging gains
|
— | — | — | 51 | — | 51 | ||||||||||||||||||
|
Comprehensive
income
|
46,599 | |||||||||||||||||||||||
|
Common
stock options exercised
|
2,313 | 3 | 19,112 | — | — | 19,115 | ||||||||||||||||||
|
Common
stock issued under employee stock purchase plan
|
669 | 1 | 8,466 | — | — | 8,467 | ||||||||||||||||||
|
Share-based
payments
|
— | — | 16,321 | — | — | 16,321 | ||||||||||||||||||
|
Tax
benefit of share-based payments
|
— | — | 9,907 | — | — | 9,907 | ||||||||||||||||||
|
Repurchase
and retirement of common stock
|
(3,797 | ) | (4 | ) | (56,992 | ) | — | — | (56,996 | ) | ||||||||||||||
|
Balances,
December 31, 2008
|
86,660 | 87 | 374,091 | (3,741 | ) | (14,482 | ) | 355,955 | ||||||||||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||||||
|
Net
income
|
— | — | — | — | 64,211 | 64,211 | ||||||||||||||||||
|
Foreign
currency translation adjustment
|
— | — | — | 3,562 | — | 3,562 | ||||||||||||||||||
|
Unrealized
gain on investments
|
— | — | — | (647 | ) | — | (647 | ) | ||||||||||||||||
|
Cash
flow hedging gains
|
— | — | — | (142 | ) | — | (142 | ) | ||||||||||||||||
|
Comprehensive
income
|
66,984 | |||||||||||||||||||||||
|
Common
stock options exercised
|
3,473 | 3 | 33,150 | — | — | 33,153 | ||||||||||||||||||
|
Common
stock issued under employee stock purchase plan
|
791 | 1 | 8,543 | — | — | 8,544 | ||||||||||||||||||
|
Share-based
payments
|
— | — | 17,926 | — | — | 17,926 | ||||||||||||||||||
|
Tax
benefit of share-based payments
|
— | — | 13,386 | — | — | 13,386 | ||||||||||||||||||
|
Repurchase
and retirement of common stock
|
(832 | ) | (1 | ) | (12,834 | ) | — | — | (12,835 | ) | ||||||||||||||
|
Balances,
December 31, 2009
|
90,092 | $ | 90 | $ | 434,262 | $ | (968 | ) | $ | 49,729 | $ | 483,113 | ||||||||||||
See
accompanying notes to consolidated financial statements.
INFORMATICA
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
Years Ended
December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Operating
activities:
|
||||||||||||
|
Net
income
|
$ | 64,211 | $ | 55,980 | $ | 54,616 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
5,513 | 5,618 | 10,507 | |||||||||
|
Allowance
for doubtful accounts
|
320 | 1,268 | 215 | |||||||||
|
Gain
on early extinguishment of debt
|
(337 | ) | (1,015 | ) | — | |||||||
|
Share-based
payments
|
17,926 | 16,321 | 15,971 | |||||||||
|
Deferred
income taxes
|
(8,189 | ) | (10,874 | ) | (20,974 | ) | ||||||
|
Tax
benefits from share-based payments
|
13,386 | 9,907 | 12,215 | |||||||||
|
Excess
tax benefits from share-based payments
|
(8,670 | ) | (5,094 | ) | (5,492 | ) | ||||||
|
Amortization
of intangible assets and acquired technology
|
18,001 | 8,700 | 4,235 | |||||||||
|
Non-cash
facilities restructuring charges
|
1,661 | 3,018 | 3,014 | |||||||||
|
Other
non-cash items
|
504 | 370 | — | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
(19,631 | ) | (5,959 | ) | (6,982 | ) | ||||||
|
Prepaid
expenses and other assets
|
(2,988 | ) | 3,298 | (1,974 | ) | |||||||
|
Accounts
payable and accrued liabilities
|
(11,742 | ) | 7,153 | (180 | ) | |||||||
|
Accrued
compensation and related expenses
|
7,264 | (4,907 | ) | 7,260 | ||||||||
|
Income
taxes payable
|
3,617 | 13,210 | 1,291 | |||||||||
|
Accrued
facilities restructuring charges
|
(13,239 | ) | (12,628 | ) | (12,419 | ) | ||||||
|
Deferred
revenues
|
9,262 | 15,529 | 20,702 | |||||||||
|
Net
cash provided by operating activities
|
76,869 | 99,895 | 82,005 | |||||||||
|
Investing
activities:
|
||||||||||||
|
Purchases
of property and equipment
|
(3,303 | ) | (4,728 | ) | (5,926 | ) | ||||||
|
Purchases
of investments
|
(462,440 | ) | (468,880 | ) | (462,566 | ) | ||||||
|
Purchase
of investment in equity interest
|
— | (3,000 | ) | — | ||||||||
|
Purchase
of patent
|
(2,420 | ) | (1,300 | ) | — | |||||||
|
Maturities
of investments
|
382,791 | 394,469 | 392,578 | |||||||||
|
Sales
of investments
|
54,364 | 75,536 | 69,537 | |||||||||
|
Business
acquisitions, net of cash acquired
|
(86,024 | ) | (86,980 | ) | — | |||||||
|
Transfer
from restricted cash
|
— | 12,016 | — | |||||||||
|
Net
cash used in investing activities
|
(117,032 | ) | (82,867 | ) | (6,377 | ) | ||||||
|
Financing
activities:
|
||||||||||||
|
Net
proceeds from issuance of common stock
|
41,697 | 27,582 | 27,700 | |||||||||
|
Repurchases
and retirement of common stock
|
(12,835 | ) | (56,996 | ) | (28,943 | ) | ||||||
|
Repurchases
of convertible senior notes
|
(19,200 | ) | (7,774 | ) | — | |||||||
|
Excess
tax benefits from share-based payments
|
8,670 | 5,094 | 5,492 | |||||||||
|
Net
cash provided by (used in) financing activities
|
18,332 | (32,094 | ) | 4,249 | ||||||||
|
Effect
of foreign exchange rate changes on cash and cash
equivalents
|
1,154 | (8,721 | ) | 3,293 | ||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
(20,677 | ) | (23,787 | ) | 83,170 | |||||||
|
Cash
and cash equivalents at beginning of the year
|
179,874 | 203,661 | 120,491 | |||||||||
|
Cash
and cash equivalents at end of the year
|
$ | 159,197 | $ | 179,874 | $ | 203,661 | ||||||
|
Supplemental
disclosures:
|
||||||||||||
|
Interest
paid
|
$ | 6,290 | $ | 6,952 | $ | 6,900 | ||||||
|
Income
taxes paid, net of refunds
|
$ | 17,162 | $ | 25,537 | $ | 11,945 | ||||||
|
Supplemental
disclosures of non-cash investing and financing
activities:
|
||||||||||||
|
Unrealized
gain (loss) on investments
|
$ | (647 | ) | $ | 658 | $ | 364 | |||||
See
accompanying notes to consolidated financial statements.
1. Organization
and Business
Informatica
Corporation (“Informatica,” or “the Company”) was incorporated in California in
February 1993 and reincorporated in Delaware in April 1999. The Company is a
leading provider of enterprise data integration and data quality software and
services that enable organizations to gain greater business value by integrating
their information assets. Informatica software handles a wide variety of complex
enterprise-wide data integration initiatives, including data warehousing, data
migration, data consolidation, data synchronization, data quality, and the
establishment of data hubs, data services, cross-enterprise data exchange and
integration competency centers.
2. Summary
of Significant Accounting Policies
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany accounts and transactions have been
eliminated.
Use
of Estimates
The
Company’s consolidated financial statements are prepared in accordance with
generally accepted accounting principles (“GAAP”) in the United States of
America. These accounting principles require us to make certain estimates,
judgments, and assumptions. The Company believes that the estimates, judgments,
and assumptions upon which it relies are reasonable based upon information
available to it 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 Informatica’s 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.
Cash
and Cash Equivalents
The
Company considers highly liquid investment securities with maturities, at date
of purchase, of 90 days or less to be cash equivalents. Cash and cash
equivalents, which consist primarily of commercial paper, money market funds,
federal agencies, and U.S. government securities with insignificant
interest rate risk, are stated at cost, which approximates fair
value.
Allowance
for Doubtful Accounts
The
Company makes estimates as to the overall collectibility of accounts receivable
and provides an allowance for accounts receivable considered uncollectible. The
Company specifically analyzes its accounts receivable and historical bad debt
experience, customer concentrations, customer credit-worthiness, current
economic trends, and changes in its customer payment terms when evaluating the
adequacy of the allowance for doubtful accounts. The Company charges off the
adjustment in general and administrative expense. At December 31, 2009 and
2008, the Company’s allowance for doubtful accounts was $3.5 million and
$2.6 million, respectively.
Investments
Investments
are comprised of marketable securities, which consist primarily of commercial
paper, U.S. government notes and bonds, corporate bonds and municipal
securities with original maturities beyond 90 days. All marketable
securities are held in the Company’s name and managed by three major financial
institutions. The Company’s marketable securities are classified as available-
for-sale and are reported at fair value, with unrealized gains and losses, net
of tax, recorded in stockholders’ equity. The Company classifies all available
for sale marketable securities, including those with original maturity dates
greater than one year, as short-term investments. Realized gains or losses and
permanent declines in value, if any, on available-for-sale securities will be
reported in other
55
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
income or
expense as incurred. The Company recognizes realized gains and losses upon sales
of investment and reclassifies unrealized gains and losses out of accumulated
other comprehensive income into earnings using the specific identification
method.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is
provided using the straight-line method over the estimated useful lives of the
related assets, generally three (software) to five (computer equipment) years.
The estimated useful lives of computer software and equipment are generally
three years. The estimated useful lives of furniture and office equipment are
three years. Leasehold improvements are amortized using the straight-line method
over the shorter of the lease term or the estimated useful life of the related
asset.
Software
Development Costs
The
Company accounts for software development costs in accordance with the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
985-20 Costs of Software to Be
Sold, Leased, or Otherwise Marketed, under which certain software
development costs incurred subsequent to the establishment of technological
feasibility are capitalized and amortized over the estimated lives of the
related products. Technological feasibility is established upon completion of a
working model. Through December 31, 2009, costs incurred subsequent to the
establishment of technological feasibility have not been significant and all
software development costs have been charged to research and development expense
in the accompanying consolidated statements of operations.
Pursuant
to the FASB ASC 350-40, Intangibles-Goodwill and Other,
Internal-Use Software, the Company capitalizes certain costs relating to
software acquired, developed, or modified solely to meet the Company’s internal
requirements and for which there are no substantive plans to market the
software. The Company did not have any capitalized software developments costs
for the years ended December 31, 2009 and 2008.
Goodwill
The
Company assesses its goodwill for impairment in accordance with the FASB ASC
350, Intangibles-Goodwill and
Other, which requires that goodwill be tested for impairment at the
“reporting unit level” (“Reporting Unit”) at least annually and more frequently
upon the occurrence of certain events, as defined by this standard. Consistent
with the Company’s assessment that it has only one reporting segment,
Informatica has determined that it has only one “Reporting Unit”. The Company
tests its goodwill for impairment on October 31 of each year using the two-step
process required by ASC 350-20. First, the Company reviews the carrying amount
of its “Reporting Unit” compared to the “fair value” of the “Reporting Unit”
based on quoted market prices of the Company’s common stock as well as total
forecasted cash flow. If such initial test signals any potential impairment, the
Company would then prepare the discounted cash flow analyses. These analyses are
based on cash flow assumptions that are consistent with the estimates that the
Company uses to manage its business. An excess carrying value compared to fair
value would indicate that goodwill may be impaired. Finally, if the Company
determines that goodwill might have been impaired, it will compare the “implied
fair value” of the goodwill, as defined by ASC 350, to its carrying amount to
determine the impairment loss, if any.
The
Company has completed its annual goodwill impairment tests as of
October 31, 2009 and 2008, and has determined that there was no impairment
charges as of above dates.
Impairment
of Long-Lived Assets
The
Company evaluates long-lived assets, other than goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable based on expected undiscounted cash flows
attributable to that asset in accordance with ASC 360-10, Impairment or Disposal of Long-Lived
Assets and ASC 350-30, General Intangibles Other than
Goodwill. The Company measures any amount of impairment based on the
difference between the carrying value and the fair value of the impaired
asset.
Fair
Value Measurement of Financial Assets and Liabilities
FASB
Fair Value Measurements
and Disclosures (ASC 820-10-35)
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value as follows:
56
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
●
|
Level 1. Observable
inputs such as quoted prices in active
markets;
|
|
|
●
|
Level 2. Inputs,
other than the quoted prices in active markets, that are observable either
directly or indirectly; and
|
|
|
●
|
Level 3. Unobservable
inputs in which there is little or no market data, which require the
reporting entity to develop its own
assumptions.
|
Further,
FASB Fair Value Measurements
and Disclosures (ASC 820-10-35) allows the Company to measure the fair
value of its financial assets and liabilities based on one or more of the three
following valuation techniques:
|
|
●
|
Market
approach. Prices and other relevant information
generated by market transactions involving identical or comparable assets
or liabilities;
|
|
|
●
|
Cost
approach. Amount that would be required to replace the
service capacity of an asset (replacement
cost); and
|
|
|
●
|
Income
approach. Techniques to convert future amounts to a
single present amount based on market expectations (including present
value techniques, option-pricing, and excess earnings
models).
|
The
following table summarizes the fair value measurement classification of
Informatica as of December 31, 2009 (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 (1)
|
$ | 10,895 | $ | 10,895 | $ | — | $ | — | ||||||||
|
Marketable
securities (2)
|
306,283 | — | 306,283 | — | ||||||||||||
|
Total
money market funds and marketable securities
|
317,178 | 10,895 | 306,283 | — | ||||||||||||
|
Investment
in equity interest (3)
|
3,000 | — | — | 3,000 | ||||||||||||
|
Foreign
currency derivatives (4)
|
1 | — | 1 | — | ||||||||||||
|
Total
|
$ | 320,179 | $ | 10,895 | $ | 306,284 | $ | 3,000 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Foreign
currency derivatives (5)
|
$ | 206 | $ | — | $ | 206 | $ | — | ||||||||
|
Convertible
senior notes
|
257,055 | 257,055 | — | — | ||||||||||||
|
Total
|
$ | 257,261 | $ | 257,055 | $ | 206 | $ | — | ||||||||
The
following table summarizes the fair value measurement classification of
Informatica as of December 31, 2008 (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 (1)
|
$ | 25,542 | $ | 25,542 | $ | — | $ | — | ||||||||
|
Marketable
securities (2)
|
322,796 | — | 322,796 | — | ||||||||||||
|
Total
money market funds and marketable securities
|
348,338 | 25,542 | 322,796 | — | ||||||||||||
|
Investment
in equity interest (3)
|
3,000 | — | — | 3,000 | ||||||||||||
|
Foreign
currency derivatives (4)
|
155 | — | 155 | — | ||||||||||||
|
Total
|
$ | 351,493 | $ | 25,542 | $ | 322,951 | $ | 3,000 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Convertible
senior notes
|
$ | 204,259 | $ | 204,259 | $ | — | $ | — | ||||||||
|
Total
|
$ | 204,259 | $ | 204,259 | $ | — | $ | — | ||||||||
____________
57
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
(1)
|
Included
in cash and cash equivalents on the consolidated balance
sheets.
|
|
|
(2)
|
Included
in either cash and cash equivalents or short-term investments on the
consolidated balance sheets.
|
|
|
(3)
|
Included
in other non-current assets on the consolidated balance
sheets.
|
|
|
(4)
|
Included
in prepaid expenses and other current assets on the consolidated balance
sheets.
|
|
|
(5)
|
Included
in other liabilities on the consolidated balance
sheets.
|
Marketable
Securities and Convertible Senior Notes
Informatica
uses a market approach
for determining the fair value of all its Level 1 and Level 2 marketable
securities financial assets and Convertible Senior Notes
liabilities.
The
Company for the valuation of its money market funds uses valuations based on
quoted prices in active markets for identical assets that the Company has the
ability to access.
Informatica
used the following methodology to determine the fair value of its treasury
bills, corporate bonds, agency and government bonds for $280 million and
$270 million at December 31, 2009 and 2008. These securities generally
have market prices from multiple sources; therefore, the Company used a
“consensus price” or a weighted average price for each security. Informatica
receives market prices for these securities from a variety of industry standard
data providers (e.g., Bloomberg), security master files from large financial
institutions, and other third-party sources. Then, the Company uses these
multiple prices as inputs into a distribution-curve-based algorithm to determine
the daily market value.
Informatica
used the following methodology to determine the fair value of its commercial
paper and certificates of deposit for $26 million and $53 million at
December 31, 2009 and 2008. The Company used 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 market place, the price on that subsequent transaction
clearly reflects the market price on that day and Informatica will adjust the
price in the system to the observed transaction price and follow a revised
accretion schedule to determine the daily price.
Foreign
Currency Derivatives and Hedging Instruments
Informatica
uses the income approach
to value the derivatives, using observable Level 2 market
expectations at measurement date and standard valuation techniques to convert
future amounts to a single discounted present amount, assuming that participants
are motivated but not compelled to transact. Level 2 inputs are
limited to quoted prices that are observable for the asset and liabilities,
which include interest rates and credit risk. The Company has used mid-market
pricing as a practical expedient for fair value measurements. Key inputs for
currency derivatives are the spot rates, forward rates, interest rates, and
credit derivative markets. The spot rate for each currency is the same spot rate
used for all balance sheet translations at the measurement date and is sourced
from the Federal Reserve Bulletin. The following values are interpolated from
commonly quoted intervals available from Bloomberg: forward points and the
London Interbank Offered Rate (LIBOR) used to discount and determine the fair
value of assets and liabilities. One-year credit default swap spreads identified
per counterparty at month end in Bloomberg are used to discount derivative
assets for counterparty non-performance risk, all of which have terms of
13 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 Informatica’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 material risks
at this time. Both the Company and the counterparties are expected to perform
under the contractual terms of the instruments.
See Note
9. Accumulated Other
Comprehensive Income, Note 10. Derivative Financial
Instruments, and Note 15. Commitments and
Contingencies, of Notes to Consolidated Financial Statements for a
further discussion.
58
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Investment
in Equity Securities
The
Company also held a $3 million investment in the preferred stock of a
privately-held company at December 31, 2009 and 2008, which was classified
as Level 3 for
value measurement purposes. In determining the fair value of this investment,
the Company uses the cash flow of the entity against its own cash flow
assumptions at the time that investment was made for the determination of the
fair value of this investment.
Fair Value of
Financial Instruments, Concentrations of Credit Risk, and Credit Evaluations
The fair
value of the Company’s cash, cash equivalents, short-term investments, accounts
receivable, and accounts payable approximates their respective carrying
amounts.
Financial
instruments, which subject the Company to concentrations of credit risk, consist
primarily of cash and cash equivalents, investments in marketable securities,
and trade accounts receivable. The Company maintains its cash and cash
equivalents and investments with high-quality financial
institutions.
The
Company performs ongoing credit evaluations of its customers, which are
primarily located in the United States, Canada, and Europe, and generally does
not require collateral. The Company makes judgments as to its ability to collect
outstanding receivables and provide allowances for the portion of receivables
when collection becomes doubtful. Provisions are made based upon a specific
review of all significant outstanding invoices. For those invoices not
specifically reviewed, provisions are provided at differing rates, based upon
the age of the receivable. In determining these percentages, the Company
analyzes its historical collection experience and current economic trends. If
the historical data it uses to calculate the allowance for doubtful accounts
does not reflect the future ability to collect outstanding receivables,
additional provisions for doubtful accounts may be needed and the future results
of operations could be materially affected. The counterparties associated with
the Company’s forward foreign exchange contracts are large credit worthy
commercial banking institutions; therefore, the Company does not consider
counterparty non-performance a material risk.
Revenue
Recognition
The
Company derives its revenues from software license fees, maintenance fees, and
professional services, which consist of consulting and education services. The
Company recognizes revenue in accordance with FASB Software Revenue Recognition (ASC
985-605-25), FASB Revenue
Recognition for Construction-Type and Production-Type Contracts (ASC
605-35), and the
Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 (“SAB No.
104”), Revenue Recognition,
and other authoritative accounting literature.
Under ASC
985-605-25, revenue is recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and collection
is probable.
Persuasive evidence of an
arrangement exists. The Company determines that persuasive
evidence of an arrangement exists when it has a written contract, signed by both
the customer and the Company, and written purchase authorization.
Delivery has
occurred. Software is considered delivered when title to the
physical software media passes to the customer or, in the case of electronic
delivery, when the customer has been provided with the access codes to download
and operate the software.
Fee is fixed or
determinable. The Company considers arrangements with extended
payment terms not to be fixed or determinable. If the license fee in an
arrangement is not fixed or determinable, revenue is recognized as payments
become due. Revenue arrangements with resellers and distributors require
evidence of sell-through, that is, persuasive evidence that the products have
been sold to an identified end user. The Company’s standard agreements do not
contain product return rights.
Collection is
probable. The Company assesses first the credit-worthiness and
collectibility at a country level based on the country’s overall economic
climate and general business risk. Then, for the customers in the countries that
are deemed credit-worthy, it assesses credit and collectibility based on their
payment history and credit profile. When a customer is not deemed credit-worthy,
revenue is recognized at the time that payment is received.
59
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
Company also enters into Original Equipment Manufacturer (“OEM”) arrangements
that provide for license fees based on inclusion of technology and/or products
in the OEM’s products. These arrangements provide for fixed and irrevocable
royalty payments. The Company recognizes royalty payments as revenues based on
the royalty report that it receives from the OEMs. In the case of OEMs with
fixed royalty payments, revenue is recognized upon execution of the agreement,
delivery of the software, and when all other criteria for revenue recognition
have been met.
Multiple
contracts with a single counterparty executed within close proximity of each
other are evaluated to determine if the contracts should be combined and
accounted for as a single arrangement. The Company recognizes revenues net of
applicable sales taxes, financing charges absorbed by Informatica, and amounts
retained by our resellers and distributors, if any.
The
Company’s software license arrangements include the following multiple elements:
license fees from our core software products and/or product upgrades that are
not part of post-contract services, maintenance fees, consulting, and/or
education services. The Company uses the residual method to recognize license
revenue when the license arrangement includes elements to be delivered at a
future date and vendor-specific objective evidence (“VSOE”) of fair value exists
to allocate the fee to the undelivered elements of the arrangement. VSOE is
based on the price charged when an element is sold separately. If VSOE does not
exist for any undelivered software product element of the arrangement, all
revenue is deferred until all elements have been delivered, or VSOE is
established. If VSOE does not exist for any undelivered services elements of the
arrangement, all revenue is recognized ratably over the period that the services
are expected to be performed. If the software arrangement includes significant
modification or customization of the software, software license revenue is
recognized as the consulting services revenue is recognized.
The
Company recognizes maintenance revenues, which consist of fees for ongoing
support and product updates, ratably over the term of the contract, typically
one year.
Consulting
revenues are primarily related to implementation services and product
configurations performed on a time-and-materials basis and, occasionally, on a
fixed fee basis. Education services revenues are generated from classes offered
at both Company and customer locations. Revenues from consulting and education
services are recognized as the services are performed. Other revenues,
consisting of software subscription, SaaS and cloud services revenues (which are
not material at this time), are generally recognized as the services are
performed.
Deferred
revenues include deferred license, maintenance, consulting, education, and other
services revenues. For customers not deemed credit-worthy, the Company’s
practice is to net unpaid deferred revenue for that customer against the related
receivable balance.
Facilities
Restructuring Charges
The
Company adopted SFAS No. 146 (ASC 420), Exit or Disposal Cost Obligations,
effective January 1, 2003; therefore, the restructuring activities
initiated on or after January 1, 2003 were accounted for in accordance with
ASC 420. The Company applied SFAS No. 146 (ASC 420) for its 2004
Restructuring Plan while its 2001 Restructuring Plan was accounted for in
accordance with Emerging Issues Task Force (“EITF”) Issue No. 88-10, Costs Associated with Lease
Modification or Termination. EITF No. 88-10 and other applicable
pre-existing guidance. See Note 11. Facilities Restructuring Charges,
of Notes to Consolidated Financial Statements in Part II,
Item 8 of this Report.
ASC 420
requires that a liability associated with an exit or disposal activity be
recognized when the liability is incurred, as opposed to when management commits
to an exit plan. ASC 420 also requires that: (1) liabilities associated
with exit and disposal activities be measured at fair value; (2) one-time
termination benefits be expensed at the date the entity notifies the employee,
unless the employee must provide future service, in which case the benefits are
expensed ratably over the future service period; (3) liabilities related to
an operating lease/contract be recorded at fair value and measured when the
contract does not have any future economic benefit to the entity (that is, the
entity ceases to utilize the rights conveyed by the contract); and (4) all
other costs related to an exit or disposal activity be expensed as incurred. The
Company estimated the fair value of its lease obligations included in its 2003
and later restructuring activities based on the present value of the remaining
lease obligation, operating costs, and other associated costs, less estimated
sublease income.
60
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Shipping
and Handling Costs
Shipping
and handling costs in connection with our packaged software products are not
material and are expensed as incurred and included in cost-of-license revenues
in the Company’s results of operations.
Advertising
Expense
Advertising
costs are expensed as incurred. Advertising expenses were negligible for the
years ended December 31, 2009, 2008 and 2007.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standard ASC 740, Income Taxes. Under this
method, income tax expenses or benefits are recognized for the amount of taxes
payable or refundable for the current year and for deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in
the Company's consolidated financial statements or tax returns. Effective
January 1, 2007, the Company adopted FIN No. 48 (FASB ASC
740, Income Taxes) to
account for any income tax contingencies. The measurement of current and
deferred tax assets and liabilities is based on provisions of currently enacted
tax laws. The effects of future changes in tax laws or rates are not
contemplated with the exception of revaluing deferred taxes for California
relating to 2011 and thereafter.
As part
of the process of preparing consolidated financial statements, the Company is
required to estimate its income taxes and tax contingencies in each of the tax
jurisdictions in which it operates prior to the completion and filing of its tax
returns for such periods. This process involves estimating actual current tax
expense together with assessing temporary differences resulting from differing
treatment of items, such as deferred revenue, for tax and accounting purposes.
These differences result in net deferred tax assets and liabilities. The Company
must then assess the likelihood that the deferred tax assets will be realizable
and to the extent it believes that realizability is not likely, it must
establish a valuation allowance.
In
assessing the need for any additional non-share-based compensation valuation
allowance, the Company considered all the evidence available to it 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 year ended December 31, 2009, it was
considered more likely than not that the Company's non-share-based related
deferred tax assets would be realized. Therefore, the remaining valuation
allowance is primarily related to its share-based compensation deferred tax
assets. The benefit of these deferred tax assets will be recorded in the
stockholders’ equity when they are utilized on an income tax return to reduce
the Company’s taxes payable, and as such, they will not reduce its effective tax
rate.
Reporting
Segments
ASC 280,
Segment Reporting,
establishes standards for the manner in which public companies report
information about operating segments in annual and interim financial statements.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The method for determining the
information to report is based on the way management organizes the operating
segments within the Company for making operating decisions and assessing
financial performance.
The
Company’s chief operating decision maker is the Chief Executive Officer, who
reviews financial information presented on a consolidated basis, accompanied by
disaggregated information about revenues by geographic region for purposes of
making operating decisions and assessing financial performance. On this basis,
the Company is organized and operates in a single segment: the design,
development, and marketing of software solutions.
Recent
Accounting Pronouncements
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161 (“SFAS
No. 161”), Disclosures about
Derivative Instruments and Hedging Activities (ASC 815-10). This statement requires
companies with derivative instruments to disclose information that should enable
financial statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement of Financial Accounting Standards No.
61
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
133,
Accounting for Derivative
Instruments and Hedging Activities, and how derivative instruments impact
the financial statements of the companies. The Company adopted SFAS No. 161
in the first quarter of fiscal 2009. The adoption of this statement did not
impact the consolidated financial statements of the Company since SFAS No. 161
only required additional disclosures.
In April
2008, the FASB issued FASB Staff Position No. 142-3 (“FSP No. 142-3”), Determination of the Useful Life of
Intangible Assets (ASC 350 and 275). FSP No. 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
Statement No. 142, Goodwill
and Other Intangible Assets. This FSP is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The Company adopted this FSP
effective January 1, 2009, and its adoption did not impact the consolidated
financial statements of the Company.
In June
2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1 (“FSP
EITF 03-6-1”), Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(ASC 260-10). FSP EITF 03-6-1 clarifies that share-based payment awards
that entitle their holders to receive nonforfeitable dividends or dividend
equivalents before vesting should be considered participating securities. None
of the RSUs and stock options granted under the 1999 Stock Incentive Plan and
2009 Incentive Plan were entitled to receive nonforfeitable dividends or
dividend equivalents. FSP EITF 03-6-1 is effective for fiscal years
beginning after December 15, 2008 on a retrospective basis. The Company
adopted this FSP effective January 1, 2009, and its adoption did not impact its
calculation of earnings per share.
In April
2009, the FASB issued FASB Staff Position No. 141(R)-1 (“FSP No. 141(R)-1”),
Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from
Contingencies (ASC 805). FSP No. 141(R)-1 amends and clarifies SFAS No.
141(R) to address issues related to initial recognition and measurement, and
subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. This FSP covers the
contingent consideration arrangements of an acquiree assumed by the acquirer as
well as contingencies related to business combinations. FSP No. 141(R)-1 is
effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company adopted this FSP effective January 1,
2009.
In April
2009, the FASB issued FASB Staff Position No. 115-2 (“FSP No. 115-2”) and 124-2,
Recognition and Presentation
of Other-Than-Temporary Impairments (ASC 320-10). This FSP amends FASB SFAS
No. 115, FSP SFAS No. 115-1 and SFAS No. 124-1 and its scope is limited to
other-than-temporary guidance of these pronouncements for debt securities
classified as available-for-sale or held-to maturity. The Board believes it is
more operational for an entity to assess whether the entity has the intent to
sell the debt security or more likely than not will be required to sell the debt
security before its anticipated recovery. Further, this FSP requires new
disclosures to help users of financial statements understand the significant
inputs used in determining a credit loss, as well as a rollforward of that
amount each period. This FSP is effective for interim and annual reporting
periods ending after June 15, 2009. The Company adopted this FSP in its quarter
ended June 30, 2009, and its adoption did not impact the consolidated financial
statements of the Company.
In April
2009, the FASB issued FASB Staff Position No. 157-4 (“FSP No. 157-4”), Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are not Orderly (ASC 820-10).
This FSP is effective for interim and annual reporting periods ending after June
15, 2009, and shall be applied prospectively. Informatica adopted this FSP for
its second quarter ended June 30, 2009, and its adoption did not impact the
consolidated financial statements of the Company.
In May
2009, the FASB issued Statement of Financial Accounting Standards No. 165 (“SFAS
No. 165”), Subsequent
Events (ASC 855-10) to establish principles
and requirements for subsequent events. Subsequent events are events
or transactions that occur after the balance sheet date but before financial
statements are issued or are available to be issued. There are two types of
subsequent events: (i) The first type consists of events or transactions that
provide additional evidence about conditions that existed at the date of the
balance sheet, (ii) The second type consists of events that provide evidence
about conditions that did not exist at the date of the balance sheet but arose
after that date. An entity shall recognize in its financial statements the
effects of all subsequent events that provide additional evidence about
conditions that existed at the date of the balance sheet, including the
estimates inherent in the process of preparing financial statements. This Statement is effective
for interim or annual financial periods ending after June 15,
2009. The Company adopted this statement in its quarter ended June 30,
2009.
62
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In
October 2009, the FASB issued an Accounting Standards Update (“ASU 2009-13”) or
(“EITF 08-01”) which requires a vendor to allocate revenue to each unit of
accounting in many arrangements involving multiple deliverables based on the
relative selling price of each deliverable. It also changes the level of
evidence of standalone selling price required to separate deliverables by
allowing a vendor to make its best estimate of the standalone selling price of
deliverables when more objective evidence of selling price is not available. The
best estimate of selling price can be used when VSOE or third party evidence
(“TPE”) of fair value are not available. Software as a Service (“SaaS”) and
cloud computing are models of software deployment whereby a vendor licenses an
application to customers for use as a service on demand and is within the scope
of this ASU. Informatica is currently using these revenue models on a limited
basis and the amount of revenue generated from these models is not material at
this time. This ASU is effective for the arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Informatica will
adopt this ASU as of January 1, 2011 and the Company expects that its adoption
will not materially impact the consolidated financial statements.
3. Cash,
Cash Equivalents, and Short-Term Investments
Investments
are comprised of marketable securities, which consist primarily of commercial
paper, Federal agency and U.S. government notes and bonds, corporate bonds and
municipal securities with original maturities beyond 90 days. All marketable
securities are held in the Company’s name and managed by four major financial
institutions. The Company’s marketable securities are classified as
available-for-sale and are reported at fair value, with unrealized gains and
losses, net of tax, recorded in stockholders’ equity. Informatica has classified
its debt securities as available-for-sale since they would be available-for-sale
due to any changes in market conditions or needs for liquidity. Further, the
Company has classified all available-for-sale marketable securities, including
those with original maturity dates greater than one year, as short-term
investments.
Informatica
applies the provisions of Recognition and Presentation of
Other-Than-Temporary Impairments (ASC 320-10-35) to its debt securities
classified as available-for-sale and evaluates them for other-than-temporary
impairment based on the following three criteria: (i) Informatica has decided to
sell the debt security, (ii) it is more likely than not that the Company will be
required to sell the security before recovery of its amortized cost basis, and
(iii) the Company does not expect to recover the security’s entire amortized
cost basis from the present value of cash flows expected to be collected from
the debt security (“credit loss”). In determining the amount of credit loss, the
Company compares its best estimate of the present value of the cash flows
expected to be collected from the security with the amortized cost basis of the
security. Any shortfall that results from this comparison (credit loss) will be
reflected as other income or expense in the consolidated statement of income.
Further, Informatica also considers other factors such as industry analysts’
reports and credit ratings, in addition to the above three criteria to determine
the other-than-temporary impairment status of its investments.
If
Informatica intends to sell an impaired debt security and is more likely than
not that it will be required to sell the security before recovery of its
amortized cost basis less any current-period credit loss, the impairment is
considered other-than-temporary and should be recognized in current earnings in
an amount equal to the entire difference between fair value and amortized
cost.
If a
credit loss exists, but Informatica does not intend to sell the impaired debt
security and is not more likely than not to be required to sell before recovery,
the impairment is other-than-temporary and should be separated into (i) the
estimated amount relating to credit loss and (ii) the
amount relating to all other factors. Only the estimated credit loss amount is
recognized currently in earnings, with the remainder of the loss amount
recognized in other comprehensive income.
Realized
gains or losses and other-than-temporary impairments, if any, on
available-for-sale securities will be reported in other income or expense as
incurred. The Company recognizes realized gains and losses upon sales of
investment and reclassifies unrealized gains and losses out of accumulated other
comprehensive income into earnings using the specific identification
method.
The
Company’s marketable securities are classified as available for sale as of the
balance sheet date and are reported at fair value with unrealized gains and
losses reported as a separate component of accumulated other comprehensive
income in stockholders’ equity, net of tax. Realized gains and losses and
permanent declines in value, if any, on available-for-sale securities are
reported in other income or expense as incurred. Realized gains of $418,000 and
$92,000 and realized losses of $53,000 were recognized for the years ended
December 31, 2009, 2008 and 2007, respectively. The realized gains and
losses are included in other income of the consolidated results of operations
for the respective years. The cost of securities sold was determined based on
the specific identification method. The Company sold approximately $35 million
of its investment in marketable securities in December 2009 in
63
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
anticipation
of its cash requirement for the Siperian acquisition. See Note 21. Subsequent Event, of Notes to
Consolidated Financial Statements for a further discussion.
The
following table summarizes of the Company’s investments at December 31,
2009 and 2008 (in thousands):
|
December 31, 2009
|
||||||||||||||||
|
|
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair Value
|
||||||||||||
|
Cash
|
$ | 147,302 | $ | — | $ | — | $ | 147,302 | ||||||||
|
Cash
equivalents:
|
||||||||||||||||
|
Money
market funds
|
10,895 | — | — | 10,895 | ||||||||||||
|
Municipal
notes and bonds
|
1,000 | — | — | 1,000 | ||||||||||||
|
Total
cash equivalents
|
11,895 | — | — | 11,895 | ||||||||||||
|
Total
cash and cash equivalents
|
159,197 | — | — | 159,197 | ||||||||||||
|
Short-term
investments:
|
||||||||||||||||
|
Certificates
of deposit
|
5,040 | — | — | 5,040 | ||||||||||||
|
Commercial
paper
|
20,953 | — | — | 20,953 | ||||||||||||
|
Corporate
notes and bonds
|
63,168 | 364 | (42 | ) | 63,490 | |||||||||||
|
Federal
agency notes and bonds
|
143,840 | 200 | (252 | ) | 143,788 | |||||||||||
|
U.S.
government notes and bonds
|
24,515 | 44 | (10 | ) | 24,549 | |||||||||||
|
Municipal
notes and bonds
|
47,387 | 88 | (12 | ) | 47,463 | |||||||||||
|
Total
short-term investments
|
304,903 | 696 | (316 | ) | 305,283 | |||||||||||
|
Total
cash, cash equivalents, and short-term investments*
|
$ | 464,100 | $ | 696 | $ | (316 | ) | $ | 464,480 | |||||||
|
|
December 31, 2008
|
|||||||||||||||
|
|
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated
Fair Value
|
||||||||||||
|
Cash
|
$ | 112,591 | $ | — | $ | — | $ | 112,591 | ||||||||
|
Cash
equivalents:
|
||||||||||||||||
|
Money
market funds
|
25,542 | — | — | 25,542 | ||||||||||||
|
Commercial
paper
|
9,741 | — | — | 9,741 | ||||||||||||
|
Federal
agency notes and bonds
|
17,996 | 4 | — | 18,000 | ||||||||||||
|
U.S.
government notes and bonds
|
14,000 | — | — | 14,000 | ||||||||||||
|
Total
cash equivalents
|
67,279 | 4 | — | 67,283 | ||||||||||||
|
Total
cash and cash equivalents
|
179,870 | 4 | — | 179,874 | ||||||||||||
|
Short-term
investments:
|
||||||||||||||||
|
Commercial
paper
|
43,125 | — | — | 43,125 | ||||||||||||
|
Corporate
notes and bonds
|
38,569 | 174 | (18 | ) | 38,725 | |||||||||||
|
Federal
agency notes and bonds
|
133,220 | 1,015 | (1 | ) | 134,234 | |||||||||||
|
U.S.
government notes and bonds
|
61,569 | 266 | — | 61,835 | ||||||||||||
|
Municipal
notes and bonds
|
3,134 | 3 | (1 | ) | 3,136 | |||||||||||
|
Total
short-term investments
|
279,617 | 1,458 | (20 | ) | 281,055 | |||||||||||
|
Total
cash, cash equivalents, and short-term investments*
|
$ | 459,487 | $ | 1,462 | $ | (20 | ) | $ | 460,929 | |||||||
____________
|
*
|
Total
estimated fair value above included $317,178 and $348,338 comprised of
cash equivalents and short-term investments at December 31, 2009 and
2008, respectively.
|
64
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In
accordance with ASC 320, Investments – Debt and Equity
Securities, Informatica considers the investment category and the length
of time that an individual security has been in continuous unrealized loss
position to make a decision that the investment is other-than-temporary
impaired. The following table summarizes the fair value and gross unrealized
losses related to available-for-sale securities, aggregated by investment
category and length of time that individual securities have been in a continuous
unrealized loss position, at December 31, 2009 (in thousands):
|
|
Less Than 12 months
|
|||||||
|
|
Fair Value
|
Gross
Unrealized
Losses
|
||||||
|
Corporate
notes and
bonds
|
$ | 15,509 | $ | (42 | ) | |||
|
Federal
agency notes and
bonds
|
63,753 | (252 | ) | |||||
|
Municipal
notes and
bonds
|
6,088 | (12 | ) | |||||
|
U.S.
government notes and
bonds
|
3,249 | (10 | ) | |||||
| $ | 88,599 | $ | (316 | ) | ||||
Informatica
did not have any investments in 2009 that were in a continuous unrealized loss
position for periods greater than 12 months.
Informatica
uses a market approach
for determining the fair value of all its marketable securities and money
market funds, which it has classified as Level 2 and Level 1, respectively.
The declines in value of these investments are primarily related to changes in
interest rates and are considered to be temporary in nature.
The
following table summarizes the cost and estimated fair value of the Company’s
cash equivalents and short-term investments by contractual maturity at
December 31, 2009 (in thousands):
|
|
Cost
|
Fair Value
|
||||||
|
Due
within one
year
|
$ | 272,522 | $ | 272,777 | ||||
|
Due
in one year to two
years
|
44,276 | 44,401 | ||||||
|
Due
after two
years
|
— | — | ||||||
| $ | 316,798 | $ | 317,178 | |||||
4. Property
and Equipment
The
following table summarizes the cost of property and equipment at
December 31, 2009 and 2008 (in thousands):
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
Computer
and office equipment
|
$ | 42,771 | $ | 40,269 | ||||
|
Furniture
and fixtures
|
5,226 | 4,815 | ||||||
|
Leasehold
improvements
|
17,780 | 17,363 | ||||||
| 65,777 | 62,447 | |||||||
|
Less:
Accumulated depreciation and amortization
|
(57,849 | ) | (53,384 | ) | ||||
| $ | 7,928 | $ | 9,063 | |||||
Depreciation
and amortization expense was $5.5 million, $5.6 million, and $10.5 million
in 2009, 2008, and 2007, respectively.
65
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. Goodwill
and Intangible Assets
The
following table reflects the carrying amounts of the intangible assets as of
December 31, 2009 and 2008 (in thousands):
|
|
2009
|
2008
|
||||||||||||||||||||||
|
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Amount
|
||||||||||||||||||
|
Developed
and core
technology
|
$ | 55,350 | $ | (22,048 | ) | $ | 33,302 | $ | 32,583 | $ | (14,216 | ) | $ | 18,367 | ||||||||||
|
Customer
relationships
|
31,426 | (14,029 | ) | 17,397 | 20,257 | (5,870 | ) | 14,387 | ||||||||||||||||
|
Vendor
relationships
|
7,908 | (992 | ) | 6,916 | — | — | — | |||||||||||||||||
|
Other:
|
||||||||||||||||||||||||
|
Trade
names
|
2,494 | (835 | ) | 1,659 | 700 | (408 | ) | 292 | ||||||||||||||||
|
Covenants
not to
compete
|
2,000 | (1,217 | ) | 783 | 2,000 | (817 | ) | 1,183 | ||||||||||||||||
|
Patents
|
3,720 | (191 | ) | 3,529 | 1,300 | — | 1,300 | |||||||||||||||||
| $ | 102,898 | $ | (39,312 | ) | $ | 63,586 | $ | 56,840 | $ | (21,311 | ) | $ | 35,529 | |||||||||||
Intangible
assets, other than goodwill and patents, are amortized over estimated useful
lives of between three and seven years. Informatica entered into a patent
cross-license for $1.3 million at the end of 2008, and amortized the
patents subject to the license over their estimated useful lives of
13 years starting in 2009. On August 21, 2007, JuxtaComm Technologies
(“JuxtaComm”) filed a complaint in the Eastern District of Texas against the
Company and 20 other defendants, including Microsoft, IBM and Business Objects,
for infringement of JuxtaComm’s US patent 6,195,662 (“System for Transforming
and Exchanging Data Between Distributed Heterogeneous Computer Systems”).
This matter was settled in August 2009 for $4.3 million. The Company received a
release and settlement of any past damages related to potential infringement of
the subject patent and a non-exclusive, non-transferable, fully paid license for
the subject patent valued at $2.4 million through its expiration date of June
26, 2018. At the time of settlement, the Company capitalized $2.4 million
related to future use of the patent and expensed $1.9 million for the portion
related to past damages, based on total forecasted cash flows. Of the
$18.0 million amortization of intangible assets recorded in 2009,
$10.1 million was recorded in operating expenses and $7.9 million was
recorded in cost of license revenues. Of the $8.7 million amortization of
intangible assets recorded in 2008, $4.6 million was recorded in operating
expenses and $4.1 million was recorded in cost of license revenues. Of the
$4.2 million amortization of intangible assets recorded in 2007,
$1.4 million was recorded in operating expenses and $2.8 million was
recorded in cost of license revenues. The weighted-average amortization period
of the Company’s developed and core technology, customer relationships, vendor
relationships, trade names, covenant not to compete and patents are
five years, five years, five years, five years, five years,
and ten years, respectively.
Subsequent
to adoption of SFAS No. 141(R), FASB Business Combinations (ASC
805), the Company has acquired certain customer relationships for $11.0 million
from Applimation, AddressDoctor and Agent Logic acquisitions which consist of
software maintenance agreements. These renewable agreements are usually for a
duration of one year and renewable afterwards. The costs of renewal of these
contracts are reflected in the cost of service revenues.
As of
December 31, 2009, the amortization expense related to identifiable intangible
assets in future periods is expected to be as follows (in
thousands):
|
|
Acquired
Technology
|
Other
Intangible
Assets
|
Total
Intangible
Assets
|
|||||||||
|
2010
|
$ | 8,625 | $ | 9,597 | $ | 18,222 | ||||||
|
2011
|
8,418 | 7,700 | 16,118 | |||||||||
|
2012
|
7,742 | 5,561 | 13,303 | |||||||||
|
2013
|
6,853 | 3,853 | 10,706 | |||||||||
|
2014
|
1,816 | 1,697 | 3,513 | |||||||||
|
Thereafter
|
— | 1,724 | 1,724 | |||||||||
|
Total
expected amortization expense
|
$ | 33,454 | $ | 30,132 | $ | 63,586 | ||||||
The
increase of $22.8 million in the gross carrying amount of developed and core
technology was due to the intangibles of $10.7 million, $1.0 million, and $11.0
million acquired from Applimation, AddressDoctor, and Agent Logic, respectively
and $0.1 million translation adjustments. The increase of $11.2 million in the
gross carrying amount of customer relationships was due to the intangibles of
$8.3 million, $1.3 million, and $1.4 million acquired from Applimation,
AddressDoctor, and Agent Logic, respectively and $0.2 million translation
adjustments. The increase of $7.9 million of vendor relationships was primarily
attributable to the
66
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
acquisition
of AddressDoctor. See Note 20. Acquisitions, of Notes to
Consolidated Financial Statements in Part II, Item 8 of this Report
for a further discussion. In addition, $2.3 million of developed and core
technology, and $3.7 million of customer relationships at December 31, 2009,
related to the Identity Systems and PowerData acquisitions, were recorded in
European local currencies; therefore, the gross carrying amount and accumulated
amortization are subject to periodic translation adjustments.
The
changes in the carrying amount of goodwill for 2009 and 2008 are as follows (in
thousands):
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
Beginning
balance
|
$ | 219,063 | $ | 166,916 | ||||
|
Goodwill
recorded in acquiring Applimation
|
19,740 | — | ||||||
|
Goodwill
recorded in acquiring Address Doctor
|
23,019 | — | ||||||
|
Goodwill
recorded in acquiring Agent Logic
|
24,403 | — | ||||||
|
Goodwill
recorded in acquiring Identity Systems
|
— | 49,316 | ||||||
|
Goodwill
recorded in acquiring PowerData
|
— | 3,618 | ||||||
|
Subsequent
goodwill adjustments:
|
||||||||
|
Earn-out
for PowerData
|
796 | — | ||||||
|
Tax
adjustments for prior acquisitions within the measurement period
|
(1,368 | ) | — | |||||
|
Tax
benefits from exercise of non-qualified stock options granted as part of
prior acquisitions
|
(11 | ) | (75 | ) | ||||
|
Local
currency translation adjustments
|
1,499 | (586 | ) | |||||
|
Adjustments
of pre-acquisition tax benefits for prior acquisitions
|
— | 181 | ||||||
|
Adjustments
of pre-acquisition sales tax and accounts receivable reserves for prior
acquisitions
|
— | (107 | ) | |||||
|
Other
adjustments for prior acquisitions
|
(73 | ) | (200 | ) | ||||
|
Ending
balance
|
$ | 287,068 | $ | 219,063 | ||||
The
Company is obligated to pay certain variable and deferred earn-out payments
based on the percentage of license revenues recognized subsequent to the
acquisition of PowerData. The Company recorded $796,000 earn-out as additional
goodwill in 2009. The Company considers these earn-outs as additional contingent
consideration and will record them in goodwill as they occur. In addition, the
Company recorded adjustments of $47,000 and $(787,000) for the years ended
December 31, 2009 and 2008, respectively primarily due to foreign currency
translation and other adjustments for prior acquisitions.
The
goodwill acquired through the Applimation and Agent Logic acquisitions is not
deductible for tax purposes. Approximately $6.8 million of the goodwill related
to the acquisition of AddressDoctor is deductible for tax purposes.
6. Convertible
Senior Notes
On
March 8, 2006, the Company issued and sold Convertible Senior Notes
(“Notes”) with an aggregate principal amount of $230 million due 2026. The
Company pays interest at 3.0% per annum to holders of the Notes, payable
semi-annually on March 15 and September 15 of each year, commencing
September 15, 2006. Each $1,000 principal amount of Notes is initially
convertible, at the option of the holders, into 50 shares of our common stock
prior to the earlier of the maturity date (March 15, 2026) or the
redemption or repurchase of the Notes. The initial conversion price represented
a premium of 29.28% relative to the last reported sale price of common stock of
the Company on the NASDAQ Stock Market (Global Select) of $15.47 on
March 7, 2006. The conversion rate is subject to certain adjustments. The
conversion rate initially represents a conversion price of $20.00 per share.
After March 15, 2011, the Company may from time to time redeem the Notes,
in whole or in part, for cash, at a redemption price equal to the full principal
amount of the Notes, plus any accrued and unpaid interest. Holders of the Notes
may require the Company to repurchase all or a portion of their Notes at a
purchase price in cash equal to the full outstanding principal amount of the
Notes plus any accrued and unpaid interest on March 15, 2011,
March 15, 2016, and March 15, 2021, or upon the occurrence of certain
events including a change in control. Future minimum payments related to the
Notes in total which represent interest as of December 31, 2009 are $6.0
million each for 2010, 2011, and 2012. Future minimum payments related to the
Notes as of December 31, 2009 for 2013 and thereafter is
$282.4 million, consisting of interest for $81.4 million and principal
for $201.0 million.
Pursuant
to a Purchase Agreement (the “Purchase Agreement”), the Notes were sold for cash
consideration in a private placement to an initial purchaser, UBS Securities
LLC, an “accredited investor,” within the meaning of Rule 501 under the
Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the
private placement exemption afforded by Section 4(2) of the Securities Act.
The initial purchaser reoffered and resold the Notes to “qualified institutional
buyers” under Rule 144A of the Securities Act without being registered
under the Securities Act, in reliance on applicable exemptions from the
registration requirements of the
67
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Securities
Act. In connection with the issuance of the Notes, the Company filed a shelf
registration statement with the SEC for the resale of the Notes and the common
stock issuable upon conversion of the Notes. The Company also agreed to
periodically update the shelf registration and to keep it effective until the
earlier of the date the Notes or the common stock issuable upon conversion of
the Notes is eligible to be sold to the public pursuant to Rule 144(k) of
the Securities Act or the date on which there are no outstanding registrable
securities. The Company has evaluated the terms of the call feature, redemption
feature, and the conversion feature under applicable accounting literature,
including FASB Derivatives and
Hedging (ASC 815) and FASB Debt With Conversion and Other
Options (ASC 470-20) and concluded that none
of these features should be separately accounted for as
derivatives.
In
connection with the issuance of the Notes, the Company incurred
$6.2 million of issuance costs, which primarily consisted of investment
banker fees and legal and other professional fees. These costs are classified
within Other Assets and are being amortized as a component of interest expense
using the effective interest method over the life of the Notes from issuance
through March 15, 2026. If the holders require repurchase of some or all of
the Notes on the first repurchase date, which is March 15, 2011, the
Company would accelerate amortization of the pro rata share of the unamortized
balance of the issuance costs on such date. Also if the Company repurchases some
of the outstanding balance of the Notes, it would accelerate amortization of the
pro rata share of the unamortized balance of the issuance costs at the time of
such repurchases. If the holders require conversion of some or all of the Notes
when the conversion requirements are met, the Company would accelerate
amortization of the pro rata share of the unamortized balance of the issuance
cost to additional paid-in capital on such date. Amortization expenses related
to the issuance costs were $0.7 million and $0.5 million for the years
ended December 31, 2009 and 2008, respectively. Interest expenses on the
Notes were $6.1 million and $7.0 million for the years ended
December 31, 2009 and 2008, respectively. Interest payments of
$6.3 million and $7.0 million were made in 2009 and 2008,
respectively.
In
October 2008, Informatica’s Board of Directors authorized the repurchase of a
portion of its outstanding Notes due in 2026 in privately negotiated
transactions with the holders of the Notes. In 2009, Informatica repurchased an
additional $20.0 million of its outstanding Notes, net of $0.3 million gain due
to early retirement of the Notes and $0.5 million due to recapture of prorated
deferred expenses, at a discounted cost of $19.2 million. In 2008, Informatica
repurchased $9.0 million of its outstanding Convertible Senior Notes at a
cost of $7.8 million at a discount. As a result, $1.0 million, net of
prorated deferred expenses written off for $0.2 million, is reflected in
other income for the three months ended December 31, 2008.
The
following table sets forth the ending balance of the Convertible Senior Notes as
of December 31, 2009 and 2008 resulting from the repurchase activities in the
respective periods (in thousands):
|
Balance
at January 1, 2008
|
$ | 230,000 | ||
|
Face
amount of Notes repurchased during the fourth quarter of 2008
|
(9,000 | ) | ||
|
Balance
at December 31, 2008
|
221,000 | |||
|
Face
amount of Notes repurchased in 2009
|
(20,000 | ) | ||
|
Balance
at December 31, 2009
|
$ | 201,000 |
The
Company has classified its convertible debt as Level I, according to FASB
Fair Value Measurements and
Disclosures (ASC 820-10-35) since it has quoted prices available in
active markets for identical assets. The estimated fair value of the Company’s
Convertible Senior Notes as of December 31, 2009, based on the closing
price as of December 18, 2009 (the last trading day of 2009) at the
Over-the-Counter market, was $257.1 million.
7. Stockholders’
Equity
Preferred
Stock
The
Company is authorized to issue 2.0 million shares of preferred stock with a
par value of $0.001 per share of which 200,000 shares have been designated
as Series A preferred stock. Informatica may issue preferred stock from
time to time in one or more series. The Board of Directors is authorized to
provide for the rights, preferences, privileges, and restrictions of the shares
of such series. As of December 31, 2009 and 2008, no shares of preferred
stock had been issued.
68
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Common
Stock
The
Company has authorized 200 million shares of common stock with a par value
of $0.001 per share. Each share of common stock has the right to one vote. The
holders of common stock are also entitled to receive dividends whenever funds
are legally available and when declared by the Board of Directors, subject to
the rights of holders of all classes of stock having priority rights as to
dividends. No cash dividends have been declared or paid through
December 31, 2009.
Stockholders’
Rights Plan
In
October 2001, the Board of Directors adopted the Stockholders’ Rights Plan and
declared a dividend distribution of one common stock purchase right for each
outstanding share of common stock held on November 12, 2001. Each right
entitles the holder to purchase 1/1000th of a share of Series A
Preferred Stock of the Company, par value $0.001, at an exercise price of $90
per share. The rights become exercisable in certain circumstances and are
redeemable at the Company’s option, at an exercise price of $0.001 per right.
The rights expire on the earlier of November 12, 2011 or on the date of
their redemption or exchange. The Company may also exchange the rights for
shares of common stock under certain circumstances. The Stockholders’ Rights
Plan was adopted to protect stockholders from unfair or coercive takeover
practices. The plan is reviewed every three years by a committee of independent
directors.
Stock
Repurchase Plan
The
purpose of Informatica’s stock repurchase program is, among other things, to
help offset the dilution caused by the issuance of stock under our employee
stock option and employee stock purchase plans. The number of shares acquired
and the timing of the repurchases are based on several factors, including
general market conditions and the trading price of the Company’s common stock.
These purchases can be made from time to time in the open market and are funded
from the Company’s available working capital.
In April
2007, Informatica’s Board of Directors authorized a stock repurchase program for
up to an additional $50 million of its common stock. In April 2008,
Informatica’s Board of Directors authorized an additional $75 million of
its common stock for the stock repurchase program. In October 2008,
Informatica’s Board of Directors approved expanding the repurchase program to
include the repurchase of a portion of its outstanding Convertible Senior Notes
(“Notes”) due in 2026 in privately negotiated transactions with holders of the
Notes.
From
April 2007 to December 31, 2009, the Company repurchased 6,498,121 shares of its
common stock at a cost of $97 million and $29 million of its outstanding Notes
at a cost of $27 million. The Company has approximately $0.3 million available
to repurchase additional shares of our common stock or redeem the remaining of
our Convertible Senior Notes under this program as of December 31, 2009. In
January 2010, our Board of Directors approved and additional $50 million for the
stock repurchase program. This repurchase program does not have an expiration
date.
These
repurchased shares are retired and reclassified as authorized and unissued
shares of common stock. The Company may continue to repurchase shares from time
to time, as determined by management under programs approved by the Board of
Directors.
8. Share-Based
Payments
Summary
of Plans
1999
Stock Incentive Plan
The
Company’s stockholders approved the 1999 Stock Incentive Plan (the “1999
Incentive Plan”) in April 1999 under which 2,600,000 shares have been
reserved for issuance. In addition, any shares not issued under the 1996 Stock
Plan are also available for grant. The number of shares reserved under the 1999
Incentive Plan automatically increases annually beginning on January 1,
2000 by the lesser of 16,000,000 shares or 5% of the total amount of fully
diluted shares of common stock outstanding as of such date. Under the 1999
Incentive Plan, eligible employees, officers, and directors may purchase stock
options, stock appreciation rights, restricted shares, and stock units. The
exercise price for incentive stock options and non-qualified options may not be
less than 100% and 85%, respectively, of the fair value of the Company’s common
stock at the option grant date. Options granted are exercisable over a maximum
term of 7 to 10 years from the date of the grant and generally vest ratably
over a period of 4 years, with options for new employees generally
including a 1-year cliff period. It is the current practice of the Board to
limit option grants under this plan to 7-
69
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
year
terms and to issue only non-qualified stock options. As of March 31, 2009,
the Company had approximately 15,247,788 authorized options available for grant
and 17,177,000 options outstanding under the 1999 Incentive Plan. This plan
expired in March 2009 and was replaced in April 2009 by the 2009 Equity
Incentive Plan (the “2009 Incentive Plan”).
1999
Non-Employee Director Stock Incentive Plan
The
Company’s stockholders adopted the 1999 Non-Employee Director Stock Option
Incentive Plan (the “Directors Plan”) in April 1999 under which
1,000,000 shares have been reserved for issuance. In April 2003, the Board
of Directors amended the Directors Plan such that each non-employee joining the
Board of Directors will automatically receive options to purchase
60,000 shares of common stock. These options were exercisable over a
maximum term of five years and would vest in four equal annual installments on
each yearly anniversary from the date of the grant. The Directors Plan was
amended in April 2003 such that one-third of the options vest one year from the
grant date and the remainder shall vest ratably over a period of 24 months.
In May 2004, the Directors Plan was amended such that each non-employee director
who has been a member of the Board for at least six months prior to each annual
stockholders meeting will automatically receive options to purchase
25,000 shares of common stock at each such meeting. Each such option has an
exercise price equal to the fair value of the common stock on the automatic
grant date and vests on the first anniversary of the grant date. As of
March 31, 2009, the Company had no additional options available for grant
and 458,000 options outstanding under the Directors Plan. This plan
expired in March 2009 and was replaced in April 2009 by the 2009 Equity
Incentive Plan (the “2009 Incentive Plan”).
2000
Employee Stock Incentive Plan
In
January 2000, the Board of Directors approved the 2000 Employee Stock Incentive
Plan (the “2000 Incentive Plan”) under which 1,600,000 shares have been
reserved for issuance. Under the 2000 Incentive Plan, eligible employees and
consultants may purchase stock options, stock appreciation rights, restricted
shares, and stock units. The exercise price for non-qualified options may not be
less than 85% of the fair value of common stock at the option grant date.
Options granted are exercisable over a maximum term of 10 years from the
date of the grant and generally vested over a period of 4 years from the
date of the grant. As of March 31, 2009, the Company had approximately
781,000 authorized options available for grant and 138,000 options outstanding
under the 2000 Incentive Plan. This plan expired in March 2009 and was replaced
in April 2009 by the 2009 Equity Incentive Plan (the “2009 Incentive
Plan”).
Assumed
Option Plans
In
connection with certain acquisitions made by the Company, Informatica assumed
options in the Influence 1996 Incentive Stock Option Plan, the Zimba 1999 Stock
Option Plan, and the Striva 2000 Stock Option Plan, the Similarity 2002 Stock
Option Plan, and the Itemfield 2003 Stock Option Plan (the “Assumed Plans”). No
further options will be granted under the Assumed Plans. As of December 31,
2009, the Company had approximately 46,000 options outstanding under the Assumed
Plans.
On
January 28, 2010, the Company acquired Siperian. As a result of this
acquisition, Informatica assumed 3,410,895 unvested in the money options from
the Siperian’s 2003 Equity Incentive Plan that were converted to 96,616 unvested
options to purchase Informatica’s common Stock.
1999
Employee Stock Purchase Plan
The
stockholders adopted the 1999 Employee Stock Purchase Plan (“ESPP”) in April
1999 under which 1,600,000 shares have been reserved for issuance. The
number of shares reserved under the ESPP automatically increases beginning on
January 1 of each year by the lesser of 6,400,000 shares or 2% of the total
amount of fully diluted common stock shares outstanding on such date. Under the
ESPP, eligible employees may purchase common stock in an amount not to exceed
10% of the employees’ cash compensation. During the fourth quarter of 2005, the Board of Directors
approved an amendment to the ESPP. Effective 2006, under the amended ESPP, the
new participants are entitled to purchase shares at 85% of the lesser of the
common stock fair market value either at the beginning or at the end of the
six-month offering period, which was shortened from a 24-month offering period.
The purchase price is then reset at the start of the next offering period. This
plan expired in March 2009.
70
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2009
Employee Stock Incentive Plan
The
Company’s stockholders approved the 2009 Equity Incentive Plan (the “2009
Incentive Plan”) in April 2009 under which 9,000,000 shares have been reserved
for issuance. Under the 2009 Incentive Plan, eligible employees, officers, and
directors may be granted stock options (incentive and non-qualified), stock
appreciation rights, restricted stock, restricted stock units, performance
shares and performance units. The exercise price for incentive stock options and
non-qualified options may not be less than 100% and 85%, respectively, of the
fair value of the Company’s common stock at the option grant date. As of
December 31, 2009, the Company had approximately 7,624,265 authorized
options available for grant and 1,110,589 options outstanding under the 2009
Incentive Plan.
For
purposes of the share reserve, the grant of a RSU is deemed an award for 1.52
shares of authorized common stock for each one share of authorized common stock
subject to such award. If a share that was subject to an award and counted as
1.52 shares against the 2009 Incentive Plan reserve is returned to the 2009
Incentive Plan, the Company would credit the 2009 Incentive Plan reserve by 1.52
shares. These returned shares would be available for issuance under the 2009
Incentive Plan.
Employee
Stock Purchase Plan
The Company’s
stockholders approved the Employee Stock Purchase Plan (ESPP) in May 2008 under
which 8,850,000 shares have been reserved for issuance. Under the ESPP, eligible
employees may elect to contribute from 1% to 20% or a lesser percentage that the
committee may establish from time to time of their eligible compensation.
Currently, the committee established the maximum contribution percentage at 10%
as utilized under the 1999 Employee Stock Purchase Plan. The purchase price is
85% of the lower of the closing price of the Common Stock on the NASDAQ Global
Select Market at the beginning or end of the six-month Offering
Period.
Other
Information
The Company grants stock
options which are exercisable over a maximum term of seven to ten years for
employees and five years for directors from the date of the grant. These grants
generally vest ratably over a period of four years for employees and one to
three years for directors. Options granted to new employees generally include a
1-year cliff period.
The Company also grants
Restricted Stock Units (“RSUs”) to its employees and directors which vest over
four years with annual vesting dates for employees and one to three years for
directors. These RSUs are valued at the time of grant using the existing current
market price.
During 2009,
Informatica granted 509,750 RSUs under its 1999 Stock Incentive Plan to its
executives and certain key employees of the Company and an additional 508,264
RSUs to certain employees and directors of the Company under its 2009 Incentive
Plan. Informatica also granted 204,025 options under its 1999 Stock Incentive
Plan and 605,975 options under its 2009 Incentive Plan.
As of
December 31, 2009, the Company had approximately 7,624,265 authorized shares
available for grant and 1,110,589 options and RSUs outstanding under the 2009
Incentive Plan.
Summary
of Assumptions
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option pricing model that uses the assumptions noted in the
following table.
The
Company has been using consistently a blend of average historical and
market-based implied volatilities for calculating the expected volatilities for
employee stock options, and it uses market-based implied volatilities for its
Employee Stock Purchase Plan (ESPP).
The
expected term of employee stock options granted is derived from historical
exercise patterns of the options while the expected term of ESPP is based on the
contractual terms. The expected term of options granted 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 expected term slightly increased from 3.3 years in
2008 to 3.6 years in 2009. The higher expected life of options
was
71
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
mainly
due to lower exercises in 2008 by our executive officers and other key
employees. The expected term in 2008 compared to 2007 remained
unchanged.
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 risk-free
interest rate declined in 2009 and 2008 compared to prior years. The Company
records share-based payments for RSUs and options granted net of estimated
forfeiture rates.
FASB
Stock Compensation (ASC
718) requires the Company to estimate forfeiture rates at the time of grant and
revise those estimates in subsequent periods if actual forfeitures differ from
those estimates. The Company uses an average of actual forfeited options for the
past four quarters to estimate its forfeiture rate and record share-based
payments. The Company reduced its forfeiture rate from 13% in 2007 to 10% in
2008 and further reduced it to 8% in 2009 due to lower historical cancellation
rates.
The
Company amortizes its share-based payments using a straight-line method over the
vesting term of the awards.
The fair
value of the Company’s share-based awards was estimated based on the following
assumptions:
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Option
grants:
|
||||||||||||
|
Expected
volatility
|
37-48 | % | 38-54 | % | 37-41 | % | ||||||
|
Weighted-average
volatility
|
40 | % | 41 | % | 39 | % | ||||||
|
Expected
term of options (in
years)
|
3.6 | 3.3 | 3.3 | |||||||||
|
Expected
dividends
|
— | — | — | |||||||||
|
Risk-free
interest
rate
|
1.7 | % | 2.5 | % | 4.5 | % | ||||||
|
ESPP:
|
||||||||||||
|
Expected
volatility
|
34-51 | % | 38-42 | % | 35 | % | ||||||
|
Weighted-average
volatility
|
44 | % | 40 | % | 35 | % | ||||||
|
Expected
dividends
|
— | — | — | |||||||||
|
Expected
term of ESPP (in
years)
|
0.5 | 0.5 | 0.5 | |||||||||
|
Risk-free
interest rate —
ESPP
|
3.4 | % | 2.0 | % | 5.1 | % | ||||||
The
allocation of the share-based payments net of income tax benefit is as follows
(in thousands):
|
Years Ended December 31,
|
||||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Cost
of service
revenues
|
$ | 2,199 | $ | 2,023 | $ | 1,670 | ||||||
|
Research
and
development
|
4,813 | 4,109 | 3,751 | |||||||||
|
Sales
and
marketing
|
5,976 | 5,397 | 5,796 | |||||||||
|
General
and
administrative
|
4,938 | 4,792 | 4,754 | |||||||||
|
Total
share-based
payments
|
17,926 | 16,321 | 15,971 | |||||||||
|
Tax
benefit of share-based
payments
|
(3,794 | ) | (3,024 | ) | (3,119 | ) | ||||||
|
Total
share-based payments, net of tax
benefit
|
$ | 14,132 | $ | 13,297 | $ | 12,852 | ||||||
72
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock
Option Plan Activity
A summary
of stock option activity through December 31, 2009 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, 2006
|
17,283 | $ | 8.72 | 5.11 | $ | 69,835 | ||||||||||
|
Granted
|
4,129 | 14.58 | ||||||||||||||
|
Exercised
|
(2,782 | ) | 7.27 | |||||||||||||
|
Forfeited
or expired
|
(1,295 | ) | 12.63 | |||||||||||||
|
Outstanding
at December 31, 2007
|
17,335 | $ | 10.05 | 4.66 | $ | 138,392 | ||||||||||
|
Granted
|
3,631 | 16.56 | ||||||||||||||
|
Exercised
|
(2,313 | ) | 8.22 | |||||||||||||
|
Forfeited
or expired
|
(940 | ) | 14.57 | |||||||||||||
|
Outstanding
at December 31, 2008
|
17,713 | $ | 11.35 | 4.31 | $ | 58,342 | ||||||||||
|
Granted
|
810 | 19.29 | ||||||||||||||
|
Exercised
|
(3,472 | ) | 9.57 | |||||||||||||
|
Forfeited
or expired
|
(337 | ) | 15.49 | |||||||||||||
|
Outstanding
at December 31, 2009
|
14,714 | $ | 12.11 | 3.85 | $ | 202,583 | ||||||||||
|
Exercisable
at December 31, 2009
|
10,871 | $ | 10.58 | 3.37 | $ | 166,381 | ||||||||||
A summary
of RSU activities through December 31, 2009 is presented below (in
thousands, except per share amounts):
|
|
Non-vested
Shares
|
Weighted-
Average
Grant
Date
Fair Value
|
||||||
|
Outstanding
at December 31, 2008
|
— | — | ||||||
|
Awarded
|
1,018 | $ | 15.04 | |||||
|
Released
|
— | — | ||||||
|
Forfeited
or expired
|
(15 | ) | $ | 13.24 | ||||
|
Outstanding
at December 31, 2009
|
1,003 | — | ||||||
As of
December 31, 2009, there was a total of 3,843,000 unvested options with a
fair value of $17.7 million, and the average grant price of $16.46. The
Company expects to recognize the fair value of the unvested shares over a
weighted-average period of 2.2 years.
As of
December 31, 2009, there was a total of 1,003,000 unvested RSUs with a fair
value of $9.8 million. The Company expects to recognize the fair value of the
unvested RSUs over a weighted-average period of 3.1 years.
The
weighted-average fair value of options granted with exercise prices equal to
fair market value at the date of grant under stock options plans during 2009,
2008, and 2007 was $6.02, $5.22, and $4.77, respectively. No options were
granted with exercise prices less than fair value at the date of grant in 2009
and 2008. The total intrinsic value of options exercised for the years ended
December 31, 2009, 2008, and 2007 were $34.0 million, $20.8 million,
and $21.0 million, respectively. The weighted average grant date fair value
of RSUs for the year ended December 31, 2009 was $15.07. The RSUs granted in
2009 vest in 2010 through 2013. The weighted-average grant date fair value of
employee stock purchase shares granted under the ESPP for the years ended
December 31, 2009, 2008, and 2007 was $4.04, $4.65, and $3.39,
respectively. The total intrinsic value of stock purchase shares granted under
the ESPP exercised during the years ended December 31, 2009, 2008, and 2007
was $3.7 million, $2.7 million, and $2.4 million, respectively. Upon
the exercise of options and stock purchase shares granted under the ESPP, the
Company issues new common stock from its authorized shares.
73
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
following table summarizes information about stock options as of
December 31, 2009 (number of options in thousands):
|
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||
|
Range
of
Exercise Prices
|
Number
of
Options
|
Weighted-Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
Per Share
|
Number
of
Options
|
Weighted
Average
Exercise
Price
Per Share
|
||||||||||||||||
| $0.72 to $0.72 | 20 | 1.89 | $ | 0.72 | 20 | $ | 0.72 | ||||||||||||||
| $0.88 to $5.69 | 2,736 | 4.45 | $ | 5.60 | 2,736 | $ | 5.60 | ||||||||||||||
| $5.76 to $7.90 | 2,460 | 1.48 | $ | 7.37 | 2,460 | $ | 7.37 | ||||||||||||||
| $7.91 to $12.92 | 2,132 | 3.23 | $ | 11.61 | 1,783 | $ | 11.41 | ||||||||||||||
| $12.96 to $14.95 | 2,438 | 4.42 | $ | 14.30 | 1,320 | $ | 14.40 | ||||||||||||||
| $15.04 to $16.15 | 2,346 | 4.22 | $ | 15.69 | 1,466 | $ | 15.49 | ||||||||||||||
| $16.29 to $42.56 | 2,582 | 5.12 | $ | 18.72 | 1,086 | $ | 17.90 | ||||||||||||||
| 14,714 | 3.85 | $ | 12.11 | 10,871 | $ | 10.58 | |||||||||||||||
Disclosures
Pertaining to All Share-Based Payment Plans
Cash
received from option exercises and ESPP contributions under all share-based
payment arrangements for the years ended 2009, 2008, and 2007 were $41.8
million, $27.5 million, and $27.7 million, respectively. The total
realized tax benefits attributable to stock options exercised were $11.0 million
and $6.6 million for the years ended December 31, 2009 and 2008,
respectively. The gross excess tax benefits from share-based payments in the
fiscal year ended December 31, 2009 and 2008 were $8.7 million and
$5.1 million, respectively, as reported on the consolidated statements of
cash flows in the financing activities section, which represent a reduction in
income taxes otherwise payable during the periods. These amounts are related to
the actual gross tax benefits in excess of the expected tax benefits for stock
options exercised in 2009 and 2008.
9. Accumulated
Other Comprehensive Income
Accumulated
other comprehensive income refers to gains and losses that, under GAAP, are
recorded as an element of stockholders’ equity and are excluded from net income,
net of tax.
For the
years ended December 31, 2009, 2008, and 2007, the components of other
comprehensive income consisted of the following (in thousands):
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Net
income, as
reported
|
$ | 64,211 | $ | 55,980 | $ | 54,616 | ||||||
|
Other
comprehensive income:
|
||||||||||||
|
Unrealized
gain (loss) on investments (1)
|
(647 | ) | 658 | 364 | ||||||||
|
Cumulative
translation adjustments (2)
|
3,562 | (10,090 | ) | 3,480 | ||||||||
|
Derivative
gain (loss) (3)
|
(142 | ) | 51 | — | ||||||||
|
Comprehensive
income
|
$ | 66,984 | $ | 46,599 | $ | 58,460 | ||||||
____________
|
(1)
|
The
tax effects on unrealized gain on investments were $414,000, $329,000 and
$233,000 for the years ended December 31, 2009, 2008 and 2007,
respectively.
|
|
(2)
|
The
tax effects on cumulative translation adjustments for the years ended
December 31, 2009, 2008, and 2007 were negligible.
|
|
(3)
|
The
tax effects on cash flow hedging gain (loss) for the years ended
December 31, 2009 and 2008 were $(91,000) and $32,000
respectively.
|
74
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Ending
balance of accumulated other comprehensive income (loss) as of December 31, 2009
and 2008 consisted of the following (in thousands):
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
Net
unrealized gain on available-for-sale investments
|
$ | 232 | $ | 879 | ||||
|
Cumulative
translation adjustments
|
(1,109 | ) | (4,671 | ) | ||||
|
Derivative
gain (loss)
|
(91 | ) | 51 | |||||
|
Accumulated
other comprehensive
loss
|
$ | (968 | ) | $ | (3,741 | ) | ||
Informatica
did not have any other-than-temporary gain or loss reflected in accumulated
other comprehensive income (loss) as of December 31, 2009 and 2008.
Informatica
determines the basis of the cost of a security sold and the amount reclassified
out of other comprehensive income into statement of operations based on specific
identification.
The
following table reflects the change in accumulated investment unrealized gain
(loss) included in other comprehensive income for the years ended December 31,
2009 and 2008 (in thousands):
|
Years Ended December 31,
|
||||||||
|
|
2009
|
2008
|
||||||
|
Net
unrealized investment gain balance, net of tax effects at beginning of the
year
|
$ | 879 | $ | 221 | ||||
|
Investment
unrealized gain (loss), net of tax effects
|
(647 | ) | 658 | |||||
|
Net
unrealized investment gain balance, net of tax effects at end of the
year
|
$ | 232 | $ | 879 | ||||
The
following table reflects the change in accumulated derivatives gain (loss)
included in other comprehensive income for the years ended December 31, 2009 and
2008 (in thousands):
|
Years Ended December 31,
|
||||||||
|
|
2009
|
2008
|
||||||
|
Net
unrealized derivatives gain balance, net of tax effects at beginning of
the year
|
$ | 51 | $ | — | ||||
|
Reclassified
to the statement of income, net of tax effects
|
97 | — | ||||||
|
Derivatives
gain (loss) for hedging transactions, net of tax effects
|
(239 | ) | 51 | |||||
|
Net
unrealized derivatives gain (loss) balance, net of tax effects at end of
the year
|
$ | (91 | ) | $ | 51 | |||
See Note
2. Summary of Significant
Accounting Policies, Note 10. Derivative Financial
Instruments, and Note 15. Commitments and
Contingencies, of Notes to Consolidated Financial Statements for a
further discussion.
Note 10. Derivative
Financial Instruments
The
functional currency of Informatica’s foreign subsidiaries is their local
currencies, except for Informatica Cayman Ltd., which is in euros. The Company
translates all assets and liabilities of its foreign subsidiaries into
U.S. dollars at current exchange rates as of the applicable balance sheet
date. Revenues and expenses are translated at the average exchange rate
prevailing during the period, and the gains and losses resulting from the
translation of the foreign subsidiaries’ financial statements are reported in
accumulated other comprehensive income (loss), as a separate component of
stockholders’ equity. Net gains and losses resulting from foreign exchange
transactions are included in other income or expense, net in the consolidated
statements of income.
Informatica’s
results of operations and cash flows are subject to fluctuations due to changes
in foreign currency exchange rates, particularly changes in the Indian rupee,
Israeli shekel, euro,
British pound sterling, Canadian dollar, Japanese yen, Brazilian real, and
Australian dollar. The Company initiated certain cash flow hedge programs in an
attempt to reduce the impact of certain foreign currency fluctuations starting
in the fourth quarter of 2008. 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 and Israeli
shekel. Informatica
is currently using foreign exchange forward contracts to hedge certain
non-functional currency anticipated expenses reflected in the intercompany
accounts between Informatica U.S. and its two subsidiaries in India and Israel.
Exposures resulting from fluctuations in the foreign currency exchange rates
applicable to these foreign denominated expenses are covered through
the
75
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Company’s
cash flow hedge programs initiated since the fourth quarter of 2008. The foreign
exchange contracts initiated in 2008 expired in November 2009. In December 2009,
the Company entered into some additional forward contracts with monthly
expiration dates through January 18, 2011 for Indian rupees and Israeli shekels.
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.
Informatica
has forecasted the amount of its anticipated foreign currency expenses based on
its historical performance and its 2009 and 2010 financial plans. As of December
31, 2009, these foreign exchange contracts, carried at fair value, have a
maturity of 13 months or less. During the fourth quarter of 2009, the Company
entered into approximately 24 forward exchange contracts ranging between
$246,000 and $1,200,000 per month. The Company closes out approximately two
foreign exchange contracts per month when the foreign currency denominated
expenses are paid and any gain or loss is offset against income.
Informatica
and its subsidiaries do not enter into derivative contracts for speculative
purposes.
As of
December 31, 2009, a derivative loss of $91,000 was included in accumulated
other comprehensive income, net of applicable taxes. The Company expects to
reflect this amount in its consolidated statements of income during the next 12
months.
Informatica
evaluates the effectiveness of its hedge programs using statistical analysis at
the inception of the hedge prospectively as well as retrospectively. Informatica
uses the spot price method and excludes the time value of derivative instruments
for determination of hedge effectiveness.
The
effects of derivative instruments designated as cash flow hedges on the
accumulated other comprehensive income and consolidated statements of income for
the years ended December 31, 2009 and 2008 are as follows (in
thousands):
|
Year Ended December 31,
2009
|
Year Ended December 31,
2008
|
|||||||||||||||||||||||
|
|
Gain
(Loss)
Recognized
(1)
|
Gain
(Loss)
Reclassified
(2)
|
Gain
(Loss)
Recognized
(3)
|
Gain
(Loss)
Recognized
(1)
|
Gain
(Loss)
Reclassified
(2)
|
Gain
(Loss)
Recognized
(3)
|
||||||||||||||||||
|
Indian
rupee
|
$ | (264 | ) | $ | (52 | ) | $ | 153 | $ | 58 | $ | — | $ | 79 | ||||||||||
|
Israeli
shekel
|
(128 | ) | (108 | ) | 10 | 25 | — | (6 | ) | |||||||||||||||
|
Total
|
$ | (392 | ) | $ | (160 | ) | $ | 163 | $ | 83 | $ | — | $ | 73 | ||||||||||
|
(1)
|
Amount
of gain and loss recognized in accumulated other comprehensive income
(effective portion).
|
|
|
(2)
|
Amount
of gain and loss reclassified from accumulated other comprehensive income
into the operating expenses of consolidated statements of income
(effective portion).
|
|
(3)
|
Amount
of gain recognized in income on derivative for the amount excluded from
effectiveness testing located in operating expenses (mostly impacted the
research and development expenses) of consolidated statements of income.
The Company did not have any ineffective portion of the derivative
recorded in consolidated statements of
income.
|
See Note
2. Summary of Significant Accounting
Policies, Note 9. Accumulated Other Comprehensive
Income, and Note 15. Commitments and
Contingencies, of Notes to Consolidated Financial Statements for a
further discussion.
The
following tables reflect the fair value amounts for derivatives designated and
not designated as hedging instruments at December 31, 2009 and 2008 and the gain
recognized in other income, net for non designated foreign currency forward
contracts for the years ended December 31, 2009 and 2008 (in
thousands):
|
Derivatives
Designated as Hedging Instruments under ASC 815:
|
Derivative
Assets
at
December
31,
2009 (1)
|
Derivative
Liabilities
at
December
31,
2009 (2)
|
||||||
|
Indian
rupee
|
$ | — | $ | 206 | ||||
|
Israeli
shekel
|
1 | — | ||||||
|
Total
|
$ | 1 | $ | 206 | ||||
76
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
Derivatives
Designated as Hedging Instruments under ASC 815:
|
Derivative
Assets
at
December
31,
2008 (1)
|
Derivative
Liabilities
at
December
31,
2008 (2)
|
||||||
|
Indian
rupee
|
$ | 136 | $ | — | ||||
|
Israeli
shekel
|
19 | — | ||||||
|
Total
|
$ | 155 | $ | — | ||||
|
(1)
|
Included
in prepaid expenses and other current assets on the consolidated balance
sheets.
|
|
|
(2)
|
Included
in accrued liabilities on the consolidated balance
sheets.
|
There
were no derivative assets or liabilities not designated as hedging instruments
at December 31, 2009 and 2008.
|
Gain
Recognized in Other income, Net for Derivatives Not Designated as Hedging
Instruments:
|
Year
Ended
December
31,
2009
|
Year
Ended
December
31,
2008
|
||||||
|
Indian
rupee
|
$ | 127 | $ | — | ||||
|
Israeli
shekel
|
101 | — | ||||||
|
Total
|
$ | 228 | $ | — | ||||
11. Facilities
Restructuring Charges
2004
Restructuring Plan
In
October 2004, the Company announced a restructuring plan (“2004 Restructuring
Plan”) related to the December 2004 relocation of the Company’s corporate
headquarters within Redwood City, California. In 2005, the Company subleased the
available space at the Pacific Shores Center under the 2004 Restructuring Plan.
The Company recorded restructuring charges of approximately $103.6 million,
consisting of $21.6 million in leasehold improvement and asset write-offs
and $82.0 million related to estimated facility lease losses, which consist
of the present value of lease payment obligations for the remaining five-year
lease term of the previous corporate headquarters, net of actual and estimated
sublease income. The Company has actual and estimated sublease income, including
the reimbursement of certain property costs such as common area maintenance,
insurance, and property tax, net of estimated broker commissions of
$5.2 million in 2010, $5.4 million in 2011, $5.5 million in 2012,
and $1.7 million in 2013.
Subsequent
to 2004, the Company continued to record accretion on the cash obligations
related to the 2004 Restructuring Plan. Accretion represents imputed interest
and is the difference between the non-discounted future cash obligations and the
discounted present value of these cash obligations. At December 31, 2009,
the Company will recognize approximately $5.1 million of accretion as a
restructuring charge over the remaining four years term of the lease as follows:
$2.3 million in 2010, $1.6 million in 2011, $1.0 million in 2012,
and $0.2 million in 2013.
2001
Restructuring Plan
During
2001, the Company announced a restructuring plan (“2001 Restructuring Plan”) and
recorded restructuring charges of approximately $12.1 million, consisting
of $1.5 million in leasehold improvement and asset write-offs and
$10.6 million related to the consolidation of excess leased facilities in
the San Francisco Bay Area and Texas.
During
2002, the Company recorded additional restructuring charges of approximately
$17.0 million, consisting of $15.1 million related to estimated
facility lease losses and $1.9 million in leasehold improvement and asset
write-offs. The Company calculated the estimated costs for the additional
restructuring charges based on current market information and trend analysis of
the real estate market in the respective area.
In
December 2004, the Company recorded additional restructuring charges under its
2001 restructuring plan of $9.0 million related to estimated facility lease
losses. The restructuring accrual adjustments recorded in the third and fourth
quarters of 2004 were the
77
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
result of
the relocation of its corporate headquarters within Redwood City, California in
December 2004, an executed sublease for the Company’s excess facilities in Palo
Alto, California during the third quarter of 2004, and an adjustment to
management’s estimate of occupancy of available vacant facilities. In 2005, the
Company subleased the available space at the Pacific Shores Center under the
2001 Restructuring Plan through May 2013, which was subsequently subleased until
July 2013 under a December 2007 sublease agreement.
A summary
of the activity of the accrued restructuring charges for the years ended
December 31, 2009 and 2008 is as follows (in thousands):
|
Accrued
Restructuring
Charges at
December 31,
2008
|
Restructuring
Charges Adjustments
|
Net
Cash
Payment
|
Non-Cash
Reclass
|
Accrued
Restructuring
Charges
at
December 31,
2009
|
||||||||||||||||||||
|
2004
Restructuring Plan
|
||||||||||||||||||||||||
|
Excess
lease
facilities
|
$ | 56,356 | $ | 2,820 | $ | 225 | $ | (11,740 | ) | $ | (165 | ) | $ | 47,496 | ||||||||||
|
2001
Restructuring Plan
|
||||||||||||||||||||||||
|
Excess
lease
facilities
|
8,112 | — | (1,384 | ) | (1,499 | ) | — | 5,229 | ||||||||||||||||
| $ | 64,468 | $ | 2,820 | $ | (1,159 | ) | $ | (13,239 | ) | $ | (165 | ) | $ | 52,725 | ||||||||||
|
Accrued
Restructuring
Charges at
December 31,
2007
|
Restructuring
Charges Adjustments
|
Net
Cash
Payment
|
Non-Cash
Reclass
|
Accrued
Restructuring
Charges
at
December 31,
2008
|
||||||||||||||||||||
|
2004
Restructuring Plan
|
||||||||||||||||||||||||
|
Excess
lease
facilities
|
$ | 64,446 | $ | 3,469 | $ | (324 | ) | $ | (11,071 | ) | $ | (164 | ) | $ | 56,356 | |||||||||
|
2001
Restructuring Plan
|
||||||||||||||||||||||||
|
Excess
lease
facilities
|
9,796 | — | (127 | ) | (1,557 | ) | — | 8,112 | ||||||||||||||||
| $ | 74,242 | $ | 3,469 | $ | (451 | ) | $ | (12,628 | ) | $ | (164 | ) | $ | 64,468 | ||||||||||
In 2009,
the Company recorded $1.7 million of restructuring charges related to the 2004
and 2001 Restructuring Plans. These charges included $2.8 million of
accretion charges and a $0.1 million charge for amortization of tenant
improvements, partially offset by an adjustment of $1.3 million due to
changes in our assumed sublease income.
In 2008,
the Company recorded $3.0 million of restructuring charges related to the
2004 and 2001 Restructuring Plans. These charges included $3.5 million of
accretion charges and a $0.1 million charge for amortization of tenant
improvements, partially offset by an adjustment of $0.6 million due to
changes in our assumed sublease income.
Net cash
payments for 2009, 2008, and 2007 for facilities included in the 2001
Restructuring Plan amounted to $1.5 million, $1.6 million, and
$1.6 million, respectively. Actual future cash requirements may differ from
the restructuring liability balances as of December 31, 2009 if the Company
is unable to sublease the excess leased facilities after the expiration of the
subleases, there are changes to the time period that facilities are vacant, or
the actual sublease income is different from current estimates. If the
subtenants do not extend their subleases and the Company is unable to sublease
any of the related Pacific Shores facilities during the remaining lease terms
through 2013, restructuring charges could increase by approximately
$3.9 million.
Inherent
in the estimation of the costs related to the restructuring efforts are
assessments related to the most likely expected outcome of the significant
actions to accomplish the restructuring. The estimates of sublease income may
vary significantly depending, in part, on factors that may be beyond the
Company’s control, such as the time periods required to locate and contract
suitable subleases when the Company’s existing sublessees vacate as well as the
market rates at the time of entering into new sublease agreements.
78
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
12. Employee
401(K) Plan
The
Company’s employee savings and retirement plan (the “Plan”) is qualified under
Section 401 of the Internal Revenue Code. The Plan is available to all
regular employees on the Company’s U.S. payroll and provides employees with
tax deferred salary deductions and alternative investment options. Employees may
contribute up to 50% of their salary up to the statutory prescribed annual
limit. The Company matches 50% per dollar contributed by eligible employees who
participate in the Plan, up to a maximum of $2,500 per calendar year.
Contributions made by the Company vest 100% upon contribution. The Company
contributed $1.8 million, $1.7 million, and $1.3 million for the years
ended December 31, 2009, 2008, and 2007 respectively. In addition, the Plan
provides for discretionary contributions at the discretion of the Board of
Directors. No discretionary contributions have been made by the Company to
date.
13. Income
Taxes
The
federal, state, and foreign income tax provisions for the years ended
December 31, 2009, 2008, and 2007 are summarized as follows (in
thousands):
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Current
tax provision:
|
||||||||||||
|
Federal
|
$ | 22,272 | $ | 24,949 | $ | 20,248 | ||||||
|
State
|
5,593 | 5,589 | 3,679 | |||||||||
|
Foreign
|
5,931 | 12,531 | 3,265 | |||||||||
|
Total
current tax provision
|
33,796 | 43,069 | 27,192 | |||||||||
|
Deferred
tax provision:
|
||||||||||||
|
Federal
|
(5,570 | ) | (3,860 | ) | (12,958 | ) | ||||||
|
State
|
(768 | ) | (1,840 | ) | (6,210 | ) | ||||||
|
Foreign
|
(1,851 | ) | (1,376 | ) | — | |||||||
|
Total
deferred tax provision
|
(8,189 | ) | (7,076 | ) | (19,168 | ) | ||||||
|
Total
provision for income taxes
|
$ | 25,607 | $ | 35,993 | $ | 8,024 | ||||||
The
components of income before income taxes attributable to domestic and foreign
operations are as follows (in thousands):
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Domestic
|
$ | 52,955 | $ | 57,146 | $ | 39,066 | ||||||
|
Foreign
|
36,863 | 34,827 | 23,574 | |||||||||
| $ | 89,818 | $ | 91,973 | $ | 62,640 | |||||||
A
reconciliation of the provision computed at the statutory federal income tax
rate to the Company’s income tax provision is as follows (in
thousands):
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Income
tax provision computed at federal statutory tax rate
|
$ | 31,437 | $ | 32,190 | $ | 21,924 | ||||||
|
State
taxes, net of federal benefit
|
3,126 | 2,890 | 1,497 | |||||||||
|
Foreign
earnings taxed at different rates
|
(9,533 | ) | (1,563 | ) | (4,238 | ) | ||||||
|
Share-based
payment
|
967 | 1,064 | 1,562 | |||||||||
|
Return
to provision true-up
|
(2,416 | ) | 138 | 1,615 | ||||||||
|
ASC
740-10 (FIN No. 48) and other
|
2,026 | 974 | 12 | |||||||||
|
Valuation
allowance
|
— | 300 | (14,348 | ) | ||||||||
|
Total
provision for income taxes
|
$ | 25,607 | $ | 35,993 | $ | 8,024 | ||||||
79
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Significant
components of the Company’s deferred tax assets are as follows (in
thousands):
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforwards
|
$ | 8,803 | $ | 1,989 | ||||
|
Tax
credit carryforwards
|
16,196 | 5,274 | ||||||
|
Deferred
revenue
|
9,011 | 12,301 | ||||||
|
Reserves
and accrued costs not currently deductible
|
5,477 | 7,815 | ||||||
|
Depreciable
assets
|
15,020 | 14,660 | ||||||
|
Accrued
restructuring costs
|
20,549 | 25,170 | ||||||
|
Capitalized
research and development
|
166 | 306 | ||||||
|
Share-based
payment
|
7,980 | 5,964 | ||||||
|
Other
|
681 | 1,147 | ||||||
|
Valuation
allowance
|
(37,507 | ) | (42,849 | ) | ||||
|
Total
deferred tax assets
|
46,376 | 31,777 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Non-deductible
intangible assets
|
(14,960 | ) | (1,531 | ) | ||||
|
Other
|
— | (616 | ) | |||||
|
Total
deferred tax liabilities
|
(14,960 | ) | (2,147 | ) | ||||
|
Net
deferred tax assets
|
$ | 31,416 | $ | 29,630 | ||||
FASB
Income Taxes (ASC 740)
provides for the recognition of deferred tax assets if realization of such
assets is more likely than not. During 2007, as a result of analysis of all
available evidence, including cumulative profits over the prior three years and
a projection of future taxable income, it was considered more likely than not
that non-share-based related deferred tax assets would be realized. Therefore,
the Company released the valuation allowance previously held against its
deferred tax assets, resulting in a $14.3 million benefit recorded in the
consolidated statement of operations and a $2.3 million benefit recorded to
goodwill. Additionally, in the quarter ended September 30, 2007, the
Company completed an analysis of its inter-company transfer pricing retroactive
to 2001 and based on this self- initiated review, the Company reallocated a
portion of the consolidated pre-tax income from its foreign operations to
domestic operations and utilized an additional $10.4 million of deferred
tax assets previously reserved.
In
assessing the need for any additional valuation allowance in 2009, 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 year ended December 31, 2009, consistent with
prior years it was considered more likely than not that the Company’s deferred
tax assets related to non share-based payments would be realizable. As a result,
the remaining valuation allowance is primarily related to deferred tax assets
that were created through the benefit from stock option deductions on a “with”
and “without” basis and recorded on the balance sheet with a corresponding
valuation allowance prior to the Company’s adoption of FASB Stock Compensation (ASC
718). Pursuant to FASB Stock Compensation (ASC
718-740-25-10), the benefit of these deferred tax assets will be recorded in the
stockholders’ equity when they are utilized on an income tax return to reduce
the Company’s taxes payable, and as such, they will not impact the Company’s
effective tax rate.
As of
December 31, 2009, approximately $37.2 million of the valuation allowance
for deferred taxes was attributable to the tax benefits of stock option
deductions which will be credited to equity when realized as discussed in the
preceding paragraph. The remaining $0.3 million is related to a capital loss
carryforward in a foreign jurisdiction. The valuation allowance
decreased by $5.3 million in 2009, $4.3 million in 2008, and
$35.5 million in 2007. The declines were primarily due to reductions in
deferred tax assets to the extent that tax attributes were
utilized.
As of
December 31, 2009, the Company had federal net operating loss carryforwards
of approximately $8.8 million and foreign tax credit carryforwards of
approximately $10.8 million. These attributes will expire at various times
beginning in 2019, if not utilized. As of December 31, 2009, the Company
had state research and development tax credit carryforwards of approximately
$10.7 million, which can be carried forward indefinitely. Utilization of
the Company’s net operating loss is subject to substantial annual limitation due
to the ownership change limitations provided by the Internal Revenue Code and
similar state provisions. We do not anticipate expiration of the net operation
loss carryforwards prior to their utilization.
80
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
Company has not provided for U.S. federal and foreign withholding taxes on
$10.6 million of undistributed earnings, including earnings previously
accrued upon, from certain non-U.S. operations as of December 31, 2009
because the Company intends to reinvest such earnings indefinitely outside of
the United States. The Company makes the determination of whether to accrue
taxes on such earnings on an entity by entity basis. The residual tax liability
if such earnings were remitted may be reduced by foreign tax credits and is
currently not practical to compute.
The
Company adopted Financial Accounting Standards Board Interpretation No. 48
(ASC 740), Accounting for
Uncertainties in Income Taxes — an Interpretation of FASB Statement No. 109
(“FIN No. 48”), effective January 1, 2007. ASC 740
requires the Company to recognize the financial statement effects of a tax
position when it is more likely than not, based on the technical merits, that
the position will be sustained upon examination. A reconciliation of the
beginning and ending amount of the unrecognized tax benefits is as follows (in
thousands):
|
December 31,
|
||||||||
|
|
2009
|
2008
|
||||||
|
Beginning
balance
|
$ | 20,779 | $ | 7,086 | ||||
|
Additions
for tax positions of prior years
|
6,095 | 12,330 | ||||||
|
Reductions
for tax positions of prior years
|
(2,808 | ) | (369 | ) | ||||
|
Additions
based on tax positions related to the current year
|
1,244 | 1,732 | ||||||
|
Reductions
due to lapse of statue of limitations
|
(430 | ) | — | |||||
|
Reductions
due to settlements
|
(9,248 | ) | — | |||||
|
Ending
balance
|
$ | 15,632 | $ | 20,779 | ||||
The
unrecognized tax benefits related to FASB Income Taxes (ASC 740-10), if
recognized, would impact the income tax provision by $15.5 million and
$12.9 million as of December 31, 2009 and 2008, respectively. The
unrecognized tax benefits were $23.9 million and $20.2 million as of December
31, 2009 and 2008, respectively. The change was primarily due to the agreement
with the Internal Revenue Service on certain audit issues, the expiration of
certain statute of limitations and the accrual for uncertain tax positions. The
Company has elected to include interest and penalties as a component of tax
expense. Accrued interest and penalties at December 31, 2009 and 2008 were
approximately $2.3 million and $1.6 million, respectively. The Company does
not anticipate that the amount of existing unrecognized tax benefits will
significantly increase or decrease within the next 12 months.
The
Company files U.S. federal income tax returns as well as income tax returns
in various states and foreign jurisdictions. The Company was under examination
by the Internal Revenue Service for fiscal years 2005 and 2006. Due to net
operating loss carryforwards, substantially all of the Company’s tax years
remain open to tax examination. During the three months ended June 30, 2009, the
Company reached an agreement with the Internal Revenue Service to settle certain
matters, including cost sharing and buy-in amounts for tax years ended December
31, 2001 through 2006. The tax provision impact as a result of the settlement
was $7.0 million of which $6.1 million was accrued for previously.
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
or four open tax years at any point in time. The field work for certain state
audits has commenced and is at various stages of completion as of
December 31, 2009.
Although
the outcome of any tax audit is uncertain, the Company believes that it has
adequately provided in its financial statements for any additional taxes that it
may be required to pay as a result of such examinations. The Company regularly
assesses the likelihood of outcomes resulting from these examinations to
determine the adequacy of its provision for income taxes, and believes its
current reserve to be reasonable. If tax payments ultimately prove to be
unnecessary, the reversal of these tax liabilities would result in tax benefits
in the period that the Company had determined such liabilities were no longer
necessary. However, if an ultimate tax assessment exceeds its estimate of tax
liabilities, an additional tax provision might be required.
14. Net
Income per Common Share
Under the
provisions of FASB Earnings
per Share (ASC 260),
basic net income per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted net income per share
reflects the potential dilution of securities by adding other common stock
equivalents, primarily stock options and RSUs and common shares potentially
issuable under the terms of the Convertible Senior Notes, to the
weighted-average number of common shares outstanding during the period, if
dilutive. Potentially dilutive securities have been excluded from the
computation of diluted net income per share if their inclusion is
anti-dilutive.
81
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
calculation of basic and diluted net income per share is as follows (in
thousands, except per share amounts):
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Net
income
|
$ | 64,211 | $ | 55,980 | $ | 54,616 | ||||||
|
Effect
of convertible senior notes, net of related tax effects
|
4,022 | 4,350 | 4,399 | |||||||||
|
Net
income adjusted
|
$ | 68,233 | $ | 60,330 | $ | 59,015 | ||||||
|
Weighted-average
shares of common stock used to compute basic net income per share
(excluding unvested restricted stock)
|
87,991 | 88,109 | 87,164 | |||||||||
|
Effect
of dilutive common stock equivalents:
|
||||||||||||
|
Dilutive effect of unvested
restricted stock units
|
170 | — | — | |||||||||
|
Dilutive effect of employee
stock options
|
4,961 | 3,715 | 4,588 | |||||||||
|
Dilutive effect of convertible
senior notes
|
10,190 | 11,454 | 11,500 | |||||||||
|
Shares
used in computing diluted net income per common share
|
103,312 | 103,278 | 103,252 | |||||||||
|
Basic
net income per common share
|
$ | 0.73 | $ | 0.64 | $ | 0.63 | ||||||
|
Diluted
net income per common share
|
$ | 0.66 | $ | 0.58 | $ | 0.57 | ||||||
Diluted
net income per common share is calculated according to Earnings per Share (ASC
260), which requires
the dilutive effect of convertible securities to be reflected in the diluted net
income per share by application of the “if-converted” method. This method
assumes an add-back of interest and issuance cost amortization, net of income
taxes to net income if the securities are converted. The Company determined that
for years ended December 31, 2009, 2008 and 2007, the Convertible Senior
Notes had a dilutive effect on diluted net income per share, and as such, it had
an add-back of $4.0 million, $4.3 million and $4.4 million,
respectively, in interest and issuance cost amortization, net of income taxes,
to net income for the diluted net income per share calculation.
For the
years ended December 31, 2009, 2008, and 2007, options to purchase
approximately 0.3 million, 3.5 million, and 4.0 million, respectively,
of common stock with exercise price greater than the annual average fair market
value of our stock of $23.18, $15.77, and $14.83, respectively, were not
included in the calculation because the effect would have been
anti-dilutive.
15. Commitments
and Contingencies
Lease
Obligations
In
December 2004, the Company relocated its corporate headquarters within Redwood
City, California and entered into a new lease agreement. The initial lease term
is from December 15, 2004 to December 31, 2007 with a three-year
option to renew to December 31, 2010 at fair market value. In May 2007, the
Company exercised its renewal option to extend the office lease term to
December 31, 2010. In May 2009, the Company executed the lease amendment to
further extend the lease term for another 3 years to December 31, 2013. The
future minimum contractual lease payments are $2.6 million, $3.4 million, $3.5
million and $3.6 million for the years ending December 31, 2010, 2011, 2012, and
2013, respectively.
The
Company entered into two lease agreements in February 2000 for two office
buildings at the Pacific Shores Center in Redwood City, California, its former
corporate headquarters from August 2001 through December 2004. The leases expire
in July 2013. In 2001, a financial institution issued a $12.0 million
letter of credit, which required us to maintain certificates of deposits as
collateral until the leases expire in 2013. As of June 2008, however, we were no
longer required to maintain certificates of deposits for this letter of credit
related to our former corporate headquarters leases at the Pacific Shores Center
in Redwood City, California.
The
Company leases certain office facilities under various non-cancelable operating
leases, including those described above, which expire at various dates through
2013 and require the Company to pay operating costs, including property taxes,
insurance, and maintenance. Rent expense for 2009, 2008, and 2007 was $11.2
million, $11.2 million, and $7.2 million, respectively. Operating
lease payments in the table below include approximately $61.0 million for
operating lease commitments for facilities that are included in restructuring
charges. See Note 11. Facilities Restructuring
Charges, above, for a further discussion.
82
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Future
minimum lease payments as of December 31, 2009 under non-cancelable
operating leases with original terms in excess of one year are summarized as
follows (in thousands):
|
|
Operating
Leases
|
Sublease
Income
|
Net
|
|||||||||
|
2010
|
$ | 25,043 | $ | 2,459 | $ | 22,584 | ||||||
|
2011
|
24,525 | 2,503 | 22,022 | |||||||||
|
2012
|
24,468 | 2,550 | 21,918 | |||||||||
|
2013
|
16,654 | 1,314 | 15,340 | |||||||||
|
2014
|
1,746 | — | 1,746 | |||||||||
|
Thereafter
|
1,959 | — | 1,959 | |||||||||
| $ | 94,395 | $ | 8,826 | $ | 85,569 | |||||||
Of these
future minimum lease payments, the Company has accrued $52.7 million in the
facilities restructuring accrual at December 31, 2009. This accrual, in
addition to minimum lease payments of $61.0 million, includes estimated
operating expenses of $18.5 million and sublease commencement costs
associated with excess facilities and is net of estimated sublease income of
$21.7 million and a present value discount of $5.1 million recorded in
accordance with FASB Exit or
Disposal Cost
Obligations (ASC 420).
Warranties
The
Company generally provides a warranty for its software products and services to
its customers for a period of three to six months and accounts for its
warranties under the FASB Contingencies (ASC 450). 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. The Company has provided a
warranty accrual of $0.2 million as of December 31, 2009 and 2008. To
date, the Company’s product warranty expense has not been
significant.
Indemnification
The
Company sells software licenses and services to its customers under contracts,
which the Company refers to as the License to Use Informatica Software (“License
Agreement”). Each License Agreement contains the relevant terms of the
contractual arrangement with the customer and generally includes certain
provisions for indemnifying the customer against losses, expenses, liabilities,
and damages that may be awarded against the customer in the event the Company’s
software is found to infringe upon a patent, copyright, trademark, or other
proprietary right of a third party. The License Agreement generally limits the
scope of and remedies for such indemnification obligations in a variety of
industry-standard respects, including but not limited to certain time and scope
limitations and a right to replace an infringing product with a non-infringing
product.
The
Company believes its internal development processes and other policies and
practices limit its exposure related to the indemnification provisions of the
License Agreement. In addition, the Company requires its employees to sign a
proprietary information and inventions agreement, which assigns the rights to
its employees’ development work to the Company. To date, the Company has not had
to reimburse any of its customers for any losses related to these
indemnification provisions, and no material claims against the Company are
outstanding as of December 31, 2009. For several reasons, including the
lack of prior indemnification claims and the lack of a monetary liability limit
for certain infringement cases under the License Agreement, the Company cannot
determine the maximum amount of potential future payments, if any, related to
such indemnification provisions.
In
addition, we indemnify our officers and directors under the terms of indemnity
agreements entered into with them, as well as pursuant to our certificate of
incorporation, bylaws, and applicable Delaware law. To date, we have not
incurred any costs related to these indemnifications.
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 FASB
Contingencies (ASC
450).
83
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Derivative
Financial Instruments
Informatica
uses foreign exchange forward contracts to hedge certain operational (“cash
flow”) exposures resulting from changes in foreign currency exchange rates. Such
cash flow exposures result from portions of its forecasted expenditures
denominated in currencies other than U.S. dollar, primarily the Indian
rupee and Israeli shekel. These foreign exchange contracts, carried at fair
value, have a maturity of 13 months or less. Informatica enters into these
foreign exchange contracts to hedge forecasted operating expenditures in the
normal course of business, and accordingly, they are not speculative in
nature.
As of
December 31, 2009, the notional amounts of the foreign exchange forward
contracts that the Company committed to purchase in the fourth quarter of 2009
for the Indian rupees and Israeli shekels were $11.5 million and $3.3 million,
respectively.
See Note
2. Summary of Significant Accounting
Policies, Note 9. Accumulated Other Comprehensive
Income, and Note 10. Derivative Financial
Instruments, of Notes to
Consolidated Financial Statements for a further discussion.
16. Litigation
On
November 8, 2001, a purported securities class action complaint was filed in the
U.S. District Court for the Southern District of New York. The case is entitled
In re Informatica Corporation
Initial Public Offering Securities Litigation, Civ. No.
01-9922 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities
Litigation, 21 MC 92 (SAS) (S.D.N.Y.). Plaintiffs’ amended complaint was
brought purportedly on behalf of all persons who purchased our common stock from
April 29, 1999 through December 6, 2000. It names as defendants Informatica
Corporation, two of our former officers (the “Informatica defendants”), and
several investment banking firms that served as underwriters of our April 29,
1999 initial public offering (IPO) and September 28, 2000 follow-on public
offering. The complaint alleges liability as to all defendants under Sections 11
and/or 15 of the Securities Act of 1933 and Sections 10(b) and/or 20(a) of the
Securities Exchange Act of 1934, on the grounds that the registration statements
for the offerings did not disclose that: (1) the underwriters had agreed to
allow certain customers to purchase shares in the offerings in exchange for
excess commissions paid to the underwriters; and (2) the underwriters had
arranged for certain customers to purchase additional shares in the aftermarket
at predetermined prices. The complaint also alleges that false analyst reports
were issued. No specific damages are claimed.
Similar
allegations were made in other lawsuits challenging more than 300 other initial
public offerings and follow-on offerings conducted in 1999 and 2000. The cases
were consolidated for pretrial purposes. On February 19, 2003, the Court ruled
on all defendants’ motions to dismiss. The Court denied the motions to dismiss
the claims under the Securities Act of 1933. The Court denied the motion to
dismiss the Section 10(b) claim against Informatica and 184 other issuer
defendants. The Court denied the motion to dismiss the Section 10(b) and 20(a)
claims against the Informatica defendants and 62 other individual
defendants.
The
Company accepted a settlement proposal presented to all issuer defendants. In
this settlement, plaintiffs will dismiss and release all claims against the
Informatica defendants, in exchange for a contingent payment by the insurance
companies collectively responsible for insuring the issuers in all of the IPO
cases, and for the assignment or surrender of control of certain claims we may
have against the underwriters. The Informatica defendants will not be required
to make any cash payments in the settlement, unless the pro rata amount paid by
the insurers in the settlement exceeds the amount of the insurance coverage, a
circumstance that we do not believe will occur. Any final settlement will
require approval of the Court after class members are given the opportunity to
object to the settlement or opt out of the settlement.
All
parties in all lawsuits have reached a settlement which will not require the
Company to contribute cash. The Court gave preliminary approval to the
settlement on June 10, 2009 and gave final approval on October 6, 2009. Several
objectors have filed notices of appeals of the final judgment dismissing the
cases upon the settlement.
On
July 15, 2002, the Company filed a patent infringement lawsuit against Acta
Technology, Inc., now known as Business Objects Data Integration, Inc. (“BODI”)
and the final judgment in the Company’s favor included a permanent injunction
preventing BODI from shipping the infringing technology which remains in effect
until the patent expires in 2019.
On
August 21, 2007, JuxtaComm Technologies (“JuxtaComm”) filed a complaint in
the Eastern District of Texas against the Company and 20 other defendants,
including Microsoft, IBM and Business Objects, for infringement of JuxtaComm’s
US patent
84
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6,195,662
(“System for Transforming and Exchanging Data Between Distributed Heterogeneous
Computer Systems”). In its complaint, JuxtaComm sought unspecified
monetary damages and permanent injunctive relief. This matter was settled in
August 2009 for $4.3
million. The Company received a release and settlement of any past damages
related to potential infringement of the subject patent and a non-exclusive,
non-transferable, fully paid license for the subject patent valued at $2.4
million through its expiration date of June 26, 2018. At the time of settlement,
the Company capitalized the amount related to future use of the patent and
expensed the portion related to past damages, based on total forecasted cash
flows.
On
November 24, 2008, Data Retrieval Technologies LLC (“Data Retrieval”) filed a
complaint in the Western District of Washington against the Company and Sybase,
Inc., alleging patent infringement of U.S. Patent Nos. 6,026,392 (the “392
patent”) and 6,631,382 (the “382 patent”). On December 5, 2008,
the Company and Sybase filed an action in the Northern District of California
against Data Retrieval, Timeline, Inc. (“Timeline”) and TMLN Royalty, LLC
(“TMLN Royalty”), asserting declaratory relief claims for non-infringement and
invalidity of the ’392 and ’382 patents. On January 15, 2009, we filed an
answer to the complaint in the Western District of Washington and asserted
declaratory relief counterclaims for non-infringement and invalidity of the ’392
and ’382 patents. In addition, on January 15, 2009, Informatica and
Sybase filed a voluntary dismissal without prejudice of Timeline and TMLN
Royalty in the Northern District of California action. On April 1,
2009, in the Northern District of California action, Data Retrieval filed an
answer and asserted counterclaims for patent infringement of the ’382 and
’392 patents. On April 8, 2009, the Court in the Western District of
Washington transferred that action to the Northern District of California.
On April 21, 2009, the Company filed its reply to Data Retrieval’s
counterclaims in the Northern District of California. Following Data
Retrieval’s service of its Disclosure of Asserted Claims and
Preliminary Infringement Contentions on June 8, 2009, on June 18, 2009,
the Company filed a motion for partial summary judgment of the following claims
and issues: (1) non-infringement of the ’382 patent; (2) non-infringement of the
unasserted claims (claims 2-25) of the ‘392 patent; and (3) no infringement of
either patent-in-suit by the Informatica PowerCenter product. On September 11,
2009, the U.S. District Court granted the Company’s motion for partial summary
judgment on all of the claims and issues requested by the
Company. The case is currently in the discovery phase and no
trial date has been set. The Company intends to vigorously defend
itself.
On
January 12, 2010, Data Retrieval initiated another action for patent
infringement against the Company in the United States District Court for the
Northern District of California, Case No. C 09-05360-VRW, asserting two patents,
U.S. Patent Nos. 5,802,511 (the "'511 patent") and 6,625,617 B2 (the "'617
patent") (collectively, the "Data Retrieval II patents-in-suit") (the "Data
Retrieval II Action"). Sybase, Inc. is also named as a defendant in the Data
Retrieval II Action. The Data Retrieval II Action was related to the Data
Retrieval I Actions and assigned to the same Judge. In the Data Retrieval II
Action, Data Retrieval alleges that a "suite of data warehousing systems and/or
material components thereof," including Power Center, Data Explorer and Power
Exchange, infringe the Data Retrieval II patents-in-suit. Data Retrieval accuses
the Company of infringing at least claims 1, 2 and 14 of the '511 patent and at
least claims 25 and 26 of the '617 patent. The Company has not yet responded to
Data Retrieval's Complaint in the Data Retrieval II Action. No discovery
has commenced and no trial date been set.
The
Company is also a party to various legal proceedings and claims arising from the
normal course of business activities.
Based on
current available information, Informatica does not expect that the ultimate
outcome of these unresolved matters, individually or in the aggregate, will have
a material adverse effect on its results of operations, cash flows, or financial
position. However, litigation is subject to inherent uncertainties and the
Company’s view of these matters may change in the future. In addition, given
such uncertainties, the Company has from time to time discussed settlement in
the context of litigation and has accrued, based on FASB Contingencies (ASC 450), for
estimates of settlement. 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.
17. Related
Party Transaction
Mark A.
Bertelsen, a director of Informatica since September 2002, serves as a member of
Wilson Sonsini Goodrich & Rosati (“WSGR”), our principal outside legal
counsel. Fees paid by the Company to WSGR for legal services rendered for the
years ended December 31, 2009, 2008, and 2007 were $1.4 million,
$0.9 million, and $0.8 million, respectively. The Company believes
that the services rendered by WSGR were provided on terms no more or less
favorable than those with unrelated parties.
85
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
18. Significant
Customer Information and Segment Information
The Company operates solely in one
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
2009, 2008, and 2007. At December 31, 2009 and 2008, no customer accounted
for more than 10% of the accounts receivable balance. North America revenues
include the United States and Canada. Revenue from international customers
(defined as those customers outside of North America) accounted for 36%, 35%,
and 32% of total revenues in 2009, 2008, and 2007, respectively.
The
following tables represent geographic information (in thousands):
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Revenues:
|
||||||||||||
|
North
America
|
$ | 321,901 | $ | 297,093 | $ | 264,167 | ||||||
|
Europe
|
129,886 | 122,458 | 101,933 | |||||||||
|
Other
|
48,906 | 36,148 | 25,156 | |||||||||
| $ | 500,693 | $ | 455,699 | $ | 391,256 | |||||||
|
|
December 31,
|
|||||||
|
|
2009
|
2008
|
||||||
|
Long-lived
assets (excluding assets not allocated):
|
||||||||
|
North
America
|
$ | 65,384 | $ | 36,285 | ||||
|
Europe
|
4,610 | 6,664 | ||||||
|
Other
|
1,520 | 1,643 | ||||||
| $ | 71,514 | $ | 44,592 | |||||
The
Company’s revenues are derived from software licenses, maintenance, consulting
and education services, and customer support. It is impracticable to
disaggregate software license revenue by product. The Company’s disaggregated
revenue information is as follows (in thousands):
|
|
Years Ended December 31,
|
|||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
License
|
$ | 214,322 | $ | 195,769 | $ | 175,318 | ||||||
|
Maintenance
|
215,315 | 186,212 | 151,246 | |||||||||
|
Consulting
and
education
|
71,056 | 73,718 | 64,692 | |||||||||
| $ | 500,693 | $ | 455,699 | $ | 391,256 | |||||||
19. Selected
Quarterly Financial Information (Unaudited)
|
Three Months Ended
|
||||||||||||||||
|
|
December 31,
2009
|
September 30,
2009
|
June 30,
2009
|
March 31,
2009
|
||||||||||||
|
(In
thousands, except per share data)
|
||||||||||||||||
|
Total
revenues
|
$ | 150,897 | $ | 123,394 | $ | 117,344 | $ | 109,058 | ||||||||
|
Gross
profit
|
126,389 | 101,906 | 96,483 | 88,281 | ||||||||||||
|
Facilities
restructuring charges (recovery)
|
(300 | ) | 557 | 595 | 809 | |||||||||||
|
Income
from operations
|
35,000 | 22,288 | 17,087 | 14,994 | ||||||||||||
|
Net
income
|
24,971 | 16,192 | 11,989 | 11,059 | ||||||||||||
|
Net
income per common share:
|
||||||||||||||||
|
Basic
|
$ | 0.28 | $ | 0.18 | $ | 0.14 | $ | 0.13 | ||||||||
|
Diluted
|
$ | 0.25 | $ | 0.17 | $ | 0.13 | $ | 0.12 | ||||||||
|
Shares
used in computing basic net income per common share:
|
||||||||||||||||
|
Basic
|
89,589 | 88,283 | 87,198 | 86,862 | ||||||||||||
|
Diluted
|
105,807 | 103,516 | 100,692 | 100,430 | ||||||||||||
86
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
Three Months Ended
|
|||||||||||||||
|
|
December 31,
2008
|
September 30,
2008
|
June 30,
2008
|
March 31,
2008
|
||||||||||||
|
(In
thousands, except per share data)
|
||||||||||||||||
|
Total
revenues
|
$ | 124,412 | $ | 113,817 | $ | 113,760 | $ | 103,710 | ||||||||
|
Gross
profit
|
103,444 | 91,408 | 90,532 | 82,612 | ||||||||||||
|
Facilities
restructuring charges
|
254 | 896 | 921 | 947 | ||||||||||||
|
Income
from operations
|
39,526 | 17,668 | 14,619 | 12,423 | ||||||||||||
|
Net
income
|
19,872 | 13,381 | 11,503 | 11,224 | ||||||||||||
|
Net
income per common share:
|
||||||||||||||||
|
Basic
|
$ | 0.23 | $ | 0.15 | $ | 0.13 | $ | 0.13 | ||||||||
|
Diluted
|
$ | 0.21 | $ | 0.14 | $ | 0.12 | $ | 0.12 | ||||||||
|
Shares
used in computing basic net income per common share:
|
||||||||||||||||
|
Basic
|
87,178 | 88,570 | 88,565 | 88,128 | ||||||||||||
|
Diluted
|
101,767 | 103,740 | 104,457 | 103,727 | ||||||||||||
Diluted
net income per common share is calculated according to FASB Earnings per Share (ASC
260) which
requires the dilutive effect of convertible securities to be reflected in the
diluted net income per share by application of the “if-converted” method. This
method assumes an add-back of interest and issuance cost amortization, net of
income taxes to net income if the securities are converted. The Company
determined that for the years ended December 31, 2009, 2008, and 2007, the
Convertible Senior Notes had a dilutive effect on diluted net income per share,
and as such, they had an add-back of $4.0 million, $4.3 million, and
$4.4 million, respectively in interest and issuance cost amortization, net
of income taxes, to net income for the diluted net income per share
calculation.
20. Acquisitions
Agent
Logic
On
September 1, 2009, the Company acquired Agent Logic, Inc. (“Agent Logic”), a
privately held company incorporated in Delaware. Agent Logic specializes in the
development and marketing of complex event processing software which supports
security initiatives in highly complex environments. Informatica acquired all of
the capital stock of Agent Logic in a cash merger transaction for $35 million of
which $6.1 million is held in an escrow fund as security for losses accrued by
Informatica in the event of certain breaches of the merger agreement by Agent
Logic. The escrow fund will remain in place for a period of eighteen months,
although 50% of the escrow funds will be paid out 12 months subsequent to
the date of acquisition.
Informatica
incurred $0.5 million of acquisition-related costs for the three months ended
September 30, 2009. These expenses are reflected as general and administrative
expenses in the consolidated statements of income for the respective
periods.
Informatica
is obligated to pay certain variable and deferred earn-out payments based if
certain license order targets are achieved. The Company determined the fair
market value of these earn-outs based on probability analysis. The fair market
value and gross amount of these earn-outs at the time of acquisition were $2.6
million and $3.1 million, respectively. Informatica reflected the excess of this
estimate of $0.6 million in its statement of income in the fourth quarter of
2009 based on FASB Business
Combinations (ASC 805).
The
allocation of the purchase price for this acquisition, as of the date of the
acquisition, is as follows (in thousands):
|
Goodwill
|
$ | 24,403 | ||
|
Developed
and core technology
|
10,970 | |||
|
Customer
relationships
|
1,380 | |||
|
Trade
names
|
670 | |||
|
Assumed
assets, net of liabilities
|
1,776 | |||
|
Total
purchase price
|
$ | 39,199 |
87
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The
Company assigned fair values to the identified intangible assets acquired in
accordance with the guidelines under FASB Business Combination (ASC
805).
Informatica
is obligated to pay certain employees of Agent Logic retention bonuses of
approximately $0.8 million if they continue to provide their employment services
for a certain period of time. Informatica will record these expenses as the
services are performed between 12 to 24 months subsequent to the acquisition
date.
The
excess of the purchase price over the identified tangible and intangible assets
was recorded as goodwill. The Company believes that the investment value of the
synergy created as a result of this acquisition, due to future product
offerings, has principally contributed to a purchase price that resulted in the
recognition of $24.4 million of goodwill, which is not deductible for tax
purposes. At the time of acquisition, Agent Logic had recently had a major
product release and as a result, no material in-process research and development
was identified. The trade names and developed and core technology will be
amortized over five years on a straight line basis and customer relationships
will be amortized over six years on an accelerated basis consistent with
expected benefits.
AddressDoctor
GmbH
On June
2, 2009, Informatica GmbH, a wholly owned subsidiary of Informatica, acquired
AddressDoctor GmbH (“AddressDoctor”), a limited liability company duly organized
and existing under the laws of the Federal Republic of Germany. AddressDoctor is
a leading provider of international address verification and cleaning solutions
that enables users to validate and correct postal addresses and assists in the
data capturing process. Informatica acquired all of the capital stock of
AddressDoctor for $27.8 million of which $4.5 million is held in an escrow fund
as security for losses incurred by Informatica in the event of certain breaches
of the acquisition agreement by AddressDoctor. The escrow fund will remain
in place for a period of 18 months, although 50% of the escrow funds will
be paid out 12 months subsequent to the date of acquisition.
Informatica
incurred $0.5 million of acquisition-related costs for the three months ended
June 30, 2009. These expenses are reflected as general and administrative
expenses in the consolidated statements of income for the respective
periods.
The
allocation of the purchase price for this acquisition, as of the date of the
acquisition, is as follows (in thousands):
|
Goodwill
|
$ | 23,019 | ||
|
Developed
and core technology
|
960 | |||
|
Vendor
relationships
|
7,200 | |||
|
Customer
relationships
|
1,320 | |||
|
Trade
names
|
230 | |||
|
Assumed
liabilities, net of assets
|
(4,977 | ) | ||
|
Total
purchase price
|
$ | 27,752 |
The
Company assigned fair values to the identified intangible assets acquired in
accordance with the guidelines established in SFAS No. 141(R) the FASB Business Combinations (ASC
805).
The
excess of the purchase price over the identified tangible and intangible assets
was recorded as goodwill. The Company believes that the investment value of the
synergy created as a result of this acquisition, due to future product
offerings, has principally contributed to a purchase price that resulted in the
recognition of $23.0 million of goodwill, of which $6.8 million will be
deductible for tax purposes due to the sale of intellectual property rights to
the U.S. entity. At the time of acquisition, AddressDoctor had recent releases
of its major products and as a result, no material in-process research and
development was identified at the time of acquisition. The trade names and the
developed and core technology will be amortized over five years on a straight
line basis, vendor relationships will be amortized over five years on a straight
line basis and customer relationships will be amortized over six years on an
accelerated basis consistent with expected benefits.
88
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Applimation
On
February 13, 2009, the Company acquired Applimation, Inc. (“Applimation”), a
privately held company incorporated in Delaware, providing application
Information Lifecycle Management (ILM) technology. The acquisition extends the
Company's data integration software to include Applimation’s technology. The
Company acquired all of the capital stock of Applimation in a cash merger
transaction valued at approximately $37.2 million, including $1.6 million
retention bonuses payable three to eighteen months subsequent to acquisition
date. As a result of this acquisition, the Company also assumed certain facility
leases and certain liabilities and commitments. As part of the merger agreement,
$6.0 million of the merger consideration was placed into an escrow fund and held
as security for losses incurred by the Company in the event of certain breaches
of the merger agreement by Applimation. The escrow fund will remain in
place until August 13, 2010, although 50% of the escrow funds will be
distributed to the Applimation stockholders on February 13,
2010.
Informatica
incurred $718,000 and $116,000 of acquisition-related costs for the three months
ended March 31, 2009 and December 31, 2008, respectively. These expenses are
reflected as general and administrative expenses in the consolidated statements
of income for the respective periods.
The
allocation of the purchase price for this acquisition, as of the date of the
acquisition, is as follows (in thousands):
|
Goodwill
|
$ | 19,740 | ||
|
Developed
and core technology
|
10,730 | |||
|
Customer
relationships
|
8,330 | |||
|
Trade
names
|
880 | |||
|
Assumed
liabilities, net of assets
|
(4,084 | ) | ||
|
Total
purchase price
|
$ | 35,596 |
The
Company assigned fair values to the identified intangible assets acquired in
accordance with the guidelines established in SFAS No. 141(R) FASB Business Combinations (ASC
805).
Informatica
is obligated to reimburse certain employees of Applimation for an approximate
bonus of $1.6 million if they continue to provide their employment services for
a certain period of time. If they discontinue their services for any reason,
these amounts are payable to original shareholders of Applimation. Informatica
will record these expenses as the services are performed between three to 18
months subsequent to the acquisition date.
The
Company determined, based on probability analysis, that the amount of bad debt
reserve for the accounts receivable acquired through acquisition was $0.4
million. In the fourth quarter of 2009, Informatica increased this estimate by
an additional $0.4 million, due to additional probability analysis. Informatica
reflected the excess of this estimate of $0.4 million in its statement of income
in the fourth quarter of 2009 based on FASB Business Combinations (ASC
805).
The
excess of the purchase price over the identified tangible and intangible assets
was recorded as goodwill. The Company believes that the investment value of the
synergy created as a result of this acquisition, due to future product
offerings, has principally contributed to a purchase price that resulted in the
recognition of $19.7 million of goodwill, which is not deductible for tax
purposes. Since Applimation had recently released major versions of its products
just prior to acquisition, no material in-process research and development was
identified. The trade names and developed and core technology will be amortized
over five years on a straight line basis, and customer relationships will be
amortized over six years on an accelerated basis consistent with expected
benefits.
Neither
of these acquisitions was considered materially significant for pro forma
presentation purposes.
89
INFORMATICA
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
21. Subsequent
Event
On
January 28, 2010, the Company acquired Siperian, Inc., (“Siperian”) a private
company incorporated in Delaware. Siperian provides an
integrated model-driven master data management (MDM) platform that adapts to
most business requirements. The acquisition extends the Company’s data
integration software to include Siperian’s technology. The Company acquired
Siperian in a cash merger transaction valued at approximately $130 million.
As a result of this acquisition, the Company also assumed certain facility
leases and certain liabilities and commitments. Approximately $18.3 million of
the consideration otherwise payable to former Siperian stockholders, vested
option holders and participants in Siperian’s Management Acquisition Bonus Plan
was placed into an escrow fund and held as partial security for the
indemnification obligations of the former Siperian stockholders, vested option
holders, and participants in Siperian’s Management Acquisition Bonus Plan set
forth in the merger agreement and for purposes of the working capital adjustment
set forth therein. The escrow fund will remain in place until July 28, 2011,
although 50% of the escrow funds will be distributed to former Siperian
stockholders, vested option holders, and participants in Siperian’s Management
Acquisition Bonus Plan on January 28, 2011.
90
|
CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Not
applicable.
ITEM 9A. CONTROLS AND
PROCEDURES
(a) Evaluation of disclosure controls
and procedures. Our management evaluated, with the
participation of our Chief Executive Officer and our Chief Financial Officer,
the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Annual Report on Form 10-K. Based on this
evaluation, our Chief Executive Officer and our Chief Financial Officer have
concluded that our disclosure controls and procedures are effective to ensure
that information we are required to disclose in reports that we file or submit
under the Securities Exchange Act of 1934 (1) is recorded, processed,
summarized, and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and (2) is accumulated and
communicated to Informatica’s management, including our Chief Executive Officer
and our Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. Our disclosure controls and procedures are
designed to provide reasonable assurance that such information is accumulated
and communicated to our management. Our disclosure controls and procedures
include components of our internal control over financial reporting.
Management’s assessment of the effectiveness of our internal control over
financial reporting is expressed at the level of reasonable assurance because a
control system, no matter how well designed and operated, can provide only
reasonable, but not absolute, assurance that the control system’s objectives
will be met.
(b) Management’s annual report on
internal control over financial reporting. The information
required to be furnished pursuant to this item is set forth under the captions
“Report of Management on Internal Control Over Financial Reporting” and “Report
of Independent Registered Accounting Firm” in Item 8 of this Annual Report
on Form 10-K, which is incorporated herein by reference.
(c) Change in internal control over
financial reporting. There was no change in our internal
control over financial reporting that occurred during the fourth quarter of 2009
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER
INFORMATION
Not
applicable.
ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS, AND CORPORATE GOVERNANCE
Executive
Officers of the Registrant
The
following table sets forth certain information concerning our executive officers
as of January 31, 2010:
|
Name
|
Age
|
Position(s)
|
|
Sohaib
Abbasi
|
53
|
Chairman
of the Board, Chief Executive Officer, and President
|
|
Earl
Fry
|
51
|
Chief
Financial Officer, Chief Administrative Officer, Executive Vice President,
and Secretary
|
|
Paul
Hoffman
|
59
|
Executive
Vice President and President, Worldwide Field
Operations
|
|
Girish
Pancha
|
45
|
Executive
Vice President and General Manager, Data Integration
|
|
Ivan
Chong
|
42
|
Executive
Vice President, Data Quality
|
Our
executive officers are appointed by, and serve at the discretion of, the Board
of Directors. Each executive officer is a full-time employee. There is no family
relationship between any of our executive officers or directors.
Mr. Abbasi has been our
President and Chief Executive Officer since July 2004 and a member of our Board
of Directors since February 2004. From 2001 to 2003, Mr. Abbasi was Senior
Vice President, Oracle Tools Division and Oracle Education at Oracle
Corporation, which he joined in 1982. From 1994 to 2000, he was Senior Vice
President Oracle Tools Product Division at Oracle Corporation. Mr. Abbasi
graduated with honors from the University of Illinois at Urbana-Champaign in
1980, where he earned both a B.S. and an M.S. degree in computer
science.
Mr. Fry joined us as the
Chief Financial Officer and Senior Vice President in December 1999. In July
2002, Mr. Fry became the Secretary. In August 2003, Mr. Fry was
promoted to Executive Vice President. In January 2010, Mr. Fry was promoted to
Chief Administrative Officer and Executive Vice President, Global Customer
Support. From November 1995 to December 1999, Mr. Fry was Vice President
and Chief Financial Officer at Omnicell Technologies, Inc. From July 1994 to
November 1995, he was Vice President and Chief Financial Officer at C*ATS
Software, Inc. Mr. Fry holds a B.B.A. degree in accounting from the
University of Hawaii and an M.B.A. degree from Stanford University. Mr. Fry
serves on the Board of Directors of Central Pacific Financial
Corporation.
Mr. Hoffman joined us as
Executive Vice President, Worldwide Sales in January 2005. In January 2010, Mr.
Hoffman was promoted to Executive Vice President and President, Worldwide Field
Operations. Mr. Hoffman was Executive Vice President of Worldwide Sales at
Cassatt Corporation from August 2003 to December 2004. From April 1999 to June
2003, Mr. Hoffman was Vice President of the Americas at SeeBeyond
Technology Corporation. He served as Vice President Worldwide Sales for
Documentum from September 1996 to April 1999. Mr. Hoffman also spent
10 years at Oracle Corporation in senior sales management and
executive-level positions, including the Vice President of Worldwide Operations.
Mr. Hoffman holds a B.S. degree in finance from Fairfield
University.
Mr. Pancha was an early
employee of Informatica, serving in engineering management roles from November
1996 to October 1998. Mr. Pancha left in 1998 to co-found Zimba, a
developer of mobile applications providing real-time access to corporate
information via voice, wireless, and Web technologies. Upon Informatica’s
acquisition of Zimba in August 2000, Mr. Pancha rejoined us as Vice
President and General Manager of the Platform Business Unit. In August 2002, he
became Senior Vice President of Products. In August 2003, Mr. Pancha was
promoted to Executive Vice President. Prior to Informatica, Mr. Pancha
spent eight years in various development and management positions at Oracle.
Mr. Pancha holds a B.S. degree in electrical engineering from Stanford
University and an M.S. degree in electrical engineering from the University of
Pennsylvania.
Mr. Chong joined Informatica
in October 1997 with responsibilities overseeing product management for
Informatica’s flagship product PowerCenter. In February 2005, Mr. Chong
became Vice President of Product Marketing. In January 2007, Mr. Chong was
promoted to Senior Vice President and General Manager for Informatica’s Data
Quality Business Unit. In January 2010, Mr. Chong was promoted to Executive Vice
President of Data Quality. From December 1995 to September 1997 he worked at an
Internet advertising startup, NetGravity. From September 1989 to December 1995,
Mr. Chong had various product management roles at Oracle Corporation within the
Oracle Tools Division. Mr. Chong holds both an M.S. degree and a B.S. degree
from MIT’s Department of Electrical Engineering and Computer
Science.
Information
with respect to our Directors, our Code of Business Conduct, and corporate
governance matters is included under the caption “Proposal One —
Election of Directors” in the Proxy Statement for the 2010 Annual Meeting, which
proxy statement will be filed within 120 days of our fiscal year ended
December 31, 2009 (the “2010 Proxy Statement”), and is incorporated herein
by reference. Information regarding delinquent filers pursuant to Item 405
of Regulation S-K is included under the caption “Section 16(a)
Beneficial Ownership Reporting Compliance” in the 2010 Proxy Statement and is
incorporated herein by reference.
ITEM 11. EXECUTIVE
COMPENSATION
The
information required by this item is included under the captions, “Election of
Directors — Director Compensation” and “Executive Officer Compensation” in
the 2010 Proxy Statement and is incorporated herein by reference.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
information required by this item is included under the captions “Security
Ownership of Principal Stockholders and Management” and “Equity Compensation
Plan Information” in the 2010 Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information required by this item is included under the captions “Transactions
with Management” and “Election of Directors” in the 2010 Proxy Statement and is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
The
information required by this item is included under the caption “Ratification of
Appointment of Independent Registered Public Accounting Firm” in the 2010 Proxy
Statement and is incorporated herein by reference.
ITEM 15. EXHIBITS and FINANCIAL
STATEMENT SCHEDULES
(a) The
following documents are filed as part of this Annual Report on
Form 10-K:
1. Consolidated Financial
Statements:
Reference
is made to the Index to consolidated financial statements of Informatica
Corporation under Item 8 of Part II hereof.
2. Financial Statement Schedule:
The
following schedule is included herein:
Valuation
and Qualifying Accounts (Schedule II)
All other schedules
are omitted because they are not applicable or the amounts are immaterial or the
required information is presented in the consolidated financial statements and
notes thereto in Part II, Item 8 above.
Schedule II —
Valuation and Qualifying Accounts
(In
thousands)
|
Description
|
Balance
at
Beginning
of Period
|
Charged
to
Costs
and
Expenses
|
Acquisitions
|
Deductions
|
Balance
at
End
of Period
|
|||||||||||||||
|
Provision
for Doubtful Accounts:
|
||||||||||||||||||||
|
Year
ended December 31,
2009
|
$ | 2,558 | $ | 320 | $ | 908 | $ | (332 | ) | $ | 3,454 | |||||||||
|
Year
ended December 31,
2008
|
$ | 1,299 | $ | 1,268 | $ | 49 | $ | (58 | ) | $ | 2,558 | |||||||||
|
Year
ended December 31,
2007
|
$ | 1,666 | $ | 215 | $ | (468 | ) | $ | (114 | ) | $ | 1,299 | ||||||||
3. Exhibits
See
Exhibit Index immediately following the signature page of this
Form 10-K.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
February 26,
2010
| INFORMATICA CORPORATION | |||
|
|
By:
|
/s/ SOHAIB ABBASI | |
|
Sohaib
Abbasi
|
|||
|
Chief
Executive Officer, President, and
|
|||
|
Chairman
of the Board
|
|||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
| Signature | Title |
Date
|
||
|
/s/ SOHAIB
ABBASI
|
Chief
Executive Officer, President, and
Chairman
of the Board of Directors
(Principal Executive
Officer)
|
February
26, 2010
|
||
|
Sohaib
Abbasi
|
||||
|
/s/ EARL FRY
|
Chief
Financial Officer, Executive Vice
President,
and Secretary (Principal
Financial and Accounting
Officer)
|
February
26, 2010
|
||
| Earl Fry | ||||
|
/s/ David
Pidwell
|
Director
|
February
25, 2010
|
||
|
David
Pidwell
|
||||
| /s/ Mark Bertelsen |
Director
|
February
25, 2010
|
||
| Mark Bertelsen | ||||
| /s/ Mark Garrett |
Director
|
February
25, 2010
|
||
|
Mark
Garrett
|
||||
| /s/ Gerald Held |
Director
|
February
25, 2010
|
||
|
Gerald
Held
|
||||
| /s/ Charles Robel |
Director
|
February
25, 2010
|
||
|
Charles
Robel
|
||||
| /s/ Brooke Seawell |
Director
|
February
25, 2010
|
||
|
Brooke
Seawell
|
||||
| /s/ Geoff Squire |
Director
|
February
25, 2010
|
||
|
Geoff
Squire
|
||||
| /s/ Godfrey Sullivan |
Director
|
February 25, 2010 | ||
|
Godfrey
Sullivan
|
||||
INFORMATICA
CORPORATION
EXHIBITS TO
FORM 10-K ANNUAL REPORT
For
the year ended December 31, 2009
|
Exhibit
Number
|
Document
|
|
2.2
|
Agreement
and Plan of Merger dated as of January 28, 2010 by and among
Informatica Corporation, Sputnik Acquisition Corporation, Siperian, Inc.,
Investor Growth Capital as Stockholders’ Representative solely for
purposes of Section 6.5 and Articles VII, VIII and IX, and U.S. Bank
National Association as Escrow Agent solely for purposes of Articles VII,
VIII and IX (incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K filed on January 28, 2010,
Commission File No. 0-25871).
|
|
2.3
|
Stock
Purchase Agreement for the sale and purchase of the entire issued share
capital of Identity Systems, Inc. dated as of April 17, 2008
(incorporated by reference to Exhibit 2.1 to the Company’s Quarterly
Report on Form 10-Q filed on August 7, 2008, Commission File
No. 0-25871).
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of Informatica Corporation
(incorporated by reference to Exhibit 3.2 to Amendment No. 1 of
the Company’s Registration Statement on Form S-1 (Commission File
No. 333-72677) filed on April 8, 1999).
|
|
3.2
|
Certificate
of Amendment to the Company’s Amended and Restated Certificate of
Incorporation to increase the aggregate number of shares of the Company’s
common stock authorized for issuance from 100,000,000 to
200,000,000 shares (incorporated by reference to Exhibit 3.4 to
the Company’s Quarterly Report on Form 10-Q filed on August 14,
2000, Commission File No. 0-25871).
|
|
3.3
|
Certificate
of Designation of the Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Informatica Corporation (incorporated by
reference to Exhibit 3.5 to the Company’s Registration Statement on
Form 8-A filed on November 6, 2001, Commission File
No. 0-25871).
|
|
3.4
|
Amended
and Restated Bylaws of Informatica Corporation (incorporated by reference
to Exhibit 3.4 to the Company’s Annual Report on Form 10-K filed
on February 28, 2008, Commission File
No. 0-25871).
|
|
3.5
|
Certificate
of Amendment of Bylaws of Informatica Corporation (incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on
Form 8-K filed on January 29, 2008, Commission File
No. 0-25871).
|
|
4.1
|
Reference
is made to Exhibits 3.1 through 3.5.
|
|
4.2
|
Preferred
Stock Rights Agreement, dated as of October 17, 2001, between
Informatica Corporation and American Stock Transfer &
Trust Company (incorporated by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form 8-A filed on
November 6, 2001, Commission File
No. 0-25871).
|
|
4.3
|
Indenture,
dated March 13, 2006, between the Company and U.S. Bank National
Association (incorporated by reference to Exhibit 4.1 of the
Company’s Current Report on Form 8-K filed on March 14, 2006,
Commission File No. 0-25871).
|
|
4.4
|
Form
of 3% Convertible Senior Notes due 2026 (incorporated by reference to
Exhibit A to Exhibit 4.1 of the Company’s Current Report on
Form 8-K filed on March 14, 2006, Commission File
No. 0-25871).
|
|
10.1*
|
Company’s
2000 Employee Stock Incentive Plan, as amended (incorporated by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
filed on August 8, 2001, Commission File
No. 0-25871).
|
|
10.2*
|
Form
of Indemnification Agreement between the Company and each of its executive
officers and directors (incorporated by reference to Exhibit 10.6 to
Amendment No. 1 of the Company’s Registration Statement on
Form S-1 (Commission File No. 333-72677) filed on April 8,
1999).
|
|
10.3*
|
Company’s
1996 Flexible Stock Incentive Plan, including forms of agreements
thereunder (incorporated by reference to Exhibit 10.10 to the
Company’s Registration Statement on Form S-1 (Commission File
No. 333-72677) filed on February 19, 1999).
|
|
10.4*
|
Company’s
1999 Stock Incentive Plan, as amended (incorporated by reference to
Exhibit 10.4 of the Company’s Annual Report on Form 10-K filed
on February 28, 2008, Commission File
No. 0-25871).
|
|
10.5*
|
Company’s
1999 Employee Stock Purchase Plan, as amended, including forms of
agreements thereunder (incorporated by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q filed on May 9,
2006, Commission File No. 0-25871).
|
|
10.6*
|
Company’s
1999 Non-Employee Director Stock Incentive Plan (incorporated by reference
to Exhibit 10.13 to Amendment No. 1 of the Company’s
Registration Statement on Form S-1 (Commission File
No. 333-72677) filed on April 8,
1999).
|
|
Exhibit
Number
|
Document
|
|
10.7*
|
Company’s
2009 Equity Incentive Plan (incorporated by reference to Exhibit 4.4 to
the Company’s Registration Statement of Form S-8 filed on May 15, 2009,
Commission File No. 0-25871).
|
|
10.8*
|
Company’s
2009 Equity Incentive Plan Stock Option Award Agreement and Notice of
Stock Option Award (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q filed on August 6, 2009, Commission File
No. 0-25871).
|
|
10.9*
|
Company’s
2009 Equity Incentive Plan RSU Award Agreement and Notice of RSU Award
(incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form
10-Q filed on August 6, 2009, Commission File
No. 0-25871).
|
|
10.10*
|
Siperian,
Inc. 2003 Equity Incentive Plan (incorporated by reference to Exhibit 4.5
to the Company’s Registration Statement of Form S-8 filed on February 11,
2010, Commission File No. 0-25871).
|
|
10.11
|
Lease
Agreement regarding Building 1 Lease, dated as of February 22, 2000,
by and between the Company and Pacific Shores Center LLC (incorporated by
reference to Exhibit 10.14 to the Annual Report on Form 10-K
filed on March 30, 2000, Commission File
No. 0-25871).
|
|
10.12
|
Lease
Agreement regarding Building 2 Lease, dated as of February 22, 2000,
by and between the Company and Pacific Shores Center LLC (incorporated by
reference to Exhibit 10.15 to the Annual Report on Form 10-K
filed on March 30, 2000, Commission File
No. 0-25871).
|
|
10.13*
|
Description
of management arrangement with Earl E. Fry (incorporated by reference to
Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q
filed on November 13, 2002, Commission File
No. 0-25871).
|
|
10.14*
|
Amendment
to 1999 Non-Employee Director Stock Incentive Plan (incorporated by
reference to Exhibit 10.21 to the Company’s Quarterly Report on
Form 10-Q filed on August 7, 2003, Commission File
No. 0-25871).
|
|
10.15*
|
Employment
Agreement dated July 19, 2004 by and between the Company and Sohaib
Abbasi (incorporated by reference to Exhibit 10.26 of the Company’s
Quarterly Report on Form 10-Q filed on August 5, 2004,
Commission File No. 0-25871).
|
|
10.16
|
Lease
Agreement dated as of October 7, 2004, by and between the Company and
Seaport Plaza Associates, LLC (incorporated by reference to
Exhibit 10.28 of the Company’s Annual Report on Form 10-K filed
on March 8, 2005, Commission File
No. 0-25871).
|
|
10.17*
|
Form
of Executive Severance Agreement dated November 15, 2004 by and
between the Company and each of Earl E. Fry and Girish Pancha
(incorporated by reference to Exhibit 10.29 of the Company’s Annual
Report on Form 10-K filed on March 8, 2005, Commission File
No. 0-25871).
|
|
10.18*
|
Offer
Letter dated January 4, 2005, by and between the Company and Paul J.
Hoffman (incorporated by reference to Exhibit 10.31 of the Company’s
Quarterly Report on Form 10-Q filed on May 9, 2005, Commission
File No. 0-25871).
|
|
10.19*
|
Executive
Severance Agreement dated January 4, 2005 by and between the Company
and Paul J. Hoffman (incorporated by reference to Exhibit 10.32 of
the Company’s Quarterly Report on Form 10-Q filed on May 9,
2005, Commission File No. 0-25871).
|
|
10.20*
|
Description
of 2010 Bonus Plan (incorporated by reference to the Company’s Current
Report on Form 8-K filed on February 1, 2010, Commission File
No. 0-25871).
|
|
10.21*
|
Form
of Amendment to Executive Severance Agreement dated January 30, 2008
by and between the Company and each of Earl E. Fry, Paul J. Hoffman and
Girish Pancha (incorporated by reference to Exhibit 10.20 of the
Company’s Annual Report on Form 10-K filed on February 28, 2008,
Commission File No. 0-25871).
|
|
10.22*
|
Description
of amendments to Executive Severance Agreements by and between the Company
and each of Earl E. Fry, Girish Pancha and Paul J. Hoffman (incorporated
by reference to the Company’s Current Report on Form 8-K filed on
February 4, 2008, Commission File
No. 0-25871).
|
|
10.23*
|
Company’s
Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on May 29, 2008, Commission File
No. 0-25871).
|
|
10.24*
|
Amendment
to Sohaib Abbasi’s Employment Agreement dated December 31, 2008 by
and between the Company and Sohaib Abbasi (incorporated by reference to
Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed
on February 26, 2009, Commission File
No. 0-25871).
|
|
Exhibit
Number
|
Document
|
|
10.25*
|
Form
of Amendment to Executive Severance Agreement dated December 31, 2008
by and between the Company and each of Earl E. Fry, Paul J. Hoffman and
Girish Pancha (incorporated by reference to Exhibit 10.21 to the
Company’s Annual Report on Form 10-K filed on February 26, 2009,
Commission File No. 0-25871).
|
|
21.1
|
List
of Subsidiaries
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm.
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
____________
|
*
|
Indicates
management contract or compensatory plan or
arrangement.
|
97